September 14, 2019 08:00 AM / Proshare Content
Nigeria: Economic Dashboard @ 130919
Afrinvest Weekly Update-September 13, 2019
The Approved 7.2% VAT Rate Will Not Be a Silver Bullet
The Federal Executive
Council (FEC) recently approved an increase in the Value Added Tax (VAT) rate
to 7.2% from the initial 5.0% established since January 1, 1994. The increase
is primarily to support the finances of states as the new minimum wage of
N30,000/month becomes effective. The timeline for the implementation of the new
rate is unclear, but the minister of Finance, Budget and National Planning
hinted at 2020. As there are plans for wide consultation and amendment to the
existing VAT Act, implementation may take longer than expected. The increase in
VAT rate is unsurprising as governments have been keen but civil protests have
led to reluctance despite Nigeria's low VAT rate relative to peer economies.
Nigeria's VAT rate at 5.0% is the lowest among African peers such as Kenya
(16.0%), South Africa (15.0%), Egypt (14.0%) and Ghana (12.5%). Similarly, VAT
receipts to GDP is only 0.9% of GDP compared with 3.0% in Ecowas and
Commonwealth countries according to PwC. We note that Nigeria's effective VAT rate
is believed to be significantly higher than the current 5.0% due to the
difficulty in claiming refunds, the high cost of compliance and
non-allowable expenses for input VAT purposes.
We expect the increase in
VAT to generate additional N479.7bn in revenues based on the N1.1tn collected
in 2018. Based on the sharing formula, we expect the FG to receive additional
N72.0bn (15.0%), states to receive N239.8bn (50.0%) and local governments to
get N167.9bn (35.0%) upon implementation. While the states would receive a
significant boost, the increase is unlikely to make a dent on FG's fiscal
deficit which we estimate at N3.4tn in 2019. We believe the FG requires a
significant revenue boost, which would come elsewhere. Our analysis shows that
removing petrol subsidies and adopting a market reflective exchange rate of
N360/US$1.0 for the computation of oil receipts would increase FG's revenue by
While we align with the
age-long call to boost non-oil revenue, we believe the FG has chosen an easy
but less impactful route with the proposed increment in VAT. The increase
should be part of a comprehensive fiscal reform package that would seek to
boost collection efficiency, rein in recurrent spending, remove subsidies and
widen the tax net. According to the former minister of finance, Kemi Adeosun,
Lagos and Abuja account for 55.0% and 20.0% of VAT revenues respectively,
meaning more pressure on consumers in both cities. We suspect that this is due
to the large size of the informal economy which governments have been unable to
integrate with the formal economy due to issues such as multiplicity of taxes.
In the broader economy, we expect the adjustment to VAT to lead to higher
consumer prices and in turn inflation. The attendant weakness to consumer
spending would also impact growth negatively.
Q2:2019 Trade Report: Rising Imports Weigh on Trade Surplus
The Q2:2019 merchandise
trade report released by the National Bureau of Statistics (NBS) shows that
Nigeria's trade surplus declined to N588.8bn from N831.6bn in Q1:2019 as
imports continued to expand faster than exports. Imports sustained the upward
trajectory since Q3:2018, rising 8.2% and 65.2% (vs 25.8% and 3.4% in Q1;2019)
on Y-o-Y and Q-o-Q basis respectively. This was mainly driven by a sharp rise
across the board, but the importation of fuel and lubricant saw a steeper rise
at 22.1% and 168.5% to N886.0bn on Y-o-Y and Q-o-Q basis respectively.
Similarly, the importation of transport equipment and parts rose strongly by
342.3% and 28.7% to N635.0bn on Y-o-Y and Q-o-Q basis respectively. The
importation of food & beverage, capital goods and consumer goods followed a
similar growth trend, with the exception of industrial supplies which
contracted 36.8% Q-o-Q to N791.4bn but rose 27.8% Y-o-Y.
Exports expanded but at a slower pace of 2.1% Y-o-Y to N4.6tn in Q2:2019 (vs
N4.5tn in Q1:2019) as a result of the increase in crude oil exports to N3.9tn.
The rise in exports resulted from a 7.6% Y-o-Y increase in oil production to
1.98mbpd in Q2:2019 despite lower oil prices at US$68.5/bbl (vs US$74.9bbl in
Q2:2018). However, on a Q-o-Q basis, exports rose much slower at 1.3%, due to a
slight moderation in oil production even as average oil prices were higher in
the quarter. Non-oil export growth rose by 4.1% Y-o-Y to N227.6bn while
declining 62.3% Q-o-Q.
The moderation in growth surplus continues to affect Nigeria's external
balance, with external reserves declining US$1.1bn to US$43.4bn between Q1:2019
and Q2:2019. We expect trade surplus to remain weak in subsequent quarters
mainly due to weak oil & gas exports and sustained growth in imports,
particularly as we approach the festive season. However, we suspect that the
partial closure of the Nigeria-Benin border may weigh on merchandise trade.
Global Equities Market: Sentiment Strengthens as Delay in Additional
Tariffs Eases Tensions
Optimism about calming
trade tensions between the US and China strengthened this week as China
exempted some U.S. goods from the 25.0% extra tariffs enacted in 2018,
providing a reprieve of one year from September 17, 2019. The US reciprocated
the gesture by suspending the proposed additional 5.0% tariff on Chinese goods
worth US$250bn by two weeks from October 1, 2019 to allow for negotiations. The
de-escalation of tensions between both countries is positive but not unusual,
the lack of flexibility and speed during negotiations has been the drawback to
a trade deal. In Europe, the European Central Bank cut rate by 10bps to -0.5%
and resumes quantitative easing program from November, 2019 through monthly
asset purchases of Euro 20.0bn until when unnecessary. In the UK, Prime Minister
Boris Johnson suspended parliament for a month, raising the risk of a "no-deal
Brexit" as Brexit deadline is on October 30, 2019.
The bullish run in the developed markets continued this week as all indices
under our coverage ended in the green. In the US, S&P 500 and NASDAQ
indices gained 1.2% and 1.1% W-o-W respectively on softening trade tensions.
The France's CAC 40 and Germany's XETRA DAX indices were up 1.0% and 2.2% W-o-W
respectively following ECB's rate cut while the UKâ€™s FTSE All Share rose 1.1%
W-o-W despite increasing uncertainty around Brexit. Likewise, Hong Kongâ€™s Hang
Seng index advanced 2.5% while Japanâ€™s Nikkei 225 rose 3.7% W-o-W.
The bullish streak extended to the BRICS market as all indices under our
coverage advanced W-o-W. South Africa's FTSE/JSE index led the gainers,
advancing 2.8% W-o-W while Russia's RTS and Brazil's Ibovespa indices trailed
closely following a 1.6% and 1.5% W-o-W gain respectively. Similarly, China's
Shanghai Composite index rose 1.1% W-o-W as trade tensions partially
de-escalated and the India's BSE Sens index also appreciated 1.1% W-o-W due to
renewed economic stimulus.
Performance was mixed for indices under our coverage in the African market.
Egypt's EGX 30 index sustained gains as it inched higher by 1.2% W-o-W.
Similarly, Nigeria's ASI and Kenya's NSE 20 indices advanced 2.3% and 0.9%
W-o-W respectively. Conversely, Mauritius' SEMDEX index led the decliners,
shedding 1.0% W-o-W. The Ghana's GSE Composite and Moroccoâ€™s Casablanca MASI
indices also lost 0.2% and 0.3% respectively during the week.
In the Asian and Middle East market, 3 of 5 indices under our coverage closed
in the green territory. Qatar's DSM 220 index further dipped 2.0% W-o-W while
Turkey's BIST 100 index also sustained its bearish performance as it waned 3.9%
W-o-W. Saudi Arabiaâ€™s Tadawul ASI appreciated the most by 2.8% while Thailand's
SET and UAE's ADX General indices were up 0.5% and 0.4% respectively
Domestic Equities Market: Bearish Run Reversedâ€¦ NSE ASI Up 2.3%
Following buying interest
in UAC-PROP (+51.5%), FBNH (+24.1%)
and SEPLAT (+15.7%), the domestic bourse trended
upward as the ASI rose 2.3% W-o-W to 27,779.00 points while YTD loss eased to
-11.6%. Similarly, investors gained N316.2bn as market capitalisation
strengthened to N13.5tn. However, activity level was mixed as average volume
gained 4.2% to 229.4m units while value pared 17.6% to N2.8bn respectively. The
top traded stocks by volume were GUARANTY (219.0m
units), ACCESS (115.0m units) and FBNH (92.9m
units) while GUARANTY (N5.8bn), ZENITH (N1.2bn)
and ACCESS (N794.4m) led by value.
Gains were recorded on 3 of 5 trading days during the week. For the first two
trading days of the week, the market recorded 0.2% loss apiece due to price
depreciation in NESTLE, STANBIC, CCNN and DANGCEM.
Meanwhile, gains in NESTLE, SEPLAT and GUARANTY buoyed
the market on Wednesday and Thursday while gains in AIRTELAFRI and ETI moved
the market higher on Friday.
Across sectors, 5 indices under our coverage gained W-o-W. Price appreciation
in SEPLAT (+15.7%), FORTE (+14.1%), FBNH (+24.1%)
and ETI (+11.9%) moved the Oil & Gas and Banking
indices up 7.2% and 5.1% W-o-W respectively. Also, the AFR-ICT and Consumer
Goods indices gained 3.7% and 0.6% W-o-W respectively following buying interest
in MTNN (+0.7%) and DANGSUGAR (+9.7%).
The Industrial Goods index advanced 0.5% due to gains in WAPCO (+1.4%).
Conversely, the Insurance index was down 1.5% W-o-W on the back of sell-offs
in CONTINSURE (-8.0%) and MBENEFIT (-4.8%).
Investor sentiment strengthened as market breadth (advance/decline ratio)
inched higher to 2.0x as 38 tickers advanced against 19 that declined. UAC-PROP (+51.5%), FBNH (+24.1%)
and SEPLAT (+15.7%) led the advancers while THOMASWY (-9.5%), CONTINSURE (-8.0%)
and OANDO (-7.3%) led losers. We expect bearish
sentiment to resume next week, although there is room for gains in
fundamentally sound stocks through bargain hunting.
Foreign Exchange Market: Naira Relatively Stable Amid Declining Oil
In a bid to ensure
stability in the foreign exchange market, the CBN injected US$210.0m into the
interbank segment following sales concluded on Tuesday. Recall that the sum of
US$321.1m and CNY33.3m was injected into the Retail Secondary Market
Intervention Sales (SMIS) segment on Friday last week. Of the US$210.0m sold
this week, US$100.0m was offered to the wholesale segment while the Small and
Medium Enterprises (SMEs) and invisibles segments received US$55.0m each.
However, the external reserves further declined, down 0.7% (US$283.2m) to
US$42.9bn from US$43.2bn last week. The prospect for accretion in reserves
remains weak as oil prices struggle to keep up with the US$60.00/bbl. benchmark
of the 2019 Budget.
The CBN spot rate opened
the week at N306.90/US$1.00 but closed the week at N306.85/US$1.00,
appreciating 5kobo W-o-W from N306.90/US$1.00 last week Friday. At the parallel
market, the exchange rate traded flat all week to close at N360.00/US$1.00. At
the Investors' & Exporters' (I&E) FX Window, the NAFEX rate opened the
week at N361.88/US$1.00 and closed at N361.95/US$1.00 on Friday, appreciating
13kobo W-o-W from N362.08/US$1.00. Activity level in the I&E Window fell
1.8% to US$1.07bn from US$1.08bn recorded in the previous week.
At the FMDQ Securities Exchange (SE) FX Futures Contract Market, the total
value of open contracts of the Naira settled at US$11.2bn, up US$106.6m (1.0%)
from US$11.1bn in the prior week. The SEP 2020 instrument (contract price:
N365.47) received the most buying interest in the week with additional
subscription of US$70.0m which took total value to US$84.2m. On the other hand,
the MAY 2020 instrument (contract price: N364.87) was the least subscribed,
with an additional subscription of US$5.0m for a total value of US$1.1bn. In
the coming week, we expect rates to trade within similar levels across the
various FX segments as the CBN continues to sustain its weekly
Money Market: Bullish Sentiment in the Secondary Treasury Bills
OBB and OVN opened the
week at 7.1% and 8.3% respectively, higher than the previous week's close of
3.2% and 3.9% as system liquidity remained robust at N354.8bn. Despite OMO
maturities worth N347.7bn, which boosted system liquidity to N694.1bn on Thursday,
the rates inched higher to 11.4% and 12.3% in that order. By the close of the
week, OBB and OVN settled at 22.4% and 24.7% respectively.
In line with its schedule, the CBN held a Primary Market Auction on Wednesday
to rollover instruments worth N158.7bn in maturing treasury bills. Unlike
previous auctions, oversubscription was recorded across the board as the
91-day, 182-day and 364-day bills were oversubscribed by 2.2x, 1.7x and 2.1x
respectively. Marginal rates remained the same as the previous auction for the
shorter-dated instruments at 11.1% while marginal rates for the medium and
longer-dated instruments inched higher to 11.8% and 13.3% respectively
(previous auction:11.6% and 12.9%).
The CBN also held an OMO auction this week, offering a total of N300.0bn across
three instruments to keep system liquidity in check given huge inflows from
maturities. Only the medium-term instrument recorded undersubscription of 0.3x
while the short-and long-term instruments were oversubscribed by 2.8x and 1.9x
respectively. Sales exceeded offer as instruments worth N344.4bn were
issued at stop rates similar to previous auction of 11.6%, 11.8% and 13.5% for
the 91-day, 182-day and 364-day instruments.
In the secondary treasury bills market, performance was bullish as average rate
fell 21bps W-o-W to 12.5%. Rates fell across tenors with the long-term
instruments recording the steepest buying interest as rates pared 36bps to
close at 13.3% while rates on the short and medium-term instruments also fell
by 12bps and 14bps respectively to 11.9% and 12.1%. Given large inflows worth
N356.5bn from OMO maturities expected next week, we believe the CBN will
continue to keep rates in check through regular auctions.
Bonds Market: Bearish Momentum Sustained in the Domestic Market
This week, the domestic
bonds market sustained its bearish performance as average yield rose 5bps W-o-W
to settle at 14.2%. The market recorded a bullish performance only on Monday
(-5bps) and a bearish outing on Tuesday (+1bps), Wednesday (+3bps), Thursday
(+3bps) and Friday (-3bps). While the short-term bonds enjoyed buying interest
as yields fell 11bps, yields on the medium and long-term instruments rose by
6bps and 7bps respectively.
In the SSA Eurobonds market, the narrative remains unchanged as the bullish
trend persisted across all the instruments we track, except the Zambian 2027
instrument that posted a 2bps rise in yields. As observed in past weeks, the
Zambian 2022 and 2024 instruments enjoyed the most buying interest with yields
shedding 189bps and 179bps respectively. The Ghanaian and Nigerian 2049
instruments continue to trail with 88bps and 82bps drop in yields respectively.
In the corporate Eurobonds segment, the bullish momentum was sustained as all
instruments gained W-o-W. The MAURITIUS BAYPORT MANAGEMENT 2022 instrument led
the pack as yields pared 91bps and the NIGERIAN SEPLAT 2023 trailed with a
72bps decline in yields. Going forward, we expect investors to remain attracted
to emerging market instruments in the quest for higher yields.
Data Science Nigeria will on this day hold the AI Bootcamp, while the National Bureau of Statistics will on the same day release the 2018/19 Transport and Storage Sector Survey
Report AUTOMOTIVE GAS OIL (DIESEL) PRICE WATCH; CPI and Inflation Report, Liquefied
Petroleum Gas(Cooking Gas) Price Watch, NATIONAL HOUSEHOLD KEROSENE PRICE
WATCH, PREMIUM MOTOR SPIRIT (PETROL) PRICE WATCH, SELECTED FOOD PRICES and
Transport Fare Watch for August 2019.
September 16, 2019
The Nigeria America Chamber of Commerce will on this day hold the Intellectual Property Symposium with
the theme: The Bane of Counterfeit
Pharmaceuticals & Piracy at Eko Hotel & Suites, Victoria Island
Lagos, while the Lagos Court Arbitration Alternative Dispute Resolution Summit will hold on the same day with the
theme: Alternative Dispute Resolution
in Action: Balancing the Scales.
Tripple Gee & Company Plc will on this day hold its Annual General Meeting at Muson
Centre, 8/9, Marina Road, Onikan, Lagos, while the Nigerian Economic Society will on the same day hold its 60th Annual Conference with the
theme: Economic Policies and Quality
of Life in Africa at NAF Conference Centre & Suites, Kado, Abuja.
Clinic 1st Media Leadersâ€™ Summit will hold on this day at TCC Resort and
Conference KM 67, Lagos-Ibadan Expressway, Ogere-Remo, Ogun State.
Tuesday, September 17, 2019
The Africa Finance Corporation will on this day pay a courtesy
visit to the Nigerian Stock Exchange, while Propak West Africa 2019 will hold on the same day at the Landmark
Event Center, Victoria Island.
The 11th Edition of 2019 PSRG-RICHARDSON HSSE FORUM will hold on this day at the Eko Hotels & Suites,
Victoria Island Lagos
Wednesday, September 18, 2019
The Nigerian Conservation Foundation will on this day hold its Annual General Meeting at Rotunda,
Lekki Conservation Centre, Lagos.
Friday, September 19, 2019
The Financial Reporting Council of Nigeria will on this day hold the Corporate Governance Masterclass
with the theme: Enthroning Good
Corporate Governance-A Code of Best Practice at Fraser Suites, Abuja,
while the Franco-Nigerian Chamber of Commerce and Industry will on the same day hold the Business Breakfast Meeting, with the
theme: Executive Health and Attaining
Universal Healthcare Coverage in Nigeria at Apa/Mazonia Hall, Eko Hotel
& Suites Victoria Island Lagos.
The Africa Legal & Tech Network Summit 2019 will hold on this day with the theme: Addressing Technology Disruption in Law
& Business at Commerce House, 1 Idowu Taylor Street Victoria Island
Lagos, while the National Bureau of Statistics will on the same day
release the Nigerian Domestic and
Foregin Debt (JUNE 2019)
Check out our Events Calendar for event details and follow us on Web, TV, APP and Social Media for updates as the week unfolds. Yours to Serve!
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