ThinkBusiness Today - June 27th

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.

Yesterday, I joined Nigeria’s Employers’ Consultative Association (NECA) on its webinar – Government’s Policy Trust: Managing Socio-Economic Consequences for Business (Workers), Households and the Nation.

I reiterated the points I have made here before. Reforms are tough, rewards are not immediate, and it needs to be carefully balanced and sequenced. Second, PBAT’s reforms have two motivations – market determined policies and building stringer fiscal position. Finally, I added that the government needs to communicate its plans – it’s dangerous to keep quiet.

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Markets

• The equities market rebounded on Monday by 0.22%. The benchmark NGX All-Share Index (ASI) inched up 132.13 (0.22%) points to close at 59,338.76, a 1-week gain of 0.55%, a 4-week gain of 12.34%, and an overall year-to-date gain of 15.78%. Key share price movement include TRANSCOHOT (+10%), PZ (+9.26%), BERGER (+4.71%), GTCO (+3.97%) and ACCESSCORP (+2%).

• Oil prices rose on Monday after a revolt by Russian mercenaries over the weekend raised concerns about political instability in Russia and the potential impact on oil supply from one of the world's largest producers. Brent crude futures were up 5 cents, or 0.07% at US $74.11 a barrel U.S. West Texas Intermediate crude (WTI) was down 9 cents, or 0.13%, at US $69.07.

• The Naira slightly appreciated at the I & E window by 0.52% closed at N768.17 but depreciated at the street market, down 0.32% to N772.

• US natural gas futures surged above US $2.7/MMBtu, the highest in 15 weeks driven by a combination of diminished supply and increased demand. meteorological predictions of predominantly hotter-than-normal weather conditions spanning from June 24 to July 8 elevate the demand for power generation, particularly for air conditioning purposes.

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National Headlines

• Foreign Portfolio bets on new government – According to the NGX report on Domestic and Foreign Portfolio Investors’ Participation in Equity for May, it shows a massive 338% increase, ahead of the swearing in of a new President. In April, the share of FPI in the market was 4%. In the last 8 years, FPI declined dramatically, responding to three economic shocks, fixed exchange rates, and rising interest rates in major economies of the world that made Nigeria’s returns on investments relatively weak. But in May foreign investors raised their stake to N37.16 billion from N8.47 billion in April, representing a 338.72% increase.

• Rewriting history three weeks after leaving office – President Buhari’s former spokesman tweeted yesterday to explain why the former President did not remove fuel subsidies. Providing very lame excuses, blaming the party and then suggested it was on queue. I can understand the former President and his spokesman – after 8 years of catastrophic failure, it is troubling to see a new President carry out major reforms in just two weeks. Yes, it’s troubling for the legacy they are fighting so hard to protect. I hope I will not have to write about the 8 worst years of Nigeria’s history again soon.

• Much more than names – Yesterday, President Tinubu approved the renaming of 15 federal airports in the country after notable Nigerians. Names are important, and it is an honour to have such public places named after these individuals, most of them late. But what will be most important and of greater honour to them is how those properties and places are managed. When someone passes through Paris Charles De Gaulle airport, named after former President Charles de Gaulle, or Washington Dulles airport, named after John Foster Dulles, an influential US Secretary of State during the cold war, the names are honoured by the way the places are established, developed, and managed. Just as the Murtala Mohammed Airport is not something to proud off now, it rubs off on the name as well.

Global Headlines

•  Africa Fintech’s Future – A new report https://web-assets.bcg.com/66/7e/a36d7eab41e2b4b65c3e687a17f5/bcg-qed-global-fintech-report-2023-reimagining-the-future-of-finance-may-2023.pdf about global investment dynamics in fintech, has projected to become a US $1.5 trillion industry in by 2030. In the report, the hope for fintech in Africa is to leapfrog through the adoption of new technologies. Demographic shifts and earning power increases will deepen the need for financial access. In Nigeria, according to the report, 73% of adults have a smartphone, but mere 2% have credit cards. Those are the kind of gaps that fintech can plug.

• After Russia’s “calm”, the world averted oil price shock – After the rebellion by the Wagner mercenary group in Russia faded weekend, one of the greatest reliefs was in the global oil market. Any escalation of the rebellion would have raised concerns about production from Russia, one of the largest producers in the world, accounting for about 12% of production and exports, and has the 6^th largest oil reserves in the world. By the time market resumed on Monday, the rebellion had vanished. Meanwhile, according to CNBC reports, the secretary of the Organisation of Petroleum Exporting Countries (OPEC), General Haitham Al Ghais has projected that global oil demand will rise to 110 million barrels per day by 2045, up 23% from current levels.

News Analysis - Are Foreign Portfolio Investors back?

In May 2023, foreign portfolio investors increased their position in Nigeria's stock market by a staggering 650%. They are thought to have placed their bets on President Bola Tinubu's new administration, which took office at the end of the month, determined on a market, private sector focused development path.

The last few years have seen foreign investors complain about the inflexibility of the exchange rates, trapped funds, and stifled business environment in the country. They held 4% of the market as of the end of April 2023. Over time, the FPIs had been steadily declining. Foreign portfolio inflow peaked in November 2021 at N33.12 billion, but it steadily fell to just N3.67 billion in April 2023, showing a greater intensity of their activity. In anticipation of a Tinubu presidency, the story changed in May as foreign investors raised their stake to N27.51 billion from N3.67 billion in April, a 650% increase. Next month’s report will provide greater understanding of this dynamics.

Foreign Portfolio Investment Inflow in Billions of Naira

This Week

• The NBS is expected to release the data on Internally Generated Revenue at State Level (2022 FULL YEAR) on Wednesday 28^th June 2023

• United State and the United Kingdom is expected to release their second quarter GDP growth rate on Thursday 29^th June 2023 and Friday 30^th June 2023 respectively.

• Germany and Canada are expected to release their inflation reports for the month of May on Tuesday, 27^th June 2023.