16 Feb

Daily Watch – Forcados forces India’s hands, Allan Gray believes in Nigerian banks

  • Nigeria has not decided yet how much it wants to borrow from the World Bank, its budget and national planning minister said on Wednesday, to help pay for record spending of $24 billion this year. Diplomats and officials told Reuters last week the oil producer plans to present the required economic reform proposals to the World Bank this month to borrow at least $1 billion “The figure will depend on the (2017) budget approved by the National Assembly,” Udoma Udo Udoma told reporters when asked about the application. “We are waiting for the passage of the budget by the National Assembly so that we will know the budget gap or the actual deficit before we can go to the World Bank for a loan.” Nigeria, which relies on oil revenue for most of its income, is struggling to drag itself out of its first recession in 25 years. It needs to plug a gap in its record ₦7.3 trillion 2017 budget aimed at stimulating the economy. It had planned to apply for a World Bank loan last year but the process ground to a halt because it failed to submit its economic recovery plans by the end of December as initially promised. The African Development Bank has been holding back the second tranche of $400 million out of a $1 billion loan because it is also awaiting a reform plan from the government.
  • Nigerian oil supplies to India fell by 54 percent last month from a year ago, following the militant attack on the Trans Forcados Pipeline. The development forced key Indian clients of Nigeria, mostly state-run companies, to turn to Angola with imports from that country rising nearly 70 percent. India has remained the single largest buyer of Nigerian crude oil in the past few years after the United States slashed its imports from the country on the back of a shale oil production boom. On Tuesday, the Minister of State for Petroleum Resources, Ibe Kachikwu, said the country lost as much as $100 billion in revenue last year as attacks by militants in the oil-rich Niger Delta cut crude output to a record low. He said the nation’s oil production fell by as high as one million barrels per day sometimes last year to 1.2 million bpd. The Trans Forcados Pipeline, which is the major trunk line within the Forcados oil pipeline system, has been shut since last year. Seplat CEO, Austin Avuru, recently said it could reopen “towards the end of the second quarter”. Kachikwu told the House of Representatives Committee on Petroleum Resources (Upstream) on Wednesday that crude oil production had risen to two million barrels per day. This means the country now produces an additional 200,000 barrels per day, up from the 1.8 million bpd recorded in recent times.
  • The NBS said on Wednesday that average price paid by consumers for Premium Motor Spirit, known as petrol increased by 35.7 percent year-on-year in January. This is contained in its Petrol Price Watch for January. The report said petrol increased by 35.7 percent year-on-year and 1.35 percent month-on-month to ₦148.7 in January 2017, from ₦146.7 in December 2016. It noted that states with the highest average price of petrol were Borno, where the product was sold for ₦164.09, Oyo; ₦161.00 and Ebonyi ₦156.47. It said, “States with the lowest average price of petrol were Kogi, which sold at ₦144.67, Ekiti and Imo, ₦144.64 and Abuja which sold at ₦144.20.” The states with lowest average price sold the product below the recommended price of ₦145. Fuel prices are collected across all the 774 local governments across all states and the FCT from more than 10,000 respondents and locations. The report reflected prices households actually bought fuels together with the prices reportedly sold by the fuel suppliers. The average of all these prices is then reported for each state and the average for the country is the average for the states. Similarly, from 18.55 percent in December 2016, Nigeria’s inflation rate increased to 18.72 percent in January 2017, according to new NBS numbers. According to the Bureau, the Consumer Price Index, CPI, which measures inflation increased by 18.72 percent (year-on-year) in January 2017, 0.17 percentage points higher from the rate recorded in December; and increases were recorded in all divisions that yield the Headline Index. The faster pace of growth in headline inflation, year on year, were in such items bread and cereals; meat, fish, oils and fats; potatoes, yams and other tubers; wine and spirits: clothing materials and accessories. Others are electricity, cooking gas, liquid and solid fuels; motor cars and maintenance; vehicle spare parts and fuels; and lubricants for personal transport equipment as well as passenger transport by road.
  • Allan Gray, the largest manager of non-government investment funds in Africa, has increased its stake in Zenith and Access banks. The South African investor, based in Cape Town, is betting on Nigeria’s banking industry despite poor performances by the oil companies it depends on and widespread calls for the naira to be further devalued, Bloomberg reports. Allan Gray’s Chief Investment Officer, Andrew Lapping disclosed the investment move in a February 10 interview in Cape Town. He didn’t say how big the holdings are or how many shares his company had bought in each of the banks. “We see a lot of value in Nigerian banks,” Lapping said. “Most people think they’re all going to zero because of the bad debts. We think they will survive” because high interest rates make the banks profitable and they have less debts to equity compared with European lenders, he said. Trading data for the month of January showed that 232.210 million shares of Zenith Bank valued at ₦3.605 billion were traded. Last December, 224.007 million shares worth ₦3.234 billion were traded.  In the case of Access Bank, 264.230 million units of the bank’s shares valued at ₦1.789 billion exchanged ownership in January while 171.570 million shares valued at ₦953.045 million were traded in December. Access Bank’s Chief Executive Officer, Herbert Wigwe said last month that the bank’s non-performing loans were expected to climb to “slightly below 3 percent of total loans by the end of 2017”. Non-performing loans in Nigeria’s banking industry escalated to almost three times the regulatory maximum and foreign investors are calling for authorities to boost flexible trading of the naira before putting more money into the country. The bad-debt ratio at Nigerian banks rose to 13.4 per cent last year.