ThinkBusiness Today - July 4th

Nigeria’s External Reserve: The struggle with weak crude oil output and a lack of foreign direct investment (FDI).

E kaaro o, Ututu Oma, Barka da Safiya - Good morning, and a warm welcome to ThinkBusiness Nigeria, your Monday – Friday dose of commentary, contexts, and insights on business and economic news that matter to you.

Why is it so difficult to build trust in Nigeria? No, we are not worse than many other countries. We just need to be patient and thorough. See my thoughts on the ongoing palaver of the young girl accused of falsifying her Joint Admissions Matriculation Board (JAMB) results below. I am not concluding either way, I am just encouraging us to look at it differently.

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Markets

  • Not satisfied with breaking the 60,000-barrier last week, first time since 2008 the All-Share Index (NGX-ASI) recorded an increase of 1.61%, closing at 61,949.24 points, showing a week gain of 4.62%, a four-week gain of 11.08%, and an overall year-to-date gain of 20.87%. Top gainers include Eterna (10%), NGN 23.10 per share, Fidelity Bank (+10%), University Press (+10%), and Meyer (+10%).

  • On Monday, oil prices experienced a 1% decline due to concerns regarding the global economy's slowdown and potential interest rate hikes in the United States. These worries outweighed the positive impact of supply cuts announced for August by leading oil exporters, namely Saudi Arabia and Russia. Brent crude futures settled down by 1%, representing a decrease of 76 cents, with a closing price of US $74.86 per barrel. Similarly, U.S. West Texas Intermediate crude settled down by 1.2%, or 85 cents, closing at US $69.79.

  • The Naira experienced appreciation in both the I & E and the street market. At the I & E window, the Naira appreciated significantly by 3.61% and closed at N741.5. Similarly, on the streets, the Naira appreciated by a marginal 0.04%, reaching N773.00

  • On Monday, U.S. natural gas futures experienced a decline of over 3% due to forecasts indicating slightly lower temperatures in the upcoming week. The front-month gas futures for August delivery on the New York Mercantile Exchange fell by 9.2 cents, representing a decrease of 3.4%, and settled at US $2.704 per million British thermal units (mmBtu).

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National Headlines

  • Taxes for All – Our democracy is evolving and can be enduring. To be enduring, it requires that everyone contributes to the common purse. Yesterday, Federal Inland Revenue Service (FIRS) introduced VAT direct initiative, aimed at collecting VAT from the informal sector. It makes sense to look in that area, though I must quickly concede it’s going to be complex. It plans to work with the Market Traders Association of Nigeria for this purpose. It’s a good start and can be improved. First, start with sensitization and documentation of the businesses themselves. Second, encourage a documentation and receipt culture, like in many other countries. Third, recognize they need support and help, especially with numerous illegally taxes they already pay to “non state” actors. Doing the utmost for them will be a platform for a good social contract.

  • Dollar to Naira – GTB, one of Nigeria’s largest banks, and one of the most innovative, started allowing its customers to change US $ in their domiciliary accounts to Naira. Great. I believe other banks will follow suit. It makes sense. The aggregation of all CBN’s foreign exchange transactions into the I & E will eventually correct two anomalies in Nigeria’s banking system. They are the preponderance need for every Nigerian to have a domiciliary account. This will take time because of current price instability. US $ is a store of value in that respect. The second, which is the need to withdraw cash from the bank and go to the street will reduce dramatically in the next coming weeks when all banks follow GTB’s lead. Aboki’s business is under threat.

  • Nigeria reserves down by US $2.85 billion in H1 2023 – Nigeria’s external reserves fell by $2.85bn in the first half of 2023, figures obtained from the Central Bank of Nigeria have revealed. January 3rd , Nigeria had reserves of US $37.07 billion, but by the end of June, it was US $34.22bn (See Analysis Below).

  • Ejikeme Mmesoma – I believe you know her story but perhaps not her name. Ejikeme Mmesoma is the young girl accused of falsifying her result by the Joint Admissions Matriculation Board (JAMB). The girl has strenuously denied it. I have read most of the stories and I am just thinking if there could be an honest error here. In today’s world, we are so quick to judge and condemn, responsible for many mob killings and social media “killings”. But can we just step back, be patient and thorough, and most times, the truth will eventually be revealed.

Global Headlines

  • Canal + and DSTV – Canal + has grown its shareholding in DSTV from 6.5% in 2020 to 31.7%. if it acquires up to 35%, it will trigger takeover rules, according to South Africa law, BusinessDay South Africa reported. Canal + is a premium television channel part of the French mass media holding company Vivendi. In 2013, it acquired the TV rights to the premiership and launched a Pan African TV in 2014. DSTV is the largest satellite operator in Africa, owned by Multichoice. The attraction of DSTV should be clear. Canal + is strong in French speaking African countries. Acquiring Multichoice and DSTV will give it a stronghold in the two largest economies in Africa – Nigeria and South Africa.

  • Indian’s Bank enters the top 10 global banks for the first time – Effective July 1, India’s HDFC Bank, a private lending bank completed the takeover of the country’s largest mortgage lender HDFC (Yes, same initials but different banks). The combined entity now has a market capitalisation of US $172 billion and become the fourth largest bank by market capitalization in the world, after JP Morgan Chase, Industrial and Commercial Bank of China and Bank of America. It is the first time an Indian bank will be in that position, reflecting the recent superior economic growth and performance in the country in the last decade plus. The expectation is that India will overtake Japan and Germany to become the third largest economy in the world at the end of this decade.

  • Other global economic and business stories – Mexico received US $5.7 billion on remittances in May despite stronger Peso of 13% against the US $ this year. In Indonesia, inflation eased to 3.2%, after a peak of 6% September 2022, and now within the authority’s target. Meanwhile, manufacturing declined in the US, according to survey by the Institute for Supply Management in the country. Finally, in Australia, following the investigations into the leak of government tax plans, 8 partners have been fired from the top accounting firm.

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News Analysis

Nigeria’s external reserve declined by about US $2.8 billion in the first half of 2023 as Nigeria continues to struggle with weak crude oil output and a lack of foreign direct investment (FDI). The external reserves opened the year at about US $37 billion but have dropped to about $34.1 billion as of June 2023. This is the largest half-year decline since 2015. In that year, external reserves fell from $34.4 billion at the end of the year to $28.1 billion by the end of the first six months in June 2015.

Nigeria’s Foreign Reserves in US $ Billions

Source: CBN

In the last month, the external reserve, which stood at $35 billion as of May 30th, has declined to $34.1 billion, a reflection that the demand for Naira is still weak despite two major macroeconomic reforms in the period. The country's external reserves have experienced a continuous decline this year, mainly due to weak foreign direct investment of US $1.57 billion in Q1 2023, crude oil losses reaching as low as 1.18 mbpd in May 2023.

This Week

  • Korea inflation rate for June is expected to be released today Tuesday 4th July, 2023 while Mexico inflation report for June to be released on Friday, 7th July, 2023.

  • The United State Unemployment rate is expected to be released on Friday 7th July 2023.

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