ThinkBusiness Today - June 28th

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.

A very warm Eid El Kabir greetings and celebrations to all Muslim readers. As you commemorate Prophet Abraham’s willingness to sacrifice everything for God, may be the peace of Allah be with you all.

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Markets

• Equity markets have started to anticipate Q2 2023 results. Benchmark NGX All-Share Index (ASI) increased by 770.65 (1.3%) points to close at 60,109.41, representing a 1-week gain of 1.69%, a 4-week gain of 13.47%, and an overall year-to-date gain of 17.28%. Key share price movement include that of TRANSCOHOT (+9.97%), ETERNA (+9.77%), GTC (+5.2%), ZENITH (+4.62%), DANGSUGAR (+4.38%), TOTAL (+4.17%), ACCESSCORP (+3.61%), SEPLAT (+2.93%) and MTNN (+2.77%).

• Oil prices fell on Tuesday morning as markets continued to focus on sluggish U.S. demand despite geopolitical uncertainty in Russia and promises of more robust economic stimulus measures from China. Brent crude futures were down US $1.31, or 1.77% at US $72.87 a barrel US West Texas Intermediate crude (WTI) was down US $1.15 cents, or 1.66%, at $68.22.

• Naira slightly appreciated at the I & E window by 0.65% to close at N763 but depreciated at the street market, down 0.13% to N773.5.

• Benchmark natural gas prices continued to rise early on Tuesday as weather forecasts suggest that most of northwest Europe, the biggest consumers of gas, will see a hotter-than-usual start to the summer, at least until the middle of July. Natural gas price futures surged by 0.04% closed at US$2.79

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National Headlines

• ThinkBusiness Breakfast Meeting June – ThinkBusiness had its inaugural breakfast meeting at the Capital Club, Lagos, yesterday. With the theme, ‘new government, new opportunities’, I was delighted to be joined by Ola Williams, Nigeria’s Microsoft CEO and Jude Chiemeka, Divisional Chief at the NGX. I gave a presentation on the five models of fiscal stability for investment, growth, and jobs – removal of fuel subsidy, deal with fiscal deficits and debts, deal with crude oil losses, keep the Finance Acts but make infrequent changes, and attract investments through assets sale. Ola Williams emphasized research and development in technology for us to effectively localize the adoption of existing global technologies, including Ai, while Jude Chiemeka stressed the collaboration between the government and capital market authorities in delivering improved liquidity in the markets.

• Proof of Ownership of Vehicles? – It was widely reported yesterday that the federal government has introduced an annual fee of N1,000 for proof of ownership certificate. According to the report, Lagos State will start the collection in July 2023. I understand the immediate response of those that see this as another money grab by the government, but for the moment, I am not sure many people even understand it. I don’t. The existing vehicle documents already have names. Does this certificate replace or it’s an addition to existing vehicle documentation. Does the money go to the Federal government or the State governments or it’s shared between them? Which authorities issues the certificate? Since Lagos State is going to start collection in July, must everyone comply from July or wait till it’s time for the renewal of their vehicle papers? The report says the certificate will help the government “guarantee the integrity” of vehicle registration but does not tell us how it’s different from what we have now.

• Closing gender gap financing – Following the recent assertion that Africa has a US $42 billion financing gap for women, many stakeholders are making efforts to close this gap and boost investment in women businesses, growth, and jobs. The World Bank Group is the latest, approving a US $500 million to help Nigeria drive women empowerment. It comes as report shows that banking credit to the government declined by 0.22% in May 2023 to N30.6 trillion while that of private sector increased by 5% to N44.2 trillion (See Analysis).

Global Headlines

• A day of Job Cuts in the US? – One can be forgiven if yesterday was designated a day to announce job losses. According to Reuters, KPMG US has announced it is laying off 5% of its workforce. It had 39,000 employees in the US as of September 2022. Also, Ford Motor will shed about 1,000 of its workforce Also, Illumina, a genetic sequencing equipment has started cutting jobs. Meanwhile, it is estimated that UBS will cut more than 50% of Credit Suisse workforce. These reports come amidst HBSC, one of world’s largest bank projecting that the US will enter recession this year, and Europe will follow next year. US recorded growth rate of 1.3% in Q1 2023, while the Fed paused rates at 5.25% in June.

• Inflation down in Canada – Canada's annual inflation rate came in at 3.4% in May, its slowest pace in two years, data showed on Tuesday. It weakens the case for another interest rate hike as soon as next month. The annual rate, which benefited from comparison to last May's strong price increases, is the slowest since June 2021 and broadly in line with the Bank of Canada's expectation that inflation will cool to around 3% by mid-year.

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News Analysis – Credit Rebalancing?

The data below shows the domestic credit to the private sector and to the government. While the total domestic credit has grown significantly by 76%, from N42.5 trillion in January 2021 to N74.9 trillion in May 2023, government has been taking the larger share of debt.

 Credit to the Government and the Private Sector January 2021 – May 2023

In the process, credit to the government has grown faster than that to the private sector. For instance, the credit to the government doubled to N24.7 trillion in Dec 2022 from N12.1 trillion in Jan 2021, while the credit to the private sector increased by 37.3% to N41.7 trillion, and its share of the total domestic credit increased from 29% in Jan 2021 to about 41% in May 2023. This crowding out and contributory macroeconomic instability scenario looks like it’s about to change as report shows that banking credit to the government declined by 0.22% in May 2023 to N30.6 trillion while that of private sector increased by 5% to N44.2 trillion.

This Week

• The NBS expected to release the data on Internally Generated Revenue at State Level (2022 FULL YEAR) on Wednesday 28^th June 2023 – this is not expected again, given the two-day holidays declared in respect of Eid El Kabir. 

• 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.