Economy
Fitch Rates Kaduna State ‘B’; Outlook Stable
By Modupe Gbadeyanka
Fitch Ratings has assigned Kaduna State Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) of ‘B’ and a National Long-Term Rating of ‘A+(nga)’. The Outlooks are Stable.
In a statement issued on Friday, Fitch said the ‘B’ ratings reflect Kaduna’s dwindling revenue prospects in line with declining statutory allocations from the central government as a result of weak oil prices. Oil-related revenues account for 70% of Nigeria’s current external receipts and Kaduna’s current revenue.
The ratings also reflect the region’s fast growing debt although servicing requirements will be moderated by government subsidies, concessionary terms and a long grace period. They further take into account the state’s developing economy focused on agricultural activities and low per capita revenue by international standards.
The ‘A+(nga)’ rating reflects Kaduna’s low risk relative to the country’s best risk given strong financial and revenue support from the central government.
The Stable Outlooks factor in Fitch’s expectation that a flexible expenditure framework and a sustainable borrowing capacity will allow Kaduna to weather volatile statutory transfers in the medium term.
According to the statement, the ratings assigned reflect the following rating drivers and their relative weights:
High
Weak Institutional Framework
As with other Nigerian states, Kaduna’s finances are affected by weak revenue predictability, and by high budgeted capital spending being rolled over into following financial years due to a lack of funding and limited implementation capacity. Waning transfers from Federal Accounts Allocation Committee (FAAC) amid the oil sector down-cycle provide renewed stimulus for tax revenue diversification but benefits may be visible only in the medium- to long-term.
Long-term Debt Challenge.
Kaduna State is increasing borrowing rapidly to fund capex in core infrastructure to sustain GDP growth and diversify revenue sources. Total debt at the end of fiscal year 2015 totalled NGN73bn and Fitch envisages it will more than double by end-2018 to 160% of current revenue, to finance projects mainly in the power, transport, water supply, education and healthcare sectors.
Fitch expects annual debt service requirements up to NGN8bn-NGN10bn, which will continue to be covered by the current balance and may be balanced with faster growth of internally generated revenue (IGR) in the medium term. Fitch expects Kaduna’s cash position to remain strong at around NGN30bn, hence providing adequate cushion for debt cash calls in the short-term.
Medium
FAAC Impacting Fiscal Performance
The FAAC is the primary mechanism for funding Nigerian states. Its process, which determines funding levels allocated on a monthly base, is derived from revenues accruing to the federal government, largely sourced from the oil sector. In line with plummeting oil prices and falling production, Kaduna’s statutory allocations declined to NGN52bn or 66%-70% of revenues, a trend Fitch expects to continue in 2016 with a further 20-25% decline.
Under its base case scenario, Fitch expects Kaduna to partially compensate for lower FAAC revenues in 2016 with a flexible expenditure framework that will see spending decline through the economic cycle. We forecast an operating margin of 10% in 2016, down from 16% in 2015 and a 10-year average of 40%. Fitch believes Kaduna can return to its 40% mark over the medium-term if it is able to raise local taxes.
IGR totalled NGN13bn in 2015 or nearly 20% of operating revenue, having languished at around NGN12bn over the last five years. However, given the low level of tax compliance and slowing growth from an agricultural economy, non-oil revenues should increase slowly as the administration pushes to expand the tax base.
Weak Socio-Economic Profile
Within the context of Nigeria, Kaduna’s fast-growing population and a traditionally strong primary sector contribute to weak socio-economic standards, including growing unemployment. A dominant agricultural sector drives the economy while Kaduna’s 2016-2020 plan is focusing on the state’s rich minerals resources by attracting foreign investors to key industrial projects.
Low
Transparency to Stimulate Investments
To attract private and foreign investments, Kaduna’s administration is committed to improving the state’s transparency and disclosure. Fitch believes that the transition from cash to a more sophisticated accrual-based accounting is a credit positive, as it restricts the scope for discretionary initiatives and human errors visible in the past.
RATING SENSITIVITIES
An upgrade could materialise if the operating margin strengthens towards 30% and if the fiscal deficit narrows due to IGR growth or tighter-than-expected cost control.
Conversely, financial debt growth leading to debt-to-current revenue ratios being consistently above Fitch’s expectations could result in a downgrade. Unrest damaging economic prospects or undermining oil-related revenue could also lead to a downgrade.
By Adedapo Adesanya
The United Arab Emirates has announced its decision to quit the Organisation of the Petroleum Exporting Countries (OPEC) to focus on national interests.
This dealt a heavy blow to the oil-exporting group at a time when the US-Israel war on Iran had caused a historic energy shock and rattled the global economy.
The move, which will take effect on May 1, 2026, reflects “the UAE’s long-term strategic and economic vision and evolving energy profile”, a statement carried by state media said on Tuesday.
“During our time in the organisation, we made significant contributions and even greater sacrifices for the benefit of all,” it added. “However, the time has come to focus our efforts on what our national interest dictates.”
The loss of the UAE, a longstanding OPEC member, could create disarray and weaken the oil cartel, which has usually sought to show a united front despite internal disagreements over a range of issues from geopolitics to production quotas.
UAE Energy Minister Suhail Mohamed al-Mazrouei said the decision was taken after a careful look at the regional power’s energy strategies.
“This is a policy decision. It has been done after a careful look at current and future policies related to the level of production,” the minister said.
OPEC’s Gulf producers have already been struggling to ship exports through the Strait of Hormuz, a narrow chokepoint between Iran and Oman through which a fifth of the world’s crude oil and liquefied natural gas supplies normally pass, because of threats and attacks against vessels during the war.
The UAE had been a member of OPEC first through its emirate of Abu Dhabi in 1967 and later when it became its own country in 1971.
The oil cartel, based in Vienna, has seen some of its market power wane as the US has increased its production of crude oil in recent years.
Additionally, the UAE and Saudi Arabia have increasingly competed over economic issues and regional politics, particularly in the Red Sea area.
The two countries had joined a coalition to fight against Yemen’s Iran-backed Houthis in 2015. However, that coalition broke down into recriminations in late December when Saudi Arabia bombed what it described as a weapons shipment bound for Yemeni separatists backed by the UAE.
By Adedapo Adesanya
Central Securities Clearing System (CSCS) Plc bested four price decliners on the NASD Over-the-Counter (OTC) Securities Exchange on Monday, April 27. The alternative stock market opened the week bullish during the session with a 0.03 per cent uptick.
According to data, the security depository company added N2.61 to its share price to close at N76.26 per unit compared with the preceding session’s N78.87 per unit.
As a result, the market capitalisation of the platform increased by N820 million to N2.425 trillion from N2.424 trillion, and the NASD Unlisted Security Index (NSI) gained 1.38 points to finish at 4,053.97 points compared with the 4,052.58 points it ended last Friday.
The four price losers were led by NASD Plc, which slumped by N3.80 to sell at N34.70 per share versus N38.50 per share. FrieslandCampina Wamco Nigeria Plc fell by N1.45 to N98.10 per unit from N99.55 per unit, Food Concepts Plc slid by 27 Kobo to N2.43 per share from N2.70 per share, and Geo-Fluids Plc dipped by 9 Kobo to N2.91 per unit from N3.00 per unit.
The value of securities transacted by market participants went down by 82.0 per cent to N7.4 million from N41.3 million units, the volume of securities declined by 28.5 per cent to 319,831 units from 447,403 units, and the number of deals dropped by 34.1 per cent to 29 deals from 44 deals.
Great Nigeria Insurance (GNI) Plc was the most active stock by value on a year-to-date basis with 3.4 billion units worth N8.4 billion, followed by CSCS Plc with 59.6 million units sold for N4.0 billion, and Okitipupa Plc with 27.8 million units exchanged for N1.9 billion.
Also, GNI Plc was the most traded stock by volume on a year-to-date basis with 3.4 billion units valued at N8.4 billion, followed by Resourcery Plc with 1.1 billion units traded for N415.7 million, and Infrastructure Guarantee Credit Plc with a turnover of 400 million units worth N1.2 billion.
By Adedapo Adesanya
The first trading day of the week in the currency market was bearish for the Naira in the Nigerian Autonomous Foreign Exchange Market (NAFEX) on Monday, April 27.
Yesterday, it lost N5.80 or 0.43 per cent against the United States Dollar to trade at N1,364.24/$1, in contrast to the N1,358.44/$1 it was traded last Friday.
In the same vein, the Nigerian currency depreciated against the Pound Sterling in the official market by N13.70 to close at N1,847.72/£1 versus the preceding session’s N1,834.02/£1, and slumped against the Euro by N11.56 to sell at N1,602.29/€1 versus N1,590.73/€1.
Also, the Nigerian Naira tumbled against the greenback during the trading day by N5 to quote at N1,385/$1 compared with the previous rate of N1,380/$1, and at the GTBank FX desk, it traded flat at N1,370/$1.
The poor performance of the domestic currency could be attributed to liquidity shortage at the official currency market on Monday, which came amid surging demand for international payments. At $76.50 million, interbank liquidity printed higher across 79 deals, up from the $43.572 million reported on Friday.
Nigeria’s gross external reserves declined to $48.45 billion amid a month-long decline in inflows, amid uncertainties in the global commodity market. The depletion of foreign reserves could be partly attributed to the Central Bank of Nigeria’s intervention in the FX market.
The market remains perturbed by persistent concerns over liquidity constraints, policy transparency, and weakening confidence in Nigeria’s FX market, while boosters, including oil prices, continue to look rocky due to stalled discussions and unclear ceasefire negotiations between the US and Iran.
A look at the cryptocurrency market, Bitcoin (BTC) has been rejected near $79,000 three times in eight sessions, leaving the level as the de facto ceiling of its current trading range even as major cryptocurrencies trade lower over the past day. It lost 0.9 per cent to sell at $77,003.61.
Analysts say that upcoming US Federal Reserve policy decisions and top tech firms’ earnings this week could provide the catalyst to push bitcoin decisively above $80,000.
The market also continued to weigh Iran’s interim deal proposal to reopen the Strait of Hormuz, which failed to advance over the weekend. The White House said US officials were discussing the latest Iranian proposal but maintained “red lines” on any deal to end the eight-week war.
Solana (SOL) dropped 1.8 per cent to $84.25, Ripple (XRP) went down by 1.6 per cent to $1.39, Ethereum (ETH) depreciated by 1.3 per cent to $2,290.00, Binance Coin (BNB) declined by 0.5 per cent to $625.18, and Cardano (ADA) fell by 0.2 per cent to $0.2480.
However, Dogecoin (DOGE) rose by 2.0 per cent to $0.1002, and TRON (TRX) appreciated by 0.2 per cent to $0.3242, while the US Dollar Tether (USDT) and the US Dollar Coin (USDC) remained unchanged at $1.00 apiece.
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