Dear Subscriber,

Not all that glitters is gold – Taking official data with a pinch of salt

Psychologists would say that an ideal situation is one in which what you hear, what you see, and how you feel are aligned. The more divergent they are, the more prone that society is to crisis.

In the last three weeks, there has been a flurry of data, mostly positive, but the difference between empirical data (published) and anecdotal data (street side) has widened significantly leaving Nigerians confused and not knowing what to believe.

Data points

• The inflation data for July, which improved to 33.4% after 19 months of deterioration, was good news.
• The Q2’24 GDP growth, which expanded by 3.19% shows a substantial improvement in economic activities.
• The CBN business expectations survey, which showed optimism for the next 3 to 6 months

If you juxtapose these data against the petrol queues, electricity downtime plus higher tariffs, and galloping food prices, the frustration of the ordinary man becomes palpable.

NNPC – Ubiquitous and amorphous

NNPC has announced a pump price of N900/litre for PMS which seems to pre-empt the pricing by the Dangote refinery. Typically, the price leader in the market should be the largest producer. The fact that NNPC is owing $6.5bn at a time when Nigerians are patronizing the $500 million diaspora bond, is evidence of the discordance between official and market information.

Dangote refinery – The white knight??

Then there’s the Dangote refinery, with positive news of PMS supply. The rollout which has already started is a welcome development that will settle the supply and quality question but not the false expectations of a lower pump price. The price of any commodity must be higher than its marginal cost.

The next four weeks will be crucial to all!

With the 50% increase in the price of petrol, every Nigerian will face the decision to change their consumption pattern to reflect their low purchasing power to accommodate the short-term pain for an even longer period.

Higher petrol prices and the pass-through effect on transportation and food costs are significant inflationary risks the CBN will likely balance out at its upcoming meeting on September 23/24.

The CBN will continue to monitor the performance of leading macroeconomic indicators to determine its next course of action. A rate cut will be too early, but a more likely outcome will be maintaining the status quo.

The US Fed will cut rates, which will likely encourage foreign investment inflows to emerging and developing markets, including Nigeria. Increased capital inflows and a surprise Dutch auction will help stabilize the naira which weakened to N1,673/$.

The jolt of the increase in petrol price towards N900 per litre and the probability of further increases will make businesses, unions, and consumers go into a period of deep introspection on how to convert these challenges into opportunities.

At the latest LBS Breakfast session, Bismarck Rewane and the FDC Think Tank analysed these issues, highlighting their implications for your business and investment strategies.

Enjoy your read!