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Boost to Manufacturing Still Required – Coronation Merchant Bank



Steel Manufacture At Evraz Plc West-Siberian Metallurgical Plant

The importance of a vibrant manufacturing sector in emerging economies cannot be overemphasized. A functional manufacturing base attracts increased research, productivity, and exports. In addition, due to its extensive value-chain, the sector is capable of boosting jobs across different economic classes. There are several factors that could support the steady expansion of a country’s manufacturing sector. These factors trigger demand and supply dynamics which are essential for a thriving manufacturing base. They include consumption patterns, money circulation, fx liquidity, infrastructure (power, inclusive) and supply chain among others.

In the manufacturing sector, growth slowed to 2.3% y/y in Q4 compared with 4.3% y/y recorded in Q3. For FY ’21, the sector grew by 3.5% y/y compared with a contraction of – 2.8% y/y recorded in 2020. The food, beverages, and tobacco segment grew by 5.7% y/y while the textile, apparel, and footwear segment contracted by -1.3% y/y respectively in 2021, compared with a growth rate of 1.5% y/y and -7.6% y/y respectively in 2020. Combined, these segments accounted for 69.1% of the total manufacturing sector in 2021. The chemical and pharmaceutical products segment grew the fastest at 8.1% y/y in 2021, but from a low base.

Following Russia’s invasion of Ukraine, oil prices have surged above USD100 per barrel to hit their highest level since 2008. Unlike premium motor spirit (PMS), diesel has been deregulated. As such, the surge in global oil price has led to an increase in diesel price. According to the Manufacturers Association of Nigeria, the situation has resulted in soaring operational costs as most businesses rely on diesel-powered generators in the absence of reliable grid electricity. The proposed take-off of the Dangote Refinery in Q4 ‘22 is expected to help improve the supply of petroleum products in Nigeria.

Russia and Ukraine are also major exporters of agricultural commodities, particularly grains. Based on data from the Food and Agriculture Organisation, both countries accounted for about c.30%, c.80%, and c.14% of global wheat, sunflower seeds, and maize exports respectively in 2020. According to the National Bureau of Statistics (NBS), Russia accounted for c.4% (N824bn) of Nigeria’s total imports in 2021. The Russia-Ukraine crisis has halted shipments from the Black Sea, which has adverse implications for global trade activity.

Typically, to meet high fx needs, manufacturers blend fx rates across markets. Therefore, forcing some manufacturers to source funds from the parallel market, which trades at a significant premium to the I&E window (41.3% as at 31 March 2022). This also contributes to the uptick in operational costs for the manufacturing sector. We note that the CBN has released the operating guidelines for the non-oil export proceeds repatriation rebate scheme as introduced in the RT200 FX program that aims to attain a goal of USD200bn in FX repatriation from non-oil exports over the next 3-5 years.

The CBN’s Manufacturing Purchasing Managers’ Index (PMI), moderated slightly to 50.1 index points in February ‘22 from 51.4 index points in January ‘22. A reading above 50 points toward an expansion while a reading below 50 translates into a contraction.

Manufacturers face a dilemma with regards to incurring additional costs due to rising operational costs or passing on these costs to consumers. For the latter, the current squeeze on household wallets may result in a potential loss of market share to foreign competitors due to their relative affordability. We expect the uptick in operational costs to have an impact on the headline inflation rate (currently at 15.70% y/y).

To provide some level of respite, particularly given the economic downturn experienced in 2020, the CBN created a N1trn intervention scheme to boost local manufacturing. Based on industry sources, a total of N1.08trn has been disbursed to 368 projects across various sectors in agro-allied, mining, steel production, and packaging industries.

China can be considered as a poster child with regard to countries with budding manufacturing sectors. China’s industrial sector accounted for c.32.6% of its total GDP in 2021. China is export-oriented, however, it seems there is now a deliberate push towards boosting domestic consumption of China-made products. We understand that there are now steps towards significantly reducing imported items to enable the domestic distribution of locally manufactured items.  In China, foreign investment has been encouraged through the creation of Special Economic Zones, which offered incentives such as reduced tax rates for foreign companies willing to set up manufacturing operations.

In Africa, Morocco is transforming itself into a manufacturing hub through investments in industrial parks, free trade zones, and supporting infrastructure such as railways, storage facilities, and ports as well as signing automotive free trade agreements with the European Union and the United State. These combined with investments from the leading automakers in Africa are largely responsible for the growth observed in Morocco’s manufacturing sector. Nigeria may consider adopting a few of these initiatives to boost the domestic manufacturing sector.

Coronation Merchant Bank Research Team note that the absence of constant power supply has contributed to the slowdown of Nigeria’s much-needed industrial take-off as self-generation places pressure on operating expenses. The CBN has disbursed N1.28trn to power sector players since 2017, under the Nigeria Bulk Electricity Trading Payment Assurance Facility (NBETPAF). In addition, N232.9bn has been released to distribution companies (DISCOs) under the Nigeria Electricity Market Stabilisation Facility – Phase 2 (NEMSF-2). These interventions are designed to improve access to capital and support the development of enabling infrastructure within the country’s power supply value chain.

The African Continental Free Trade Area (AfCFTA) agreement is expected to contribute significantly toward the development of regional value chains. To maximise the benefits of the agreement, Nigeria’s manufacturing sector needs to be strengthened through the provision of adequate infrastructure. For example, improvements in ports, transportation & power. Furthermore, there is need for significant improvement by local manufacturers in terms of product standards and service delivery. This must be achieved if local manufacturers are to be competitive in an expanding intra-continental marketplace.

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Nasdaq,, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Nigeria’s Economy Grows at Slower Pace in Q1 2023 as Cash Crunch Weighs on Productivity



Institute of Chartered Shipbrokers

The Nigerian economy grew at a 2.31% pace in real terms in the first quarter (Q1) 2023, according to the latest report from the National Bureau of Statistics (NBS). This represents a 0.8% year-on-year decline when compared to the 3.11% recorded in the first quarter of 2022.

The bureau attributed the decline to the impact of cash crunch experienced across the nation during the quarter under review.

However, growth was driven mainly by the Services sector, which recorded a growth of 4.35% and contributed 57.29% to the aggregate Gross Domestic Product (GDP).

The agriculture sector contracted by -0.90%, below the 3.16% growth recorded in the first quarter of 2022. Although the growth of the industry sector improved to 0.31% relative to – 6.81% recorded in the first quarter of 2022, agriculture, and the industry sectors contributed less to the aggregate GDP in the quarter under review compared to the first quarter of 2022.

GDP contribution

In the first quarter, aggregate GDP stood at N51,242,151.21 million in nominal terms, higher when compared to the first quarter of 2022 which recorded aggregate GDP of N45,317,823.33 million, indicating a year-on-year nominal growth of 13.07%.

The Nigerian Oil Sector

Nigeria was pumping crude oil at 1.51 million barrels per day (mbpd) in the first quarter, higher than the 1.49mbpd recorded in the first quarter of 2022 and 0.17mbpd higher than 1.34mbpd pumped in the fourth quarter of 2022.

The sector contracted by 4.21% (year-on-year) in Q1 2023, indicating an increase of 21.83% points relative to the -26.04%  recorded in the corresponding quarter of 2022 while growth in the sector rose by 9.18% points when compared to –13.38% filled in the final quarter of 2022. On a quarterly basis, the oil sector recorded a growth rate of 20.68% in Q1 2023.

The sector contributed 6.21% to the total real GDP in the quarter under review, down from 6.63% and 4.34% recorded in the first quarter of 2022 and up from the preceding quarter respectively.

The Nigerian Non-Oil Sector

According to the report, the non-oil sector expanded by 2.77% in real terms in Q1 2023. Representing a decline of 3.30% from the same quarter of 2022 and 1.67% points lower than the final quarter of 2022.

The non-oil sector was driven in the first quarter of 2023 mainly by Information and Communication (Telecommunication); Financial and Insurance (Financial Institutions); Trade; Manufacturing (Food, Beverage & Tobacco); Construction; and Transportation & Storage (Road Transport), accounting for positive GDP growth.

In real terms, the non-oil sector contributed 93.79% to the nation’s GDP in the first quarter of 2023, higher than the share recorded in the first quarter of 2022 which was 93.37% and lower than the fourth quarter of 2022 recorded as

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German Economy Plunges Into Recession as Household Spending Succumbed to Inflationary Pressure



German manufacturing

Europe’s largest economy, Germany has plunged into recession as inflationary pressure eroded consumer spending and household income.

The economy contracted by 0.3% in the first quarter of the year following a 0.5% decline recorded in the final quarter of 2022. An economy is said to be in recession if it contracted for two successive quarters.

German economic GDP data showed “surprisingly negative signals,” said Finance Minister Christian Lindner on Thursday. Comparing Germany with other developed economies, the minister said the economy was losing potential for growth.

“I don’t want Germany to play in a league in which we have to relegate ourselves to the last positions,” he said, referring to the forecasts of the International Monetary Fund, which predicted a recession in 2023 only in Germany and Britain among European countries.

However, Robert Habeck, Germany’s economy minister, had attributed the slowdown in growth to the previous exposure to Russia’s energy supply and the decision to cut supply following the breakout of war in Ukraine.

“We’re fighting our way out of this crisis,” Habeck said at an event in Berlin on Thursday.

“Under the weight of immense inflation, the German consumer has fallen to his knees, dragging the entire economy down with him,” said Andreas Scheuerle, an analyst at DekaBank.

Data revealed by Investors King showed German household consumption declined by 1.2% quarter on quarter after price, seasonal and calendar adjustments. While government spending also contracted substantially by 4.9% in the quarter.

“The warm winter weather, a rebound in industrial activity, helped by the Chinese reopening, and an easing of supply chain frictions were not enough to get the economy out of the recessionary danger zone,” ING global head of macro Carsten Brzeski said.

By contrast, investment was up in the first three months of the year, following a weak second half of 2022. Investment in machinery and equipment increased by 3.2% compared with the previous quarter, while investment in construction went up 3.9% on quarter.

There were also positive contributions from trade. Exports rose 0.4%, while imports fell 0.9%.

“The massive rise in energy prices took its toll in the winter half-year,” Commerzbank chief economist Joerg Kraemer said.

A recession could not be avoided and now the question is whether there will be any recovery in the second half of the year.

“Looking beyond the first quarter, the optimism at the start of the year seems to have given way to more of a sense of reality,” Brzeski said.

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Power Crisis Looms: South Africa Braces for Record-Breaking Winter Blackouts



Power - Investors King

As winter descends upon South Africa, the nation finds itself on the precipice of an unprecedented power crisis. Eskom Holdings SOC Ltd., the state electricity company, is struggling to meet the surging demand, and the country is bracing for an alarming wave of record-breaking blackouts.

With 3,000 megawatts less capacity than the previous year, Eskom’s acting CEO, Calib Cassim, delivered a sobering message to reporters: South Africa is heading into a “difficult winter.” In a worst-case scenario, the utility may be forced to implement loadshedding on a massive scale, cutting a staggering 8,000 megawatts from the electricity grid. This would translate into 16 hours of outages during a 32-hour cycle, pushing the nation’s resilience to the brink.

Already burdened by power rationing, South Africa has experienced its most severe bout of outages in recent memory. Eskom’s inability to keep up with demand, largely due to aging and poorly maintained power plants, has dealt a blow to the nation’s economic growth rate. The central bank estimates that the power crisis will shave off a substantial 2 percentage points from South Africa’s already struggling economy this year.

The consequences of the ongoing blackouts extend beyond the economic sphere, as investor sentiment takes a hit. The South African rand, the national currency, has witnessed a sharp decline of 12% this year, marking it as the worst-performing major currency among those monitored by Bloomberg. This stark decline sets South Africa apart from its emerging-market peers, who have managed to make strides against the US dollar.

Analysts are sounding the alarm, with headlines dominated by the intensification of loadshedding and its grim implications for the country. Although South Africa has implemented several measures to stabilize the power supply, progress has been limited. President Cyril Ramaphosa’s plans to expand the procurement of renewable energy have been hindered by a lack of grid capacity, hampering efforts to transition to cleaner and more sustainable sources.

In a bid to address the crisis, Ramaphosa appointed Kgosientsho Ramokgopa as the electricity minister. However, the absence of clearly defined powers has impeded his ability to effectively resolve the dire situation, leaving South Africa in a precarious position.

Eskom’s recent efforts to improve its performance have been plagued by setbacks. Maintenance at the Koeberg nuclear facility has fallen behind schedule, and repairs are required at the Kusile coal-fired plant. The energy availability factor, a crucial metric that measures usable generation capacity, has plummeted to 52%, well below the targeted 60%, according to Cassim.

Adding to Eskom’s woes, former CEO Andre de Ruyter’s memoir has exposed dysfunctionality within the company’s plants, instances of improper conduct by officials, and persistent political interference. These revelations have further eroded trust and cast a shadow of uncertainty over Eskom’s ability to navigate the power crisis.

Crime and sabotage have compounded the challenges faced by Eskom. Incidents are under investigation, diverting attention and resources away from essential plant operations. Eskom emphasizes the need to concentrate on running the facilities efficiently and calls on the public to reduce electricity consumption, especially during peak periods.

South Africa finds itself at a critical juncture as it confronts an imminent power crisis of unprecedented magnitude. The outcome of this challenge will determine the nation’s economic stability, investor confidence, and its ability to secure a sustainable energy future. As winter approaches, the need for swift and effective solutions has never been more urgent. Failure to address this crisis could plunge South Africa into darkness, both literally and metaphorically.

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