19 Jan

The week ahead – There are good shitholes, and there are bad shitholes

The main NSE index has surged 12 percent this year in dollar terms, the most among 96 major bourses according to Bloomberg. It added ₦1.76 trillion in the first two weeks of the year, pushing it to ₦15.37 trillion, the highest level since 2008. The largest company on the exchange, Dangote Cement has climbed to a record high. FirstRand Asset Management believes the advance will probably be sustained thanks to rising prices for oil, Nigeria’s main export, and as investors look to increase their holdings of what remain among the cheapest stocks in Africa. New York-based Global X MSCI Nigeria ETF attracted record weekly net inflows last week, helping to increase the exchange-traded fund market capitalisation to almost $90 million, double the level in May last year. Even after the gains, Nigerian valuations are the least expensive among major African equity indexes, stocks trade at a forward price-to-earnings ratio of 10.1, while South Africa’s are at 14 and the MSCI Emerging Market Index is at 13, suggesting further upside for growth.

The National Bureau of Statistics said annual inflation in Nigeria slowed for the 11th month in a row in December to 15.37 percent from 15.90 percent a month before. According to the statistics agency, food inflation dropped 0.89 points to 19.42 percent from 20.31 percent in November. This represents the first major decline in food inflation since it started rising in November 2014. In November, food inflation recorded its lowest month-on-month mark since September 2016. Overall inflation also dropped from 15.90 percent in November to 15.37 percent in December. The last time food inflation figure was in this region was between January and February 2009 when it stood at 18.4 percent and 20 percent respectively. In October, Central Bank Governor Godwin Emefiele said he expected inflation rates to fall at a faster pace and reach the high single-digits by the middle of 2018.

Militants have threatened to attack offshore oil facilities within days, raising fears of a repeat of a 2016 wave of violence that helped push Africa’s biggest economy into recession. The Niger Delta Avengers – the fighters behind many of the 2016 attacks – said they had planned the assaults after giving up on talks to give their impoverished region a greater share of the oil revenue it produced. “This round of attacks will be the most deadly and will be targeting the deep sea operations of the multinationals,” the group said on its website. It said its targets would include the Bonga Platform and the Agbami, EA and Akpo fields. The militants also said they would target the Nigerian oil company Brittania-U. Shell operates the Bonga and EA fields while Chevron is the operator of Agbami. Akpo stakeholders include Total, China’s CNOOC, Brazil’s Petrobras and Nigeria’s Sapetro.

A cleric who evaded arrest by the State Security Services in Jos on 15 January said he refused to honour an invitation by the agency because their action was illegal. Isa El- Buba told journalists on Tuesday evening that a deputy director at the secret service stormed his fellowship premises on Monday night while he was preparing for a midnight service, but he refused to honour the invitation because, “the invitation was not authorised in writing. I demanded for a letter of invitation and was not given, so I became suspicious of their mission in the night to my office.” According to Mr. El-Buba, the operatives, who came in two trucks made several attempts at his residence to move him to Abuja under the cover of the night. He had criticised President Muhammadu Buhari’s handling of the pastoral conflict and called on his congregation to be ready to vote against the president in 2019. This comes as one person was killed in an apparent clash involving herdsmen and residents in Plateau on Monday. Residents alleged that the incident, which occurred in Kimakpa, Kwall district of Bassa local government area, was orchestrated by herdsmen in the community. The attack came amid claim by herdsmen in the state that 350 of their cattle were rustled by some residents in Bassa and Riyom. Muhammad Abdullahi, Plateau chairman of Miyetti Allah Cattle Breeders Association of Nigeria said a Fulani herder was also beaten “to a point of coma”.

Suggestions

  • Speaking of the NSE’s new highs, data released by the NBS shows that capital importation into Nigeria in Q3 2017 was $4,145.1 million, which more than doubled the figure from Q2 2017, and represented an increased value of 147.5% on a year on year basis. Of this figure, 67% was from Foreign Portfolio Investment, and the funds have made their way into the equities and fixed income markets. Unfortunately, the value of Foreign Direct Investments during the quarter was recorded at $117.6 million, which declined by 57.14% compared to the previous quarter and 65.48% compared to 2016 Q3. It is thus clear that investors are still unsure of the Nigerian business environment, and are as a result unprepared to invest in the real sector. The government must step up efforts to address key security and policy issues.
  • Single digit inflation is not unknown to Africa. Kenya and South Africa for example, are enjoying 4.5% and 4.6% inflation rates. Food inflation has been the most bullish in Nigeria and this is not surprising considering the Pastoral Conflict in the middle-belt region, which is the country’s food basket. Fix that issue and should oil revenues continue rising, Mr. Emefiele’s expectations may just be met.
  • It is hard to distinguish between genuine agitation demands and criminal networks taking advantage of the militancy situation to engage in illegal crude oil sales. Nonetheless, it calls into question the sustainability of the government’s approach to ending the militancy, viz payments in the amnesty programme, development programmes in the region, and using force to quell the militancy. Nigeria’s cash flow problems affect the payments; development programmes will take a while to mature, and the use of force has failed to work. While there needs to be more thinking on how to end militancy in the long-term, there will continue to be a need for delicate handling and defusing of specific situations such as this one.
  • The Pastoral Conflict represents arguably the gravest threat to the country’s peaceful coexistence and the government’s handling of the security, social and economic ramifications of the conflict have been ineffective at best. Many Nigerians are increasingly critical of what they see as a partisan effort by Abuja to address the conflict. Acts like the DSS attempt to arrest a critic do little to offer the reassurance that the government will respect civic liberties and rights while living up to its constitutional mandate to protect the lives and properties of its citizens. An open, transparent dialogue as part of a comprehensive security and economic framework is critical to addressing these concerns.