“GDP 5.01%”
99
Presented by Bismarck Rewane CEO, Financial Derivatives Company Ltd. September 1 st , 2021 “GDP 5.01%” People Angry!!! People Hungry
Transcript of “GDP 5.01%”
Presented by Bismarck RewaneCEO, Financial Derivatives Company Ltd.
September 1st, 2021
“GDP 5.01%”
People Angry!!!
People Hungry
5 Tough Questions for Nigerian Policy Makers
2
The best hedge against inflation? Real Estate/Equities/Bitcoin or
Precious metals?
Beans 122.22%, Pepper 100%, Flour 61.54% but inflation
falling! Wow! What is the truth?
Cheery news & angry people! Why?
(Why is GDP up and income levels down?)
Is the PIA going to make things better for us?1. Petrol 2. Insecurity 3. New investments
Will the Naira crash to N600/$ as BDCs scramble?
Cheery news & angry people! Why?3
4
GDP Inflation
Yet, more people are living below the poverty line…
News to Cheer vs News to Fear
5
o GDP up to 5.01% in Q2’21
o Inflation down to 17.38% in July
o External reserves accretion
($33.93bn)
o Oil prices above $70pb
o Value of transactions climbing
46.24% in Q2’21(N72.39trn) from
(N49.5trn) in Q2’20
o Naira crashing to N526/$
o Unemployment high at 33.3%
o Life expectancy = 55.8 years
o 18,500 Nigerians seeking
asylum
o Income inequality rising (Gini
coefficient = 43.8 points
o Brain drain climbing
Cheer Fear
GDP Growth Sharply Up On Base Year Effects
o Q2’21 real GDP growth expanded by 5.01%
o 4.5% higher than Q1’21 (0.51%) and 11.11% above Q2’20 (-6.1%)
o Average growth rate in H1’21 is 2.7% compared to –2.18% in H1’206
1.87
-6.1
-3.62
0.11 0.51
5.01
-8
-6
-4
-2
0
2
4
6
Q1'20 Q2'20 Q3'20 Q4'20 Q1'21 Q2'21
Real GDP Growth (%)
-31.2
-21.4 -24.4
-51.7
-5.7
-6.1
6.6
22.2 20.1
4.6 3.1 5.01
-60
-50
-40
-30
-20
-10
0
10
20
30
Global & Regional Trend (%)
Q2'20 Q2'21
Sector Breakdown – 34 Expanded, 8 Slowed & 4 Contracted
o In Q2, of the 46 activities, 34 expanded, 8 slowed and 4 contracted
o Fastest growing sectors were the most impacted by the shutdown
o They are job-elastic and have the potential to boost productivity 7
78.16 76.81
22.49
3.7 3.49 1.3 5.5
-4.54 -12.29
-46.78-60
-40
-20
0
20
40
60
80
100
Fastest Growing Sectors Slowing & Contracting sectors
Growth Uneven with Limited Linkages
o Real GDP (2.7%) still below potential GDP (8.3%)
o Economy still in a recessionary gap = 5.6%
o Population (3.2%) growing faster than GDP 8
-1.6
0.81.9 2.2
-1.8
2.71.3
2.8 3 3.3
-0.5
8.3
-4
-2
0
2
4
6
8
10
2016 2017 2018 2019 2020 H1'21
Real vs Potential GDP
Real GDP Growth (%) Potential GDP Growth (%)
9
Inequality Nightmare… Nigeria’s Gini Coefficient is 43.8 Points
“The poor cannot sleep, because they
are hungry! And the rich cannot sleep,
because the poor are awake and
hungry”
- Sam Aluko (1999)
10
Inequality Nightmare… Triggered the French Revolution
“ Qu'ils mangent de la brioche”
In English
“Let them eat cake"
- Marie Antoinette (17th or 18th century)
11
Inequality Nightmare…
“ Shuffering and Shmiling”
49 sitting, 99 standing
- Fela Kuti (1978)
12
Multidimensional Poverty
13
o 7mn people fell into extreme poverty in 2020 – World Bank
o Nigeria still the poverty capital of the world: 93.9mn people now
live below the poverty line
People are Angry as Socio-Economic Conditions Worsen
14
9.913.9
18.823.1
27.1
33.3
13.7
19.1
25.529.7
34.9
42.5
0
5
10
15
20
25
30
35
40
45
Q3'15 Q3'16 Q3'17 Q3'18 Q2'20 Q4'20
Unemployment Rate (%)
Unemployment (%) Youth Unemployment (%)
Source: NBS, World Bank, FAO, WFP, FDC Think Tank
o Youth unemployment fast
approaching 45%
o Misery index = 50.68%
o Nigeria a hunger alert hotspot –
FAO & WFP
o Over 18,000 Nigerians seeking
asylum
o Health sector brain drain rising
(e.g. about 500 doctors moving
to Saudi Arabia)
Okun’s Law – Strategic Investment Crucial for Sustained Recoveryo Positive GDP growth yet to have a significant impact on socio-
economic conditions
15
“To achieve a 1% decline in unemployment rate, real GDP must grow by approx. 2% faster than the rate of growth of potential GDP”
- Okun’s Law
Strategic
investment &
increased stimulus
in job-elastic sectors
+Elimination of
leakages (misaligned
exchange rate &
subsidies)
=Sustained
economic
recovery &
inclusive growth
A Lot to Cheer…
o Value of transactions across e-payment channels increased by
46.24% in Q2’21(N72.39trn) from (N49.5trn) Q2’20
o Velocity of circulation declined by 2.33% to 4.62x
16
Q2’20 (N’bn)
Q2’21(N’bn)
Cheque 522.48 753.98
POS 994.92 1,515.73
NIP 29,676.55 66,163.30
NEFT 18,309.48 3,959.79
Total (N’trn) 49.50 72.39
17.923.63
30.03
49.5
72.39
0
10
20
30
40
50
60
70
80
Q2'17 Q2'18 Q2'19 Q2'20 Q2'21
Total Value of Transactions (N'trn)
A Lot to Cheer…
o FAAC disbursements climbed by 3.76% to N760.7bn from N733.1bn in
July
o Vessels awaiting berth sharply down by 68.75% to 5 in Lagos ports
from 16 in July
o Petroleum Industry Act now signed into law 17
619.34 640.3 605.59681.33
616.89 605.69
733.10760.7
0
200
400
600
800
FAAC (N'bn)
A Lot to Cheer…
o Nigeria to receive IMF SDR of $3.35bn, which will
provide a 10% cushion to external reserves
o Medium-Term National Development Plan (2021-
2025)will be unveiled in October
o 10 months after the expiration of the ERGP (2017-
2020)
o CBN increased dollar supply to commercial banks by
200%
18
A Lot to Fear…o Total capital imports fell to $875.62mn in Q2’21, from
$1.91bn in Q1’21
o Parallel market rate crashed to N526/$ on FX supply
shortages
o CBN froze the accounts of four fintechs that
encourage dollar denominated investments for 180
days
o Rise Vest, Bamboo, Chaka and Trove
o Also stopped the forex sales to BDCs and barred
microfinance banks from forex transactions 19
20
Power Update – One Grid Collapse in August
o DISCOS get NERC approval to increase tariff September 1
o Labour, FG head for showdown over electricity tariff increase
o Lagos partners US firm to explore $50bn global solar market
o Nigeria needs $400bn in 29 years to power 25mn homes ― Minister
o FEC okays $2.5mn for power projects21
Peak Energy Generated
5,195MW
Average Energy Generated
4,062MWH/H
Constrained Revenue (Million Naira)
-Total Grid Collapses
1Total
constrained energy
1,591MWH/H
Source: Lavayo
Nigeria: Debt Trap or Relief
o Total public sector debt up to
N33.12trn as at Q1’21 [$87.24bn]
o About 35% of GDP
o External debt gulps 70% of FGN
revenue annually
o Loans from multilateral creditors
stands at 57% of current debt
stock
22
0
10000
20000
30000
40000
50000
60000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Public Debt ( 2000-2020), billions of Naira
Foreign Domestic
Obasanjo (1999-2007)
Buhari (2015 - )
YarAdua / Jonathan ( 2007-2015)
Nigeria: Debt Trap or Relief
23
o Rising concerns on debt sustainability suggest Nigeria is
quickly falling into a debt trap
o Weak finance management practices and limited revenue to
keep worsening debt problem
o Domestic debt also on the rise
o FG Ways & Means advances climbs by 595.5% to N15.51trn in
five years – fiscal deficit = N5.6trn
Food prices up, inflation falling! What is the truth?
24
Inflation Down Again in July (17.38%)
o Headline inflation fell in July to 17.38% - 4th consecutive month
o Partly driven by base year effects and seasonality (harvest)25
16.4717.33
18.17 18.12 17.93 17.75 17.38
11.8512.38 12.67 12.74 13.15 13.09
13.72
20.5721.79
22.95 22.7221.83 22.28
21.03
10.00
12.00
14.00
16.00
18.00
20.00
22.00
24.00
Jan'21 Feb'21 Mar'21 Apr'21 May'21 Jun'21 Jul'21
Inflation (%)
Headline (%) Core (%) Food (%)
Facts About Current Inflation
o Inflation is 8.38% above the upper limit of the CBN’s target (9%)
o Inflation above 12% is growth retarding - CBN
o Negative real rate of return widening as interest rates fall faster than
the rate of inflation
26
16.47 17.3318.17 18.12 17.93 17.75 17.38
16.8
2
5.58
9.75 9.65 9.158.2
6.8
0.00
5.00
10.00
15.00
20.00
Jan'21 Feb'21 Mar'21 Apr'21 May'21 Jun'21 Jul'21 Aug'21*
Inflation – Interest Rate Differential (%)
Inflation (%) 364-day T/bill (%) (2021)
Lagos vs National Basket
o Lagos state inflation 18.22%
27
o Headline inflation 17.38%
“Inflation in Lagos state is higher than national inflation rate”
Commodity Prices – 7 Red, 2 Green, 1 Amber
‘Commodity prices rose by an average of 52.78% in the last year’28
Aug’20 Aug’21 % Change
Garri (50kg) 15,000 15,000 -
Rice (50kg) 28,000 27,000 -3.57
Beans (50kg) 18,000 40,000 122.22
Tomatoes (big basket) 35,000 27,000 -22.86
Pepper (bag) 15,000 30,000 100.0
Semovita (10kg) 3,400 5,000 47.06
Palm oil (25ltrs) 12,500 19,000 52.0
Flour (50kg) 13,000 21,000 61.54
Sugar (50kg) 17,500 22,950 31.14
LPG (12.5kg) 3,200 6,000 87.5
What Goes into a Loaf of Bread?
Flour
29
Baking powder
& fortifier
Sugar
Yeast
Margarine
61.54%
25.0%
31.14%
15.0%
55.0%
o Imported commodity prices rising on dollar shortages (flour)
o Wheat and sugar are being considered for FX restrictions list
o Cooking gas import tax now implemented (7.5%)
30
Domestic Inflation Down But Food Prices Up
o Divergence between official inflation data and market reality
o Due to:
o Outside lag: Time lag between policy implementation and
impact on the market
o Consumer price resistance: 50% of Nigerians reduced food
consumption
o Cross elasticity of demand: Manufacturers resorting to local
substitutes, reducing supply to retail markets
31
Global & Regional Inflation Trend
o Falling global inflation supports Fed’s view - inflationary pressures are
transient
o Decision to gradually phase out quantitative easing threatened by the
delta variant of COVID-19 32
5.4
2.5
1.1
4.95.4
2
1
4.6
0
1
2
3
4
5
6
US UK China South Africa
Jun'21 Jul'21
113.3
116 118.9 120.9
127.1
124.6 123
105
110
115
120
125
130
Global food index
33
The Best Hedge Against Inflation…
Equities Real Estate
Bitcoin Dollar Investments
Spread your risks…
54.85%
335%
15%
29.2%
Inflation vs Investment Returns- 2 Asset Classes Outperformed Inflationo Nigerian equities is the best
hedge against inflation on a y-
o-y basis
o Nigerian equity investors’
return beats inflation by 37.47%
o NSE performance dwelling
on past glory (2020 best
performing stock market)
o Negative real rate of return on
investment in treasury bills
17.38%
54.85%
15.0%
6.8%
29.2%
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
Y-O-Y
If You Invested N10mn in the Last 12 Months…Investment Securities One Year Return Investor’s Return
US equities (S&P 500) 29.2% N2,920,000
Nigerian equities 54.85% N5,485,000
Nigeria Treasury Bills 6.8% N680,000
Real Estate 15% N1,500,000
Bitcoin??? 335% N33,500,000
o “High risk investment either earns you a robust reward or a handsome
loss”
o Bitcoin delivered the highest return (335%) in twelve months
o Nigerian equities market outperforms S&P 500
Domestic Investment Opportunities - Sentiment Barometero Two consecutive months of
gains in equities market
o Rotation of funds toward the
equities market as yields
decline in fixed income space
o Fixed income investors earn
approx. 0.6% in a month
o Equity investors gained 1.7% in
a month
2%5.5% 7%
9% 9.65% 9.15% 8.20% 7.08%5.3%
-6.20% -1.90%
2.02%
-3.51% -1.38%
2.63% 1.7%
-10%
-5%
0%
5%
10%
15%
Jan Feb Mar Apr May June July August
Investment Performance
NTB Rates (364 days) NSE ASI (M-O-M)
TB Rates
(12months)
Avg.
Dividend
Yield
Avg Rate
on
Corporate
Bond
NSE ASI
7.08% 7.02%
13%
-2.61%
Investment Returns
Performance in August 37
o NGX market capitalization 1.74% to
N20.43trn
o NGX ASI 1.7% to 39,219.61
o NGX ASI outperforms all indices
o Driven by bellwether gains
MTN (3.90%) and Airtel (17.8%)
o Reversal of gains in the oil and gas
index driven by volatile oil prices-2.3%
-7.6%
-1.4%
-1.2%
-3.4%
1.7%
Oil & Gas
Consumer Goods
Industrials
Banking
Insurance
NGX ASI
August’2021
A Selected Portfolio of Nigerian Equities
Stocks P/E Ratio Dividend
Yield
YTD
Return
Allocation
(N)
Investor’s
Return (N)
MTN 13.83x 4.92%1.53%
2,500,000 38,250
Zenith 3.87x 11.52% 2.2% 2,500,000 (55,000)
Guinness 17.21x 5.03% 63% 5,000,000 3,150,000
o Hypothetical portfolio returned 31% YTD, outperforming the S&P
500 (20.1%)
o Guinness and MTN Nigeria outperform the NGX ASI
Invested Amount : N10mn
Guinness Nigeria Resurrects and Beats the Marketo Dr. Omobola Johnson emerges as the first female
chairman of Guinness Nigeria Plc
o Guinness Nigeria bounces back to profit territory
o Improved corporate governance
o Top line surged by 53.7% to N160bn, driven by:
o Higher prices, product innovation
o Increase in economic and business activities relative to 2020
o Bottom line performance soared 110% underpinned by:
o Revenue growth, 10.7% reduction in operating expenses to
N41.7bn 39
Dr. Omobola Johnson
Guinness Nigeria Resurrects and Beats the Market
40
Brand Guinness
Up 50% Mainstream Spirit
Up 75%
Premium spirit
Up 121%
Double digit
revenue
growth across
revenue
segment
Malts
Up 50%
Ready to Drink
Up 37%
41
Earnings Marginally Down but Solid Fundamentals
o Gross earnings declined slightly by 0.15% to N345bn
o Exacerbated by a 6% decline in interest and similar income to
N203.9bn
o Attributable to declining yields on marketable securities
o Non-Interest income increased by 9% to N126.7bn
o Bottom line grew by 2.2% to N106bn
o Supported by the reduction in interest expense and growth in non-
interest income 42
Jim Ovia
Earnings Marginally Down but Solid Fundamentals
o Total Assets up marginally by 0.40% to N8.5trn
o Total customer deposit up by 8% to N5.77trn (increased
customer base)
o NPL ratio increased by 5% to 4.51% (4.29% in Dec 2020)
o Attributable to a 3% growth in risk asset to N2.99trn
o Return on average equity declined by 13% to 18.8%
o Liquidity (69.9%) and capital adequacy (22.0%) ratios remain
above regulatory thresholds43
Jim Ovia
Equities: Not a Perfect Hedge but Better Than Doing Nothing
44
H1’2021 Corporate Earnings Summary
o Average revenue growth of 23% to N3.08trn
o Driven by higher prices, deepened market
penetration, increased customer base and demand
for digital services
o Increase in business and economic activities relative
to 2020 (pandemic year)
o Average profit growth of 30% to N615.1bn
o Driven by cost optimization and reduction in finance
cost
45
Corporate Earnings-H1’2021
46
Stock Industry Revenue
Growth
PAT
Growth
Free Cash
Flow Growth
Earnings
Multiple
YTD Stock
Return
Total Oil & Gas 42% to
N151.33bn
1602% to
N8.07bn
171% to
N24.10bn
9.19x 48.9%
Okomu Agriculture 75% to
N23.63bn
138% to
N9.54bn
216% to
N10.88bn
8.49x 10.07%
Presco Agriculture 59% to
N21.47bn
131% to
N10.13bn
187% to
N8.334bn
3.11x 6.13%
FBNH Banking 1.7% to
N291bn
23% to
N38.1bn
N/A 6.04x 4.89%
Lafarge Industrial 20.3% to
N145bn
21.5% to
N28bn
72% to
N47bn
10.20x 4.51%
Custodian Insurance 20% to
N42.19bn
2% to
N4.63bn
N/A 3.15x 4.27%
MTN Telecoms 24% to
N791bn
49% to
N141.8bn
25% to
N116bn
13.83x 1.00%
Corporate Earnings-H1’2021
47
Stock Industry Revenue
Growth
PAT
Growth
Free Cash
Flow Growth
Earnings
Multiple
YTD Stock
Return
Dangote
Cement
Industrial 44.8% to
N690bn
51.9% to
N191bn
33% to
N254bn
21.02x -2.00%
Unilever FMCG 43% to
N39bn
238% to
N715mn
24% to
N6.7bn
26.20x -2.77%
Zenith Banking 0.15% to
N345bn
2.2% to
N106bn
N/A 3.87x -3.22%
Nestle FMCG 21.6% to
N171bn
0.4% to
N21.7bn
98% to
N49.4bn
37.96x -7.0%
Nigerian
Breweries
Brewery 38% to
N209.3bn
38% to
N7.72bn
364% to
N13.66bn
25.29x -8.26%
AIICO Insurance 18% to
N34.24bn
14% to
N3.25bn
N/A 2.89x -12.39%
BUA
Cement
Industrial 22.7% to
N124bn
24.7% to
N43bn
352% to
N95bn
32.65x -20.9%
Investor Confidence - Specter of a Bear Market or Crash
o Investor confidence is slipping to negative
o Nigeria’s share of global investment flows declined to 0.19% in 2020
o Stiff regulations threaten security of investments
o Net foreign outflows expected to linger due to currency weakness
o Listed companies are largely exposed to economic vulnerabilities
o Dwindling disposable income and increased rate of unemployment
will further contract corporate earnings
o Forex challenges and insecurity will heighten cost and drag bottom
line growth48
Why Should I Invest in Equities?
o Nigerian equities market expected to maintain
a positive trend
o As yields on fixed income securities wane
o A GDP growth of 5.01% is expected to boost
investor confidence
o Decline in inflation rate to 17.38% may force
CBN to reduce interest rates or maintain status
quo at the next MPC meeting
49
Why Should I Invest in Equities?
o This will force more investors to rally for higher ROI in
the equities market
o Stock specific events and business strategic actions
will strengthen market sentiment
o Corporates hedging against economic
vulnerabilities through:
o Strong partnerships, restructuring, diversification,
cost optimization and deepened market
penetration
50
Real Estate the Historical Hedge!
51
52
Real Estate Sector Update
-25.00
-20.00
-15.00
-10.00
-5.00
0.00
5.00
10.00
Real Estate Sector Growth(%)
53
o Real estate sector expanded by 3.85%
in Q2’21 from 1.77% in Q1’21
o The sector experienced the sharpest
contraction in Q2’20 (-21.99%)
o Improvement in activities is partly driven
by increased investments as interest
rates declined
o Vacancy factor down to 20% in Q3’21
from 25% in Q2’21
Threats for Nigeria’s Real Estate Sector
54
InsecurityRe-introduction of
Lekki toll
Poor rail networks Virtual work & E-commerce
High cost of imported
raw materials
(aluminum, roofing
sheets etc.)
Q3’21 Survey & Trends
55
Ikoyi Lekki
o Vacancy factor index
increased to 33% from
32% in Q2’21
o Due to high rents for
big corporate buildings
o Some rents are priced
in dollars
o Virtual work reducing
demand for office
spaces
o Vacancy factor index
fell to 13% from 21% in
Q2’21
o Due to an increase in
demand for
commercial real
estate
o Increased supply of
short lets and serviced
apartments
VI
o Vacancy factor index
declined to 19% from
27% in Q2’21
o Driven by rising
demand for residential
housing units and new
shared office spaces
springing up
o Multiple use buildings
o Residential +
commercial
Q3’21 Survey & Trends
o Rents are climbing in Lagos due to high inflation and rising cost of
building materials
o Recent housing trend in Lagos seems to be crowding out self cons
– partly due to high default rates among low-income earners
o New buildings are mostly 2 & 3 bedrooms, serviced & shared
apartments and duplexes
o Serviced & shared apartments are mostly on the island
o Investors delving into commercial real estate on the island
56
Q3’21 Survey & Trends
o New trend of short-lets & Airbnb leading to shortage of residential
real estate
o Could also be a threat to hotels
o An efficient rail system would help to decongest traffic
o And possibly shift real estate demand to neighboring states like
Ogun, Oyo etc.
57
Q3’21 Survey & TrendsMainland Island
Self Con Still omnipresent but gradually
phasing out in high brow
areas
Fast phasing out
2- bedroom Available but pricey Shift towards serviced
apartments
3- bedroom More ubiquitous but smaller
rooms
Shift towards serviced and
shared apartments
Duplex Yet to gain traction New trend for housing units
Short-lets Not common, only available
in selected areas like Ikeja
GRA, Alausa
Many, becoming more
preferred to hotels
58
Luxury Real Estate Investments
o Sharp increase in luxury real estate developments on the mainland &
island e.g. Marriot hotel in Ikeja GRA
o Developers are cashing in on long sub-leases
o Agents/owners targeting high brow areas
o Hotels offering promotional packages for events
o Room and Board being cannibalized by Airbnb
o Others include mini lounges, exotic restaurants and fine dining
o Imported finishing materials are pushing up rents and values
o High unemployment and income squeeze affecting aggregate demand
59
Will the Naira crash to N600/$ as BDCs scramble?
No, a reversal will come once supply increases60
Naira: Going, Going….Gone!
Will the Naira crash to N600/$ as BDCs Scramble?
61
In the Short-run, NO
Increased forex sales to banks for legitimate transactions
SDR from IMF to boost foreign reserves
Oil price still trading above the 2021 Budget benchmark
($40pb)
Outside lag impact: time lag between policy implementation and impact on the economy and markets
IEFX rate to remain within a range of N411/$-N412/$
Parallel market rate to trade between N510/$-N525/$
Likely outcome:
62
Will the Naira crash to N600/$ as BDCs Scramble?
63
In the Long-run, likely. “Once supply increases and I&E
rate is allowed to adjust, naira will climb”
Lingering high forex demand with no significant increase in supply
to the market will further crash the naira
REER appreciation will continue to engender external imbalances
Commercial bank sales to be more accessible by the public
Market to adjust eventually but naira to remain slightly overvalued
IEFX rate to remain within a range of N420/$- N440/$
Parallel market rate to trade between N530/$-N550/$
Likely Outcome:
PPP Value – N522.57/$
64
o At N411.08/$ the currency is overvalued by 27.12%
o PPP value on an upward trend, reflecting the overvaluation of the naira
o Currency convergence to continue around the I & E window
336.01
402.94
507.43522.57
363 362
470
526
364
364.51410.25 411.08
300
350
400
450
500
550
2018 2019 2020 2021*
PPP (N/$) Parallel(N/$) I&E(N/$)
PPP, Parallel & IEFX Rates
Naira Determinants 2020 2021*
Avg. Oil price ($’pb)
42.3 66
Oil production(mbpd)
1.51 1.53
Balance of trade ($’bn)
-15.2 -4.7
Terms of trade ($’bn)
23.2 30.2
Current account ($’bn)
-17.1 -4.2
External Reserves ($’bn)
35.37 30-34
Remittances ($’bn)
16.8 21.5
FPI ($’bn) 5.14 10.5
o A major determinant of the naira
value is the balance of trade and
current account
o Terms of trade improving and
balance of trade deficit reducing
o But the naira is still languishing and
plunging
Exchange Rate Outlook: Strategic Policy Options 66
Exchange rate options opened to the CBN
Crawling peg One fell swoop
More restrictions Forex rationing
“Forex rationing reallocates supply rather than increase supply”
o SDR of $3.35bn and Eurobond issue of $6.2bn to support the naira
o Reserves could edge higher to $37bn
o Import cover = 9.08 months
o To also support the CBN in clearing FPI backlog
IMF SDR Disbursement to Boost Reserves
36.3
35.1 34.82 34.8834.23
33.37 33.4 33.5734
31
32
33
34
35
36
37
Jan'21 Feb'21 Mar'21 Apr'21 May'21 Jun'21 July'21 August'21 Sept'21*
External Reserve ($'bn)
Monetary Policy Pronouncements
68
Issued Guidelines to Nigerian Banks on e-Naira
Four Fintech accounts frozen for 180 days: Rise
Vest Technologies, Bamboo Systems, Trove
Technologies and Chaka Technologies Limited
Microfinance banks to stop forex transactions
Monetary Policy Outlook
69
o Next meeting - Sept 20-21
o Will likely bring down MPR by 0.5% to 11%
o Supported by sustained positive growth rate
(5.01%) and continued moderation in inflation
rate (16.8% in August)
o While other interest rates remain constant
o Intensified efforts toward convergence of the
exchange rates
o Reducing the parallel market premium
Is the PIA going to make things better for us?
70
For the next two months…
71
PMS price will remain at N162-N165/litre
PMS: Nigeria a Smugglers Paradise!
72
0.32
1.08
0.92 0.92
1.14 1.15
0
0.2
0.4
0.6
0.8
1
1.2
1.4
Nigeria Ghana Benin
Republic
Togo South Africa Cameroon
Petrol price ($/litre)
o PMS price lowest in Nigeria
o Increasing cross border smuggling
Fiscal Policy Pronouncementso 2021 supplementary appropriation bill (N982.7bn) passed by the
senate
o Medium-Term National Development Plan (2021-2025)will be unveiled
in October
o PIB signed into law
o NNPC will be transformed into a CAMA company liable to pay taxes
and dividends to shareholders
o FG can sell NNPC shares to individuals
o 4 modular refineries to commence operations soon73
74
Fiscal Policy Outlook
o Public finance to remain in deficit: Fiscal deficit = N5.6trn (2021)
o Oil revenue will be insufficient to meet expenditure needs
o Tax revenue will be undermined by widespread evasion and a large
informal sector
o Implementation of the PIA to continue but subsidies will remain
o Minimal impact on new investments in the downstream sector
o As investors transition towards investments in renewable & clean
energy
o FG’s debt burden to intensify as Ways & Means advances climb75
Aviation Sector Update
76
Global Aviation Updateo Global airline industry improving as international and regional
travel demand rebounds
o Passenger travel demand disrupted by new restrictions
o North American airlines showed the strongest recovery on the
significant improvement in US domestic travel
o EU has reimposed ban on US passengers
o The FDA approval of COVID-19 vaccines in the US and decline in
cases in China also supported industry wide growth77
Global Aviation Update
o Air freight (cargo) revenues remain robust (up 72%), further
supporting airlines as demand and yields stay strong
o Cash flow generation improved as passenger bookings for summer
travel were boosted with the progress in vaccination
o Lower jet fuel prices in August reduced operating costs
o Fuel costs and user charges declined by 52% and 48% respectively
o However, new COVID-19 restrictions in some large domestic
markets pose a huge threat to airline recovery
78
Regional & Domestic Update
o South African Airlines to resume operations on September 23
o Domestic flights would begin before international routes
o Kenya Airways JV with Air France-KLM will end in September
o Nigeria’s aviation sector grew by 4.98% in Q2’21 from -11.78% in Q1’21
o Driven by the resumption in domestic air travel
o Domestic air fares are 100% higher than zero
o Air Peace also to start direct flights to Douala, Cameroon
o Has commenced flights to Ibadan from Abuja, PH and Owerri
79
Political Update
80
Players to Watch (2023)
81
Atiku
El Rufai
Tinubu
Kwankwaso
Saraki
Amaechi
Tambuwal
Wike
Osinbajo
NorthEast
NorthWest
NorthWest
NorthCentral
NorthCentral
South South
South East
Obi
South South
South West
South West
Political Calculus
o Politics of zoning
o Economic performance
o Misery index (unemployment (33.3)+ Inflation (17.38)) = 50.68%
o This is 3 times higher than in April 2015 (16.2%)
o Data integrity
o Change at the helm of the National Bureau of Statistics
o Could data integrity be compromised?
o Will multilaterals and foreign investors continue to perceive data as
reliable?
82
LEVERS OF CONTROL KEY OLD WEIGHT (%)
NEW WEIGHT (%)
Security and intelligence apparatus S 15 20
Military M 20 10
Bureaucracy and government machinery BG 10 10
Political party machinery PP 5 10
Legislature L 10 5
Corporate C 5 10
Establishment – Traditional Leaders E 5 5
State governors SG 20 10
Media and press MP 10 20
TOTAL
∑[S+M+BG+PP+L+C+E+SG+MP] = Total Political Power [TPP]
100% 100%
The Route to Power & Changing Calculus
Political Update
o PDP in power for 16 years & in opposition for
6 is unravelling
o Limited patronage and victim of harassment
o Electorate can hardly distinguish between
APC & PDP
o APC & PDP will splinter after conventions
o Increases the chances of a third force
springing up
84
Political Update
o Voter apathy and insecurity in South-East could hamper Anambra
elections
o APGA (Soludo) still the favourite
o Litigation threatens to derail the PDP’s & APC’s already slim
chances
o Time between end of judicial process and elections too short to
make an impact
o Electronic transmission of results still a highly contentious issue
85
86
September Summary & Outlook87
Q3’21 GDP Forecast & Drivers of Growth
1.87
-6.1
-3.62
0.110.51
5.01
3.5
-8
-6
-4
-2
0
2
4
6
Real GDP Growth (%)
88“Forex scarcity to remain a major problem for several sectors”
Sectors Comments
ICT E-commerce, virtual
meetings supporting sector
growth
Construction Increased government
construction ahead of 2023
elections
Trade As informal sector activities
improve
Accommodation
& food services
Reduced restrictions (hotels,
event centers, clubs,
restaurants) to keep
boosting business
operations
Outlook
o August inflation will maintain the downward trend to 16.8%
o But insecurity and exchange rate swings to exert pressure on prices
o IMF SDR disbursement could boost external reserves
o And support the CBN’s ability to support the naira
o Naira likely to appreciate at parallel market to N517/$ – N520/$ on
increased FX supply
o Official and IEFX rates to hover around N411.3/$ – N411.5/$
89
Outlook
o Interest rates will continue declining towards 6%
o Further widening the negative real rates of return
o Investors to rebalance their portfolio in favour of equities as t/bill
yields become unattractive
90
Corporate Humour
Faith sees the invisible, believes the unbelievable and receives
the impossible – Unknown Author
91
Love is blind and marriage is the institution of the blind
– James Graham
Glory lies in the attempt to reach ones goal and not
in reaching it. – Mahatma Ghandi
Corporate Humour
Do not use a hatchet to remove a fly from your friend’s
forehead – Chinese Proverb
92
The true index of a man’s character is the health of his wife.
– Cyril Connolly
Men always want to be a woman's first love and
women want to be a man’s last romance – Oscar Wilde
Corporate Humour
93
A hen is only an eggs way of making another egg.
– Samuel Butler
The brave man inattentive to his duty, is worth little more
to his country than the coward who deserts her in the
hour of danger – Andrew Jackson
Two people writing a novel is like three people
having a baby – Evelyn Waugh
Corporate Humour
94
I cross + 3 nails = 4 given, if you think no one cares if you
are alive, try missing a couple of loan payments
– Unknown Author
Love is an ocean of emotions entirely surrounded by expenses
– Lord Dewar
A friend to everybody and to nobody is the same
thing – Unknown Author
Corporate Humour
Adam was the luckiest man in the world, he had no mother-in-law.
– Unknown Author
95
It is not the load that breaks you down but the way you
carry it. – Raymond Smith
There are only 3 things women need in life – Food,
water and compliments – Unknown Author
Corporate Humour
It is not a lack of numbers but a lack of holiness that hinders the church
– Unknown Author
96
What is right is often forgotten by what is convenient
– Bodie Thoene
Faith is jumping into nothing and landing on
something. – Unknown Author
97
98
Bismarck J. Rewane, MD/CEO Financial Derivatives Company Ltd.
Lagos, Nigeria01-6320213
© 2021. “This publication is for private circulation only. Any other use or publication without the prior express consent of Financial Derivatives Company Limited is prohibited.”
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