Economy
Fitch Affirms Nigeria at ‘B+’ with Negative Outlook
By Modupe Gbadeyanka
One of the leading rating agencies in the world, Fitch Ratings, has affirmed Nigeria’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘B+’ with a Negative Outlook.
A statement issued yesterday by the firm explained that Nigeria’s ratings were supported by its large and diversified economy, significant oil reserves, its net external creditor position, low external debt service ratio and large domestic debt market.
According to Fitch, these were balanced against relatively low per capita GDP, an exceptionally narrow fiscal revenue base and a weak business environment.
It added that the Negative Outlook reflects the downside risks from rising government indebtedness, and the possibility of a reversal of recent improvements in foreign currency (FX) liquidity and a faltering of the still fragile economic recovery.
Fitch forecasts growth of 1.5% in 2017 and 2.6% in 2018, following Nigeria’s first contraction in 25 years in 2016. GDP growth continued to contract in 1Q17, but by less than in the previous four quarters.
The recovery will be driven mainly by increased FX availability to the non-oil economy and fiscal stimulus, as higher oil revenue and various funding initiatives have raised the government’s ability to execute on capital spending plans.
However, the FX market remains far from fully transparent, domestic liquidity has also become a constraint, and the growth forecast is subject to downside risks. Inflation remains high at 16.1% in July 2017, but Fitch projects it to decline to 11% in 2019.
Crude oil production rose to 1.8 million barrels per day (mbpd) in July 2017, from 1.5 mbpd in December 2016; the increase was driven by the lifting of force majeure at the Forcados export terminal and the completion of maintenance at both Forcados and the Bonga oil field.
Fitch has revised down its expectation of full-year average production to 1.8 mbpd, which is about equal to 2016 production.
Separately, Fitch notes that the imposition of an OPEC quota may cap Nigeria’s crude production at 1.8mbpd, which could limit the oil sector’s upside potential. However, as it excludes condensate production, the quota should not affect Nigeria’s near-term production potential.
In April 2017, the Central Bank of Nigeria (CBN) introduced the Investors & Exporters (I&E) currency window and gradually introduced further measures to improve the liquidity of this instrument.
It also intervenes actively to support the currency while keeping domestic liquidity conditions tight.
In addition, higher oil prices and increased portfolio and FDI inflows have enabled the CBN to increase its provision of FX liquidity to the market. As a result, the parallel exchange rate began to converge towards the I&E rate, currently at around NGN360 per USD, and foreign currency liquidity shortages eased.
Most activity now occurs on the I&E window, and Fitch believes that the I&E rate should now be considered the relevant exchange rate.
Fitch forecasts the general government fiscal deficit to rise slightly to 4.5% of GDP in 2017 from 4.4% in 2016. Tax revenue in the first five months of 2017 underperformed budget expectations, as in 2015-16. The current Medium Term Expenditure Framework envisages a combined NGN3.5 trillion of capital expenditures in 2017 and 2018.
In 2016, with a budget year that ran to May 2017 the government executed approximately N1.2 trillion of the N1.6 trillion forecast in the 2016 budget. Improved financing will see a stronger execution of capital expenditure plans in 2017 and subsequent years. As oil production rises and the overall economy recovers, Fitch expects that higher revenues will drive a narrowing of the general government deficit to 3.4% in 2018.
Nigeria’s general government debt stock is low at 17% of GDP at end-2016, well below the ‘B’ median of 56% of GDP, and Fitch expects only a moderate increase to 20% of GDP at end-2017.
However, low revenues present a risk to public debt sustainability. General government debt to revenue, at 297% at end-2016, is already above the ‘B’ category median of 227% and Fitch forecasts it to increase to 325% in 2017. The ratio is even higher at the federal government level.
Nigeria’s current account surplus is expected to widen slightly to 1.0% of GDP in 2017, from 0.7% in 2016.
Fitch says it expects exports to increase by about 30% in 2017 and an additional 10% in 2018, as oil production and prices increase.
However, imports, which fell by over 30% in 2016, will also rise as dollar availability increases and the non-oil economy recovers.
The international reserves position has increased to USD30.8 billion as of end-July 2017 and it will be bolstered by expected external financing flows. Part of the reserves may be encumbered in forward contracts.
The economic contraction in 2016 and tight FX and naira liquidity weakened asset quality in the Nigerian banking sector. Non-performing loans rose to 12.8% at end-2016, up from 5.3% at end-2015. Rising impairment charges from bad loans have in turn led to capital adequacy ratios falling to 14.8% in 2016, from 16.1% at end-2015. The new FX window has aided FX liquidity for banks in 2017, but credit to the private sector (adjusted for FX valuation effects) is declining.
Nigeria’s ratings are constrained by weak governance indicators, as measured by the World Bank, as well as low human development and business environment indicators and per capita income.
By Modupe Gbadeyanka
The federal government, the 36 states of the federation and the 774 local government areas have received N1.727 trillion from the Federal Accounts Allocation Committee (FAAC) for December 2024.
The funds were disbursed to the three tiers of government from the revenue generated by the nation in November 2024.
At the December meeting of FAAC held in Abuja, it was stated that the amount distributed comprised distributable statutory revenue of N455.354 billion, distributable Value Added Tax (VAT) revenue of N585.700 billion, Electronic Money Transfer Levy (EMTL) revenue of N15.046 billion and Exchange Difference revenue of N671.392 billion.
According to a statement signed on Friday by the Director of Press and Public Relations for FAAC, Mr Bawa Mokwa, the money generated last month was about N3.143 trillion, with N103.307 billion used for cost of collection and N1.312 trillion for transfers, interventions and refunds.
It was disclosed that gross statutory revenue of N1.827 trillion was received compared with the N1.336 trillion recorded a month earlier.
The statement said gross revenue of N628.972 billion was available from VAT versus N668.291 billion in the preceding month.
The organisation stated that last month, oil and gas royalty and CET levies recorded significant increases, while excise duty, VAT, import duty, Petroleum Profit Tax (PPT), Companies Income Tax (CIT) and EMTL decreased considerably.
As for the sharing, FAAC disclosed that from the N1.727 trillion, the central government got N581.856 billion, the states received N549.792 billion, the councils took N402.553 billion, while the benefiting states got N193.291 billion as 13 per cent derivation revenue.
From the N585.700 billion VAT earnings, the national government got N87.855 billion, the states received N292.850 billion and the local councils were given N204.995 billion.
Also, from the N455.354 billion distributable statutory revenue, the federal government was given N175.690 billion, the states got N89.113 billion, the local governments had N68.702 billion, and the benefiting states received N121.849 billion as 13 per cent derivation revenue.
In addition, from the N15.046 billion EMTL revenue, FAAC shared N2.257 billion to the federal government, disbursed N7.523 billion to the states and transferred N5.266 billion to the local councils.
Further, from the N671.392 billion Exchange Difference earnings, it gave central government N316.054 billion, the states N160.306 billion, the local government areas N123.590 billion, and the oil-producing states N71.442 billion as 13 per cent derivation revenue.
By Adedapo Adesanya
The NASD Over-the-Counter (OTC) Securities Exchange recorded a 0.65 per cent gain on Friday, December 13, boosted by three equities admitted on the trading platform.
On the last trading session of the week, Okitipupa Plc appreciated by N2.70 to settle at N29.74 per share versus Thursday’s closing price of N27.04 per share, FrieslandCampina Wamco Nigeria Plc added N2.49 to end the session at N42.85 per unit compared with the previous day’s N40.36 per unit, and Afriland Properties Plc gained 50 Kobo to close at N16.30 per share, in contrast to the preceding session’s N15.80 per share.
Consequently, the market capitalisation added N6.89 billion to settle at N1.062 trillion compared with the preceding day’s N1.055 trillion and the NASD Unlisted Security Index (NSI) gained 19.66 points to wrap the session at 3,032.16 points compared with 3,012.50 points recorded in the previous session.
Yesterday, the volume of securities traded by investors increased by 171.6 per cent to 1.2 million units from the 447,905 units recorded a day earlier, but the value of shares traded by the market participants declined by 19.3 per cent to N2.4 million from the N3.02 million achieved a day earlier, and the number of deals went down by 14.3 per cent to 18 deals from 21 deals.
At the close of business, Geo-Fluids Plc was the most active stock by volume on a year-to-date basis with a turnover of 1.7 billion units worth N3.9 billion, followed by Okitipupa Plc with the sale of 752.2 million units valued at N7.8 billion, and Afriland Properties Plc with 297.3 million units sold for N5.3 million.
In the same vein, Aradel Holdings Plc remained the most active stock by value on a year-to-date basis with the sale of 108.7 million units for N89.2 billion, trailed by Okitipupa Plc with 752.2 million units valued at N7.8 billion, and Afriland Properties Plc with a turnover of 297.3 million units worth N5.3 billion.
By Adedapo Adesanya
The Naira appreciated further against the United States Dollar at the Nigerian Autonomous Foreign Exchange Market (NAFEM) by N1.50 or 0.09 per cent to close at N1,533.00/$1 on Friday, December 13 versus the N1,534.50/$1 it was transacted on Thursday.
The local currency has continued to benefit from the Electronic Foreign Exchange Matching System (EFEMS) introduced by the Central Bank of Nigeria (CBN) this month.
The implementation of the forex system comes with diverse implications for all segments of the financial markets that deal with FX, including the rebound in the value of the Naira across markets.
The system instantly reflects data on all FX transactions conducted in the interbank market and approved by the CBN.
Market analysts say the publication of real-time prices and buy-sell orders data from this system has lent support to the Naira in the official market and tackled speculation.
In the official market yesterday, the domestic currency improved its value against the Pound Sterling by N12.58 to wrap the session at N1,942.19/£1 compared with the previous day’s N1,954.77/£1 and against the Euro, it gained N2.44 to close at N1,612.85/€1 versus Thursday’s closing price of N1,610.41/€1.
At the black market, the Nigerian Naira appreciated against the greenback on Friday by N30 to sell for N1,650/$1 compared with the preceding session’s value of N1,680/$1.
Meanwhile, the cryptocurrency market was largely positive as investors banked on recent signals, including fresh support from US President-elect, Mr Donald Trump, as well as interest rate cuts by the European Central Bank (ECB).
Ripple (XRP) added 7.3 per cent to sell at $2.49, Binance Coin (BNB) rose by 3.5 per cent to $728.28, Cardano (ADA) expanded by 2.4 per cent to trade at $1.11, Litecoin (LTC) increased by 2.3 per cent to $122.56, Bitcoin (BTC) gained 1.9 per cent to settle at $101,766.17, Dogecoin (DOGE) jumped by 1.2 per cent to $0.4064, Solana (SOL) soared by 0.7 per cent to $226.15 and Ethereum (ETH) advanced by 0.6 per cent to $3,925.35, while the US Dollar Tether (USDT) and the US Dollar Coin (USDC) remained unchanged at $1.00 each.
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