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ECONOMY

Beyond Nigeria’s GDP numbers: Is it icing on the cake or the cake itself?
According to the National Bureau of Statistics (NBS), Nigeria’s Gross Domestic Product (GDP) rose by 3.54% y/y in real terms in the second quarter of 2022 (Q2-2022). This shows that the economy expanded in Q2-2022 by 0.44% when compared to the 3.11% y/y recorded in the preceding quarter (Q1-2022) as the non-oil sector remains the key driver of growth. Similarly, this outturn represents an economic expansion on a year-on-year basis, albeit at a slower rate when compared to Q1-2021 (5.01% y/y) as the growth rate declined by 1.47%.
Nigeria’s inflation rate hits 19.64% in July 2022, the highest in 17 years
An examination of the NBS inflation data shows that this is the highest since September 2005 when the inflation rate hit 24.32% year-on-year. On a month-on-month basis, the headline inflation rose by 1.82% in July 2022. This is the same as the rate recorded in June 2022 (1.82% m/m). In our view, higher energy prices and continued depreciation of the local currency against the US Dollar were the key drivers behind this uptick.
Is Nigeria’s Population a problem?
Nigeria’s population exploded from 60 million at independence – 1960, to 150m in 2010. Currently, Nigeria has a population of 206 million, growing at a 2.67% annual CAGR. Meanwhile, Nigeria’s food production index (normalized to 100), currently at 107, is a 2.10% annual CAGR between 2007 and 2020.
Nigeria’s Inflation Rate rose to an 8-month High of 16.82% in April 2022
We expect headline inflation to continue its upward trend in the coming months due to the supply disruptions that have ensued from the conflict in Eastern Europe which has left a mark on the local economy, given Nigeria’s dependency on imported energy and food. These factors will consequently lead to an uptick in the prices of goods and services. Also, FX pressures in the FX market will further fuel inflation expectations. On the policy end, there is the possibility of an upward adjustment in the Monetary Policy Rate (MPR), in an attempt to keep the net foreign flows positive and also signal the monetary authority’s concern regarding inflation. However, the CBN could continue its current stance by judging that Nigeria’s inflation has a different set of drivers and as such may not respond to monetary policy decisions. Hence, we think the CBN would call on the fiscal authorities to address the structural impediments to food supply to contain higher prices. Therefore, we expect that at the next monetary policy committee meeting, the committee will hold the benchmark interest rate constant at 11.50% in order to continue to maintain post-covid economic recovery.
Aftereffect of the festive season Leads to a Marginal Slowdown in Inflationary Pressure
Looking further into the year, we recognize the possibility of upside inflation surprises, as the sub-par food harvests of last year could cause food supply to be slim during this year’s planting season, hence, propelling staple food prices northwards. Also, the impact of a base-effect sponsored moderation should become less material as we move further into the year, leaving the rate of inflation susceptible to the pass-through effect of soaring energy costs (fuel, electricity and gas), increased taxes associated with the finance act and currency depreciation. Our baseline expectation is for the headline inflation to average 14.81% in 2022 compared with 16.98% in 2021.
Fiscal Stability – A Need for States to Look Inward
The existing revenue-sharing structure of the government stifles innovation and prevents the state from looking inward to improve revenue since the Federal Allocation remains intact. The major source of revenue for most States is the funding from FAAC, with many contributing little to the pool. Oil revenues which make up more than 42% of government income are generated from activities in oil-producing states, mainly in the South-South region, a fraction of the nation.
The Upsurge in Cooking Gas Prices – Views and Prospects
Nigeria’s large infrastructure gap has made it difficult to improve the production and distribution of LPG locally. Therefore, the country resorted to importing LPG of about 65%, while 35% of consumers’ demand is locally supplied. Even though the LPG is precluded from Value Added Tax (VAT) according to section 38 of the Value Added Tax Act, the imported LPG is not free from the 7.5% VAT charges.
Nigeria’s Quest to Start Local Oil Refining and its Implications
Without subsidy payments, the decline in the expected open market price of PMS will be marginal with the full operation of the Dangote refinery. This is given that coastal cost and freight charges only constitute about 7% of the open market prices.
Maintaining PMS Subsidy Payments to Put more Pressure on Nigeria’s Fiscal Burden
The cost of the PMS subsidy rose from 4 percent of Federation oil and gas revenue captured by the NNPC in 2020 to 35 percent in 2021, an untenable fiscal burden for a country with Nigeria’s enormous infrastructure deficit and vast underserved population. Moreover, the PMS subsidy distorts efficiency incentives, promoting its nonessential or inefficient use. The subsidy also creates a very large price differential between Nigeria and neighboring countries that encourages smuggling, benefitting criminal syndicates at the expense of the public.

BUSINESS & FINANCE

Nigeria’s inflation rate hits 19.64% in July 2022, the highest in 17 years
An examination of the NBS inflation data shows that this is the highest since September 2005 when the inflation rate hit 24.32% year-on-year. On a month-on-month basis, the headline inflation rose by 1.82% in July 2022. This is the same as the rate recorded in June 2022 (1.82% m/m). In our view, higher energy prices and continued depreciation of the local currency against the US Dollar were the key drivers behind this uptick.
Fundamentals of Investing: An Emergency Fund
It is important that you see yourself as a company with a structure from earning money, to saving it, to budgeting for expenses and then investing. There should be room for liquidity first. The first step of creating an emergency fund is to try to estimate what your monthly expenses are. Your yearly rent should be factored too, divided into 12 and added to that estimated monthly expense, if you want to go overboard, you can assume you would be leaving the current place you stay in and add expenses for an agent fee or other house expenses associated with getting a new place. Divide this by twelve too and add it to the initially estimated expense.
SEPLAT: Global Dynamics Support Medium Term Growth Expectations
We value Seplat at #1,706 per share, representing a 21% upside from its current selling price of #1,430, hence, we issue a BUY recommendation. Our valuation is based on three methodologies which include; Discounted Cash Flow, Exit Ebitda Multiple and Dividend Discounted Model.
Transcorp Hotels PLC; Proven resilience amidst strong economic headwinds.
We arrived at a target price of N24.6 per share on Transcorp hotel PLC based on a mix of two valuations metrics- the DCF model with an intrinsic share value of N27, and the DDM with an intrinsic share value of N22. We attributed a weight of 60% and 40% to each methodology, respectively, to arrive at our target price.
How Resilient is NVIDIA in the Face of Today’s Downturn?
The global economy is off to a rough start in 2022, with the Russia-Ukraine conflict, China’s lockdown, supply chain chaos, decades-high inflation, soaring oil prices, and increased global market uncertainty all playing a role. This year has seen billions of dollars wiped off NVIDIA’s market capitalization, just like other tech giants (down 48 percent YTD). Is NVIDIA well-equipped to weather the current bear market?
Is a NETFLIX Comeback on the Horizon?
NETFLIX started the year on a rough note as the platform reportedly lost 200k subscribers in Q1-22, the first time in over a decade. The streaming giant is also expected to lose 2 million more subscribers in the second quarter of 2022. Can NETFLIX make a rebound from this trajectory? How will NETFLIX fare during the post-lockdown era?
DANGCEM Stock Pitch – by Fatai Aminat Ajiun
All forecasted indices highlighted on Dangote Cement Plc. pointed towards growth as it had been since its commencement of business. Though the major risk the company is exposed to are exchange rate fluctuations and interest rates which are beyond the control of the company, a BUY is highly recommended for Dangote Cement Plc. as it has been indicated and believed that the company will continue to grow into the foreseeable future. Our blended target price of N312/share points to a 13% upside compared to the last closing price of N277/share (7th June 2022).
BUACEMENT: A Dive into Company Performance and Financial Analysis
We issue a sell recommendation on BUA Cement PLC(BUACEMENT.NSE) Based on a target price of ₦58.6k representing a 13% downside on the closing price of ₦70.75 as of march 30th, 2022. Our valuation is based on a methodology mix of Discounted cash flow model (70%), Dividend discount model (10%) and Multiples valuation (20%).
FMN Plc: The Home of Good Food is Moving Beyond Levels
Flour Mill of Nigeria Plc is one of the leading FMCG and a top market player in the flour-based product market. It is the first company to have constructed Nigeria’s first wheat mill plant. With 60 years of success celebration, the firm has been able to diversify its core business of food through backward integration into other three revenue-generating segments which include Agro-allied, Sugar, and support services. Growth in these three classes of revenue has been impressive at a CAGR of 23.58% over the past five years. These three segments reported total revenue of N293 billion (or 38.01% of total revenue) in FY-2021 compared to the N102 billion (or 19.4% of total revenue) in FY-2017. The firm’s ability to expand its portfolio size with an explosive growth of this 23.58% CAGR validates its capacity to provide long-term value creation to shareholders while pursuing a de-risk business opportunity.

ANALYTICS

[Infographics] Financial Performance Summary of Selected Companies in Nigeria (2020)
Get the 2020 financial performance summary of some of the big names listed on the Nigerian Stock Exchange.
[INFOGRAPHICS] Banks’ Proportion Of Low-Cost Deposit(% CASA Mix, H1:2020)
High CASA mix enables banks to record lower Interest expenses, hence, a higher net interest margin.
[INFOGRAPHICS] Regional Unemployment Rate (August 2020)
The regional paradox – The Richer the oil, the higher the unemployment.
[INFOGRAPHICS] E-Business % Of Revenue of Nigerian Banks (H1’2020)
Nigerian Banks Electronic Transaction Revenue a question on efficiency of cashless policy.
[INFOGRAPHICS] Cash As A % Of Total Payments(Selected Countries)
Cashless policy a myriad in Nigeria payment transactions amongst other countries.
[INFOGRAPHICS] South African Vs Nigeria Banks (H1’2020)
South African banks are bigger than Nigerian banks in terms of Total Assets. However, Nigerian banks are more profitable, looking at return on Assets. Return on Assets talks about how they are able to utilize their balance sheet (mostly made up of deposits) to drive revenue. Return on Assets = Profit/Total assets. But why are Nigerian banks doing better? Take a look at the MPR. The MPR is the benchmark rate for asset pricing. For example, banks will set loan rate at MPR + Premium. For example, 12.5+3.5 = 16%. For South African banks, the MPR is low, hence the interest they will earn on loan will be lower compared to Nigerian banks. This means their interest income will be lower, hence their Return on Assets will be lower.
[INFOGRAPHICS] Poverty Rate By Sectors In Nigeria
Nigeria’s Poverty Rate by Sectors Will able-bodied young people be better off or worse off with Nigeria’s agricultural practices?
[INFOGRAPHICS] Loan Book and Non-Performing Loan of Nigerian Banks as at H1’2020
Loan Book and Non-Performing Loan of Nigerian Banks as at H1’2020

AFRICA & WORLD ECONOMY

Addressing Inflation Pressures Amid an Enduring Pandemic
The resurgence of the pandemic and the latest variant, Omicron, have sharply increased uncertainty around global economic prospects. This comes as several countries grapple with inflation well above their monetary policy targets. It is however evident that the strength of the economic recovery and magnitude of underlying inflationary pressures vary significantly across countries. Accordingly, policy responses to rising prices must be calibrated to the unique circumstances of individual economies.
Countering Tax Avoidance in Sub-Saharan Africa’s Mining Sector
Sub-Saharan Africa is estimated to possess 30 percent of global mineral reserves, representing a major opportunity for the region. Despite the high level of private investment in this critical sector, new analysis finds that many multinational companies are avoiding paying their taxes.
Surging Energy Prices May Not Ease Until Next Year
Spot prices for natural gas have more than quadrupled to record levels in Europe and Asia, and the persistence and global dimension of these price spikes are unprecedented. Typically, such moves are seasonal and localized. Asian prices, for example, saw a similar jump last year but those didn’t spill over with an associated similar rise in Europe. Our expectation is that these prices will revert to more normal levels early next year when heating demand ebbs and supplies adjust. However, if prices stay high as they have been, this could begin to be a drag on global growth. Meanwhile, ripple effects are being felt in coal and oil markets. Brent crude oil prices, the global benchmark, recently reached a seven-year high above $85 per barrel, as more buyers sought alternatives for heating and power generation amid already tight supplies. Coal, the nearest substitute, is in high demand as power plants turn to it more. This has pushed prices to the highest level since 2001, driving a rise in European carbon emission permit costs.
A Hobbled Recovery Along Entrenched Fault Lines
The global recovery continues but momentum has weakened, hobbled by the pandemic. Fueled by the highly transmissible Delta variant, the recorded global COVID-19 death toll has risen close to 5 million and health risks abound, holding back a full return to normalcy. Pandemic outbreaks in critical links of global supply chains have resulted in longer than expected supply disruptions, feeding inflation in many countries. Overall, risks to economic prospects have increased and policy trade-offs have become more complex.
Inflation Scares in an Uncharted Recovery
The good news for policymakers is that long-term inflation expectations are well anchored, but economists still disagree about how enduring the upward pressure for prices will ultimately be. Some have said government stimulus may push unemployment rates low enough to boost wages and overheat economies, possibly de-anchoring expectations and resulting in a self-fulfilling inflation spiral. Others estimate that pressures will ultimately be transitory as a one-time surge in spending fades.
Five Lessons Evergrande Taught Us About The Chinese Economy
The Evergrande story is bigger than just one company. It’s about China’s unsustainable model of economic growth, which has relied on endless investment and a mad, debt-fueled development frenzy in recent years. That model helped China soar, but the country is now experiencing some turbulence. Last week, some alarmist observers were calling this China’s “Lehman moment” — a reference to the collapse of Lehman Brothers that preceded the 2008 financial crisis — but China-focused economists argue that’s overblown.
How Countries Can Diversify Their Exports
By looking beyond commodities, the research shows that economy-wide policies such as governance and education help foster diverse exports more than narrowly targeted industrial policies, a finding that can better guide nations aiming to expand their international trade. The examination of 201 countries and territories goes beyond the economic complexity indices that have traditionally been used by economists. Those proxies for the productive capability of a given economic system have strong sensitivity to commodities, which can distort their accuracy.
How to Tax in Asia’s Digital Age
Asia alone has roughly two billion internet users, with considerable room to grow. Asia’s advanced and emerging market economies have several locally headquartered tech giants—including Alibaba, JD.com, Tencent, Rakuten—and host foreign tech giants such as Facebook. A new set of agreed global tax reforms will change where these tech giants and other global giants pay taxes.
How the Pandemic Widened Global Current Account Balances
2020 was a year of extremes. Travel all but ceased for a period. Oil prices wildly fluctuated. Trade in medical products reached new heights. Household spending shifted to consumer goods rather than services and savings ballooned as people stayed home amid a global shutdown. In our latest External Sector Report we found that the global reaction to the pandemic further widened global current account balances—the sum of absolute deficits and surpluses among all countries—from 2.8 percent of world GDP in 2019 to 3.2 percent of GDP in 2020. Those balances are set to widen further as the pandemic continues to rage in much of the world.

AGENCIES

Operational Lessons for COVID-19: What can we Learn from Past Outbreaks?
By JACOB BATHANTI and DEBRA LADNER / Image Credit: World Bank As COVID-19 (coronavirus) spreads around the world, governments and development organizations are thinking hard about how to respond effectively. Trajectories of the epidemic have varied widely among countries as governments adopt a range of policies to contain it. These efforts raise the question of what lessons we can glean from previous experiences in combating novel disease outbreaks. We examined four case studies of epidemic response and recovery from the Global Delivery Initiative (GDI): three from past outbreaks, and one new case: Building a more resilient health system after Ebola in Liberia Financial inclusion and resilience: How BRAC’s microfinance program recovered from the West Africa Ebola crisis How Nigeria’s Centre for Disease Control contained Lassa Fever, 2015-2017 (Forthcoming) The Republic of Korea’s First 70 Days of Responding to the COVID-19 Outbreak  GDI case studies trace the implementation of development interventions, focusing on delivery challenges (the non-technical problems that impede interventions from achieving their hoped-for results) and how practitioners address these obstacles. Examining implementation processes in context helps surface innovations to inspire practitioners facing similar challenges, since many delivery challenges recur across contexts and interventions. In the cases we analyzed, a host of delivery challenges emerged as practitioners raced to implement effective responses. What were the greatest challenges? Basic infrastructure. Shortfalls of basic health infrastructure and equipment hindered Nigeria’s response to the 2015 Lassa outbreak as well as Liberia’s response to Ebola in 2014. These ranged from too few ambulances to a lack of testing capacity (at one point, Liberia’s health authorities had to send samples to Guinea to test for Ebola). Coordination. Cooperation across a wide range of partners and stakeholders is crucial in epidemic situations. Yet such coordination can be difficult.  In Liberia, the government found that international partners sometimes followed their own playbooks instead of coordinating with each other and with the government. In Nigeria, the country’s federal system added a layer of complexity, as some state governments took their responses to Lassa more seriously than others.   Organizational capacity, communication and engagement. The Liberia and Nigeria case studies documented shortages of frontline staff and technical capacity of some teams, hindering response time and impeding surveillance. As it struggled to keep ongoing microfinance programs afloat in Liberia and Sierra Leone during the 2014 Ebola crisis, development partner BRAC relied on remote communications such as Skype with its in-country staff.  But communication with clients was more difficult. As a result, management sometimes had an incomplete picture of what was happening on the ground. Lessons and reflections What do these case studies tell us about tackling delivery challenges in an epidemic, and about creating resilient systems? We suggest four lessons that emerge from the cases 1. The importance of adaptive learning for effective responses. Learning from experience is crucial, both for effective emergency response and to rebuild for the future.  Korea’s response to an outbreak of Middle East Respiratory Syndrome (MERS) in 2015 was seen as slow and opaque, but lessons from this experience have informed its effective response to the COVID-19 outbreak. In Nigeria’s response to Lassa in 2015, the government moved quickly, spurred by memories of the recent Ebola epidemic. And Nigeria’s Centre for Disease Control (NCDC) examined past responses to Lassa fever outbreaks to improve its response through systematic learning. 2. Coordination is hard – but vital. Cooperation and coordination are urgently needed during epidemic responses. This includes coordination among government agencies, across countries, and with a host of development and international organizations. In Liberia during the Ebola outbreak, the government found it difficult to coordinate among the many stakeholders working to combat the disease. The challenges persisted even after the outbreak and impacted efforts to strengthen the health system. Coordination challenges can be mitigated when leaders use their convening power to bring key stakeholders together.  For example, the NCDC had authority to lead disease responses and coordinate among agencies. Korea’s government moved quickly to convene and work with the private sector to develop testing. 3. Effective public engagement is essential. Communication and transparency are crucial, because public behavior and trust can have profound impacts on epidemic response.  In Nigeria, a decentralized communications strategy empowered the NCDC to reach out to communities affected by Lassa fever using social media and WhatsApp. In Korea, leaders recognized the need for transparency to build trust after MERS. Communications on COVID-19 have been proactive, with regular online updates, text messages, and a massive new call center to answer questions from the public. 4. Investments in frontline workers – and systems to support them – are critical. In Liberia, health workers were overstretched even before Ebola. After the epidemic, the government trained new cadres of community health assistants, strengthened the disease surveillance system, and invested in testing capacity. By 2018, these investments were bearing fruit, enabling the government to respond more quickly to outbreaks including Lassa, monkeypox, and meningococcal disease. Similarly, BRAC found that supporting frontline staff throughout the Ebola crisis influenced its quick recovery in Liberia and Sierra Leone. The Global Delivery Initiative is a partnership of over 50 organizations focused on operational insights to better understand what works in implementation. Jacob Bathanti is an editor for the Future Development blog and Debra Ladner is Program Lead for the Global Delivery Initiative as well as Senior Knowledge Management Specialist of the World Bank.
Tracking Trade During the COVID-19 Pandemic
Most trade takes place by sea, and—for navigational safety purposes—virtually all cargo ships report their position, speed, and other information many times a day. A new IMF methodology using these data can help better inform us how international trade is affected by the COVID-19 pandemic.
The Great Lockdown Through a Global Lens
The Great Lockdown is expected to play out in three phases, first as countries enter the lockdown, then as they exit, and finally as they escape the lockdown when there is a medical solution to the pandemic. Many countries are now in the second phase, as they reopen, with early signs of recovery, but risks of second waves of infections and re-imposition of lockdowns. Surveying the economic landscape, the sheer scale and severity of the Global Lockdown are striking.
Reopening from the Great Lockdown: Uneven and Uncertain Recovery
Compared to the April World Economic Outlook forecast, the IMF now projects a deeper recession in 2020 and a slower recovery in 2021. Global output is projected to decline by -4.9 percent in 2020, 1.9 percentage points below our April forecast, followed by a partial recovery, with growth at 5.4 percent in 2021.
Digital Financial Inclusion in the Times of COVID-19
The COVID-19 pandemic could be a game changer for digital financial services. Low income households and small firms can benefit greatly from advances in mobile money, fintech services and online banking. Financial inclusion as a result of digital financial services can also boost economic growth. While the pandemic is set to increase use of these services, it has also posed challenges for the growth of the industry’s smaller players and highlighted unequal access to digital infrastructure. Several actions will need to be taken to ensure maximum inclusion going forward.
Teleworking is not Working for the Poor, the Young and the Women
The COVID-19 pandemic is devastating labor markets across the world. Tens of millions of workers lost their jobs, millions more out of the labor force altogether, and many occupations face an uncertain future. Social distancing measures threaten jobs requiring physical presence at the workplace or face-to-face interactions. Those unable to work remotely, unless deemed essential, face a significantly higher risk of reductions in hours or pay, temporary furloughs, or permanent layoffs. What types of jobs and workers are most at risk? Not surprisingly, the costs have fallen most heavily on those who are least able to bear them: the poor and the young in the lowest-paid jobs.
Fiscal Policies for a Transformed World
The ongoing COVID-19 pandemic has already prompted an unprecedented fiscal policy response of close to $11 trillion worldwide. But with confirmed cases and fatalities still rising fast, policymakers will have to keep the public health response their No. 1 priority while retaining supportive and flexible fiscal policies and preparing for transformational economic change.
New World Bank Country Classifications by Income Level: 2020-2021
It is important to emphasize that the World Bank’s income classifications use the GNI of the previous year (2019 in this case). Thus, the GNI numbers that are used for this year’s classification do not yet reflect the impact of COVID-19.
The Impact of COVID-19 (Coronavirus) on Global Poverty: Why Sub-Saharan Africa Might be the Region Hardest Hit
COVID-19 is taking its toll on the world, causing deaths, illnesses and economic despair. But how is the deadly virus impacting global poverty? Here we’ll argue that it is pushing about 40-60 million people into extreme poverty, with our best estimate being 49 million.