Business Hilights
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Key business activities that shaped Nigeria’s economy last week ending June 9, 2018

Penultimate Monday, the National Bureau of Statistics (NBS) released the Foreign Trade Statistics for Q1-2018, wherein the total value of Nigeria’s merchandise trade increased 19.74% q/q to NGN7.21 trillion from NGN6.02 trillion in Q4-2017 and 35.07% y/y from NGN5.34 trillion in Q1-2017.

However, total import value for the period increased by 19.22% q/q to NGN2.52 trillion (vs. NGN2.11 trillion in q4-2017) while total exports grew significantly by 20.02% q/q to NGN4.69 trillion (vs. NGN3.91 trillion in Q4-2017). Accordingly, the trade balance improved by 20.95% to NGN2.18 trillion, against NGN1.80 trillion in the preceding quarter.

The significant improvement in trade balance in the quarter under review was driven by the stronger growth in exports compared to imports, and notably, the trade balance exceeded the NGN2 trillion mark for the first time since Q1-2016. We expect further growth in the trade surplus, on the back of stronger oil prices and production volumes (oil accounts for 76.3% of total exports).

Within the period under review, the Chairman of the Federal Inland Revenue Service (FIRS) announced that the Voluntary Assets & Income Declaration Scheme (VAIDS) has accrued NGN30 billion since inception 11 months ago and that tax net has been expanded from 14 million to 19 million people, representing a 36% increase. Though the expansion in the tax net is a welcome development, the extra tax revenue accrued is underwhelming as it represents only 30% of the scheme’s revenue target, and 0.4% of the government target for 2018.

The equities market recovered strongly from the four-week streak of losses, as the ASI surged 5.03% w/w to 39,042.11 points, driven by bargain hunting in value stocks across major sectors. As a result, the Year-to-Date and Month-to-Date returns turned positive, at 1.11% and 1.48%, respectively. Demands for WAPCO, NB, and FIDELITYBK stocks supported the gains posted by the Industrial Goods (+9.36%), Consumer Goods (+6.55%), and Banking (+4.48%) indices, while declines in the Oil & Gas (-1.34%) and Insurance (-0.61%) indices were largely on the back of losses in the shares of TOTAL and HMARKINS.

In our view, relatively lower prices of value stocks, coupled with still-positive macroeconomic fundamentals, will further sustain gains in the equities market.

On Fixed Income and Money Market, industry experts were upbeat as key expectations were met.

Otherwise, the overnight lending rate rose by 91 bps w/w to 5.33%, on the back of reduced liquidity levels, as outflows from OMO (NGN232.63 billion) and FX (c. USD300 million) sales outweighed the inflow of matured OMO bills (NGN327.82 billion).

The overnight money market rate is likely to expand in the coming week, as we expect the apex bank to conduct open market operations to mop up the inflow of maturing OMO bills worth NGN244.00 billion.

On Treasury Bills, Business Hilights Intelligence Unit (BHIU), an investigative arm of Media Hilights Integrated Company Limited (MHICL), the parent group managing Business Hilights and other companies.

Proceedings in the NTB market were bearish, as a result of (1) the lower liquidity level and partly (2) the release of the NTB auction calendar for Q3-2018. Against expectations, there was no reduction in the amount of bills being offered vs. the amount maturing, as in Q2-2018, with the DMO planning to rollover all maturing bills (NGN1.05 trillion).

Consequently, yields inched up 5 bps on average, w/w, to 12.84%. Sell pressure was concentrated at the short (+17 bps) and long (+5 bps) ends of the curve, following selloffs of the 55DTM (+34 bps) and 223DTM (+25 bps) bills. Conversely, yield at the mid (-1 bp) segment contracted marginally, following investor interest in the 97DTM (-136 bps) bill.

Expected squeeze in liquidity position suggests slightly higher yield in the meantime. At the NTB auction scheduled for next week, the CBN will offer NGN180.86 billion – NGN6.22 billion of the 91-day, NGN50.00 billion of the 182-day, and NGN124.64 billion of the 364-day – worth of bills to the market.

On Bonds, Nigerian investors in the bond market were similarly bearish, as average yield rose 19 bps w/w to 13.34%. Sell pressure was spread across all ends (short: +30 bps; mid: +5 bps; long: +18 bps) of the curve, with the JAN-2022 (+43 bps), JAN-2026 (+20 bps) and MAR-2036 (+18 bps) bonds recording the most significant expansions, respectively.

This week, experts expect yields in the bond market to inch higher in the short to medium term, anchored on (1) weakening signs of monetary easing, (2) capital flight amid higher yields in safe haven assets, (3) political uncertainty stemming from the upcoming elections, and (4) increased government borrowing to fund the 2018 budget.

On Foreign Exchange, last week activities saw the USD/NGN pair appreciated to a record-high of NGN361 – highest since July 2016 –in the parallel market, before weakening to NGN362 at the close of the week (previous week: NGN363).

This was largely attributable to the announced approval, by the CBN, of the increased trading margin for Bureau De Change operators, who will now purchase dollars from the apex bank at NGN357 (previously NGN360) and sell at NGN360 (previously NGN362). In the IEW, the naira dipped marginally against the dollar by 0.02% to NGN360.91.

Total turnover in the window also declined by 16%, with bulk of trades in the NGN360-NGN369 band. In the FX forwards market, the NGN/USD depreciated in the 1-month (-0.02%) contract to NGN364.32, while it strengthened in the 3-month (+0.25%), 6-month (+1.01%), and 1-year (+2.13%) contracts to NGN371.17, NGN382.58, and NGN400.13, respectively. The forex reserves declined further by 0.39% to USD47.44 billion.

Industry expert’s outlook for the FX market remains stability, as higher oil prices and stable production continue to support growth in the foreign reserves, providing the apex bank sufficient legroom to sustain its usual interventions in the currency space.