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Nigerian Stock Exchange: A new sweet spot for foreign investors



Chief executive officer of the Nigerian Stock Exchange Oscar Onyeama is a happy man. The bourse he led experienced dramatic growth last year and he was awarded the innovative CEO of the year in recognition of his leadership in turning around the bourse.

In January, a grinning Onyeama explained at the Exchange’s 2017 Market Recap and Outlook for 2018 that the bourse had already recorded 12 percent growth making it the world’s third best performing market. Only two or three years ago, the Nigerian stock market had a negative outlook (what investors’ would call a bear market) and closed the year 2016 on a bad note with a 6.17 percent loss.

It meant investors were accumulating major losses– an average monthly loss of 0.27 percent. The market for equities alone dipped by about 610 billion naira between January 1, 2016 and December 30, 2016. The Nigerian Stock Exchange All Share Index also shed 1,495.7 points over the same period to close the year at 26,874.62 points.

‘‘Stocks market analysts have noted that the current bullish trend of the Nigerian equities market will depend on many global, domestic, regulatory and industrial factors.’’

And about 35 percent of the 168 stocks listed on the main board of the NSE recorded no price movement in 2016 with the financial services sector accounting for the largest number of inactive stocks. Foreign activities took a significant decline too, with the highest drop of 73 percent recorded in April 2016.

The bourse was badly cut in the midst of the recession experienced in the country. According to data from the National Bureau of Statistics in 2016, Nigeria’s domestic production was contracting by -0.36 percent, -2.06 percent and -2.24 percent in the first three quarters of 2016 respectively.

Within the same period, prices of raw materials and foodstuff skyrocketed as inflation hit 18.48 percent in November from 9.6 per cent in January 2016. Continuous depreciation of the naira due to forex scarcity further fuelled negative investors’ sentiments too.

The naira officially depreciated from N197/$1 in January 2016 to as low as N305/$1 by December with the local currency trading close to N500/$1 on the black market. A report by Bloomberg in 2016 had rated Nigeria’s naira as one of the world’s worst performing currencies in 2016 alongside the Egyptian pound and Venezuela’s bolivar.

Fast forward to present, Nigeria’s bourse is accelerating– reaching ₦272.48 billion in total transactions in March, a 28.50% jump from the ₦212.05 billion recorded in the previous month. Furthermore, 2018 first quarter results showed the composite NSE All Share Index gained 3,261.32 points or 8.53 per cent to close at 41,504.51 points from the opening level of 38,243.19 points in December 29, 2017.

Investors traded a huge volume of 42.87 billion shares from previous quarter’s 23.26 billion shares traded. Within the period, the market index touched a high of 45,321.82 basis points and it’s looking like nothing will stop its momentum.

Market capitalization for the period was up by N1.384 trillion to close higher at N14.993 trillion, from an opening value of N13.609 trillion. This rapid growth is majorly backed by stronger crude prices, which has been circling around $70 – $75 in 2018. The global oil price has a perfect correlation with the Nigerian Stock Exchange All Share Index.

When prices are rising, sentiments about the Nigerian economy is positive and macroeconomic indices are stabilized. The crude oil trend has helped the country grow its foreign reserves, stabilized its foreign exchange market, and attracted Foreign Portfolio Participation.

Another contributing factor to the positive performance of the market is the creation of the Investors’ and Exporters’ (I and E) FX window by the Central Bank of Nigeria (CBN) and appreciation of some high value stocks in the equity market. Foreign investors are now a lot more confident about the ease of entry and exit of their investments, due to the introduction of the I and E window.

The CBN’s policies have been able to close the gap between the interbank and blackmarket rates, stabilizing prices and controlling imported inflation. Dangote Cement’s shares, which represents a third of the total market capitalization, has been on a steady rise helping to improve the outlook of the market too.

Stocks of other blue chip companies like the Nigeria Breweries, Nestle, Zenith, GTB, Unilever, FBNH, Seplat have all gained significantly and boosted investors’ confidence. Positive earnings reported by these blue-chip companies have strengthened market fundamentals. Also, with treasury bills mostly selling at rates below the inflation rate, investors have been forced to gravitate towards the stock market in search of better yields.

The highest return rate on 91-day tenor has been around 12%, while 182 and 364 days tenor between 10% and 15%. Inflation rate started at about 15% at the beginning of the year before decelerating to 12.48% in April. Foreign investors’ sentiments have turned more bullish on Nigeria, and they are picking up deals even in Nigeria’s 2nd tier banks.

These foreign investors are looking for cheap assets that they can acquire to give them easy inroads into Africa’s largest market; most of those funds are going into equities. Also, fund managers who missed out in the Nigerian stock market rally of 2017 are rushing in to buy stocks, which are still relatively cheap.

Added to all these is the global surge in equity prices across the world that has contributed significantly to demand of stocks in emerging markets like Nigeria. Foreign investors’ appetite for cheap assets generally began in 2017 when Liberty Mutual Group, an American diversified global insurer and the fourth-largest property and casualty insurer in the United State, acquired about 70% of the equity of Unic Insurance Plc, even though the share price has been performing woefully.

Milost Global, a private equity firm headquartered in New York City with more than $25 billion in committed capital, expressed interest to invest $1 billion in one of Nigeria’s 2nd tier bank, Unity Bank. $250 million is to be invested immediately in the bank in exchange for a 30% equity stake. $750 million will then be invested over the next four years.

The investment was also reported to be a mix of equity and convertible bonds. The announcement was unexpected as the share price of the bank was a paltry 56 kobo and was even overvalued, considering that it had over ₦237 billion in negative retained earnings as at 2016. Milost came into prominence last year when it announced that it had acquired Primewater View, a Nigerian Real Estate firm for over $1 billion.

The company also reported that it signed a deal to inject about $350 million into Japaul, another stock that’s doing badly and announced plans to buy one or two Nigerian Banks. Overall, Milost has said that it plans to invest about ₦2.6 trillion in Nigeria.

The thirst for Nigeria’s market was ascertained when the NSE disclosed that Nigeria’s Foreign Portfolio Investment (FPI) increased by 59% in March to ₦132.21 billion; against the ₦83.22 billion recorded in February. Oando Plc and seven other companies outperformed stocks on the Nigerian Stock Exchange (NSE) in April to emerge as top performing equities in percentage terms.

Oando emerged as the best performing equity with a growth of 52.75 per cent to close at ₦9.15 per share as against ₦5.99 in March. Learn Africa came second with a growth of 39.18 per cent to close at N1.35, while ETI grew by 36 per cent to close at N20.10. AIICO Insurance improved by 16.13 per cent during the period, Nestle 15.87 per cent, Seplat grew by 15.04, Prestige Assurance 13.33 per cent and Unic Insurance appreciated by 11.11 per cent.

These gains are indicators of investors’ confidence in the equity in spite of the ongoing forensic audit initiated by the Securities and Exchange Commission (SEC). Investors in industrial goods and banking stocks were ahead of other investors. The NSE Industrial Goods Index recorded the highest quarter-on-quarter return of 10.96 per cent.

The NSE Banking Index followed with a return of 9.49 per cent. The NSE Insurance Index rallied average gain of 8.41 per cent. The NSE Oil and Gas Index appreciated by 4.90 per cent while the NSE Consumer Goods Index posted a modest return of 0.21 per cent.

The NSE 30 Index, which tracks the 30 most capitalized companies at the stock market, posted a threemonth return of 7.30 per cent. Impressive quarter one companies’ results, low company valuations, unrelenting increase in oil prices and lower inflation rate could shore up the market in the short term.

However, the sustenance of the current foreign exchange intervention regime and continued restoration of security in the Niger Delta region will be critical in ensuring the equities market maintains the current momentum for a long time.

Stocks market analysts have noted that the current bullish trend of the Nigerian equities market will depend on many global, domestic, regulatory and industrial factors. Also, as long as the political economy remains favorable, Foreign Portfolio Investment (FPI) inflows will not only continue to improve but also contribute to Nigeria’s economic growth.

Commenting on the bourse’s projection for 2018, Mr Onyema said that political activities and currency movements would affect the market growth. “Indeed, to some extent, political activities and currency movements will have some effect on the market, but we expect that such impacts will be short lived and the performance of the underlying business activities will ultimately determine market performance,’’ he explained.

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Nigeria’s economy in 2019: Woes or fortune?



As 2019 begins with hopes and aspirations, there are expectations from the federal government to better the economy with a view to making it have more meaningful impact on Nigerians. Here are the looks at the key indicators that will characterize the economy and determine its fortunes this year.

The economy appears to have lost its sparkle; its growth has dwindled. And there are palpable fears that the effect of political activities in the lead-up to the general elections, scheduled to commence on February 16, could overshadow whatever gains the economy may muster during this period, thus, compounding its woes. As it stands, the federal government has abandoned the economy for politics and the economy is already bearing the brunt.

After five quarters of recession, which the economy entered in the second quarter of 2016, having plummeted to a gross domestic product (GDP) growth rate of -2.06 per cent, the economy exited the quagmire in the second quarter of 2017 with a GDP growth rate of 0.55 per cent, which was revised upward to 0.72 per cent, according to data from the National Bureau of Statistics.

Then, the economy turned the corner as it grew at 1.40 per cent in the next quarter- that is, the third quarter of the year, and sustained the improvement recording a GDP growth rate of 2.11 per cent in the fourth quarter of the year 2017. However, in the first quarter and second quarter of 2018, the economy reversed the rising streak as evidenced in the slowed growth rates. NBS data showed that the GDP growth rate fell to 1.95 per cent in the first quarter of 2018 from the 2.11 per cent it achieved at the end of 2017. It dropped further to 1.50 per cent in the second quarter.

The agency noted that the clashes between farmers and herdsmen, which took its heavy toll on agriculture, mainly dragged down the growth rate during the quarter under review. Agriculture, being a major component of the non-oil sector was badly affected. However, with improvement in the non-oil sector, the economy received an impetus for growth, which pushed the GDP growth rate to 1.81 per cent. According to NBS, growth in the third quarter was largely helped by the non-oil sector, which contributed 90.62 per cent to the total GDP, while the oil sector contributed 9.38 per cent to growth in the review period. Oil GDP was reported to have contracted by -2.91 per cent compared to -3.95 per cent in second quarter and 23.93 per cent in third quarter 2017.

Despite the improvement in growth rate in the third quarter of 2018, the economy is still experiencing slowdown and was recently put on red alert of slipping into another recession over weak economic growth.

According to the Governor of the Central Bank of Nigeria, Mr. Godwin Emefiele, who raised the alarm at a recent Monetary Policy Committee meeting, the economy may be under threat of relapse into a recession, which it recently exited from with fanfare, given the weak economic growth of the second quarter of 2018.

Emefiele also raised concerns about threat to efforts to curb inflation, stabilise exchange rate and build reserves, considering the macroeconomic fundamentals at the period.

The consumer price index, which measures inflation dropped from 11.28 per cent in September 2018 to 11.26 per cent in October 2018 and rose again to 11.28 per cent in November 2018, but when compared with the levels in the corresponding year of 2017, when it dropped from 15.98 per cent in September to 15.91 per cent in October and 15.90 per cent in November, it was not where the monetary authority had envisaged it would be. The apex bank has the onerous task of bringing inflation to its targeted single digit, especially in an election year.

Also, of note as a potential contributor to relapsing the economy into recession, as pointed out by the CBN governor, was the delay in budget implementation. A situation, where three months after presidential assent and about three months to the end of 2018, there was no budget implementation was unhealthy for the economy. According to the apex bank, long years of fiscal policy lag had contributed to the weakness in the economy. Most of the inimical factors identified by Emefiele at that time are still at play.

Given this scenario, as the New Year begins, economic managers have the arduous task of resolving those issues as well as ensuring the economy not only continues to grow, but also record appreciable and inclusive growth. While 2019 is an unusual year, being an election year, more, but critical efforts would be required by handlers to put the economy on a sure footing with a viewing to avoiding a relapse into recession.

The federal government has proposed a budget of N8.83 trillion for the 2019 fiscal year. Nigerians would not accept any excuse for delay in its passage and poor Implementation. The executive and the National Assembly should therefore quickly address the grey areas and harmonize their positions so that the appropriation bill could be passed into law and implemented in earnest.

The budget has been predicated on an oil-price benchmark of $60 per barrel. In recent times, oil prices have been sliding at the international market and currently stood around $54 per barrel. The falling oil prices have been identified as threat to implementation of the budget and as such, the relevant authorities would do well to peg the budget at the most appropriate benchmark.

As part of its strategy to mobilize revenue, the federal government through the ministry of finance, in July 2017, created Voluntary Assets and Income Declaration Scheme (VAIDS), a tax amnesty, which was expected to rein in $1 billion from tax evaders and avoiders. By the end of the scheme, one year later, with only about N30 billion, the proceeds fell short of the government target, but the scheme was able to swell the tax database by five million to 19 million from 14 million. The government is expected to follow up on this initiative as well as intensify the revenue mobilization from more alternative sources than oil and borrowing to fund the budget. As at the end of 2018, the total collection by the Federal Inland Revenue Service was about N7 trillion.

Besides, the federal government is expected to review the power sector transition market policy performance this year after its first five years of implementation.

It is obvious that this present administration led by President Muhammadu Buhari, which is already pre-occupied with politicking ahead of the general elections, would not be able to solve the burgeoning unemployment problem. With unemployed Nigerians now at 20.9 million, having risen by 17.6 million in nine months, one of the major tasks before the incoming administration is to tackle the factors causing unemployment or to put it more aptly, provide employment opportunities in the economy and tame the rising scourge of unemployment.

Besides, Nigerians are anxiously waiting for positive outcomes from the talks, between the Nigeria Labor Congress and federal government over the N30, 000 minimum wage, that have resumed and are expected to be brought to a logical conclusion before the general elections.


Experts’ Views on the Economy

But in the view of the Chief Executive Officer of Financial Derivatives Company Ltd, Mr. Bismarck Rewane, political jostling and the elections would becloud the talks on the minimum wage. He also expressed the opinion that political activities and elections would becloud 2019 budget talks by the legislature and the first monetary policy committee (MPC) meeting in the month of January.

Also, in his projections, Director, Union Capita Market Ltd, Mr. Egie Akpata, posited that 2019 would likely be more challenging for the Nigerian economy than 2018.

According to him, most variables which were in the country’s favor last year, but not capitalized on, have reversed. “Oil prices, local interest rates, inflation, stock market indices, political environment and other variables that were positive for most of 2018 are now negative and will remain so for most of 2019.”

On the key areas that are likely to impact the entire economy, Akpata noted that in the aspect of government finances, it was unfortunate that for the federal government, tax revenues could be generated by threat or decree.

“The VAIDS programme fell far short of expectation and so did many other initiatives to diversify government revenues away from oil. These failures are not surprising. Individuals and companies have to be financially buoyant to pay a lot of tax. The reality is that most sectors of the economy are in a recession and profitability has been badly eroded.

“Self-inflicted damage from Apapa ports congestion, inability to solve the power crises, government crowding out the private sector in the debt markets, insecurity in large sections of the country amongst others mean that corporate profitability is unlikely to improve and hence better non-oil revenue for the government will take a while to materialize.”

Akpata added that, the federal and state governments had shown that they were unable to reduce their costs and instead had resorted to massive borrowing, particularly at the federal level.

This borrowing, he pointed out, was almost entirely to fund overheads. “Unfortunately, this produces very high market borrowing rates which very few private companies can afford. As long as the economy continues to have a risk free rate close to 20 per cent, it is unlikely that there will be massive credit to the private sector to drive the investment needed to grow the economy at the required levels.”

“Until there is a political force to stop government simply borrowing to fund overheads, FGN debt will continue to grow at an alarming rate. Since a default is very unlikely, the market will happily give the FGN all the debt it wants to pay its bills today. Repayment is largely a problem for future governments to worry about,” he also submitted.

He argued that the presented 2019 budget showed that “it is business as usual – unrealistic revenue targets, huge borrowing and waste on fuel subsidy. None of these are a positive for government finances,” stating that, the ongoing minimum wage battle with the NLC would likely result in some kind of wage increase, which will put more pressure on government finances.

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