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Better Growth Expectations for 2022 Per the World Bank – Coronation Merchant Bank

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Lagos Nigeria - Investors King

Today we shed some light on the recently published Nigeria Development Update by the World Bank titled “The Continuing Urgency of Business Unusual”. The publication provides an overview of recent social and economic developments in Nigeria, as well as forward-thinking views and recommendations on select economic and policy challenges.

The report covers the weakening macroeconomic indicators despite higher oil prices and an analysis on economic and policy reforms that could support macroeconomic stability in the long-term.

For national output, the World Bank expects growth at 3.4% y/y and 3.2% y/y in 2022 and 2023 respectively. The improvement in growth prospects is on the back of higher oil prices as well as sustained growth in agriculture and a robust recovery in services (mainly telecommunications, and financial services). These sectors posted growth above prepandemic levels in recent quarters. The 3.4% y/y GDP growth forecast is in line with our projection for same indicator in 2022.

Although growth prospects have improved, domestic macroeconomic indicators have weakened. This can be attributed to high inflation, heightened global risks on the back of the Russia-Ukraine crisis, the impact of monetary tightening by central banks in advanced economies, national security and policy direction concerns due to the upcoming 2023 elections.

Based on the report, between 2020 – 2021, the “inflation shock” alone is estimated to have pushed c.8 million more Nigerians below the poverty line. The food inflation rate has been a major driver of Nigeria’s headline inflation. Given its importance in the production of staples such as bread and pasta, the shortage of wheat triggered by the Russia-Ukraine crisis has contributed to steady upticks in food inflation. As at April ‘22, the price of wheat flour had
increased by 36% y/y.

The World Bank provides some recommendations to combat rising inflation in the shortterm. They include – (i) fully reopen land borders to trade and remove fx and import restrictions on staple foods and medicines (ii) signal the CBN’s commitment to price stability as the primary goal and reduce subsidized lending to medium and large firms (iii) reduce CBN overdrafts for fiscal deficit financing to their legal limit (5% of previous year’s actual collected revenue). Our estimate for inflation for end-2022 is 20.6% y/y.

On fiscal, despite higher oil price, the World Bank expects oil revenue to be lower in 2022. This is mainly due to increased petrol subsidy payment and low oil production. The estimated total cost of petrol subsidy was revised from the initial N443bn to N4trn this year. Based on data from the NBS, average crude oil production (condensates inclusive) in Q1 ’22 was 1.5mbpd, below the revised FGN 2022 budget oil production benchmark of 1.6mbpd.
Nigeria’s oil production has been hampered by production shut-ins as a result of crude oil theft, vandalism, prolonged repairs, and community issues.

Regarding trade, the report highlights Nigeria’s path towards greater integration and policy reform through the active participation in African Continental Free Trade Area (AfCFTA) negotiations and its efforts to develop a domestic implementation plan. The World Bank notes that the AfCFTA implementation will require substantial preparation and engagement across sub nationals, the private sector, and other stakeholders.

From our vantage point, to maximise the benefits of the AfCFTA agreement, Nigeria’s manufacturing sector needs to be strengthened. The cost of transportation, power and logistics which is fundamental to production and competitiveness is significantly high and deepens cost of production for manufacturers.

Furthermore, local manufacturers need to significantly improve their service delivery and product standards if they are to be competitive in a burgeoning intra-continental marketplace. Nigeria’s manufacturing sector accounts for c.10% of total GDP. This compares with 11% in South Africa, 15% in Egypt and 13% in Ghana. Similar to the views expressed in this World Bank update report, we note that a handful of reforms are essential to boost domestic manufacturing competitiveness.

These include creating an enabling regulatory environment for technology to be incorporated in trade operations; developing a cohesive strategy to formalise the informal sector which should also focus on reducing government bureaucracies, improving fiscal policies and accountability, while providing training, technology, and access to financial services. Strengthening customs and border patrol to minimize smuggling and dumping of substandard products is also important.

The World Bank highlights the importance of further continental integration to enhance competitiveness of Nigeria’s manufacturing sector. Furthermore, given the growing trend of investors seeking green opportunities, the report suggests that Nigeria can remain competitive by reducing gas flaring, venting, and fugitive methane emissions.

Based on the report, Nigeria’s remittance flows has recovered to pre-pandemic levels. In 2021, remittances to Nigeria grew by 11.2% to USD19bn.

Since some transactions pass through informal channels, the actual amount of remittance flows into the country is arguably higher. We note that there was increased usage of official channels by Nigerians in diaspora in 2021, this contributed to the growth recorded in remittance inflow.

Furthermore, it is likely that the CBN’s Naira-4-Dollar policy assisted with boosting remittances in the period under review. There was a strong need among migrants to assist their respective families in Nigeria due to the economic downturn triggered by the coronavirus pandemic, this also contributed to remittance growth during this period. According to local media, 70% of remittances from Nigerians in the diaspora went into family support, while 30% was channelled towards investments in 2021.

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

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Finance

Remittance to Nigeria, Other African Countries Hits $53bn in 2022

Remittance to Sub-Sahara Africa rose to $53 billion in this year

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The World Bank report has indicated that remittance to Nigeria and other countries in Sub-Sahara Africa has reached $53 billion in 2022. This represents an increase of 5.2 percent when compared with 2021.

Investors King understands that remittances into Nigeria and Kenya constitute a significant percentage of all the remittances into the African Sub-Sahara region. 

“Remittances to Sub-Saharan Africa, the region most highly exposed to the effects of the global crisis, grew an estimated 5.2 percent to $53 billion in 2022, compared with 16.4 percent last year (due mainly to strong flows to Nigeria and Kenya),” the report stated.

According to the World Bank report on Migration and Development, prepared by the bank’s Migration and Remittances Unit and Development Economy, remittance has constituted an important part of the Gross Domestic Product (GDP) for a number of African countries. 

For example, Remittances as a share of GDP in the Gambia is 28 percent while it stood at 21 percent in Lesotho, the report noted. 

The report added that remittances are an important source of household income for most Low and Middle-Income Countries (LMICs). Through remittances, most of the households in the LMICSs have been able to survive harsh economic conditions such as the Covid-19 pandemic. 

“Remittances are a vital source of household income for LMICs. They alleviate poverty, improve nutritional outcomes, and are associated with increased birth weight and higher school enrollment rates for children in disadvantaged households”. 

The World Bank noted that although the rising price of goods has adversely affected migrant incomes, the reopening of the economy and international borders has led to the increase of remittance inflow into Sub Sahara Africa.

Meanwhile, the global bank acknowledges that countries that witnessed scarcity of foreign exchange rates or multiple exchange rates officially recorded a decline in remittances inflow as migrants shift to alternative channels which promise better rates. 

The report noted that sending funds back home from some countries in Europe and America could attract a transaction fee that is as high as 7.8 percent on average. 

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Banking Sector

Insider Dealing: Hafiz Mohammed Bashir Acquires 37 Million Shares in Unity Bank

Alhaji Bashir carried out the acquisition in 32 different transactions at an average price of N0.51 a unit between November 8th and 11th 2022

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The management of Unity Bank Plc has announced that a non-Executive Director, Hafiz Mohammed Bashir scooped 37,681,947 shares of the bank.

The transaction was disclosed in a statement signed by the bank’s secretary, Alaba Williams.

Alhaji Bashir carried out the acquisition in 32 different transactions at an average price of N0.51 a unit between November 8th and 11th 2022, according to the disclosure available on the Nigerian Exchange Limited (NGX).

Insider dealing is the buying or selling of a company’s shares by someone with a piece of insider information not available to the public. Insider dealing is illegal in the U.S. but not in Nigeria as long as it’s disclosed.

The Nigerian Security and Exchange Commission (SEC) mandated all listed companies to disclose insider trading to enforce transparency across the nation’s Exchange market.

Also, insider dealings can help stakeholders and retail investors assess the confidence of top company executives in a listed company. While Alhaji Bashir’s acquisition could demonstrate his trust in the future of the company, it could also mean positioning ahead of a major company’s event given his position.

Hafiz Mohammed Bashir Profile

In 2017, Hafiz Mohammed Bashir was appointed as a Non-executive Director following the Central Bank of Nigeria’s approval.

Hafiz Mohammed Bashir is an accomplished professional with vast experience in the public and private sectors. He retired at the apex of Local Government Administration in Katsina State in 1992 and has chaired the Board of many companies – including Fiztom International Ltd, HafadGlobal Resources limited and Fiziks Nigeria limited.

Alh. Hafiz who is currently in private business holds a Post Graduate Diploma in Management from Abubakar Tafawa BalewaUniversity, Bauchi, and an Advance Diploma in Public Administration from the University of Jos, a higher Diploma in Local Government Administration- AhmaduBello University. Zaria and Diploma in Insurance from ABU, Zaria He is also currently undergoing a Master’s programme in Business   Administration at the Business School of the Netherlands.

See the details of the transactions below.

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Loans

Lagos Chamber of Commerce Advised FG on Borrowing, Proffer Solutions to Foreign Exchange Crises

LCCI lamented that additional borrowings will further increase Nigeria’s debt-servicing bill

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The Lagos Chamber of Commerce and Industry ( LCCI) has advised the Federal Government to explore alternative ways to finance the deficit in the 2023 budget proposal. LCCI lamented that additional borrowings will further increase Nigeria’s debt-servicing bill.

Investors King understands that the 2023 budget proposal as submitted to the National Assembly by the president has a deficit of N10.78 trillion.

Speaking at the organisation’s 134th Annual General Meeting (AGM) held in Lagos, LCCI President, Dr Olawale Cole, stated that although the chamber does not totally frown at the budget deficits, the chamber, however, is not disposed to issuing new commercial loans as well as bilateral and multilateral loans to finance the deficit. 

Dr. Olawale added that while President Buhari alongside other African presidents is seeking debt cancelation from international creditors, the presidents across the African continent keep piling up debts. 

“The world is a bit confused at our president’s well-publicized call for debt cancellation at the last United Nations General Assembly,” he noted.

Speaking further on the danger of the country’s incessant borrowing, Olawale said “the borrowings are significantly increasing, and Nigeria is struggling to service these debts due to revenue mobilisation challenges and an increased fuel subsidy burden”.

“The International Monetary Fund (IMF) has warned that debt servicing may gulp 100 percent of the federal government’s revenue by 2026 if the government fails to implement adequate measures to improve revenue generation,” he lamented. 

Similarly, the LCCI president also spoke on the foreign exchange challenges in Nigeria. He noted that the major cause of the fall in naira is a result of the drop in oil output and weak production amid increased demand for foreign currency. 

“The real solution to our forex scarcity crises is to boost production and expand exports. We must also resolve the crises around oil production, as 80 percent of forex earnings come from oil and gas exports,” he said. 

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