Economy
Fitch Lauds Rise in Foreign Portfolio Investment Inflows to Nigeria
By Adedapo Adesanya
Fitch Ratings has revised the Outlook on Nigeria’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to Positive from Stable and affirmed the IDR at ‘B-‘.
In its latest rating released last Friday, the global agency pointed out that the positive outlook partly reflected reforms over the last year to support the restoration of macroeconomic stability and enhance policy coherence and credibility.
According to Fitch, “Nigeria’s rating is supported by its large economy, developed and liquid domestic debt market, and large oil and gas reserves. It is constrained by weak governance indicators relative to peers, high hydrocarbon dependence, limited crude oil production capacity, weak net FX reserves, high inflation, ongoing security challenges, and structurally low, albeit improving, non-oil revenue.”
It noted that in Nigeria, exchange rate and monetary policy frameworks have been adjusted, fuel subsidies reduced, coordination between the Ministry of Finance and the Central Bank of Nigeria (CBN) improved; CBN’s financing of the government scaled back, with administrative efficiency measures being taken to raise the currently low government revenue, as well as oil production.
“The reforms have reduced distortions stemming from previous unconventional monetary and exchange rate policies, resulting in the return of sizeable inflows to the official foreign exchange (FX) market. Nevertheless, we see significant short-term challenges, notably, inflation is high and the FX market has yet to stabilise, and the durability of the commitment to reform is to be tested.
“The CBN has stepped up efforts to reform the monetary and exchange rate framework following last year’s unification of the multiple exchange rate windows, and the large differential between the official and parallel market rates has collapsed. Average daily FX turnover at the official FX window has risen sharply from 2H23, and there has been clearance of $4.5 billion of the backlog of unpaid FX forwards (the validity of the outstanding $2.2 billion is being assessed by CBN), and weekly sales of FC to bureaux de changes (BDCs) have resumed (having been suspended since 2021).
“Greater formalisation of FX activity and monetary policy tightening has contributed to a significant rise in foreign portfolio investment inflows, and a fast appreciation of the naira at the official FX window, following the 71 per cent post-liberalisation depreciation between June 2023 and mid-March 2024, although the exchange rate remains volatile. However, Fitch views continued lack of clarity in the size of net FX reserves as a constraint on the sovereign’s credit profile,” it stated.
Fitch anticipated further increases in the CBN monetary policy rate in the second half of 2024, following the 600 basis points hike to 24.75 per cent since February 2024, alongside tightening of reserve requirements and, “strengthening of monetary policy transmission, after the recent resumption of open market operations at rates closely aligned to the MPR.”
“We project inflation, which rose to 33.2 per cent year-on-year in March due partly to exchange rate pass-through and rising food prices, to average 26.3 per cent in 2024 and 18.2 per cent in 2025, still well above our projected ‘B’ median of 4.5 per cent.
“Fitch forecasts the budget deficit to widen 0.3 percentage points (pp) in 2024 to 4.5 per cent of GDP (but 0.5pp lower than we projected at our last review). This is due to improving non-oil revenue and partial fuel subsidy removal being offset by underperformance in oil profits from Nigerian National Petroleum Corporation Limited (despite a potential improvement in oil production) and higher payments for debt servicing, personnel and capex.
“We project a two pp rise in general government (GG) revenue/GDP from 2023 to 2025 to 9.6 per cent, helped by increased mobilisation of non-oil tax revenue, to narrow the budget deficit to 4.1 per cent in 2025. Nevertheless, the GG revenue/GDP ratio would remain one of the lowest of Fitch-rated sovereigns. The government has sharply reduced recourse to its CBN ‘Ways and Means’ overdraft this year, and banks’ healthy foreign currency (FC) liquidity and strong demand for government securities support domestic financing capacity.
“We expect oil refining capacity to increase in 2024-2025 as the Dangote plant ramps up, with an eventual 0.65 mbpd capacity. This will reduce transportation costs and lower refined oil imports, which should ease FX demand. We anticipate an increase in crude oil production (including condensates) in 2024-2025, averaging 1.75 mbpd, from 1.58 mbpd in 2023, helped by improved onshore surveillance, but this is still well below the 2019 level, reflecting underinvestment in the sector and production outages,” it added.
By Modupe Gbadeyanka
The federal government has been asked by the Nigerian Bar Association (NBA) to suspend the implementation of the controversial tax laws.
In a reaction to the tax reform acts, the president of the group, Mr Afam Osigwe (SAN), the suspension of the laws would allow for a proper investigation into allegations of alterations in the gazetted and harmonised copies.
A member of the House of Representatives, Mr Abdussamad Dasuki, alleged that some parts of the laws passed by the parliament were different from the gazetted copy.
To address the issues raised, the NBA said it is “imperative that a comprehensive, open, and transparent investigation be conducted to clarify the circumstances surrounding the enactment of the laws and to restore public confidence in the legislative process.”
“Until these issues are fully examined and resolved, all plans for the implementation of the Tax Reform Acts should be immediately suspended,” the association declared.
It noted that the controversies “raise grave concerns about the integrity, transparency, and credibility of Nigeria’s legislative process.”
“These developments strike at the very heart of constitutional governance and call into question the procedural sanctity that must attend lawmaking in a democratic society,” it noted.
“Legal and policy uncertainty of this magnitude has far-reaching consequences. It unsettles the business environment, erodes investor confidence, and creates unpredictability for individuals, businesses, and institutions required to comply with the law. Such uncertainty is inimical to economic stability and should have no place in a system governed by the rule of law.
“Nigeria’s constitutional democracy demands that laws, especially those with profound economic and social implications, emerge from processes that are transparent, accountable, and beyond reproach. Anything short of this undermines public trust and weakens the foundation upon which lawful governance rests.
“We therefore call on all relevant authorities to act swiftly and responsibly in addressing this controversy, in the overriding interest of constitutional order, economic stability, and the preservation of the rule of law,” the organisation stated.
By Adedapo Adesanya
Demand for hot stocks, including MRS Oil Plc, buoyed the NASD Over-the-Counter (OTC) Securities Exchange by 0.52 per cent on Tuesday, December 23.
The energy company was one of the three price gainers for the session as it chalked up N19.69 to sell at N216.59 per share versus the previous day’s value of N196.90 per share.
Further, FrieslandCampina Wamco Nigeria Plc gained N2.95 to close at N56.75 per unit versus N53.80 per unit and Golden Capital Plc appreciated by 84 Kobo to N9.29 per share from Monday’s N8.45 per share.
Consequently, the market capitalisation went up by N10.95 billion to N2.125 trillion from N2.125 trillion and the NASD Unlisted Security Index (NSI) rose by 18.31 points to 3,570.37 points from 3,552.06 points.
Yesterday, the NASD bourse recorded a price loser, the Central Securities Clearing System Plc (CSCS), which gave up 17 Kobo to close at N33.70 per unit against the previous trading value of N33.87 per unit.
The volume of securities traded at the session went down by 97.6 per cent to 297,902 units from the previous day’s 12.6 million units, the value of securities decreased by 98.5 per cent to N10.5 million from N713.6 million, and the number of deals remained flat at 32 deals.
By value, Infrastructure Credit Guarantee Company (InfraCredit) Plc ended as the most actively traded stock on a year-to-date basis with 5.8 billion units exchanged for N16.4 billion. This was followed by Okitipupa Plc, which traded 178.9 million units valued at N9.5 billion, and MRS Oil Plc with 36.1 million units worth N4.9 billion.
In terms of volume, also on a year-to-date basis, InfraCredit Plc led the chart with a turnover of 5.8 billion units traded for N16.4 billion. Industrial and General Insurance (IGI) Plc ranked second with 1.2 billion units sold for N420.7 million, while Impresit Bakolori Plc followed with the sale of 536.9 million units valued at N524.9 million.
By Dipo Olowookere
It was another bullish trading session for the Nigerian Exchange (NGX) Limited as it closed higher by 0.59 per cent on Tuesday.
The market further rallied due to continued interest in large and mid-cap stocks on the exchange by investors rebalancing their portfolios for the year-end.
Yesterday, Aluminium Extrusion sustained its upward trajectory after it further appreciated by 9.96 per cent to N14.90, as Austin Laz gained 9.81 per cent to close at N2.91, Custodian Investment improved by 9.69 per cent to N38.50, and First Holdco soared by 9.35 per cent to N50.30.
Conversely, Royal Exchange declined by 7.22 per cent to N1.80, Champion Breweries shrank by 6.57 per cent to N15.65, NASCON lost 5.36 per cent to trade at N105.05, Sovereign Trust Insurance depreciated by 5.28 per cent to N3.77, and Japaul went down by 4.51 per cent to N2.33.
At the close of business, 29 shares ended on the gainers’ table and 27 shares finished on the losers’ log, representing a positive market breadth index and bullish investor sentiment.
This raised the All-Share Index (ASI) by 895.06 points to 153,354.13 points from 152,459.07 points and lifted the market capitalisation by N579 billion to N97.772 trillion from the previous day’s N97.193 trillion.
VFD Group finished the day as the busiest stock after it recorded a turnover of 192.0 million units worth N2.1 billion, GTCO exchanged 63.5 million units valued at N5.6 billion, Access Holdings traded 49.8 million units for N1.0 billion, First Holdco sold 45.8 million units valued at N2.3 billion, and Secure Electronic Technology transacted 38.3 million units worth N28.4 million.
In all, market participants bought and sold 677.4 million units valued at N20.8 billion in 27,589 deals compared with the 451.5 million units worth N13.0 billion traded in 33,327 deals on Monday, showing an improvement in the trading volume and value by 50.03 per cent and 60.00 per cent apiece, and a shortfall in the number of deals by 17.22 per cent.
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