Economy
Naira, Fuel Scarcity Sharply Weakens Nigerian Business Activity
By Aduragbemi Omiyale
For the first time in many months, the Nigerian business activity index fell into the negative region in February 2023 due to the scarcity of fuel and Naira in the financial system.
The Central Bank of Nigeria (CBN) redesigned the N200, N500, and N1,000 banknotes last year and gave Nigerians till January 31, 2023, to swap their old notes for the new ones.
However, after calls from various quarters, the deadline was shifted to February 10, 2023.
Two days before the expiration, three state governments went to the supreme court to stop the implementation of the policy designed to reduce the amount of cash in the system.
The apex bank asked the parties to maintain the status quo pending the determination of the matter, and before the presidential election last Saturday, many Nigerians and businesses found it difficult to get cash to carry out transactions.
In its Purchasing Managers’ Index (PMI) for February 2023, Stanbic IBTC Bank said it had a reading of 44.7 points compared with the 53.5 points achieved in January 2023.
Business Post reports that readings above 50.0 signal an improvement in business conditions in the previous month, while readings below 50.0 show deterioration.
In the report, it was observed that cash shortages across the Nigerian economy had a severe impact on the private sector midway through the first quarter of the year. Substantial declines were seen in both output and new orders, while firms scaled back their purchasing activity and employment.
Companies were also impacted by shortages of fuel, which added to price pressures and led to supplier delivery delays.
The 44.7 points recorded last month ended the 31-month sequence of expansion. The decline in operating conditions was the sharpest since the survey began in January 2014, excluding the opening wave of the COVID-19 pandemic in the second quarter of 2020.
The most severe impacts of cash shortages were seen with regard to output and new orders, which both fell substantially as customers were often unable to secure the funds to commit to spending.
The decline in new orders was the first since June 2020, while the fall in output ended a seven-month sequence of growth. In both cases, the reductions were the most pronounced in the survey’s history, apart from during the opening wave of the COVID-19 pandemic.
With new orders and output falling, companies reduced their input buying and staffing levels accordingly. The declines were the first in 32 and 25 months, respectively. The decrease in purchasing reflected not only a drop in customer demand but also difficulties for companies to find the funds to pay for items.
Alongside cash shortages, the private sector was also impacted by a scarcity of fuel in February. This had a notable impact on suppliers’ delivery times, which lengthened for the first time in close to six-and-a-half years and to the greatest extent since April 2016.
The slump in PMI shows that while the central bank has managed to reduce the amount of cash held outside the banking system to a record low, it has come at a cost to the economy.
“The lingering cash shortages will likely continue to dampen economic activities and could depress economic growth” this quarter, said the Head of Equity Research West Africa at Stanbic IBTC Bank, Muyiwa Oni, adding that the Nigerian economy could grow at 3 per cent in 2023 due to the challenges.
“Furthermore, persistent fuel shortages from the beginning of the year saw petrol pump prices increase, which both increased production costs for firms and led to supplier delivery delays. Sure, the lingering cash shortages will likely continue to dampen economic activities and could depress economic growth in Q1:23,” he stated.
In turn, shortages led to a rise in fuel costs which were widely mentioned as having been behind a further marked increase in purchase prices.
Higher raw material costs and currency weakness were also factors pushing up purchase prices. The rate of inflation was the softest since June 2020 but marked nonetheless and stronger than the series average. Staff costs also rose again in February, but at a modest pace.
The passing on of higher input costs to customers resulted in a further sharp rise in output prices, albeit one that was the weakest in four months.
Hopes that economic conditions will improve, alongside business expansion and investment plans, led to confidence in the year-ahead outlook for business activity. The sentiment was at a five-month high but still relatively muted.
By Adedapo Adesanya
Central Securities Clearing System (CSCS) Plc weakened the NASD Over-the-Counter (OTC) Securities Exchange by 1.13 per cent on Wednesday, April 29, after its share price shrank by N5.06 to N71.99 per unit from N77.05 per unit.
As a result, the NASD Unlisted Security Index (NSI) went below the 4,000 mark after it lost 45.73 points to 3,999.23 points from 4,044.96 points. The market capitalisation declined by N27.36 billion during the session to N2.392 trillion from N2.420 trillion.
Midweek trading data showed that the volume of transactions slid by 76.2 per cent to 308,698 units from 1.3 million units, and the value of trades decreased by 7.1 per cent to N25.2 million from N27.1 million units, while the number of deals rose by 3.7 per cent to 28 deals from 27 deals.
At the close of business, Great Nigeria Insurance (GNI) Plc remained the most traded stock by value on a year-to-date basis, with the sale of 3.4 billion units valued at N8.4 billion, followed by CSCS Plc with 59.9 million units exchanged for N4.1 billion, and Okitipupa Plc with 27.8 million units traded for N1.9 billion.
GNI Plc also finished as the most traded stock by volume on a year-to-date basis, with a turnover of 3.4 billion units worth N8.4 billion, trailed by Resourcery Plc with 1.1 billion units transacted for N415.7 million, and Infrastructure Guarantee Credit Plc with 400 million units sold for N1.2 billion.
By Adedapo Adesanya
The Naira was able to tame the pressure building at the Nigerian Autonomous Foreign Exchange Market (NAFEX) on Wednesday, April 29, after it gained N1.25 or 0.1 per cent against the United States Dollar to close at N1,379.46/$1 compared with the previous day’s N1,380.71/$1.
Also, the outcome was the same against the Pound Sterling in the same window, as it added N2.18 to trade at N1,861.58/£1 versus Tuesday’s closing rate of N1,863.76/£1, and against the Euro, it appreciated by N2.14 to settle at N1,612.87/€1 versus N1,615.01/€1.
However, the Naira depreciated further against the Dollar at the GTBank forex counter by N10 to quote at N1,389/$1 compared with the preceding session’s N1,379/$1, and at the parallel market, it maintained stability yesterday at N1,390/$1.
The improvement witnessed across official market points to NFEM interbank turnover increasing sharply on Wednesday, with data released by the Central Bank of Nigeria (CBN) showing $249.905 million in transactions among institutions across 180 deals.
This indicates improved market liquidity and greater market confidence, leading to tighter bid-ask spreads across all foreign exchange deals.
Market analysts noted that improved liquidity and growing investor confidence now allow the market to function more independently.
Meanwhile, in the cryptocurrency market, Bitcoin (BTC) and major benchmarked cryptocurrencies fell as Brent crude surged to a four-year intraday high on renewed fears of US military escalation against Iran.
The jump in oil prices reflects a growing war premium tied to the effective shutdown of the Strait of Hormuz and expectations that hypersonic US weapons could be deployed in the region.
Analysts say BTC is unlikely to break above $80,000 unless Middle East tensions ease. Its value shrank by 1.5 per cent to $75,931.00.
In addition, Ethereum (ETH) slipped by 3.2 per cent to $2,254.51, Solana (SOL) depreciated by 1.9 per cent to $83.11, Ripple (XRP) lost 1.6 per cent to sell at $1.37, Binance Coin (BNB) dipped by 1.5 per cent to $616.58, and Cardano (ADA) dropped by 1.4 per cent to $0.2463.
But Dogecoin (DOGE) rose by 1.9 per cent to $0.1062 and TRON (TRX) appreciated by 0.5 per cent to $0.3242, while the US Dollar Tether (USDT) and the US Dollar Coin (USDC) were unchanged at $1.00 each.
By Dipo Olowookere
The Nigerian Exchange (NGX) Limited rallied by 3.77 per cent on Wednesday on the back of sustained bargain-hunting in equities with sound fundamentals.
The growth reported by Nigerian stocks at midweek raised the year-to-date return above 50 per cent, precisely at 52.43 per cent.
According to data, only the insurance sector ended in red after it shed 1.01 per cent at the close of business.
The industrial goods index appreciated by 6.14 per cent, the energy segment grew by 4.54 per cent, the banking counter expanded by 1.92 per cent, and the consumer goods industry rose by 1.01 per cent.
Consequently, the All-Share Index (ASI) went up by 8,465.40 points to 237,205.59 points from 228,740.19 points, and the market capitalisation increased by N5.450 trillion to N152.728 trillion from N147.278 trillion.
The quartet of UAC Nigeria, Zichis, CAP, and Airtel Africa gained 10.00 per cent each to sell for N165.00, N19.80, N132.00, and N3,021.30, respectively, and Jaiz Bank surged by 9.99 per cent to N8.81.
On the flip side, the duo of John Holt and Cadbury Nigeria lost 10.00 per cent each to trade at N12.60 and N66.15, respectively, as eTranzact shed 9.97 per cent to close at N15.80, Morison Industries slipped by 9.92 per cent to N10.62, and Haldane McCall shrank by 9.74 per cent to N3.43.
The busiest stock for the day was Access Holdings with 281.3 million units worth N7.3 billion, UBA transacted 160.6 million units valued at N7.0 billion, Lasaco Assurance traded 78.6 million units for N153.6 million, Wema Bank sold 65.7 million units worth N2.3 billion, and Morison Industries exchanged 65.0 million units valued at N690.3 million.
At the close of trades, investors bought and sold 1.3 billion equities for N69.1 billion in 83,445 deals versus the 908.0 million units worth N68.2 billion in 72,886 deals on Tuesday.
This showed that the trading volume, value, and number of deals increased yesterday by 43.17 per cent, 1.32 per cent, and 14.49 per cent, respectively.
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