3rd May 2023 Africa Markets Roundup
Markets % Change YTD (%) NGX ASI 52,296.48 -0.2% 2.04% Brent Crude Oil 75.24 -5.13% -12.52% Natural Gas 2.22 -4.14% -46.34% I&E FX Window 462.33 -0.07% -3.19% Parallel Market 733.00 0.36% 0.95% Gold 1982.35 1.73% 11.15% Cocoa 3,130.00 -2.19% 20.12%
2 May 2023 Africa Markets Roundup
Markets % Change YTD (%) NGX ASI 52,403.51 0.32% 2.25% Brent Crude Oil 79.15 -1.14% -7.87% Natural Gas 2.31 -4.18% -43.7% I&E FX Window 463 -0.22% -3.44% Parallel Market 735.67 0.45% 0.59% Gold 1982.35 -0.39% 9.27% Cocoa 3,200.00 0.82% 22.80%
Why Nigeria’s Revenue from Solid Minerals is miserable
The Nigerian Extractives Industry Transparency Initiative (NEITI) stated that Nigeria made only US $1.4 billion from solid minerals in 13 years, a miserable average of about US $100 million per year. This was said at the launch of the initiative’s 2022–2026 Strategic Plan in Abuja recently.
All three economic recessions in Nigeria’s history were under President Buhari
After leaving office in May, President Muhammadu Buhari has the honour of being just one of two people that ruled Nigeria in two different times – the other being President Olusegun Obasanjo. But there is a record that only he has – He is Nigeria’s only President that has presided over the country’s periods of economic recession – not one, not two, but three economic recessions in 1984, 2016 and 2020. After the National Bureau of Statistics (NBS) released the final GDP growth data before President Buhari left office on the 29th of May, it is symptomatic of his presidency that the Q1 2023 of 2.31%, compared to 3.52% in Q4 2022 was self-inflicted – cash crunch. Nigeria’s GDP and Oil Price Dynamics 2014 – 2023 From the data and graph above, President Buhari presided over an average quarterly growth rate of 1.3% in 8 years, compared to an estimated 2.4% annual growth rate in population. Every child born under President Buhari’s eight years in office was born in a poorer Nigeria than when he or she was conceived. The data also shows that President Buhari presided over two cycle of economic recessions – 20016 and 2020, both driven by declining oil prices. In 2016, the economy contracted by 1.6%, recording the first recession in the country since 1984. Therefore, Nigeria has recorded only three economic recessions since record began, and they have all been under President Muhammadu Buhari – what an economic record! The quarter-on-quarter growth gives a better description of the yoyo dynamics of growth under President Buhari. As depicted by the figure below, the M-shaped pattern of quarterly growth has not changed in the last 8 years. The Yoyo Nigeria’s Quarterly GDP Growth 2014 – 2023 Given the last 8 years, President Bola Ahmed Tinubu’s preoccupation is macroeconomic stability. The government is attempting to focus on credible measures and convince both domestic and international investors that Nigeria is open for business.
Dangote Refinery does not mean an end to subsidies
After the inauguration of the 650,000 barrels of crude oil daily refining capacity Dangote Refinery, it is widely reported that fuel production will commence August 2023. While production has not started as planned, the excitement from the government is palpable, at least for two major reasons. First, it will mean the preservation of the foreign exchange used in the importation of refined fuel. Second, it is expected that queues at the pumps across the country will be a thing of the past. However, for the average Nigerian, the thought is that this will also mean an end to the narratives by government officials that the government is subsidising the consumption of fuel. Unfortunately, it does not. The refinery is the largest single train in the world with capacity of 650,000 bpd. It has a 900 KTPA Polypropylene plant, and its 435-power plant can meet power requirements of all the South West States, excluding Lagos. When operational, the refinery can meet all of Nigeria’s domestic fuel needs, including AGO and aviation fuel. Dangote refinery would guarantee improved supply of petrol in Nigeria’s domestic market. On the target market and petroleum sufficiency, the refinery could meet 100 per cent of the Nigerian requirement of all liquid products, including gasoline (petrol), diesel, kerosene, and aviation jet, and would also have a surplus of each of these products for export which will enhance the inflow of foreign currency. Also, by reducing Nigeria’s reliance on imported petroleum products, the Dangote Refinery will enhance the country’s energy security. It will help stabilise domestic fuel supplies and reduce the vulnerability of the Nigerian economy to sudden shocks. Furthermore, the presence of the Dangote Refinery is expected to stimulate growth in the downstream oil sector in Nigeria. It will attract investments in related industries, such as petrochemicals and manufacturing, which rely on petroleum products as feedstock. This can lead to the development of ancillary industries and the creation of additional jobs. However, Dangote refinery will not guarantee a cheaper price or necessarily bring down the cost of fuel pump/retail price in Nigeria. Using the most basic template by the Petroleum Products Pricing Regulatory Agency (PPRA), the retail price of PMS includes four main components: The crude oil Cost, averaging US $72 and using the I&E exchange rate, freight cost, landing cost and Refining costs and profits. Using today’s international crude oil price, the average retail price with a Dangote refinery is estimated at N254 per litre, about N80 above the current average pump price. Source: The Petroleum Products Pricing Regulatory Agency (PPRA) The most important difference between imported fuel and the Dangote refinery fuel is the landing cost. Previously, Mele Kyari, the Chief Executive Officer (CEO) of the Nigerian National Petroleum Company (NNPC) Limited, said that Nigeria spends at least N13-N17 as landing cost on every litre of petroleum product imported. The devaluation of the naira against the dollar has, according to some insiders, pushed the cost to about N21. That will now be saved.
Meta launches Threads to compete with Twitter
Meta, the parent company of Facebook and Instagram has now launched Threads, to directly compete with Twitter. The number of those using Twitter has fallen, compared to 2022 by about 4%. It is expected to fall further to 335 million in 2024, according to Obelo. There are currently 2.35 billion monthly active Instagram users. While Instagram is largely visual based, Meta is banking on the possibility of a good chunk of Instagram users finding the option of text based microblogging attractive. In the first four hours after launch, over 5 million people had signed up to Threads. A day after the launch, Meta’s share price went up 4%, reaching the highest in 18 months. The launch of Threads is the greatest signal yet that the battle for platforms rages on. On the App Store, it is called ‘Threads, an Instagram app’, signaling that Meta will rely on its 2.35 billion monthly Instagram users, about 70 millionsof those in Africa as at 2022 to get the app going. It is also expected that people will be able to log in through their Instagram account. Threads will not only compete with Twitter, but also with Bluesky. Currently, Bluesky requires you to have an invite code to be able to join. In the last few months, deepening uncertainty about the direction of Twitter, have left many disillusioned. Twitter, established in 2006, had more than 100 million users by 2012 and became 10 of the most visited websites by 2013. By 2019, it had more than 330 million active users, though about 15% of that was estimated to be fake by 2020. Elon Musk acquired and gained control of Twitter October 2022 for US $44 billion. Before then, growth had slowed. What culminated in the purchase of Twitter was not a business motivated purchase but frustration about the platform’s commitment to free speech and democracy. So, he initially bought shares but was not allowed to join the board – poison pill. Since its purchase, Twitter, at best, has been characterised by volatility, and that is what has “annoyed” users and driven away advertisers. In the space of six months, Twitter has banned platform linkages, stopped tweet Bot working, removed legacy verification badges, and limited the number of tweets users can see. Unsurprisingly, Meta pounced and launched Threads, reaching almost 100 million users in 72 hours, all signing up through their Instagram accounts (the only way to sign up for now). However, the last few weeks has seen Twitter, now X bounced back with payments to content providers, a measure that has proved very popular. While platforms have always been powerful, incredible advancement in technology has made them even more powerful. Platforms (anywhere with the capacity to bring large ‘gathering’ of people) have always been there e.g., Coca Cola or Kodak advertising during world cups before any of these technology platforms started. Advancement in technology has also made competition very. Platform companies can compete faster and at a scale never seen before.
Price of Gold increased by 53% in 5 years but grow by 6% year to date
Over the past five years, the price of Gold has seen an increase of 53%. Starting from an average of US$1,240 in July 2018, it has climbed steadily to reach approximately US$1,900 in early July 2023. Gold Price in US $ July 2018 – Date Gold has exhibited a modest increase of approximately 6% year-to-date despite high inflation in many economies. But over the last five years, it has shown its resilience during a combination of rise in producer prices, money supply and bank deposits. Compared to other components of the Bloomberg Commodity index, gold has emerged as a top performer on an annualized basis. Gold is still expected to endure as the global economy moves past the Federal Reserve’s hawkish monetary stance, significant levels of uncertainty and volatility, and global weak growth. Data shows central banks in emerging markets (EM) are actively acquiring gold, driven by geopolitical risks and the trend of de-dollarization, supporting its trajectory for price appreciation, albeit potentially at a slower pace than previously witnessed. Notwithstanding, the market does not expect gold price to return to the peak of US $2074 of August 2020, given the interest rate dynamics today. In summary, the outlook for gold suggests a positive upward trend, albeit with a more gradual progression, as market conditions evolve, and the Federal Reserve’s monetary policies come into play.
Nigeria releases Surprising Inflation Numbers
Nigeria’s National Bureau of Statistics (NBS) released inflation figures for June yesterday, with surprising numbers after the removal of fuel subsidies at the start of the month. Inflation was 22.79% in June, a mere 0.38% from May figure of 22.41%, 4.19% points higher compared to last year. Though it is the sixth consecutive month of increases in inflation, and a 17 year high, and well beyond the 6% – 9% target of the Central Bank of Nigeria (CBN), it was widely expected that the impact of the removal of fuel subsidies that led to the increase in fuel prices by about 200% will be greater in the first month. Inflation Dynamics in Nigeria June 2022 to June 2023 While it was always expected that the shock may take 12 – 24 months before the shocks fully works itself through the price system, it was also expected that the first impact will be greater than what its reported. The three layers of impact are through transport and logistics, food prices, and then salary and wage adjustments. In the report released, food inflation accelerated to 25.25% in June compared to 24.82% in May 2023 while core inflation increased from 20.06% to 20.27% during the same period. Besides the removal of fuel subsidies in June, it was also expected that the inflation data would reflect the pressure occasioned by the Eidel-Kabir celebration and the planting season effect. Notwithstanding, there are still many dynamics ahead, following the removal of fuel subsidy. It is also possible that inflation was about to peak before the removal of fuel subsidy. In that context, the removal of fuel subsidy has merely triggered another round of increases in prices of goods and services and will reflect in the inflation data going forward. It may also reflect the weights in the data and especially that the impact on the other weights in the basket will become prominent in the coming months and not the initial impact. So, we expect inflation to remain elevated in the coming months but may not reach the 25% before the year end, which was consensus number.
Nigeria’s foreign reserves decline
According to data from the Central Bank, Nigeria’s external reserves have seen a decline from US $37 billion to US $33.9 billion as of July 2023, a decline of US $3.1 billion, following significant and rising macroeconomic risks – crude oil theft, weak foreign direct investment (FDI), and rising uncertainty. Meanwhile, demand and supply have remained inelastic, even after exchange rate adjustments while there are debt repayments, capital flights and continuous inflationary pressures. In the last two months, since the inception of the Tinubu administration on May 29th, 2023, external reserves have dropped by almost US $billion dollars. This decrease occurred despite efforts to unify the Naira’s exchange rates and implement a managed exchange rate float. The external reserve typically relies on funding from crude oil proceeds, external debts, and foreign investor inflows. This is the largest half-year decline since 2015 when the external reserves fell from US $34.4 billion at the year’s end of 2014 to $28.1 billion by the end of the first six months of June 2015, following dramatic declines in oil prices. Nigeria’s central bank attributes current decline in reserves to a lack of external debt financing. The country is unlikely to tap into the foreign debt market this year due to higher global interest rates, particularly affecting emerging market Eurobonds, though this has started to fall.
‘Security is affecting every area of our lives’: The Media is critical to awareness and solutions
In the last 15 years, security in Nigeria and West Africa started to receive considerable attention, following Boko Haram’s escalating atrocities in the North Eastern part of the country. At a point, this crisis threatened Nigeria’s indivisible existence since 1914. However, in the last decade, other dimensions have emerged in Nigeria’s worsening security situation, ranging from banditry in the North West, to terrorism, farmer herder clashes and banditry in the North Central and North East, while communal conflict, kidnaping and cult activities appear prevalent in South West and South South, and the South East faces violent secessionist struggle. It is this context and background that RDF strategies, with support from the Ford Foundation brought together top media personnel, business leaders, top security actors, civil society, and social media owners for a high-level workshop on insecurity in Nigeria and West Africa. As Catherine (Chichi) Aniagolu – Okoye, the regional director for Ford Foundation in West Africa summarised, “Ford Foundation is focused on challenging inequality in West Africa with a particular focus on natural resources and gender based violence, but we have increasingly realised how the issue of insecurity intersects with almost every aspect of life, from trade, free movement of people, gender equality, natural resources and climate change, education, to living standards and so on. Indeed, our most basic human rights are deeply impacted, and therefore the Foundation is also interested in intersectional solutions that help to improve collaboration between key actors in the ecosystem”. Not surprising, the conversations showed that the impact of insecurity is extensive. Often, there is the human angle of deaths, displacements and dislocations, abductions, and wealth losses; the business angle because of costs escalation associated with doing business, either in the locality, region, or industry affected; and the investment angle as the rising perception of insecurity only means declining investment attractiveness in the country. Coincidentally in the last decade also, insecurity stories, just like all other stories, are no longer the exclusive production of traditional media as it was in the past. Today, citizens journalism has led where traditional media used to lead. Social media now plays a huge role in the dissemination of insecurity stories, but often, sensational, without context, and no reference to data. Consequently, it creates panic and gaps between reality and perception. “The role of the media and the methodology has to be more thoughtful and considered”, says NkiruBalonwu, the convener of the parley, stressing, “therefore this high-level meeting is important. With increased security we unlock potential for greater socio-economic growth, along with greater opportunities for domestic and international business. Torealize this, collective action is necessary, and the media is one of the preeminent tools for inspiringbuy-in and driving action. The media plays a critical role in connecting all stakeholders, amplifying theright messaging for peacebuilding, and countering violent extremism, and providing needed platformsfor dialogue and improved understanding”. A first of its kind, RDF is already planning a series of these meetings. Ahead of the meetings, trying to build an effective coordination of the dissemination of stories and reporting of insecurity issues, it was clear that the greatest danger is distrust. It became obvious that the matter of distrust must be effectively dealt with if security personnel are going to trust the media and vice versa. While everyone called for deeper collaboration between security agencies and the media, improvement in the knowledge and capacity of the media, constant communication between the media and security agencies, it was equally understood that the bigger opportunity was in tackling the underlying root causes of insecurity including poverty, food insecurity, unemployment and youth disenfranchisement amongst others, and the gap in political leadership that must be filled as well.