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Buhari Returns
By Bismarck Rewane
Financial Derivatives Company Ltd.
September 6th , 2017
OUTLINE
August Highlights
Sectors
Outlook
2
August Highlights
3
August highlights- Good news
o After a 105-day time-out, Buhari returns
6
August highlights- Bad News
o Average 90-day T-bill rates in primary auctions was 13.4% pa, in the
secondary market 18.1% pa
10
August highlights- Bad News
o Value and mainstream beers grew at the expense of premium brands
11
The World
Around Us
12
The World Around us
13
The World Around us
14
The World Around us
15
Euro Area
o Basking in the afterglow of the Brexit crisis
o The euro hit a 2-year high of $1.20 and 8-year high against the U.K
pound
16
Impact on Nigeria
o Nigeria is vulnerable to another hike in US rates
17
Impact on Nigeria
18
Sub Saharan
Africa
20
South Africa – Exits Recession
o Grew 2.5% in Q2’17 after 2 consecutive quarters of negative growth
o The Reserve Bank cut rates for the first time in 5 years – by 25bps to 6.75%
o Policy uncertainty & political instability remain the key risks for investors
o Fitch Ratings has downplayed the impact of the newly announced inclusive
growth plan
21
Angola – Enters new political era
o Elected its first new president in 38 years
o A milestone for a country reeling from the impact of lower oil prices
o His family retains control of the economy through its key institutions
o His son Jose Filomeno heads Angola’s $5bn sovereign wealth fund
22
Kenya – Victory for Democracy/ Chaos
o Supreme courts invalidates Augusts' elections citing irregularities
o Nairobi stock exchange has lost 4% after the annulment of the election
23
Ghana
o IMF approves 1-year extension on $0.98bn credit-facility program
o But the govt will have to cut spending due to weak revenues
o Global oversupply has cut cocoa prices by over 33% in the past year
25
Lessons for Nigeria
26
Domestic Economic
Performance
27
Leading economic indicators - Output
LEI Jul’17 Aug’17 % Change Sept’2017
GDP Growth (%) 0.5-0.7(Q3’17)* 0.5-0.7(Q3’17)* -- 0.5-0.7(Q3’17)
Oil Price ($pb; avg) 47.89 52.47 9.56 50
Oil Production (mbpd) 1.73 (June) 1.75 (July) 1.16 1.77
28
Leading economic indicators- markets
LEI Jul’17 Aug’17 % Change Sept’17
T Bills (91 days) – Primary 13.88 13.81 -7bps 13.79
T Bills (182 days) - Primary 19.05 18.99 6bps 19.1
Average NIBOR (%) (O/N, OBB, 30) 17.68 27.48 980bps 25.00
Average Lending Rate 25 25 - 24.5
Exchange rate (N/$; month-end) IFEM: 306.15 306.35 IFEM: -0.06 IFEM: 306.1
Parallel: 365 365 Parallel: -- Parallel: 365
IEFX: 367.88 359.67 IEFX: 2.28 IEFX: 357
Stock Market (N’trn) 12.35 12.24 -0.89 12.1
29
Leading economic Indicators
o The trend of indicators confirm a slowly improving situation
o We expect the price of flour to fall towards N9000 per 50kg bag from
N10,500 now
o The naira will come under pressure as the CBN attempts to maintain forex
supply
o In September & October the CBN will need to increase supply to N1.5bn a
month
o External reserves are likely to slip towards $30bn due to maturing obligations
31
Leading Economic Indicators
o Exchange rates
32
E I U ’ s N o t e o n N i g e r i a’ s f o r e x d i l e m m a
-Official N305
-Airlines N359
-BDC’s N365
o Buhari’s govt. believes in the myth of a strong naira and forex subsidies is
synonymous with a strong economy
o After floating the naira in June 2016 the system was abused
o With the NAFEX now at N362, the CBN has accepted that devaluation is
not a kiss of death
34
E I U ’ s N o t e o n N i g e r i a’ s f o r e x d i l e m m a
o The effective weighted exchange rate is now at N340 and not N305
o Now banks are trading among themselves and international investors are
back
o The economy will shrink in dollar terms before expanding in real terms
35
Nigeria Exits Recession
Matters Arising
37
T h e s l o w p a t h t o r e c ov e r y
2.5
2
1.5
1
0.5
0
Q4'15 Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Q2'17 Q3'17*
-0.5
-1
-1.5
-2
-2.5
-3
38
T h e s l o w p a t h t o r e c ov e r y
39
T h e s l o w p a t h t o r e c ov e r y
40
T h e s l o w p a t h t o r e c ov e r y
40
35
30
25
20
15
Q1'17
10
Q2'17
5
0
-5
-10
-15
-20
41
T h e s l o w p a t h t o r e c ov e r y
42
Commodities
43
Commodity Outlook
44
Export Commodities
o Over 95% of Nigeria's exports are raw materials
48
FA AC
467.9
Jul'17 652
462
May'17 418.82
496.39
Mar'17 466.93
514.15
Jan'17 430.16
386
Nov'16 410
420
Sept'16 525
510.27
July'16 443.6
0 100 200 300 400 500 600 700
FAAC N'bn
49
o FAAC amount will fall to N420bn in September
O p t i m i s t i c M a n u fa c t u r e r s & R e s i s ta n t
Consumers
60 Growth Region
40 Contraction Region
30
50
P ow e r U p d a t e
o Power output reached a peak of 3,626MW/h and a low of 2,901 in August
o Average sent out: 3,167 MW/h. Total power generated: 6,166 MW/h
51
Pay m e n t s a n d S e t t l e m e n t s
o Nigerians spent N4.4trn on electronic payments in H1 14000Volume (‘000)
o Indicative of ongoing retail revolution 12000
6000
o POS 13.52% to 12.7m
4000
o Cheques 5.18% to 955,076
2000
o NEFT 20.17% to 1.68m 0
600
o Cheques 3.83% to N441.3bn
400
0
o Instant transfers 6% to N4.58trn
Sept'15
Nov'16
Apr'17
Aug'16
Mar'17
May'17
Jun'17
Jul'16
Oct'16
Feb'17
Jul'17
Dec'16
Jan'17
o Instant transfers are the preferred
POS Cheque NEFT
53 mode of payment
Oil Rigs
Nigerian Rig Count
Oct '16 Nov Dec '16 Jan '17 Feb '17 Mar '17 Apr '17 May'17 Jun'17 Jul'17
'16
54
S h i p s Awa i t i n g B e r t h
70 0
60 100
50
200
40
300
30
400
20
10 500
0 600
Feb-17
Feb-16
Oct-16
Dec-16
Jun-16
Jun-17
Mar-16
Apr-16
May-16
Aug-16
Sep-16
Nov-16
Apr-17
May-17
Aug-17
Jan-16
Jan-17
Mar-17
Jul-16
Jul-17
Ships Awaiting Berth Parallel Rate (N/$)
o Driven by forex availability and delays in offloading ships due to decrepit port
facilities
55
Policy Options,
56
Policy: What are the Problems?
57
Policy Response: Prioritizing
Forex Policy
Interest Rate
Policy Tax Policy
Trade Policy
Investment
Policy
Aviation Update
Super Connectors Hit a
Brick Wall
60
Av i a t i o n U p d a t e
o The greatest aviation disrupters of the 21st century are Dubai, Emirates,
o They have quadrupled the number of passengers they fly each year
premium cabins
o They turned the Gulf into the stop over destination of global travel
61
Av i a t i o n U p d a t e
o After so many years every good thing must come to an end
o Terrorist attacks across Europe & political tension have taken their toll
Emirates
o 82% fall in profits 2016/17, the first drop in profitability for 5 years
62
Av i a t i o n U p d a t e
Etihad Airways
Qatar Airways
o 18 destinations shut off in Bahrain, Egypt, Saudi Arabia and the UAE
o
63
1% average annual decline in 2017 for seats departing from Doha
Av i a t i o n U p d a t e
passenger in 2017
64
N i g e r i a n Av i a t i o n
o Airlines finally got the CBN to succumb to the new rate of N359/$
o Effectively, fares will decline for efficient travelers who can plan ahead
67
Market in August
o The Nigerian Stock Market is on a tear again
70
Banking Industry
Highlights
71
Banking Industry Highlights
instruments
72
Banking Industry Highlights
o Most banks avoid exposure in sectors like real estate, telecoms, and aviation
73
Earnings at a Glance
76
Current Trends in the Nigerian
FMCG Space
funding
o Expansion projects
77
STOCK Market-Expectations in the near
Future
78
Political Update & Risks
E l e c t io n S e a s o n i n 9 0 d a y s
79
Political Update
o After Kenya’s decision and the rumble in S. Africa
80
Political Update & Risks
o Buhari is back and he must:
81
Political Update & Risks
o Also the opposition is in tatters
90 days
National
Ward Congresses 90 days State Congresses 90 days Conventions to
December 2017 March 2018 elect party officials
June 2018
82
Political Update & Risks
3 way race
APC and Buhari’s Record
VS
PDP historical record of corruption &
waste
VS
o Can claim APC you know, PDP you knew. Party X - you do not know – Why NOT?
83
Political Update & Risks
o In the game of politics anything is possible
o The APC will struggle but may likely squeak a victory after a fierce
political battle
84
September Outlook
86
September outlook
o Inflation to decline slightly again
87
September outlook
o The naira will weaken marginally towards N370/$-N372/$
o CBN will reduce its forward contracts because airlines now at NAFEX
window
© 2017. “This publication is for private circulation only. Any other use or publication without the prior express consent of Financial Derivatives Company
Limited is prohibited.”