By Lukman Otunuga
There was a period when Nigeria displayed resilience against the inflation menace.
As other countries across the globe waged war on rising prices, Africa’s largest economy experienced periods of cooling inflation. This anomaly was a welcome development for the Central Bank of Nigeria (CBN) and offered room for interest rates to be left unchanged in an effort to stimulate economic growth.
Fast forward to today, Nigeria’s annual inflation is back on the rise – accelerating for the fourth straight month to 17.71% in May.
It was the steepest inflation rate since last June, fuelled by rising food prices, soaring diesel prices, and ongoing dollar shortages. On top of this, surging global commodity prices and pre-election spending have the potential to fuel the fire – especially after the IMF projected prices to rise between 18% and 22% in 2022.
The war in Ukraine has propelled global oil prices to levels not seen since 2014. This has sent shockwaves across the world and prompted central banks to adopt an aggressive approach toward raising interest rates.
While other oil-producing countries are enjoying the gift of soaring commodities, Nigeria has failed to cash in thanks to sub-optimal oil production, heavy reliance on gasoline imports, and fuel subsidies. Meaning that the current commodities boom is not translating to higher export earnings for Nigeria but to higher costs and inflationary risks.
During the first quarter of 2022, Nigeria’s economy slowed for the third consecutive quarter to 3.1%. The CBN projects economic growth to be 3.2% this year while the IMF sees the country expanding by 3.4%. However, Nigeria’s economic outlook remains threatened by disruptive power outages, foreign exchange shortages, capital outflows, and untamed inflation.
Given how the CBN has triggered a tightening cycle, more hikes are expected down the road. Back in May, the central bank surprised markets with a 150-basis point rate hike. With the CBN now focused on fighting inflation and interest rates rising rapidly across the globe, more hikes could be on the table to limit capital outflows. According to a report on Bloomberg, the CBN is expected to raise interest rates by 50 basis points two additional times in 2022 – bringing benchmark rates to 14%.
Theoretically, the rate hikes could limit inflation risks at a time when external and domestic factors are threatening Nigeria’s economy. Ongoing geopolitical risks, extreme weather, and supply-chain disruptions could feed the inflation monster, while pre-election spending ahead of the general elections is likely to exacerbate the negative situation.
But the burning question is whether Nigeria is in a position to handle higher interest rates? Time will tell.
Lukman Otunuga is a Senior Research Analyst at FXTM
NGX Rises 0.02% as Interim Dividend Hunters Return
By Dipo Olowookere
The return of interim dividend hunters to the market further pushed the Nigerian Exchange (NGX) Limited higher by 0.02 per cent at the close of transactions on Friday.
It was the first trading session of the new month of July 2022 and investors are expecting half-year results of companies on the exchange, especially those in the banking space, the tier-1 specifically, which usually declare interim dividends.
Business Post observed that there were buying interests in Access Holdings and Zenith Bank, though GTCO and UBA came under selling pressure, which depleted their share prices.
But when the market closed for the session, the All-Share Index (ASI) was higher by 12.08 points as it ended at 51,829.67 points compared with the previous day’s 51,817.59 points.
In the same vein, the total value of equities on the platform increased by N7 billion to N27.942 trillion from the N27.935 trillion it closed a day earlier.
The investor sentiment remained positive as there were 16 depreciating stocks and 20 appreciating stocks led by The Initiates, which rose by 10.00 per cent to 44 Kobo. Cutix expanded by 9.78 per cent to N2.47, Linkage Assurance moved higher by 9.62 per cent to 57 Kobo, John Holt grew by 9.33 per cent to 82 Kobo, while Caverton chalked up 8.82 per cent to sell for N1.11.
On the flip side, Courteville lost 7.84 per cent to trade at 47 Kobo, NAHCO fell by 5.88 per cent to N8.00, Cadbury Nigeria went down by 5.51 per cent to N16.30, Neimeth declined by 3.87 per cent to N1.49, while UPDC went down by 3.74 per cent to N1.03.
The market was relatively quiet yesterday as investors only transacted 127.0 million shares worth N1.7 billion in 3,718 deals as against the 223.1 million shares worth N3.9 billion transacted in 4,213 deals on Thursday, indicating a decline in the trading volume, value and number of deals by 43.06 per cent, 55.93 per cent and 11.75 per cent respectively.
GTCO was the busiest stock as it traded 23.5 million units valued at N480.3 million, UBA sold 22.2 million units for N165.6 million, Sterling Bank exchanged 7.4 million units worth N11.1 million, Oando transacted 7.3 million units worth N40.1 million, while FBN Holdings traded 6.0 million units valued at N67.5 million.
During the session, the insurance space grew by 1.23 per cent, the banking ecosystem expanded by 0.36 per cent, the industrial goods sector appreciated by 0.04 per cent, while the energy and the consumer goods counters depreciated by 0.39 per cent and 0.01 per cent.
Supply Disruptions from Libya, Norway Lift Oil by 2%
By Adedapo Adesanya
Supply disruptions from Libya and Norway pushed the prices of crude oil higher by about 2 per cent on Friday, with the Brent rising by $2.71 or 2.5 per cent to $111.74 a barrel and the United States West Texas Intermediate growing by $2.81 or 2.7 per cent to $108.57 a barrel.
Libya’s National Oil Corporation (NOC) declared force majeure on crude exports from its oil terminals amid continued blockades of production and ports, which have severely crippled the country’s exports.
The force majeure comes after weeks of protests and closures amid the new rift in Libya’s political class over who should be governing the country.
Earlier in the week, NOC said it was considering declaring force majeure within 72 hours unless production and shipment of oil resume in the Gulf of Sirte, which hosts the oil export terminals of Zueitina, Brega, Ras Lanuf, and Es Sider.
The state oil body said that production has seen a sharp decline, with daily exports ranging between 365,000 and 409,000 barrels per day, a decrease of 865,000 barrels per day compared with production in normal circumstances.
In Norway, a planned strike among oil and gas workers on July 5 could cut the country’s overall petroleum output by around 8 per cent or around 320,000 barrels of oil equivalent per day unless a last-minute agreement is found over wage demands.
Also, low crude and fuel supplies supported the oil market even as the US Dollar, which typically has an inverse relationship with crude, rose.
Meanwhile, Ecuador’s government and indigenous groups’ leaders have reached an agreement to end more than two weeks of protests which had led to the shut-in of more than half of the country’s pre-crisis 500,000 barrels per day oil output.
On Thursday, the Organisation of the Petroleum Exporting Countries and allies (OPEC+) agreed to stick to its output strategy after two days of meetings. However, the producer club avoided discussing policy from September onwards.
Previously, OPEC+ decided to increase output each month by 648,000 barrels per day in July and August, up from a previous plan to add 432,000 barrels per day every month.
The Importance of Financing a Sustainable Future
By Sunil Kaushal
While climate change may have taken a back seat in a news cycle dominated by COVID-19, war and the cost-of-living crisis, the risks and threats associated with our warming planet remain the biggest long-term threat to our combined economic future.
Banks and financial institutions will be critical to managing that risk this includes financing of sustainable infrastructure, supporting transition and investing in green innovation. In fact, the banking industry has a responsibility to bridge top-down and bottom-up approaches to net-zero and help the public and private sectors realise the vast opportunities the energy transition and the move to sustainable infrastructure promises.
We can do that by providing capital to finance the investment in renewables, climate adaptation technologies and the transition to a ‘circular economy’ which encourages sustainable use of resources.
According to EY, financial institutions recognise that the transition to net zero will involve more than investments and underwriting for “green” assets and businesses such as renewables and electric vehicles. To achieve net zero across the whole economy, legacy carbon-intensive assets and companies will require financing to help them transition to a cleaner future.
For businesses, this means a fundamental change to operations, and that, in turn, requires capital. Insurers, lenders and investors will play a crucial role in making that capital available and in incentivising and supporting their clients and investees as they make their transitions.1
While stimulating growth through investment in roads, buildings and power supplies isn’t a new strategy, now it offers an opportunity to redefine the traditional playbook and focus on investing and financing sustainability for the longer term.
Creating sustainable and climate-friendly infrastructure will, however, require finance that is fit for the future. There is a growing concern, for example, around stranded asset risk – particularly for long-term investments such as infrastructure. Infrastructure projects need to consider risks 10 years and beyond into the future, many of which may not be immediately apparent. These risks include rising sea levels, increasing temperatures, drought, and coastal erosion. There are also financial and economic risks associated with making investments outside an ESG framework, this includes changes to regulatory settings that may disadvantage or penalise these investments.
Projects that are climate adapted from the outset reduce some of these risks and are more likely to stand the test of time, so banks will need to take into account the potential climate risks over the lifespan of the project to ensure resilience and protect investments.
Sustainable infrastructure projects, however, are traditionally more difficult to make bankable. With a bit of thinking, though, there are usually profitable solutions. For example, in a renewable energy plant, you have clear cash flows linked to the price of generated energy or for an energy efficiency improvement project, you have energy savings which can be translated into cost savings, and they can repay the financing.
At Standard Chartered, we are committed to playing our part in supporting sustainable projects in the region. We take a firm stand in accelerating to net zero by helping emerging markets in our footprint reduce carbon emissions as fast as possible and without slowing development, putting the world on a sustainable path to net zero by 2050.
Sustainability has long been a core part of our strategy, and we have committed USD40 billion of project financing services for sustainable infrastructure and USD35 billion of services to renewables and clean-tech projects by the end of 2024. We have also committed to catalysing $300 billion in sustainable investments by 2030. The projects we finance will trade and growth and contribute to a better quality of life through sustainable development.
The need for action from finance providers is to not only decarbonise their own balance sheets but also to help businesses in the real economy move towards a sustainable future. A successful net-zero transition must be just, leaving no nation, region or community behind and, despite the hurdles, action needs to be swift. To meet the 2050 goal, we must act now, and we must act together: companies, consumers, governments, regulators and the finance industry must collaborate to develop sustainable solutions, technologies and infrastructure.
Sunil Kaushal is the CEO of Standard Chartered Africa and Middle East (AME)
Latest News on Business Post
- Making Trade Easier for Africa’s Youthful Population July 2, 2022
- NGX Rises 0.02% as Interim Dividend Hunters Return July 2, 2022
- Supply Disruptions from Libya, Norway Lift Oil by 2% July 2, 2022
- The Importance of Financing a Sustainable Future July 1, 2022
- UBEC Urges Oyo to Recruit More Teachers July 1, 2022
- NGX, Stakeholders to Discuss Ways to Improve Liquidity, Long Term Value July 1, 2022
- Inflation Menace Targets Transportation Fares July 1, 2022
- Algeria Joins Afreximbank as 52nd Member State July 1, 2022
- Airtel Targets 36.8% Unbanked Nigerians With SmartCash July 1, 2022
- Nigerian Crude Oil Output Down 80,000bpd in June July 1, 2022