Monday, November 06, 2017 8:58AM /Afrinvest Research
the backdrop of several deep-seated structural challenges stifling operating
environment for businesses, Nigeria has persistently been ranked low by the
World Bank in its Ease of Doing Business (EODB) report. Out of the 190
countries surveyed for 2017, the report ranked Nigeria 169th - a negligible
improvement from 170th of 189 countries in 2016. On average, the country ranked
158th of 189 countries surveyed in the last 5 years and 37th of 48 countries in
Sub-Saharan Africa for 2017.
Borrowing a leaf from several countries that have implemented ease of doing
business reforms within a very short time (Kenya for example undertook 5
reforms which moved her ranking upwards by 21 places to rank amongst the top
100 countries in 2017), the Nigerian government took several steps towards
improving the Nation’s ranking by setting a target of moving 20 places higher
in 2018 and eventually breaking into the top 100 economies by 2019.
this end, the Presidential Enabling Business Environment Council (PEBEC) was
set up to remove the administrative bottlenecks associated with doing business
in Nigeria. At the tail end of 2016, the operational arm of PEBEC - the
Enabling Business Environment Secretariat (EBES) agency - became functional
with a delivery span of 2 years to implement the reforms of PEBEC.
The PEBEC’s two key Executive Bills - Collateral Registry Bill & Credit
Services Bureau Bill - were passed into law with the objective to aid access to
credit for SMEs. Furthermore, the PEBEC made strides in reducing the number of
agencies in Nigerian ports to allow ease of entry and exit of goods and people.
Accordingly, the impact of these reforms were evident in the recently released
Doing Business 2018 report titled “Reforming to Create Jobs” as Nigeria
moved up 24 places (surpassing the target of 20) to 145th and ranked in the top
10 most improved countries.
key areas Nigeria improved the most include: 1) Starting a business (online
registration of businesses and reduced turnaround time); 2) Getting construction
permits; 3) Registering property; 4) Getting credit; and 5) Payment of taxes
(electronic payment and filing).
To consolidate on these gains, the PEBEC has kicked off its National Action
Plan 2.0 (NAP 2.0) which is in line with objectives laid out in the Economic
Recovery & Growth Plan (ERGP) and aims to spread the reforms implemented
across some MDAs as well as Lagos and Kano in the initial 60-day NAP launched
in February 2017, to more states and government MDAs.
In our view, the achievements and ongoing efforts on ease of doing business are
laudable, more so that the target set for 2018 was surpassed; yet, feasible
reforms, especially in areas where the country is poorly rated such as Getting
Electricity and Trading across Borders, need to be given utmost priority in
order to truly attain a competitive and attractive business environment.
Purchasing Managers’ Index (PMI) Survey… Economy Shows Further Expansion
CBN released its PMI report for the month of October in the week, with both Manufacturing
and Non-Manufacturing sectors showing further expansions. Manufacturing PMI
settled at 55.0 points, 0.3 points lower than September but above the baseline
threshold of 50.0 points. This indicates the manufacturing sector expanded for
the seventh consecutive month in October, albeit at a slower pace relative to
Non-Manufacturing PMI rose 0.4 points M-o-M to 54.9 points, suggesting activity
in the sector improved at a faster pace relative to previous month. The upbeat
performance of both the Manufacturing and Non-Manufacturing sectors is not
surprising, given improving macroeconomic stability anchored by rebound in FX
liquidity and cyclical recovery in the oil market.
expect PMI data in subsequent months to stay robust as we remain confident on
near term economic prospects on the back of stronger FX earnings and structural
reforms by policy makers. Hence, we retain our FY:2017 and FY:2018 growth
forecasts of 1.2% and 2.6% respectively.
Equity Market Review and Outlook
equity markets were largely bullish this week as oil also gathered momentum.
Oil prices sustained a recent rally to close the week at US$60.96/b as market
expressed confidence in extended supply cuts by OPEC while a boost in demand
from China has had similar effects. Most of the indices under our coverage
closed the week in the green with Kenya’s NSE 20 (+4.2%), Egypt’s EGX 30
(+2.6%) and Japan’s Nikkei 225 (+2.4%) leading the way.
In the Developed markets, the UK FTSE All Share rose 0.8% W-o-W despite the
Bank of England’s (BOE) decision to raise its benchmark rate by 25bps to 0.50%-
the first of such interest rate hike in a decade. The market however
sustained gain due to perceived “dovish” comments by the BOE on interest rate
hike which subsequently hit the Pound Sterling.
U.S NASDAQ added 0.6% while the S&P 500 closed flat as investors remain
watchful of potential American tax reform after US Republican legislators
released an ambitious plan to overhaul the Tax system.
Performance in the Eurasia Regions was positive this week, led by gains in
Japan’s Nikkei 225 (+2.4%) and Germany’s XETRA DAX (+1.9%). Japan’s positive
week was buoyed by a boost in foreign investment following strong corporate
earnings. Hong Kong’s Hang Seng (+0.6%) and France’s CAC 40 (+0.2%) were
similarly bullish. The BRICS equities markets were however largely bearish as 3
of 5 indices closed the week in the red.
Brazil Ibovespa fell the most, down 3.5% W-o-W while the Russia RTS and China
Shanghai Comp fell 2.2% and 1.3% respectively. Alternatively, India’s BSE Sens
(+1.6%) and South Africa’s FTSE/JSE All Share (+1.6%) were the two gainers this
The African markets indices all closed the week higher. Kenya’s NSE 20 added
the most up 4.2% as foreign investors’ confidence – illustrated by positive
net-purchases - was restored as political tension, which has plagued the
country for months, eased. Egypt’s EGX 30 followed, rising 2.6% whereas the
Nigeria All Share Index and Ghana GSE gained 1.3% and 0.6% respectively.
Equity Market Review and Outlook
a reversal of the negative trend in the domestic equity market in the previous
week, investors’ appetite for equities strengthened in the week as the
benchmark All Share Index (ASI) advanced on 4 of the 5 trading sessions. The
week started off bullish, with the ASI up 6bps as investors took position in
banking stocks - ZENITH (+1.1%) and UBA (+2.5%).
Tuesday and Wednesday, the bullish performance was sustained as the ASI gained
54bps and 56bps respectively. However, on Thursday, profit-taking in NIGERIAN
BREWERIES (-3.2%) and DANGCEM (-0.2%) halted the
positive streak as the benchmark index lost 3bps. Nonetheless, we saw a rebound
on Friday as the market added 0.2% to close the week positive.
the benchmark index gained 1.3% W-o-W to close at 36,939.59 points while YTD
return expanded to 37.5%. Likewise, market capitalization added N251.2bn to
close at N12.8tn. However, activity level was mixed as average volume traded
declined 2.3% to 361.1m units while average value traded inched 8.0% higher to
Performance across sectors was largely bullish W-o-W. The Insurance index
advanced the most, up 1.5% W-o-W on the back of price appreciation in MANSARD
(+7.4%) and NEM (+6.3%). Similarly, the Oil & Gas and
Industrial Goods indices rose 1.4% apiece W-o-W as MOBIL (+3.5%)
and DANGCEM (+3.7%) recorded gains.
the Banking index climbed 0.3% W-o-W as investors took position in UBA
(+6.3%) and ACCESS (+2.3%). On the flipside, the Consumer Goods
index was the only loser, shedding 0.1% against the backdrop of profit-taking
in UNILEVER (-6.5%) and NIGERIAN BREWERIES
Investor sentiment as measured by market breadth was flat at 1.1x as 33 stocks
advanced against 29 stocks that declined. The best performers were UPL
(+26.3%), LEARNAFRCA (+19.0%) and FLOURMILL
(+18.2%) while the worst performers were AIRSERVICE (-18.3%), LINKASSURE
(-13.3%), and UNILEVER (-6.5%).
the coming week, we expect the positive performance to be sustained given the
increasingly favourable condition in the oil market – a major anchor of the
business cycle. Following a broadly positive performance and investor sentiment
this week, we expect the market to sustain momentum as knock-on effect of the
oil rally buoys investors' appetite for Nigerian assets.
Exchange Market Review and Outlook
CBN injected US$195.0m into the inter-bank foreign exchange market on Tuesday
in an effort to maintain stability in the Naira’s exchange value. Accordingly,
the interbank rate appreciated from N359.49/US$1.00 on Monday to
N355.85/US$1.00 by midweek; however, the rally was reversed on Thursday
(N360.40/US$1.00) with an unchanged close on Friday (N360.40/US$1.00),
representing a 9 kobo W-o-W deprecation.
the official rate traded within a tight band, marginally depreciating 15 kobo
to N305.90/US$1.00 from last week’s close of N305.75/US$1.00. In continuance of
recent trend in the parallel market, the Naira traded flat at N363.00/US$1.00
all through this week. At the I&E Window, the NAFEX rate pulled back losses
on Monday (down 8bps to N360.61/US$1.00) and Tuesday (down 6bps to
N360.83/US$1.00) to close the week at N360.57/US$1.00, implying a 7 bps loss
Despite primary market auctions held this week, activity level in the I&E
Window weakened relative to previous weak as total turnover fell to US$527.8m
(as at Thursday 2nd November) relative to US$750.8m in the same period
In the FMDQ OTC futures market, the total value of open contracts of the Naira
settled OTC futures for the 12 instruments on the calendar stood at US$2.9bn as
at Thursday 2nd November from US$3.0bn the previous week. The APR 25
2018 remains the most subscribed instrument with a total value US$591.0m while
the least subscribed is the May 30 2018 at US$134.27m.
On the back of the rally in oil prices and re-balancing of FGN debt in favour
of external borrowings, we expect external reserves to continue to accumulate
in the near term. As such, we expect the CBN to sustain frequency of
interventions and the Naira to continue to trade within a tight band at all
segments of the FX market in the near term.
Market Review and Outlook
the money market this week, interbank rates trended lower on the first four
trading days due to improved system liquidity attributable to Retail SMIS
refund and OMO & T-bills maturity which offset OMO mop-ups by the Apex
bank. However, interbank rates spiked on Friday as banks provisioned for SMIS
auction. At the start of the week, Open Buy Back (OBB) and Overnight (OVN)
rates closed at 18.0% and 20.0% respectively, higher than 15.8% and 18.8%
recorded the previous Friday, as system liquidity weakened from a deficit of
N8.3bn to N103.1bn.
widening deficit was consequent on the OMO mop-up on Friday which took N92.5bn
out of the system while another OMO auction was floated on Monday which had an
initial offering of N50.0bn with a total sale of N8.8bn. Rates further
moderated on Tuesday as OBB and OVN closed at 17.2% and 19.3% respectively as
system liquidity improved to a deficit of N39.1bn.
Similarly, on Wednesday, rates declined further as OBB and OVN closed at 9.4%
and 10.2% respectively as system liquidity improved due to Retail SMIS refund
while on Thursday, OBB and OVN rates trended significantly lower to 6.3% and
7.0% respectively. This decline was consequent on OMO maturity and T-bills
repayment of N431.2bn and N100.8bn respectively which buoyed liquidity balance
of DMBs at market open to N502.0bn.
line with recent trend, interest in the OMO auction floated by the CBN on
Thursday was subdued as the bank sold N11.4bn worth of OMO bills relative to
N320.0bn offered. However, on Friday, rates rose as banks provisioned for the
CBN FX Special SMIS; hence, OBB and OVN rates rose to 36.3% and 39.4%, up 20.5%
and 20.6% W-o-W respectively.
Sentiment in the Treasury Bills market stayed bullish due to improvement in
system liquidity during the week. Hence, average yield on benchmark bills
declined 38bps W-o-W to 17.5%. There was a T-bills auction on Wednesday,
where-in investors continued to aggressively bid for longer dated bills
although rates were barely changed relative to the last auction. N6.3bn, N6.7bn
and N88.0bn of the 91-Day, 182-Day and 364-Day bills were issued at 13.1%,
15.3% and 15.6% respectively.
In the coming week, an OMO maturity of N233.8bn is scheduled to hit the system
and we expect rates to remain around similar levels despite continued OMO mop
ups by the CBN.
Market Review and Outlook
domestic sovereign bonds market traded slightly bullish in the week with
average yield moderating 0.2% W-o-W as investors’ appetite for long dated
instruments stayed strong though more activities remained noticeable at the
shorter end of the bond yield curve. Average bond yield opened the week
flattish after closing at 15.3% on Monday (from 15.3% close in the previous
week) and remained stable at that level for Tuesday.
mid-week however, average yield moderated by 14bps to settle at 15.2% following
positive sentiment towards short and medium dated instruments though average
yield on long dated bonds traded flat. The bullish sentiment was sustained into
Thursday as average yield further declined by 3bps and eventually closed on
Friday within the positive territory as it settled at 15.2% (moderating 1bp day
on day) from the previous week’s close of 15.3%.
we have noticed improved investor attraction for bond securities since the Apex
Bank started guiding towards a moderation in short term T-bills and OMO rates,
we somewhat attribute the rather bullish investor sentiment on bonds to
increased confidence in the credit status of the Federal Government of Nigeria
following the slight rally in crude oil prices during the week (Brent crude
price traded 1.3% higher W-o-W to close at US$60.92/b).
Sub-Saharan African Eurobonds Performance during the week was mixed though the
improvement in commodity prices boosted sentiment across board. Average
yield on most of the sovereign instruments in our coverage moderated,
signalling improved investor confidence. Investor sentiment was more in favour
of Zambian Eurobonds as Yield on the average tapered by 34bps followed by Gabon
(-30bps), Ghana (-24bps) and Kenya (-22bps).
Eurobonds yields on average moderated 15bps W-o-W to settle at 4.8% with
all the bonds currently trading at premium to par value. The Kenyan, Zambian
and the Nigerian Eurobonds remain the best performing YTD with 10.5%, 9.7% and
Contrarily, performance across the Nigerian Corporate Eurobond was broadly
negative as sell sentiment prevailed W-o-W across all Corporate Eurobonds but
FIDELITY 2018. Yields on FBNH 2020 (+2.3%), FBNH 2021 (+0.45%) and ZENITH
2022 (+0.15%) rose the most.
2019 has the highest price return (26.3%) YTD. We expect sentiment to stay
moderate next week as we expect the gains from this week’s improvement in
commodity prices to sustain bullish momentum in the SSA Eurobonds market.
1. Nigeria Ranked 125 Out of 137 Economies in the Global
Competitiveness Report 2017–2018
2. Nigeria is Moving Towards Mid-table in Ease of Doing
3. Nigeria Up 24 places To 2013 Levels In World Bank Doing
4. Building Institutions key to the advancement of
Nations-Dr Obiageli Ezekwesili
5. Inadequate Infrastructure, FX Regulations Are Problematic
Factors for Doing Business in Nigeria
6. Executive Orders: Key Enablers for Driving Execution
7. Enabling Business Environment, Market Forces Can
Encourage Telcos To List
8. Regulatory Compliance & the Investor’s Dream: How
Close is Nigeria to the “Ease Agenda”?
9. Nigeria's Business Climate and Ease of Doing Business
10. Osinbajo inaugurates Nigeria's Industrial Policy and
11. Nielsen Africa Prospects Indicator Report - Edition 4
12. #PEBECHack: FG announces Hackathon to ensure
accountability in MDAs through tech
13. SPNS Consulting Hosts Discourse 0n “Managing Business
Rules Within a Challenging Economy”
14. Osinbajo Signs 3 Executive Orders - Ease of Business,
Budget Submissions & Made In Nigeria Products
15. Ease of Doing Business: Saraki Charges Technical
Committee on CAMA, ISA