Government expenditure on infrastructure low

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Markets

• The benchmark NGX All-Share Index (ASI) shed 204.17 (-0.3%) points to close at 68,082.11, representing a week gain of 2.3%, 4-week gain of 4.41%, and an overall year-to-date gain of 32.84%. Morison Industries share price declined by 9.89% at NGN 2.55 per share, followed by Courteville Business Solutions (-7.69%), National Salt Company (-6.83%) and RT Briscoe (-6.82%)

• Oil prices edged down on Thursday as an uncertain outlook for demand from China overshadowed the latest U.S. government weekly report showing strong demand for crude. Brent crude futures fell 29 cents, or 0.87%, to US $89.81 a barrel while U.S. West Texas Intermediate crude (WTI) futures fell 17 cents, or 0.2% to US $87.36.

• Naira was mix at the I&E Window and on the streets. At the I&E exchange, Naira appreciated by 4.35%, closing at a rate of N736.62 to the US dollar. On the streets, Naira was down by 0.54%, reaching a value of N927.5 against to the US dollar.

• US natural gas futures hovered close to the US $2.6/MMBtu level, rebounding from the over-one-month low of $2.5/MMBtu as markets gauged evidence of lower supply against muted demand.

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National Headlines

• Africa Climate Summit – The Africa Climate Summit ended in Nairobi, Kenya yesterday. The first of its kind, the summit discussed extensively climate issues in Africa, including energy transition, climate funding and investments, and approaches. Nigeria’s Minister of State for Environment shared that Nigeria requires a US $10 billion investment for its energy transition plan and plans to raise capital through the Just Energy Partnerships (JET – Ps), a G7 initiative.

• Government expenditure on infrastructure low – Nigeria’s World Bank country director Shubham Chaudiri has reminded us that government’s expenditure on infrastructure is critically low. At this rate, it will take 300 years for the country to fully plug its infrastructure gap. There are many issues around the country’s failure on this. First, Nigeria’s taxation is currently about 6% of GDP, lower than the Africa average of 15%. The government seeks to triple it to 18% of GDP by 2026 by scrapping obsolete tax waivers that costs over N6 trillion. Second, when the government has borrowed extensively for the purpose of infrastructure, like under President Buhari, it is still difficult to see the correlation between the amount borrowed and infrastructure built.

Global Headlines

• G20 Summit starts in New Dehli – The US president heads to India for the G20 summit where the Russia / Ukraine war, the global economy and climate issues are expected to dominate conversations. The Chinese and Russian presidents, Xi Jinping and Vladmir Putin will be absent. As has been largely and widely reported, Nigeria, though not a member of the G20, has used the last few days before the actual meeting began for boosting its credentials as a great place to do business. While the twin reforms on subsidy and exchange rates has counted in the country’s favour, it takes a while for credibility to improve again after the disastrous 8 years of President Buhari.

• Apple shares fall on Chinese banned use for government workers – The FT and CNBC reported decline in Apple shares following report that the Chinese government is contemplating banning the use of the phone by its workers. That will lower demand in the world’s second largest economy but also raise geopolitical tensions between the two largest economies in the world. Meanwhile, latest report shows decline in Chinese exports and imports. Exports dropped 8.8% in August y / y, while imports contracted 7.3%.

Chart of the Week – Nigeria’s Exchange Rate Divergence between the I&E and the Streets Markets