Economy
Nigeria to Quit Recession 2017, Devalue Naira Again—FBNQuest Research
By Modupe Gbadeyanka
A research carried out by FBNQuest Research has predicted that Nigeria’s economy will leave recession this year and grow by 2 percent.
However, it pointed out that there would be another devaluation of the Naira in 2017.
In June 2016, the Central Bank of Nigeria (CBN) floated the Naira in a bid to give the local currency strength at the foreign exchange market. But this seems not to have worked because the Naira has lost over N150 against the Dollar since then.
At the moment, the Naira is N516 to $1 at the parallel market compared with about N342 it was sold in June 2016.
In the report titled ‘2017 Outlook So much to do; so little time,’ it was noted that the fiscal stimulus for this will be the main driver, supported by a recovery in oil production and selective private investment.
“Beyond our forecast horizon, household consumption will recover, leading to an acceleration in growth,” part of the report said.
According to FBNQuest Research, “The 2017 budget proposals are still more expansionary than the previous year’s, set a heady target for capital releases and maintain the level of personnel costs. If the FGN is able to hit its revenue targets and implement its proposals, we will see a sizeable fiscal stimulus. We could have the rare bonus of a relatively fast passage of the budget.”
It described the 2017 budget proposals as “ambitious”, noting that it contains aggregate spending of N7.30 trillion including unprecedented capital releases of N2.24 trillion, aggregate revenues of N4.94 trillion and a mouth-watering FGN deficit of N2.36 trillion.
The report identified these as “hefty increases on the 2016 budget and even larger increases on the likely outturn for 2016. “
It said one change for the better is that the FGN has produced more realistic projections for non-oil revenue collection, and assumed that the oil economy will generate more revenue than the non-oil.
“The fiscal expansion is the base of our GDP growth forecast of 2 percent for this year. We hear that we are being overly hopeful: we would reply that the population is said to be growing at 3.2 percent per year and that we are forecasting a decline in per head incomes.
“Our forecast is supported by selective private-sector investment (as in agriculture and petrochemicals) and by a pick-up in oil production.
“Our thinking is that the FGN has no choice but to reach a compromise to restore stability to the Niger Delta.
“It has said repeatedly that the diversification of the economy hinges ironically upon healthy oil revenues.
“Initially, it did not want to continue paying the allowances to militants in the delta but has reluctantly changed its position,” the report noted.
FBNQuest Research says it sees a rise in crude production including condensates to 2.10 mbpd this year from an estimated 1.82 mbpd. The FGN is assuming 2.20 mbpd in its proposals.
It said further that, “On the average oil price assumption of $44.50/b for this year, in contrast, the proposals are conservative.
“Our expectation is $57/b with some upside. The FGN therefore should have some welcome headroom, which it will value if production underperforms. Our thinking is based on hints from OPEC that, when it next meets in May, it may make further cuts in production quotas if it is not happy with the direction of the price.”
Also, the report observed that the “signals from the CBN, the MPC and the political leadership indicate otherwise but we think that there will be devaluation in Nigeria in 2017.”
It explained that, “While we cannot detect any changes in the official mindset on the exchange rate, we see another devaluation this year in the ‘last resort’ category. The CBN will struggle to resist the urge to manage the rate in some way.”
It pointed out that the economy has need of sizeable autonomous forex inflows to meet legitimate import demand, close the gap between the interbank and other forex markets, and create a market in which the CBN is not the dominant player.
The report argued that the monetary authorities are not equipped to counter both GDP contraction and rising inflation. Their task will be clearer when positive growth returns and inflation starts to slow on positive base effects.
It said, “The next rate moves by the MPC should be downwards, in line with (or perhaps anticipating) steady declines in headline inflation.”
Commenting on the stock market, the report said it expects the market to trade sideways for the most part until some clarity on the forex situation emerges.
“If a resolution leads to a free float regime (or very close to it), we expect a surge in capital inflows. Our base case scenario is a 10 percent rise in the ASI for 2017 based on our fair value forecasts. A resolution of the forex situation could lead to a gain of at least 20 percent.
“We see upside potential of up to 10 percent for the banks sector on average; a marked resumption of capital inflows from offshore portfolio investors could lead to a much stronger performance.
“We forecast the average ROAE for our universe of banks to move up to 18.3 percent in 2016E, thanks to forex-related gains, but subsequently fall sharply to 11.2 percent in 2017E (assuming forex-related gains are not material in 2017E).
“Among the non-financials, we prefer the cement and palm oil names for which we see upside potential of 56 percent and 6 percent respectively on average.
“The other sectors continue to struggle with the headwinds stemming from forex devaluation given their high dependence on imported raw materials and/or FCY loans.”
On the federal government’s bonds, the report said, “FGN bond yields are likely to drift higher before the policy rate cuts due to the fiscal expansion and substantial issuance programme.
“Active investors will prefer the better returns on longer tenor NTBs. After three years of consecutive losses, we expect equities to regain some lost ground this year. We forecast the ASI to return 10 percent, implying an end-year target of 29,560.”
By Dipo Olowookere
About 0.04 per cent was recovered on Friday from the loss recorded by the Nigerian Exchange (NGX) the previous due to profit-taking.
Yesterday, investors were in the market with renewed vigour, mopping up stocks trading at relatively cheaper prices.
According to data, the insurance counter gained 0.41 per cent, the banking sector appreciated by 0.38 per cent, and the consumer goods index grew by 0.14 per cent.
The gains achieved by these three sectors were enough to lift Customs Street at the close of business despite the 0.26 per cent decline printed by the industrial goods segment and the 0.14 per cent loss suffered by the energy industry. The commodity counter was flat during the session.
A total of 43 equities gained weight on the last trading day of this week, while 26 equities shed weight, indicating a positive market breadth index and strong investor sentiment.
Red Star Express increased its share price by 10.00 per cent to N13.20, NCR Nigeria grew by 9.97 per cent to N128.55, SCOA Nigeria inflated by 9.96 per cent to N14.90, Omatek appreciated by 9.94 per cent to N1.77, and Deap Capital expanded by 9.85 per cent to N4.46.
On the flip side, McNichols decreased by 8.81 per cent to N6.00, Legend Internet crumbled by 7.56 per cent to N5.50, Cornerstone Insurance crashed by 6.48 per cent to N6.35, C&I Leasing contracted by 6.29 per cent to N8.20, and Austin Laz slipped by 5.78 per cent to N3.75.
Yesterday, 539.9 million shares valued at N16.7 billion were transacted in 48,023 deals versus the 1.0 billion shares worth N31.6 billion executed in 51,227 deals in the preceding day, implying a shrink in the trading volume, value, and number of deals by 46.01 per cent, 47.15 per cent, and 6.26 per cent apiece.
Zenith Bank was the most active for the day with 54.6 million stocks sold for N3.8 billion, Jaiz Bank traded 41.5 million units worth N359.4 million, Secure Electronic Technology transacted 37.7 million units valued at N39.2 million, Access Holdings exchanged 30.5 million units for N699.2 million, and Lasaco Assurance transacted 27.2 million units worth N68.3 million.
When the market closed for the day, the All-Share Index (ASI) went up by 72.21 points to 166,129.50 points from 166,057.29 points and the market capitalisation gained N31 billion to N106.354 trillion from N106.323 trillion.
By Adedapo Adesanya
It was a positive ending for the Naira this week after it further appreciated against the US Dollar in the Nigerian Autonomous Foreign Exchange Market (NAFEX) on Friday, January 16 by N1.33 or 0.09 per cent to sell for N1,417.95/$1 compared with the previous day’s N1,419.28/$1.
The domestic currency also gained N2.41 against the Euro in the official market to close at N1,647.51/€1 versus the preceding session’s closing price of N1,649.92/€1, however, it suffered a N7.97 loss against the Pound Sterling in the same market window to trade at N1,901.32/£1, in contrast to Thursday’s closing price of N1,893.35/£1.
In the same vein, the Nigerian Naira depleted against the Dollar at the GTBank FX counter by N2 to quote at N1,427/$1 compared with the previous day’s N1,425/$1, but strengthened against the greenback at the black market yesterday by N5 to settle at N1,485/$1 versus the N1,490/$1 it was exchanged a day earlier.
Improved supply conditions helped keep the market within range as exporters’ and importers’ inflows in addition to non-bank corporate supply enhanced liquidity as the Central Bank of Nigeria (CBN) made no visible intervention.
Stronger external inflows from foreign portfolio investors (FPIs) and improving current account dynamics, continue to align with structural support in the wider economy.
Nigeria has seen projections of a stronger economic or gross domestic product (GDP) growth and lower inflation in 2026, with these forecasts citing improved macroeconomic fundamentals and reform impacts.
As for the cryptocurrency market, it was mixed following selloff in precious metals and lower US stocks appeared to be denting crypto sentiment.
Gold and silver, both of which also enjoyed big rallies earlier this week, tumbled 1.2 per cent and 5 per cent, respectively while key US stock indexes — the Nasdaq, S&P 500 and Dow Jones Industrial Average — all reversed from early gains to modest losses in Friday trade.
Dogecoin (DOGE) shrank by 2.2 per cent to $0.1370, Ripple (XRP) slipped by 0.8 per cent to $2.05, Ethereum (ETH) went down by 0.7 per cent to $3,228.56, and Bitcoin (BTC) slumped by 0.6 per cent to $95,086.80.
Conversely, Litecoin (LTC) appreciated by 3.2 per cent to $74.48, Solana (SOL) rose by 0.4 per cent to $143.70, Cardano (ADA) jumped by 0.2 per cent to $0.3942, and Binance Coin (BNB) increased by 0.1 per cent to $935.88, while the US Dollar Tether (USDT) and the US Dollar Coin (USDC) remained unchanged at $1.00 each.
By Adedapo Adesanya
Oil prices settled higher amid lingering worries about a possible US military strike against Iran, a decision that may still occur over the weekend.
Brent crude settled at $64.13 a barrel after going up by 37 cents or 0.58 per cent and the US West Texas Intermediate (WTI) crude finished at $59.44 a barrel after it gained 25 cents or 0.42 per cent.
The US Navy’s aircraft carrier USS Abraham Lincoln was expected to arrive in the Persian Gulf next week after operating in the South China Sea.
Market analysts noted that it doesn’t seem likely anything will happen soon. However, the weekends have become the perfect time for actions so as not offset the markets.
The market had risen after protests flared up in Iran and US President Donald Trump signalled the potential for military strikes, but lost over 4 per cent on Thursday as the American president said Iran’s crackdown on the protesters was easing, allaying concerns of possible military action that could disrupt oil supplies.
Iran produces approximately 3.2 million barrels per day, accounting for roughly 4 per cent of global crude production, so it was not a coincidence that markets rallied sharply through Tuesday and Wednesday as President Trump canceled meetings with Iranian officials and posted that “help is on its way” to Iranian protesters, raising fears of potential US military strikes that sent prices surging toward multi-month highs.
Weighing against those fears are potential supply increases from Venezuela.
The Trump administration is exploring plans to swap heavy Venezuelan crude for US medium sour barrels that can actually go straight into Strategic Petroleum Reserve (SPR) caverns, since not all all oil belongs in the reserve.
According to Reuters, the Department of Energy is considering moving Venezuelan heavy crude into commercial storage at the Louisiana Offshore Oil Port, while US producers deliver medium sour crude into the SPR in exchange.
Analysts expect higher supply this year, potentially creating a ceiling for the geopolitical risk premium on prices.
Some investors covered short positions ahead of the three-day Martin Luther King holiday weekend in the US.
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