ThinkBusiness Today - July 6th

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.

It is has now come to light that the Joint Admissions and Matriculation Board (JAMB) were right that Mmesoma Ejikeme’s result was different from what she had claimed. I hope this case will not be bungled. It is important to know how she came about the fake result, given that she tried to verify the result in the first place. So, it is possible that someone has “helped” her. That is, it is important to know if she was innocent or not.

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Markets

• The equities market rebounded Wednesday. NGX All-Share Index (ASI) increased by 808.77 (1.33%) points to close at 61,523.81, showing a week gain of 2.55%, a 4-week gain of 8.79%, and an overall year-to-date gain of 20.04%. Key share price movement include Learn Africa (+9.97%), Golden Guinea Breweries (+9.95%), Chellarams (+9.77%), John Holt (+9.62%), TRANSCOHOT (+8.95%), BUACEMENT (+9.44%), PRESECO(+7.73%), CONOIL (+5.68%) and ACCESSCORP (+4.37%),

• Brent crude oil prices were little changed on Wednesday. The Brent benchmark was up 45 cents, or 0.6%, at US $76.70 a barrel after falling more than US $1 in early trade.

• Naira displayed a mixed performance in the market. At the I & E window, there was a significant appreciation of 3.40%, closing at N742.31 against the US dollar. On the streets, Naira experienced a slight depreciation of 0.28%, reaching N775.67 against the US dollar.

• U.S. natural gas futures declined slightly by 0.04% to close at US $2.71, triggered by increased supply in the US, including the resumption of operations at the Freeport LNG export facility, a mild winter experienced in the northern hemisphere during 2022-23, and strong stockpiles in Europe.

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National Headlines

• Mmesoma Ejikeme’s Update – It is now clear Mmesoma Ejikeme did not score 362 in her Joint Admissions and Matriculation Board (JAMB) exam. She scored 249. Following that, JAMB has barred her for taking the exams for three years. What is not certain yet is whether she deliberately sought to commit fraud or there was an error on her part. JAMB acknowledged she made enquiries about what could be discrepancies in her result but did not receive any feedback or response until after she received a N3 million scholarship from Innoson Motors. In the whole story, I see two major errors. It became sensational before the investigations were completed. Second, there is grave distrust of Nigeria’s institutions and of ourselves. Consequently, we quickly judge before all points are established.

• President Tinubu and Nigeria’s Gas Development – As I said yesterday, President is keen on supporting Nigeria’s gas development. He has now given assurances of his backing to the ongoing development of the US $5 billion floating Liquefied Natural Gas (FLNG) project, linked to Yoho field, operated by NNPC – ExxonMobil JV in Akwa Ibom. The project is by UTM FLNG and is being financed with a US$2 billion phase 1 and US $3 billion phase 2 loans from the AFREXIM Bank. So far, after the company received its licence in 2021, it has already signed pre front end engineering design (FEED) agreement with Technip Energies of France, JGC Corporation of Japan, and Kellogg Brown and Root of the UK. When completed, expected to be in 2026, the project will have capacity to deliver 1.2 million metric tonnes per annum (mmtpa).

Global Headlines

• Meta launches Threads – As mentioned on Tuesday, Meta, the parent company of Facebook and Instagram has now launched Threads, to directly compete with Twitter. The number of those using Twitter has fallen, compared to 2022 by about 4%. It is expected to fall further to 335 million in 2024, according to Obelo. There are currently 2.35 billion monthly active Instagram users. While Instagram is largely visual based, Meta is banking on the possibility of a good chunk of Instagram users finding the option of text based microblogging attractive. In the first four hours after launch, over 5 million people had signed up to Threads. In view of the launch yesterday, Meta’s share price went up 4%, reaching the highest in 18 months.

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News Analysis – Nigerian Banks Operating Costs to Income High compared to others

Nigerian banks operating costs to income ratio is high, compared to many other countries. The ratio is a key performance indicator for efficiency of bank's operations by comparing its operating expenses to its income. A high operating cost to income ratio indicates that a significant portion of a bank's income is being utilized to cover operational expenses, impacting profitability and competitiveness. The data below shows the banks’ operating cost to income has increased from 66.87% in 2011 to 77.30% in 2022 and now at 70.60% May 2023.

Nigerian Banks’ Operating Cost – Income Ratio

Inter country comparison shows that this rate is high, compared to 23.5% in Turkey, 50.6% in Brazil, 41.0% in Malaysia, 62.0% in South Africa, 43.2% in Angola, 35.2% in Egypt, Kenya is 45.2 % and Ghana 46.1%.

Nigerian banks maintain physical branches that are fully supported by “private’ infrastructure. As of December 2021, there are 6, 918 bank branches in Nigeria, incurring substantial expenses in rent, utilities, staffing, and security. Cost of digitalization, given significant foreign currency element, is also driving up banks operating costs. Compliance with stringent regulatory frameworks also necessitates additional spending on governance, risk management, and compliance functions. Two measures can help bring down Banks’ operating costs – increasing digitalization and shared services.

The Week Ahead

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