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 Adedapo Adesanya
Three stocks stretched the bearish run of the NASD Over-the-Counter (OTC) Securities Exchange by 1.21 per cent on Friday, December 19, with the market capitalisation giving up N26.01 billion to close at N2.121 billion compared with the N2.147 trillion it ended a day earlier, and the NASD Unlisted Security Index (NSI) dropping 43.47 points to 3,546.41 points from 3,589.88 points.
The trio of FrieslandCampina Wamco Nigeria Plc, Central Securities Clearing System (CSCS) Plc, and NASD Plc overpowered the gains printed by four other securities.
FrieslandCampina Wamco Nigeria Plc lost N6.00 to sell at N54.00 per unit versus N60.00 per unit, NASD Plc shrank by N3.50 to N58.50 per share from N55.00 per share, and CSCS Plc depleted by N2.91 to N33.87 per unit from N36.78 per unit.
On the flip side, Air Liquide Plc gained N1.01 to close at N13.00 per share versus N11.99 per share, Golden Capital Plc appreciated by 70 Kobo to N7.68 per unit from N6.98 per unit, Geo-Fluids Plc added 39 Kobo to sell at N5.50 per share versus N5.11 per share, and IPWA Plc rose by 8 Kobo to 85 Kobo per unit from 77 Kobo per unit.
During the trading day, market participants traded 1.9 million securities versus the previous day’s 30.5 million securities showing a decline of 49.3 per cent. The value of trades went down by 64.3 per cent to N80.3 million from N225.1 million, but the number of deals jumped by 32.1 per cent to 37 deals from 28 deals.
Infrastructure Credit Guarantee Company (InfraCredit) Plc finished the session as the most active stock by value on a year-to-date basis with 5.8 billion units valued at N16.4 billion, followed by Okitipupa Plc with 178.9 million units transacted for N9.5 billion, and MRS Oil Plc with 36.1 million units traded for N4.9 billion.
The most active stock by volume on a year-to-date basis was still InfraCredit Plc with 5.8 billion units worth N16.4 billion, trailed by Industrial and General Insurance (IGI) Plc with 1.2 billion units sold for N420.7 million, and Impresit Bakolori Plc with 536.9 million units traded for N524.9 million.
By Adedapo Adesanya
It was not a good day for the Nigerian Naira at the two major foreign exchange (FX) market on Friday as it suffered a heavy loss against the United States Dollar at the close of transactions.
In the black market segment, the Naira weakened against its American counterpart yesterday by N10 to quote at N1,485/$1, in contrast to the N1,475/$1 it was traded a day earlier, and at the GTBank forex counter, it depreciated by N2 to settle at N1,467/$1 versus Thursday’s closing price of N1,465/$1.
In the Nigerian Autonomous Foreign Exchange Market (NAFEX) window, which is also the official market, the nation’s legal tender crashed against the greenback by N6.65 or 0.46 per cent to close at N1,464.49/$1 compared with the preceding session’s rate of N1,457.84/$1.
In the same vein, the local currency tumbled against the Euro in the spot market by N2.25 to sell for N1,714.63/€1 compared with the previous day’s N1,712.38/€1, but appreciated against the Pound Sterling by 73 Kobo to finish at N1,957.30/£1 compared with the N1,958.03/£1 it was traded in the preceding session.
The market continues to face seasonal pressure even as the Central Bank of Nigeria (CBN) is still conducting FX intervention sales, which have significantly reduced but not remove pressure from the Naira. Also, there seems to be reduced supply from exporters, foreign portfolio investors and non-bank corporate inflows.
President Bola Tinubu on Friday presented the government’s N58.47 trillion budget plan aimed at consolidating economic reforms and boosting growth.
The budget is based on a projected crude oil price of $64.85 a barrel and includes a target oil output of 1.84 million barrels a day. It also projects an exchange rate of N1,400 to the Dollar.
President Tinubu said inflation had plunged to an annual rate of 14.45 per cent in November from 24.23 per cent in March, while foreign reserves had surged to a seven-year high of $47 billion.
Meanwhile, the cryptocurrency market was dominated by the bulls but it continues to face increased pressure after million in liquidations in previous session over accelerating declines, with Dogecoin (DOGE) recovering 4.2 per cent to trade at $0.1309.
Further, Ripple (XRP) appreciated by 3.9 per cent to $1.90, Cardano (ADA) rose by 3.5 per cent to $0.3728, Solana (SOL) jumped by 3.4 per cent to $126.23, Ethereum (ETH) climbed by 2.9 per cent to $2,982.42, Binance Coin (BNB) gained 2.0 per cent to sell for $853.06, Bitcoin (BTC) improved by 1.7 per cent to $88,281.21, and Litecoin (LTC) soared by 1.2 per cent to $76.50, while the US Dollar Tether (USDT) and the US Dollar Coin (USDC) traded flat at $1.00 each.
By Adedapo Adesanya
Crude oil prices edged up on possible disruptions from a US blockade of Venezuelan tankers as the market waits for news about a possible Russia-Ukraine peace deal.
Brent futures rose 65 cents or 1.1 per cent to $60.47 per barrel while the US West Texas Intermediate (WTI) futures expanded by 51 cents or 0.9 per cent to $56.66 per barrel. Both Brent and WTI were down about 1 per cent this week after both crude benchmarks fell about 4 per cent last week.
US President Donald Trump said he was leaving the possibility of war with Venezuela on the table, noting that there would be additional seizures of oil tankers near Venezuelan waters after the US seized a sanctioned oil tanker off the coast of Venezuela last week.
The American President this week ordered a “blockade” of all sanctioned oil tankers entering and leaving Venezuela, in the US’ latest move to increase pressure on Nicolas Maduro’s government, targeting its main source of income. The pressure campaign on President Maduro has included a ramped-up military presence in the region and more than two dozen military strikes on vessels in the Pacific Ocean and Caribbean Sea near Venezuela, which have killed at least 90 people.
President Trump has also previously said that US land strikes on the South American country will soon start.
Meanwhile, US Secretary of State Marco Rubio on Friday said that the US is not concerned about an escalation with Russia when it comes to Venezuela, as the Trump administration builds up military forces in the Caribbean.
This development comes as President Trump seeks an end to the unending war between Ukraine and Russia that is heading towards its fourth year.
European Union leaders decided on Friday to borrow cash to loan 90 billion Euros to Ukraine to fund its defense against Russia for the next two years as Russian President Vladimir Putin offered no compromise on Friday on his terms for ending the war in Ukraine and accused the European Union of attempting “daylight robbery” of Russian assets.
Ukraine, meanwhile, struck a Russian “shadow fleet” oil tanker in the Mediterranean Sea with aerial drones for the first time.
Earlier this week, the US and Ukraine both signaled progress in negotiations about a peace agreement during talks in German capital city of Berlin. The US is now reportedly offering Ukraine security guarantees modeled on NATO’s Article 5 mutual defense pledge.
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