LBS EXECUTIVE BREAKFAST SESSION – AUGUST 2021 (Re: Slow Growth as Fragility Persists)

Dear Subscriber,

Refinery resurrection or rehabilitation as NNPC acquires a 20% stake in the Dangote refinery

Only a discerning analyst would have raised his eyebrow when the NNPC announced its intention to pay its first dividend in September 2021. He would ask if this was a precursor for listing the oil behemoth on the Nigerian stock market just like Aramco did in Saudi Arabia. Aramco IPO has been the world’s largest to date. To list any company on the exchange, the company must have paid dividends in the prior 3 years. This announcement was swiftly followed by the FEC approval of NNPC’s acquisition of a 20% stake in the Dangote refinery and petrochemical project. These decisions are not only huge but are potentially transformational for the petroleum sector in Nigeria, which had been hitherto in a moribund state. The governance requirements of listed companies is likely to force the NNPC to become more transparent and accountable in its financial management.

Q2 GDP growth could spike to 3%

The NBS will release the Q2 GDP data on August 26. Consensus estimates are for a positive growth number ranging anywhere from 2.6%-3.2%, primarily due to base year effects. The growth numbers will be closely watched by the markets and analysts. The Nigerian economy has been struggling as it seeks to overcome structural defects whilst simultaneously embarking on badly needed economic reform. The 5-year average GDP growth rate is 0.3% because of the impact of two recessions and a slow recovery from the pandemic-torn environment.

Naira to continue to appreciate towards fair value but analysts are jittery

The bright spot in the chequered picture is that oil prices are back up again at an average of $74pb in July and OPEC has increased Nigeria’s quota to 1.8mbpd. This could lift the quarterly dollar oil revenue towards $14bn per quarter from an average of $11bn in 2020.

Nigeria’s terms of trade, which measures the change in prices of its exports relative to the prices of its imports has improved from 23.2 in 2020 to 30 in 2021. This means that with the balance of trade now becoming positive ($1.2bn) and an exchange rate determining mechanism aimed at attaining global competitiveness, there is a chance that Nigeria might be moving gradually and closer towards fair value of the naira on a more sustainable basis. The naira has gained 3.24% since it fell to N525/$ last week. Most pessimists were of the view that the naira was likely to plunge to N700/$ after the BDCs were stopped from buying dollars from the CBN. We continue to hold the view that the naira will continue to appreciate towards fair value (N470-N490/$) in the parallel market as long as the CBN increases forex supply. However, corporates remain nervous as to policy direction and uncertainty remains.

In this edition of the LBS Breakfast Session, Bismarck Rewane and the FDC Think Tank try to make sense of the many policy changes and its impact on your strategy for the rest of 2021.

Enjoy your read…