Economy
Nigeria’s Borrowing Spree, Any Cause for Worry?
By Afrinvest
A new report by Afrinvest has taken a look into the recent borrowings by the Federal Government through the sale of bonds.
Afrinvest, in its weekly update, noted that much has been said on Nigeria’s aggressive borrowing spree from domestic and international capital markets since 2016, and deservedly so.
Since the start of a prolonged global oil price drop in H2:2014, the Nigerian economy has recorded a significant downturn in performance as plummeting government revenues and the resultant FX crisis dragged the economy into its first recession in 25 years.
As a result, an expansionary budget of N6.1tn was adopted in the 2016 fiscal year to boost growth and fund more capital projects, with a deficit of N1.8tn estimated for the period. No thanks to the resumption of oil militancy in February 2016 and substantial underperformance of non-oil revenue relative to projections, actual FGN retained revenue was 18.0% short of target, thus deficit widened further. In order to plug this deficit, the Federal Government embarked on an aggressive borrowing spree and this has been sustained into 2017.
To this end, the Debt Management Office (DMO) decided to alter the public debt mix by leveraging on relatively underexplored foreign currency borrowing capacity.
Multilateral loans were sought from the AFDB (US$646.6m) in addition to bi-lateral loans from the China EXIM Bank, France AFD and Japan JICA.
Following improvements in domestic investment landscape at the turn of the year, Nigeria returned to the International capital market after a 3-year hiatus, successfully raising US$1.5bn via Eurobonds and US$300.0m in diaspora bond.
On the domestic front, the DMO has continued with its monthly bond auctions and took it a step further by introducing atypical bonds such as the Savings Bond and a N100.0bn Sukuk offering closing today.
The 2017 budget is projecting another record expenditure year, with fiscal deficit estimated at N2.4tn – domestic borrowing accounting for 53.0% (N1.3tn) of the total while foreign borrowing was projected at N1.1tn.
Whilst the deficit funded expansionary fiscal policy pursued in 2016 had a positive impact of growth – as seen in GDP by expenditure numbers in 9M:2016 – it has come at a cost as public debt profile has remained on the uptrend over the years.
According to the DMO, FGN total debt stood at N10.9tn as of year-end 2015 but has risen an astonishing 48.1% in 15 months to N16.2tn in Q1:2017.
The rising debt profile is not surprising given the widening budget deficit and large depreciation of the Naira; however, the cost of servicing the mounting obligations took up more than 60.0% of revenue in H1:2016 and has become a major source of concern on debt sustainability.
The major argument for increased deficit spending is that the economy is underleveraged with a debt to GDP ratio of 20.0%, but also hard to ignore is the offsetting low non-oil revenue to GDP ratio. Nigeria’s Tax/GDP ratio is 6.0%, which is relatively low when compared to SSA peers – South Africa (26.2%) and Kenya (15.4%).
The nation’s tax collection and administration system is still deemed inefficient with multiple tax system and a high tax evasion & avoidance rate.
Despite the recent drive to increase tax revenue, not much has changed in terms of actual results. In fact, federally collected Non-oil revenue fell 4.4% in FY:2016 to N3.0tn. To their credit, fiscal authorities have doubled down on tax reforms including the recently launched Voluntary Asset and Income Declaration Scheme (VAIDS) which grants taxpayers a time-limited opportunity to regularise their tax status without penalty.
However, with the economy challenged, the odds of significantly boosting Tax revenue in the near term is slim and we expect budget deficits to remain high for the next 2-3 years. What does this imply for medium term debt sustainability? Our opinion on this is a bit nuanced. The structure of Nigeria’s public debt is heavily tilted towards the domestic market (up to 77.9% of aggregate debt) and this easier to deal with in the event of a credit crisis.
Foreign debt obligations are also mostly multilateral and bilateral in nature (78.0% of total foreign debts) which are typically long tenured and granted at concessionary rate.
Thus, we do not expect a debt crisis in the near term but policymakers will need to further diversify revenue base or start deleveraging to avert one in the medium term.
Source: Afrinvest
By Adedapo Adesanya
The duo of Afriland Properties Plc and Geo-Fluids Plc crashed the NASD Over-the-Counter (OTC) Securities Exchange by a marginal 0.06 per cent on Wednesday, December 11 due to profit-taking activities.
The OTC securities exchange experienced a downfall at midweek despite UBN Property Plc posting a price appreciation of 17 Kobo to close at N1.96 per share, in contrast to Tuesday’s closing price of N1.79.
Business Post reports that Afriland Properties Plc slid by N1.14 to finish at N15.80 per unit versus the preceding day’s N16.94 per unit, and Geo-Fluids Plc declined by 1 Kobo to trade at N3.92 per share compared with the N3.93 it ended a day earlier.
At the close of transactions, the market capitalisation of the bourse, which measures the total value of securities on the platform, shrank by N650 million to finish at N1.055 trillion compared with the previous day’s N1.056 trillion and the NASD Unlisted Security Index (NSI) went down by 1.86 points to wrap the session at 3,012.50 points compared with 3,014.36 points recorded in the previous session.
The alternative stock market was busy yesterday as the volume of securities traded by investors soared by 146.9 per cent to 5.9 million units from 2.4 million units, as the value of shares transacted by the market participants jumped by 360.9 per cent to N22.5 million from N4.9 million, and the number of deals increased by 50 per cent to 21 deals from 14 deals.
When the bourse closed for the day, Geo-Fluids Plc remained the most active stock by volume (year-to-date) with 1.7 billion units valued at N3.9 billion, followed by Okitipupa Plc with 752.2 million units worth N7.8 billion, and Afriland Properties Plc 297.5 million units sold for N5.3 million.
Also, Aradel Holdings Plc, which is now listed on the Nigerian Exchange (NGX) Limited after its exit from NASD, remained the most active stock by value (year-to-date) with 108.7 million units sold for N89.2 billion, trailed by Okitipupa Plc with 752.2 million units valued at N7.8 billion, and Afriland Properties Plc with 297.5 million units worth N5.3 billion.
By Adedapo Adesanya
The euphoria around the recent appreciation of the Naira eased on Wednesday, December 11 after its value shrank against the US Dollar at the Nigerian Autonomous Foreign Exchange Market (NAFEM) by N5.23 or 0.3 per cent to N1,547.50/$1 from the N1,542.27/$1 it was valued on Tuesday.
It was observed that spectators’ activities may have triggered the weakening of the local currency in the official market at midweek as they tried to fight back and ensure the value of funds in foreign currencies strengthened.
The domestic currency was regaining its footing after the Central Bank of Nigeria (CBN) launched an Electronic Foreign Exchange Matching System (EFEMS) platform to tackle speculation and improve transparency in Nigeria’s FX market.
At midweek, the Nigerian currency depreciated against the Pound Sterling by N3.56 to close at N1,958.68/£1 compared with the preceding day’s N1,955.12/£1 and against the Euro, it slumped by 34 Kobo to trade at N1,612.66/€1, in contrast to the previous session’s N1,613.00/€1.
As for the black market segment, the Naira lost N45 against the American currency during the session to quote at N1,670/$1 compared with the N1,625/$1 it was traded a day earlier.
A look at the cryptocurrency market showed a recovery following profit-taking as the US Consumer Price Index report matched economist forecasts.
The news was enough to convince traders that the Federal Reserve is certain to trim its benchmark fed funds rate another 25 basis points at its meeting next week.
The move also saw Bitcoin (BTC), the most valued coin, return to the $100,000 mark as it added a 2.9 per cent gain and sold for $100,566.12.
The biggest gainer was Cardano (ADA), which jumped by 15.00 per cent to trade at $1.16, as Litecoin (LTC) appreciated by 10.4 per cent to sell for $121.76, and Ethereum (ETH) surged by 7.0 per cent to $3,929.30, while Dogecoin (DOGE) recorded a 6.7 per cent growth to finish at $0.4181.
Further, Binance Coin (BNB) went up by 5.2 per cent to $716.72, Solana (SOL) expanded by 4.6 per cent to $229.77, and Ripple (XRP) increased by 4.2 per cent to $2.43, while the US Dollar Tether (USDT) and the US Dollar Coin (USDC) closed flat at $1.00 apiece.
By Aduragbemi Omiyale
The Dangote Refinery located in the Lekki area of Lagos State has made its first export of premium motor spirit (PMS) just three months after it commenced the production of petrol.
In September 2024, the refinery produced its first petrol and began loading to the Nigerian National Petroleum Company (NNPC) on September 15.
However, due to some issues, the facility has not been able to flood the local market with its product, forcing it to look elsewhere.
In a landmark move for regional energy integration, Dangote Refinery has partnered with Neptune Oil to take its petrol to neighbouring Cameroon.
Neptune Oil is a leading energy company in Cameroon which provides reliable and sustainable energy solutions.
Dangote Refinery said this development showcases its ability to meet domestic needs and position itself as a key player in the regional energy market, adding that it represents a significant step forward in accessing high-quality and locally sourced petroleum products for Cameroon.
“This first export of PMS to Cameroon is a tangible demonstration of our vision for a united and energy-independent Africa.
“With this development, we are laying the foundation for a future where African resources are refined and exchanged within the continent for the benefit of our people,” the owner of Dangote Refinery, Mr Aliko Dangote, said.
His counterpart at Neptune Oil, Mr Antoine Ndzengue, said, “This partnership with Dangote Refinery marks a turning point for Cameroon.
“By becoming the first importer of petroleum products from this world-class refinery, we are bolstering our country’s energy security and supporting local economic development.
“This initial supply, executed without international intermediaries, reflects our commitment to serving our markets independently and efficiently.”
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