Economy

Why Nigeria May Hike Pump Price, Raise Interest Rate, Devalue Naira in 2019

Published

6 years ago

02/01/2019

Dipo Olowookere

By FSDH Research

Certain key events, both at the global level and in Nigeria, will influence economic and business activities in 2019.

FSDH Research examines a few of these events and discusses the implications for businesses and investments in Nigeria.

The expected hike in interest rates in major advanced countries will lead to an increase in global yields and may put pressure on currency in Nigeria.

There are strong indications that the US Federal Reserve, Bank of England and European Central Bank will increase interest rates in 2019. The expected increase in the interest rate in the international market may also lead to an increase in the interest rate in Nigeria because of monetary policy adjustments to reduce capital flight.

Nigeria may lose a substantial amount of its projected crude oil revenue due to a limit on crude oil production and the drop in the global crude oil price. This may also lead to a drop in the supply of foreign exchange into Nigeria, resulting in a possible depreciation or devaluation of the Naira.

Nigerian businesses should look for local alternatives, where possible, for the raw materials needed for their production process.

They should also limit or eliminate foreign debt, particularly if they do not have foreign exchange receivables to mitigate the possible foreign exchange risk.

FSDH Research also advises that businesses should put in place appropriate foreign exchange hedging strategies. The Q3 2018 Balance of Payment (BoP) report that the Central Bank of Nigeria (CBN) published shows that earnings from crude oil and gas accounted for 94.4 percent of total export earnings during the period.

The external trade report that the National Bureau of Statistics (NBS) published for Q3 2018 shows that crude oil exports accounted for 85 percent of total exports. Therefore, any adverse movement in crude oil price or production has high negative implications on the Nigerian economy.

Although FSDH Research expects the general election in 2019 to be peaceful, its outcome will determine economic activity and business in Nigeria.

A peaceful election will ensure stability of the Nigerian economy and pave the way for the flow of investments, both Foreign Direct Investments (FDIs) and Foreign Portfolio Investments (FPIs) into Nigeria. Certain longterm business and investment decisions may be taken immediately after the election if the current government retains power.

However, if there is a change in power, investors may wait until after the presidential inauguration on May 29 before they take long-term investment decisions, to give them enough time to access details of the policies of the incoming government.

There are certain macroeconomic realities that the Nigerian government must contend with in 2019.

FSDH Research believes the fiscal deficit in 2019 may be higher than in 2018, and higher than what is projected for the year 2019. In order to execute certain plans that will move the economy forward, government may have to increase borrowing or partner with private sector operators on key projects.

An increase in borrowing will increase the interest rate, while partnership with the private sector will expand economic activity and create new job opportunities.

Already, the ratio of government’s debt service to revenue is high and at an unsustainable level. Therefore, additional debt, in an environment of rising interest rates, may reduce government’s ability to execute critical programmes that will improve the business environment.

While fixed income investors may enjoy higher yields in 2019 than in 2018, businesses may suffer under rising interest costs.

FSDH Research analysis shows that electricity and the pump price of Premium Motor Spirit (PMS) are two key prices that government will need to adjust in 2019 to free up funds for developmental purposes.

The adjustment may increase the inflation rate in the short-term, but it will benefit the economy in the long-term. More investments are required in the power sector than are currently available.

However, the sector may not attract investment in the absence of a cost-reflective tariff. Government already allows an off-grid power supply arrangement based on ‘willing buyer, willing seller’. The tariff at which this arrangement is settled is higher than the tariff for the power from on-grid supply. Appropriate policy responses from government and strategies from the business community may ameliorate the likely negative impacts of these key events in 2019.

Economy

Market Volatility Further Suppresses Customs Street by 0.01%

Published

8 hours ago

05/04/2025

Dipo Olowookere

By Dipo Olowookere

The Nigerian Exchange (NGX) Limited ended Friday’s trading session lower with a marginal decline of 0.01 per cent as a result of continued market volatility.

Customs Street was down during the last trading session of the week despite bargain-hunting activities in the banking and industrial goods sectors, which closed higher by 0.51 per cent and 0.01 per cent, respectively.

Business Post reports that profit-taking in the other sectors contributed to the downfall of the local bourse yesterday, with the insurance index weakening by 3.21 per cent.

Further, the energy counter went down by 0.50 per cent, and the consumer goods space depreciated by 0.24 per cent, while the commodity industry closed flat.

At the close of business, the All-Share Index (ASI) shrank by 13.37 points to 105,511.89 points from 105,525.26 points and the market capitalisation declined by N8 billion to settle at N66.147 trillion versus Thursday’s closing value of N66.155 trillion.

A total of 348.3 million shares worth N8.1 billion exchanged hands in 11,444 deals on Friday compared with the 397.1 million shares valued at N8.7 billion traded in 13,667 deals a day earlier, implying a drop in the trading volume, value, and number of deals by 12.29 per cent, 6.90 per cent, and 16.27 per cent, respectively.

The activity log was led by UBA with the sale of 26.3 million stocks for N972.3 million, United Capital traded 25.6 million shares valued at N391.5 million, FCMB exchanged 24.2 million equities worth N211.2 million, Zenith Bank transacted 22.9 million shares valued at N1.1 billion, and Fidelity Bank traded 22.6 million stocks worth N441.7 million.

Investor sentiment remained bearish yesterday after the NGX finished with 19 price gainers and 29 price losers, showing a negative market breadth index.

Lasaco Assurance and AXA Mansard were the worst-performing equities with a decline of 10.00 per cent each to sell for N2.34, and N8.64 apiece, May and Baker decreased by 8.72 per cent to N7.85, Guinea Insurance crashed by 8.70 per cent to 63 Kobo, and FTN Cocoa lost 6.43 per cent to end at N1.60.

However, Learn Africa and Livestock Feeds closed as the best-performing stocks after they gained 10.00 per cent each to quote at N3.30, and N7.92, respectively, VFD Group soared by 9.83 per cent to N57.00, Union Dicon expanded by 9.43 per cent to N5.80, and NGX Group rose by 8.17 per cent to N32.45.

Economy

FrieslandCampina, Food Concepts Hurt NASD Index by 0.21%

Published

8 hours ago

05/04/2025

Adedapo Adesanya

By Adedapo Adesanya

The duo of FrieslandCampina Wamco Nigeria Plc and Food Concepts Plc weakened the NASD Over-the-Counter (OTC) Securities Exchange by 0.21 per cent on Friday, April 4.

FrieslandCampina Wamco Plc lost N1.86 to close at N36.80 per unit compared with Thursday’s closing value of N38.66 per unit, and Food Concepts Plc recorded a 1 Kobo decline to end at N1.17 per share versus the preceding session’s N1.18 per share.

This dragged down the NASD Unlisted Security Index (NSI) by 6.88 points at the close of business to 3,309.46 points from the previous day’s 3,316.34 points and the market capitalisation dropped N3.97 billion to settle at N1.911 trillion, in contrast to the N1.915 trillion it ended at the preceding session.

At the unlisted securities yesterday, the volume of trades increased by 247.9 per cent to 1.3 million units from the 372,568 units transacted in the previous trading day.

Equally, the value of transactions surged by 23.2 per cent to N1.3 million from N4.1 million, but the number of deals went down by 50 per cent to 20 deals from the 40 deals recorded on Thursday.

When the bourse ended for the session, Impresit Bakolori Plc remained the most active stock by volume on a year-to-date basis with a turnover of 533.9 million units worth N520.9 million, trailed by Industrial and General Insurance (IGI) Plc with 71,2 million units worth N24.2 million, and Geo Fluids Plc with 44.2 million units sold for N89.4 million.

FrieslandCampina Wamco Nigeria Plc also remained as the most traded equity by value on a year-to-date basis with the sale of 13.8 million units valued at N534.7 million, followed by Impresit Bakolori Plc with 533.9 million units worth N520.9 million, and Afriland Properties Plc with 17.8 million units sold for N364.2 million.

Economy

Naira Falls to N1,573/$1 at Official Market, N1,570/$1 at Black Market

Published

9 hours ago

05/04/2025

Adedapo Adesanya

By Adedapo Adesanya

The Naira extended its loss against the United States Dollar at the Nigerian Autonomous Foreign Exchange Market (NAFEM) by 1.45 per cent or N22.49 on Friday, April 4.

Data from the Central Bank of Nigeria (CBN) showed that the local currency was exchanged to a Dollar at N1,573.23/$1 during the session compared with the N1,550.74/$1 it was transacted on Thursday.

Similarly, the domestic currency weakened against the Euro in the official market yesterday by N2.91 to settle at N1,725.29/€1, in contrast to the previous day’s N1,722.38/€1 but on the British Pound Sterling, it appreciated by N12.27 to sell for N2,031.02/£1 versus the preceding session’s N2,043.29/£1.

In the black market, the Nigerian currency lost N10 against the greenback on Friday to trade at N1,570/$1 compared with the N1,560/$1 it was transacted a day earlier.

The Naira’s negative outcome aligns with a wider slowdown in the global financial markets as retaliatory tariffs weaken outlook and raise possibility of a recession.

Already, Nigeria could face lower foreign exchange earnings from oil, which could be impacted heavily by tariffs.

As for the cryptocurrency market, it remained mixed after China announced retaliatory tariffs on all goods, responding to President Donald Trump’s Wednesday decision to boost the overall levy on Chinese goods to 54 per cent.

The concensus is that China’s response is not only negative for the US but it is also impacting the global outlook.

Binance Coin (BNB) shed 0.5 per cent to close at $594.69, Cardano (ADA) went down by 0.5 per cent to $0.6561, Litecoin (LTC) dropped 0.4 per cent to close at $84.09, Bitcoin (BTC) tumbled by 0.05 per cent to $83,444.13, Ethereum (ETH) declined by 0.04 per cent to $1,810.12, and the US Dollar Tether (USDT) moderated by 0.03 per cent to $0.9997.

On the flip side, Ripple (XRP) jumped by 3.1 per cent to $2.13, Solana (SOL) appreciated by 2.8 per cent to $120.63, and Dogecoin (DOGE) leapt by 2.4 per cent to $0.1690, while the US Dollar Coin (USDC) closed flat at $1.00.