What To Expect From The Markets This Week - 171218


Sunday, December 16, 2018 08:00 AM / Proshare Content 


Nigeria: Economic Dashboard @ 0141218 

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Source: Afrinvest Weekly Update - December 14, 2018

External Sector Vulnerabilities Resurface as Trade Surplus and Investment Decline

There were multiple macroeconomic data releases to analyse this week. The Q3:2018 GDP report which was published on Monday showed an improvement in economic growth to 1.8% (Q2: 1.5%), although the overall economy remained fragile. We published our GDP note earlier in the week, so we will restrict our analysis to other data released during the week such as the trade and investment report for Q3:2018 and November inflation data. The trends we observed in these data were mostly discomforting, especially in the external sector due to unfavourable global and domestic conditions. The trade report for Q3:2018 showed a decline in the trade surplus, although this can mainly be attributed to a temporary surge in imports due to a large-sized one-off capital goods item. The capital importation data for Q3:2018 confirmed our suspicions of intensifying capital outflows. At the end of the week, the inflation report released showed a quicker pace of price increases, after a surprising slowdown in October 2018.

Healthy Imports Growth Weakens Trade Surplus 

Total goods trade expanded by 48.8% to N9.0tn in Q3:2018, the fastest pace of increase since Q1:2017, due to a broad-based expansion in imports and exports. However, as imports rose at a faster pace than exports, trade surplus moderated by 37.4% to settle at N681.3bn which is its weakest level since the N1.1tn recorded in Q3:2017. The expansion in imports by 67.7% to N4.2tn was the quickest quarterly expansion since Q1:2010 based on CBN trade data. However, this was largely due to the importation of a vessel which is suspected to be linked to the Egina FPSO expected to come online soon. Stripped of this one-off purchase, imports still showed a healthy growth of 19.0% which is the fastest in six quarters. This is perhaps a signal that consumer spending is gradually picking up, consistent with the improvement in Q3:2018 trade GDP. On the other hand, exports expanded 35.7% Y-o-Y to N4.9tn which is at a slower pace compared with the previous two quarters. This was mainly driven by a 45.9% Y-o-Y increase in average oil price to US$75.5/b (Q3:2017US$51.7/b), which offset a 4.0% Y-o-Y contraction in oil production to 1.94mb/d. However, on a quarter-on-quarter basis, exports growth of 7.8%signals a recovery from the contraction recorded in the previous month. We attribute this almost entirely to higher oil production (1.94mb/d in Q3 vs 1.84mb/d in Q2:2018) as oil prices rose marginally by 1.3%.

Looking at the composition of exports and imports, we saw weak but positive trends. There was a strong growth of 36.6% Y-o-Y in the value of petroleum products imported to N1.0tn, more than double what was recorded in the previous quarter. Meanwhile, for non-oil imports, the importation of consumer goods and food & beverage consumed by households showed impressive growth. There was also a soft growth in the importation of intermediate inputs used in manufacturing. For exports, non-oil exports (3.4% of total exports) saw impressive growth of 34.1% Y-o-Y to N163.3bn in Q3:2018. However, this is very weak in comparison with historic highs and the value of non-oil exports in Q1 (N577.6bn) and Q2:2018 (N218.6bn).

Foreign Portfolio Investment Slumps to 5-quarter Low
Unsurprisingly, the total capital imported into Nigeria declined 31.1% Y-o-Y to US$2.9bn in Q3:2018, the weakest level in five quarters. On a quarterly basis, there was a sharper decline of 48.2% in total capital imported from US$5.5bn in Q2:2018. This was mainly driven by a marked slowdown in portfolio investment which contracted 58.2% and 37.7% on Q-o-Q and Y-o-Y basis respectively to US$1.7bn (Q2:2018 at US$4.2bn & Q3:2017 at US$2.8bn). As we had expected and hinted several times, there was a broad-based decline in portfolio investment in Q3:2018. Foreign Portfolio Investment (FPI) in equity declined 58.2% and 38.8% on Q-o-Q and Y-o-Y basis respectively to US$394mthe weakest since Q1:2017. This can be attributed to lower foreign investor participation due to political risks domestically and higher interest rates in advanced economies. We observed a similar trend for both money market instruments and bonds where there was also a deep contraction despite an uptrend in yields.  Total loans imported also contracted sharply to US$561m, 50.0% and 41.3% lower on Q-o-Q and Y-o-Y basis respectively. We believe the decline in loans imported also reflected the higher interest rate environment in advanced economies.

Notably, for the fourth consecutive quarter, money market instruments continued to be the largest destination of foreign capital with a share of 45.2% of total capital imported. We believe this is due to relatively attractive yields in the segment, compared with little movement in bond yields and a bearish run in the equities market. It is also a sign that foreign investors are more comfortable with local currency assets in the short-term, rather than the long-term potentials of the economy. However, on a positive note, FDI more than doubled to US$530.6m in Q3:2018the highest in three yearsbut this is barely 18.6% of total capital imported. To achieve stronger growth and employment, there is a need for significantly higher levels of FDI. We reiterate that both ease of doing business and industry specific reforms are required to unlock foreign capital.

Overall, we expect the decline in trade surplus and investment to have a deleterious impact on Nigeria’s current account surplus in Q3:2018. We note that this was already reflected in the sharp moderation in external reserves in the period and afterwards. 


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Other Developments 


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Monday, December 17, 2018 

The National Bureau of Statistics will on this day release the Job Creation Q1, Q2 2018 whiletheUnity Bank Plc will on same day hold its Annual General Meeting at Ibom Hotel & Golf Resort, Nwaniba Road, Akwa Ibom 

The Touristry Consultant Forum will on this day hold its General Meeting at Tivoli Garden, 2 Olokun Close off Ademola Street Ikoyi Lagos while the Financial Literacy Workshop for Youth will hold same day atVictory Place AlausaIkeja, Lagos.


Tuesday, December 18, 2018 

The Centenary City Lagos Fairwill on this day hold the Information Session/Investment Opportunities at Oriental Hotel Victoria Island Lagos


Wednesday, December 19, 2018 

The Nigerian Institution of Surveyors (NIS), Lagos State Branch will on this day hold its Annual General Meeting at Anchor Event Place Agidingbi Ikeja Lagoswhile the National Bureau of Statistics will on this day release the Road Transport Data (Q3 2018)


Thursday, December 20, 2018   

The National Bureau of Statistics   will on this day release the National Bureau of Statistics will Release the Automotive Gas Oil (Diesel) Price Water Nov 2018, Liquidated Petroleum Gas (Cooking Gas) Price watch Nov 2018, National Household Kerosene Price Watch Nov 2018,National Household Kerosene Price watch Nov 2018 and Premium Motor Spirit (Petrol) Price Watch Nov 2018 

The Continental Re-Insurance Plc will on this day hold its Annual General Meeting at Victoria Crown Plaza Hotel 292b Ajose Adeogun Street Victoria Island Lagos while 2018 Trades Maritime and Petroleum Summit will hold same day at Fourpoints by Sheraton Victoria Island Lagos


Friday December 21, 2018 

The National Bureau of Statistics will on this day release  the Job Creation Q3 2018, Nigeria Capital Importation Q3 2018, Selected Food Prices Nov 2018, Telecoms Data: Active voice and Internet per State,Porting and Tarrif Information (Q3 2018) and Transport Fare Water (Nov 2018) 

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Latest Reports This Past Week

1.     Headline Inflation Increases By 11.28% YoY in November 2018; 0.02% Higher Than October 2018 Rate

2.      Total Value of Capital Imported Into Nigeria Stood At $2,855.21m in Q3 2018

3.      Nigeria’s GDP Grew By 1.81% YoY in Real Terms in Q3 2018 From 1.50% in Q2 2018

4.      Nigeria’s Merchandise Trade Rose Significantly in Q3, 2018


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