ThinkBusiness Today - May 11th

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Aso Rock Musical Chair

In less than 20 days to the end of this administration, the news cycle is dominated by the Aso Rock “musical chair”. In some news, the present occupier is so tired of the place that he needs a week to see a dentist, while the incoming occupier needs some days off to rest before sitting on the hot seat, while some are in courts, laying claim to their rights to be on the seat.

Meanwhile, “like play, like play”, as my Warri people would say, as the present occupier is walking out of the door, there is a fresh request for US $800 million for the “poor” – conditional cash transfer. The loan will be consumed by 10.2 million poor and low-income households for a period of six months.

How were they determined and registered? Where is the data of the households? Why six months – do their poverty vanish after six months? I thought the loan was to cushion the effects of the removal of subsidy on the poorest households in the country.

Markets

• The benchmark NGX All-Share Index (ASI) dropped 396.10 (-0.75%) points to close at 52,209.31, representing a 4-week loss of 1.53%, but an overall year-to-date gain of 1.87%. This was caused by the decline in BUACEMENT (-8.02%), ACCESSCORP (-7.02%), CADBURY (-0.73%), DANGOTE SUGAR (-0.26%), ZENITH (-0.41%), STANBIC (-1.33%).

• Oil prices fell on Wednesday, ending a three-day rally, as an unexpected rise in U.S. oil inventories sparked demand concerns and investors awaited U.S. inflation data to gauge the next rate decision in the top oil consuming nation. Brent crude dropped 0.9%, to $76.75 a barrel. U.S. crude inventories rose by about 3.6 million barrels in the week ended May 5, while gasoline stockpiles rose by 399,000 barrels.

• The Naira strengthened at both the I & E window and the Parallel market. It increased by 0.11% at the I & E window, which closed at N462.25 and by 0.68% at the Parallel market, which closed at N745.

  Natural gas price edged lower on Wednesday as it declined by 3.4% yesterday after touching a fresh one-week high the previous session. The price action suggests an overnight shift in the weather forecasts or increased production, low gas demand combined with pipeline maintenance could be behind the move.

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National Headlines

• According to ThisDay reports, the federal government has approved N3.4 billion for the construction of a second runway at the Nnamdi Azikiwe International Airport (NAIA) in Abuja. When completed, NAIA will be the second airport with 2 runaways in Nigeria, following the Murtala Mohammed Airport (MMA) in Lagos. With two runways, the NAIA will have the ability to continue to receive flights and take off if incidents such as the crash landing of the Max Air happen again, while boosting the capacity to receive additional passengers. NAIA currently serves an estimated 6 million passengers a year, and it is the 14^th busiest airport in Africa.

• According to BusinessDay reports, foreign airlines operating in Nigeria have raised Rate of Exchange, (RoE) from N610 per dollar to N634 per dollar. This is a continuous fall out of about US $800 million trapped funds in the country. They have raised the rates three times since March 2023 – N460 / $, to N551 / $, to N610 / $, and now to N634 /$. This challenge will remain with continuous foreign exchange squeeze, and the near 100% one way application of Nigeria’s bilateral service agreements. The national carrier project floated by the government to respond to this challenge remains a pipe dream. The market for inbound and outbound international passengers is estimated at 3.5 million passengers a year.

• Weijie Chen, IMF’s deputy divisional chief has reminded Nigeria that it continues to face tightening financial conditions – rise in borrowing costs following rise in interest rates, tightening credit conditions, including Eurobonds, and the rise in the value of the US dollar. According to Bloomberg data on the site of the debt Management Office (DMO), Nigeria’s outstanding Eurobonds is about US $14 billion, with US $500 million due July thus year. The yield on the US $500 million is currently at 7.7%.

Global Headlines

• U.S. rate of inflation rose by 0.4% to 4.9% in April, but the pace of increase has slowed. China’s inflation rose by 0.1%, also in April to reach 0.7%. It is slowest rate of increase since September 2021. Inflation remains more than double the U.S. Federal Reserve bank's 2% target, which together with labor market resilience make it unlikely the Fed will start cutting rates this year as currently expected by financial markets.

• China will be the elephant in the room at this week's meeting of Group of Seven (G7) finance leaders, who will seek to diversify supply chains away from the country -- but also try to get Beijing's cooperation in solving global debt problems. The conflicting goals come on top of vulnerabilities the G7 rich democracies face due to their heavily reliance on China, which is the world's second-largest economy and the second biggest external holder of U.S. debt.

• Saudi Aramco has told customers in North Asia they will receive full volumes of crude oil that they have requested in June, several sources with knowledge of the matter said on Wednesday. But some Chinese refiners have requested for lower supply volumes in June. Saudi Aramco cut its official selling prices for all crude grades to Asia for June-loading cargoes amid lower refining margins. But the price reduction was less than the market expected.

News Analysis - Trapped Funds and Worsening International Investment Conditions

Foreign airlines operating in Nigeria have raised Rate of Exchange, (RoE) from N610 per dollar to N634 per dollar. This is continuous fall out of about US $800 million trapped funds in the country. They have raised the rates three times since March 2023 – N460 / $, to N551 / $, to N610 / $, and now to N634 /$. Foreign airlines trapped funds have increased from $744million in March to $802 million in April despite several means deployed to avoid collection of their funds in Naira, so as to reduce the amount of money trapped in Nigeria.

There are implications. First, the increasing backlog of blocked funds of international airlines continues to reflect downside risks to international investments in Nigeria, including the concession of some major airports in the country. Second, E-commerce that relies on aviation for speedy delivery is impacted by the trapped funds in Nigeria. Also, and it is already the case, Nigerians are paying far more for equivalent international travel tickets.

In matters of economic decisions, especially relating to investments, the greatest costs are usually the opportunity costs. Nigeria is increasingly losing its hard-earned credibility won in the 2000s and early 2010s for relatively macroeconomic stability, the minimization in investment distortions, and general sound macroeconomic management.

The new government will have to start all over again and grind to regain any sort of credibility before the investments will start to come in again.

The Week

• The Central Bank Nigeria (CBN) will issue a total of N143.98billion treasury bills on Thursday 11^th May 2023 as the same amount will be maturing the same day. Africa's largest economy's big bank disclosed this on Nigeria's treasury bills programme released on its website on Wednesday. The bills are divided into 91-days, 182-days, and 364-days raising N4.5 billion, N5.4 billion and N134 billion respectively. The bills are also a roll-over of maturing bills for the corresponding period.

• UK Q1’23 GDP growth is expected to be released on Wednesday 12^th May 2023.