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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, Businessinsider, Nasdaq,, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Nigeria’s N3.3tn Power Sector Rescue Package Unveiled



power project

President Bola Tinubu has given the green light for a comprehensive N3.3 trillion rescue package.

This ambitious initiative seeks to tackle the country’s mounting power sector debts, which have long hindered the efficiency and reliability of electricity supply across the nation.

The unveiling of this rescue package represents a pivotal moment in Nigeria’s quest for a sustainable energy future. With power outages being a recurring nightmare for both businesses and households, the need for decisive action has never been more urgent.

At the heart of the rescue package are measures aimed at settling the staggering debts accumulated within the power sector. President Tinubu has approved a phased approach to debt repayment, encompassing cash injections and promissory notes.

This strategic allocation of funds aims to provide immediate relief to power-generating companies (Gencos) and gas suppliers, while also ensuring long-term financial stability within the sector.

Chief Adebayo Adelabu, the Minister of Power, revealed details of the rescue package at the 8th Africa Energy Marketplace held in Abuja.

Speaking at the event themed, “Towards Nigeria’s Sustainable Energy Future,” Adelabu emphasized the government’s commitment to eliminating bottlenecks and fostering policy coherence within the power sector.

One of the key highlights of the rescue package is the allocation of funds from the Gas Stabilisation Fund to settle outstanding debts owed to gas suppliers.

This critical step not only addresses the immediate liquidity concerns of gas companies but also paves the way for enhanced cooperation between gas suppliers and power generators.

Furthermore, the rescue package includes provisions for addressing the legacy debts owed to power-generating companies.

By utilizing future royalties and income streams from the gas sub-sector, the government aims to provide a sustainable solution that incentivizes investment in power generation capacity.

The announcement of the N3.3 trillion rescue package comes amidst ongoing efforts to revitalize Nigeria’s power sector.

Recent initiatives, including tariff adjustments and regulatory reforms, underscore the government’s determination to overcome longstanding challenges and enhance the sector’s effectiveness.

However, challenges persist, as highlighted by Barth Nnaji, a former Minister of Power, who emphasized the need for a robust transmission network to support increased power generation.

Nnaji’s advocacy for a super grid underscores the importance of infrastructure development in ensuring the reliability and stability of Nigeria’s power supply.

In light of these developments, stakeholders have welcomed the unveiling of the N3.3 trillion rescue package as a decisive step towards transforming Nigeria’s power sector.

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Nigeria’s Inflation Climbs to 28-Year High at 33.69% in April



Nigeria's Inflation Rate - Investors King

Nigeria is grappling with soaring inflation as data from the statistics agency revealed that the country’s headline inflation surged to a new 28-year high in April.

The consumer price index, which measures the inflation rate, rose to 33.69% year-on-year, up from 33.20% in March.

This surge in inflation comes amid a series of economic challenges, including subsidy cuts on petrol and electricity and twice devaluing the local naira currency by the administration of President Bola Tinubu.

The sharp rise in inflation has been a pressing concern for policymakers, leading the central bank to take measures to address the growing price pressures.

The central bank has raised interest rates twice this year, including its largest hike in around 17 years, in an attempt to contain inflationary pressures.

Governor of the Central Bank of Nigeria has indicated that interest rates will remain high for as long as necessary to bring down inflation.

The bank is set to hold another rate-setting meeting next week to review its policy stance.

A report by the National Bureau of Statistics highlighted that the food and non-alcoholic beverages category continued to be the biggest contributor to inflation in April.

Food inflation, which accounts for the bulk of the inflation basket, rose to 40.53% in annual terms, up from 40.01% in March.

In response to the economic challenges posed by soaring inflation, President Tinubu’s administration has announced a salary hike of up to 35% for civil servants to ease the pressure on government workers.

Also, to support vulnerable households, the government has restarted a direct cash transfer program and distributed at least 42,000 tons of grains such as corn and millet.

The rising inflation rate presents significant challenges for Nigeria’s economy, impacting the purchasing power of consumers and adding strains to household budgets.

As the government continues to grapple with inflationary pressures, policymakers are faced with the task of implementing measures to stabilize prices and mitigate the adverse effects on the economy and livelihoods of citizens.

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FG Acknowledges Labour’s Protest, Assures Continued Dialogue



Power - Investors King

The Federal Government through the Ministry of Power has acknowledged the organised Labour request for a reduction in electric tariff.

The Nigeria Labour Congress (NLC) and Trade Union Congress (TUC) had picketed offices of the National Electricity Regulatory Commission (NERC) and Distribution Companies nationwide over the hike in electricity tariff.

The unions had described the upward review, demanding outright cancellation.

Addressing State House correspondents after the Federal Executive Council (FEC) meeting on Tuesday, Minister of Power, Adebayo Adelabu, said labour had the right to protest.

“We cannot stop them from organizing peaceful protest or laying down their demands. Let me make that clear. President Bola Tinubu’s administration is also a listening government.”

“We have heard their demands, we’re going to look at it, we’ll make further engagements and I believe we’re going to reach a peaceful resolution with the labor because no government can succeed without the cooperation, collaboration and partnership with the Labour unions. So we welcome the peaceful protest and I’m happy that it was not a violent protest. They’ve made their positions known and government has taken in their demands and we’re looking at it.

“But one thing that I want to state here is from the statistics of those affected by the hike in tariff, the people on the road yesterday, who embarked on the peaceful protests, more than 95% of them are not affected by the increase in the tariff of electricity. They still enjoy almost 70% government subsidy in the tariff they pay because the average costs of generating, transmitting and distributing electricity is not less than N180 today.

“A lot of them are paying below N60 so they still enjoy government’s subsidy. So when they say we should reverse the recently increased tariff, sincerely it’s not affecting them. That’s one position.

“My appeal again is that they should please not derail or distract our transformation plan for the industry. We have a clearly documented reform roadmap to take us to our desired destination, where we’re going to have reliable, functional, cost-effective and affordable electricity in Nigeria. It cannot be achieved overnight because this is a decay of almost 60 years, which we are trying to correct.”

He said there was the need for sacrifice from everybody, “from the government’s side, from the people’s side, from the private sector side. So we must bear this sacrifice for us to have a permanent gain”.

“I don’t want us to go back to the situation we were in February and March, where we had very low generation. We all felt the impact of this whereby electricity supply was very low and every household, every company, every institution, felt it. From the little reform that we’ve embarked upon since the beginning of April, we have seen the impact that electricity has improved and it can only get better.”

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