ThinkBusiness Today - May 17th

E kaaro o, Ututu Oma, Barka da Safiya – Good morning, welcome to ThinkBusiness Nigeria.

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As the President returned to Nigeria after a two week stay in the UK, it is one of his ministers that grabbed the headlines yesterday.

Olorunnimbe Mamora, the minister for science, technology, and innovation since July 2022, was widely reported, saying that Nigeria should ban the importation of goods that it can produce.

https://punchng.com/ban-import-of-goods-nigeria-can-produce-mamora-urges-fg/, https://tribuneonlineng.com/ban-import-of-goods-nigeria-can-produce-locally-mamora-tells-fg/, https://dailytrust.com/govt-needs-to-ban-foreign-goods-nigerians-can-produce-mammora/, https://www.thisdaylive.com/index.php/2023/05/16/mamora-canvasses-ban-on-foreign-goods-nigerians-can-produce-locally/,

According to the reports and the assumptions underlying it, and this is not new, successive government officials like Mamora continue to believe that the route to economic independence and prosperity is to simply ban importation, despite that the economic history of the world have ample evidence that trade is one of the surest route to growth and development. But it is this populist mindset, as displayed by Mamora, that continue to obscure our government official’s laziness and mediocrity in growing the Nigerian economy and competing in the global economy. Just imagine other countries say than ban the importation of our music, arts, oil, gas, and agricultural products?

According to the reports, he spoke about lack of investors for Nigeria’s innovation. Where are those innovations? Whose responsibility is it to market them to investors? As I wrote here about two weeks ago, the same government has abandoned dried fish farmers after the ban by the US in 2018. It is the same government that promised the production of pencil. Mr. Minister, the alternative to ban and associated poverty in Nigeria is to embark on a serious and coherent trade policy design, accompanied by steady and excellent execution by all relevant government departments.

I hope the incoming President and his administration know this.

Markets

• The benchmark NGX All-Share Index (ASI) climbed 188.04 (0.36%) points to close at 52,419.33, representing a 1-week loss of 0.35%, a 4-week gain of 0.91%, and an overall year-to-date gain of 2.28%. Key share price movement included Nigerian Breweries (9.97%), Transcorp (7.75%), AccessCorp (1.5%), PZ (4.4%) and Zenith (1.45%).

• Oil futures dipped on Tuesday as weaker-than-expected economic data in China and the US offset a forecast of higher global demand from the International Energy Agency (IEA). Oil Prices plummet by 0.54% to US$74.84 and this moderated the year-to-date decline of 12.91%

• The Naira depreciated at the parallel market by 0.40% to close at N745/$. It appreciated slightly by 0.07% at I & E window, closing at N464.67.

• Talk of output cuts is beginning to influence trading in US natural gas, which rose almost 3% on Tuesday, nearing the trigger for what could be an extended rally. The gas future was up by 2.61%, settled at US$2.44

• GCR Ratings, an affiliate of Moody’s Investors Service, has affirmed the national scale financial strength rating of A+ (NG) with a stable outlook for Custodian Life Assurance Limited.

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National Headlines

• The race for Senate Presidency – Zamfara State’s former governor, Abubakar Yari has refused to concede to the party’s leadership choice of Godswill Akpabio and says he will contest the position. He dismissed the religious imbalance that his Senate Presidency will mean for the nation and the party. With the incoming President and his Vice Muslims, Yari’s Senate Presidency will mean for the first time in Nigeria’s history, number 1 – 3 positions in the country are occupied by those from the same religion. Though a first-time senator, Section 50 of the constitution of Nigeria 1999 (as amended), allows him to contest for the position.

• Diplomatic (In)security – If there was a need for any reminder of large pockets of insecurity locations in Nigeria, we were reminded again yesterday. From available reports, diplomatic personnel on medical and humanitarian services to Anambra State were attacked and killed. Attacks like this continues to reinforce the need for improved security of lives in the country and I expect it will be a major focus of the incoming President.

Global Headlines

• Escalation of Russia / Ukraine war – The Russian / Ukraine war escalated yesterday, with reports of “longest and loudest” shelling in Kyiv, according to Al Jazeera.

• G7 meeting and the US debt ceiling – The meeting of the leaders of the G7 countries – US, UK, Japan, Canada, Italy, France, and Germany, this weekend is overshadowed by the lingering debt ceiling raise negotiations in the US. According to latest report, the US President Joe Biden may not attend or scale down the trip to complete the negotiations. It is widely acknowledged, both in the US and internationally, that a default on US debt that may follow the inability of the US congress to raise the debt ceiling before June 1^st may result in GDP decline as much as 4% and loss of 7 million jobs, according to CNBC.

• EU Crypto Regulation – European Union states on Tuesday gave the final nod to the world's first comprehensive set of rules to regulate crypto assets on Tuesday, piling pressure on countries such as the UK and the US to play catch up. They agreed on a requirement that from January 2026 service providers obtain the name of senders and beneficiaries in crypto assets, regardless of the amount being transferred, according to Reuters.

• UK unemployment rise – Britain’s unemployment rate unexpectedly rose to 3.9% in the three months to March as more people sought to get back into the jobs market, potentially easing concerns at the Bank of England about inflation pressures. Economists polled by Reuters had expected the rate to hold at 3.8%. The UK Office for National Statistics (ONS) said provisional data from Britain’s tax office showed the first fall in total payrolled employees in more than two years in April, down by 136,000 from March. Vacancies fell for the tenth time in a row in the three months to April, hitting their lowest since mid-2021.

News Analysis - The FGN yield Curve ahead of MPC meeting next week

The graph below shows the FBN yield in the last 8 years under President Buhari. The figure shows three interesting dynamics.  

FGN Bond Yield 2015 - 2023

First, between 2015 and 2017, FGN yield rose because of tightening financial conditions. Oil prices were low, government revenues squeezed, and inflation rising. As economic conditions started to ease from 2017, bond prices started to fall, though rose slightly again in 2018.

In that 2016 – 2019 dynamics, to stabilize the bond market and support the economy during this period, the Central Bank of Nigeria (CBN) implemented various measures. The CBN intervened by tightening monetary policy, raising interest rates to 14% in 2016 from 13% in 2015 and was stabilized till 2019. These actions aimed to curb inflation, stabilize the naira, and restore investor confidence. Despite the interventions, Nigeria's bond yields experienced significant volatility and fluctuations during the oil crash. Market sentiment, global oil prices, and domestic economic indicators played a crucial role in driving these fluctuations. The average yield for 2015 stood at 10.5% but oscillated to about 16.5% at the end of 2017.

The dynamics around the Covid – 19 pandemic was different. The CBN cut rate from 14% to 11.5%, while yield hit the lowest in sept/Nov 2020 of 4%, reflecting the most dramatic increases in quantitative easing and CBN’s fiscal support. As CBN maintained the rate through 2021, the bonds market gradually picked up and rose to as high as 12% in Jan 2022 before the Ukraine and Russia war.

The current rise in yield reflects tightening financial conditions for the government and rise in interest rates, following the Russia / Ukraine war last year. Between March 2022 and date, the CBN Monetary Policy committee has hiked rate 5 times from 11.5% to 18%. Thus, the bond yield increased dramatically from average of 10.6% in May 2022 to 14.49% in May 2023.

This Week

• 21^st Africa Business Summit organized by London Business School Africa Club holds on Saturday 20 May 2023. The theme of the 20th Summit is The Future is African. The Summit will emphasize Africa’s major transformation in partnership with the rest of the world, opening up massive investment opportunities and providing innovative solutions.