Some days back, the Presidency announced the resumption of crude exports from the 250-300kbpd Trans-Forcados Pipeline (TFP) terminal in the Niger Delta region following completion of repairs after a militant attack in February. As reported by Reuters, after the meeting between the Presidency and a director in SPDC, Mr. Andrew Brown, SPDC informed the President of the resumption of oil exploration through the Forcados terminal following its restoration. To add, information which filtered into the market suggest Royal Dutch Shell in partnership with other two companies (Axion Energy Argentina SA and Pampa Energia SA) have purchased circa 1 million/bbl. of Forcados crude grade set for delivery in November.
Bit of cheer for oil revenues: The removal of the Forcados force majeure should boost oil production from multi-year trough of 1.6mbpd in H1 16 to circa 1.9mbpd. In the event that current security arrangements hold firm, the development allows Nigeria to benefit from the recent recovery in Brent crude which should boost fiscal coffers by 18% by our estimates. In H1 16, lower oil production and prices drove oil revenues lower by 41% YoY to N1.2 trillion, leading to a 30% YoY decline in Gross fiscal receipts to N2.4 trillion—, 48% lower than budget estimates by. Assisted by higher conversion of export petro-dollars, following the over 50% NGN depreciation, we see a rebound in fiscal receipts over Q4 16.
However, the timing of the recovery and the high base in Q4 15 (2.2mbpd) constrains scope for a return to positive growth in oil GDP in Q4 16. That said, the tamer contraction in oil GDP should drive mild pull-back in the overall growth from the 2.2% GDP contraction. We estimate that beyond the near term, the resumption along Forcados raises prospects for lifting of similar force majeures along other oil production platforms, in particular Qua Iboe (300kbpd).
Any recovery in Seplat’s Production? For coverage companies, the development is a positive for Seplat (SELL: N235.4) which owns 45% of three OMLs (OMLs 4, 38 and 41) that operate along the TFP. That said, the timing of this news is unlikely to be of immediate benefit and we do not expect any significant recovery in production over Q4 16. Currently, we assume working interest production of around 29,490boepd (-32% YoY) in 2016E. We estimate that production from OMLs, 4, 38 & 41 would be around 25,668boepd.
Overall, the imminent restart of the TFP should support the company’s interim solution for crude evacuation. The earlier mentioned combined with further plans by Seplat to consolidate on its alternative evacuation route are net positive to us. Seplat is expected to release its 9M 16 results today (Sept 27), Our model and ratings will be updated afterwards
FG releases new details on MSMEs support scheme, budgets N200 billion for loans
The Bank of Industry will also join to coordinate the implementation of the scheme.
The Federal Government has released new details on the Micro Small and Medium Enterprises (MSMEs) support scheme being rolled out under the National Economic Sustainability Programme.
According to estimates provided, the sum of N50 billion will be used to provide payroll support, N200 billion for loans to artisans, and N10 billion support to private transport companies and workers
The government disclosed in a tweet on the official handle of the government, the support scheme will include a Guaranteed Off-take Scheme for priority products, and an MSMEs Survival Fund.
The Federal Govt is rolling out, under the NESP, support schemes for MSMEs nationwide, including a Guaranteed Offtake Scheme (guaranteeing off-take of priority products); and an MSMEs Survival Fund that will make payroll support available to save jobs & sustain local production. pic.twitter.com/yLkHQn6zy3
— Government of Nigeria (@NigeriaGov) August 10, 2020
Modalities for the take-off scheme
The first track is a Guaranteed Off-take Scheme which will ensure continued local production and safeguard 100,000 existing small businesses to save 300,000 jobs.
Priority products include processed foods, personal protective equipment, hand sanitizers, face-masks, face-shield, shoe-covers and pharmaceuticals.
The implementation committee chaired by Ambassador Mariam Katagum, Minister of the Federal Ministry of Industry Trade and Investment, will collaborate with private sector MSME associations to verify and screen applications from bidding MSMEs, define quantity and price of products required, and also get participants to join in the procurements.
SME survival fund
With a budget of N15 billion, the SME survival fund is expected to sustain 500,000 jobs in 50,000 SMEs.
Major sectors to benefit from the SME survival fund include hotels, restaurants, creative industries, road transport, tourism, private schools and export-related businesses.
The committee will identify eligible SMEs and screening and verification for this fund will be based on company registration, and tax registration. The implementation committee will approve disbursements through microfinance banks and fin-tech credit providers.
MSMEs that are unregistered will receive support to complete registration with the Corporate Affairs Commission (CAC), and all participants will be expected to make payments based on signed agreements.
The Bank of Industry will also join to coordinate the implementation of the scheme.
The scheme will last 3 months with Ambassador Mariam Katagum as Chairman, while Ibukun Awosika, Founder of The Chair Centre Limited (TCCL), and First Bank Nigeria will serve as the Vice Chairman.
More details are to be released subsequently from the Implementation Committee.
In July 2020, the Federal Government announced plans to roll out a N2.3 trillion stimulus package and survival fund for Micro Small and Medium Enterprises (MSMEs) to stay afloat amid the economic challenges imposed by the pandemic.
The Vice President Yemi Osinbajo, who also heads the Economic Sustainability Committee, announced it at the 2020 edition of the Micro MSMEs Awards held virtually in July.
To benefit from the scheme, MSMEs would have to go through a rigorous and painstaking verification process which will be based on certain criteria.
MSMEs that have between 10 to 50 staffs are qualified for this fund. The businesses must make their payroll available to the government for verification while applying for the fund. Once qualified, the MSMEs will be eligible to have their staff salary paid directly from the fund for 3 months.
Brewery sector: A quarter to forget
Beer makers saw their revenues plummet in the second quarter of 2020 as the economic shut down extinguished sales.
The quarter ending June 2020 will be one to forget for Nigeria’s struggling brewery sector. Whilst the negative effect of COVID-19 is still being reported across every sphere of the economy, the brewery sector was always one of those that were expected to suffer the most.
The latest results from two of the industry giants, Nigeria Breweries and International Breweries confirm our worst fears. Combined revenues for both companies was N93.9 billion, representing a 22% drop year on year. Both companies reported revenues of N120, 4billion in the corresponding quarter of 2019.
Disaggregated, Nigeria Breweries reported a 21% drop to N68.6 billion and International Breweries 24% drop in revenues to N25.2 billion. Guinness is yet to release its quarter ending June 2020 results which happens to be its year-end. Ahead of its release, the company issued a profit warning as it anticipated the worst. The drop in revenues recorded in the Brewery sector is not a surprise. With most parts of the country in complete economic lockdown, beer sales are expected to drop significantly.
As expected, the fall in revenues crashed margins significantly. While Nigeria Breweries was able to eke out a tiny N70 million in pre-tax profits, International Breweries lost N4.2 billion. Nigeria’s Breweries actually fared worse when you consider that they reported a N7.9 billion in 2019 and N12.3 billion in 2018. Could it get any worse?
Beer companies have always posted some of their best revenues in the second quarter of the year and struggle in the third. With results this bad already in the second, things could only get worse in the third quarter. Though, economic activities are gradually picking up, entertainment life which it heavily relies on remains in comatose.
The industry has been struggling with dwindling sales and thin margins for years as younger Nigerians ditch beer for spirits, which are often cheaper, do not bloat the stomach and are quicker to intoxicate. Increase in beer sales are also seemingly positively correlated with an uptick in social events such as weddings, parties and birthday ceremonies. Hotels, bars, clubs and most entertainment centres remain shut since March. Some are expected to reopen in the coming weeks as the government eases lockdown. But till then, beer making companies are clutching on straws.
COVID-19 could be blamed for the industry’s woes, but a changing demographic still poses an existential threat to the sector. In fact, COVID-19 only showed how urgently they need to pivot away from relying on outdoor events to drive sales. Beer drinking is purely consumer product and needs to be pitched as such.
Rather, than advertise beer as a drink for bars during live events, it should be sold as a “must-have” beverage in the evening during family time. It should also be pitched as a must-have staple for house parties and close family gatherings or even casual remote working settings. The packaging should also gear off for a makeover. Beer dispensers anyone?
FX utilization fell to its worst on record in April
Forex Utilization in Nigeria fell by a whopping 80% in April as the economic shuttered in reaction to the covid-19 pandemic.
Forex Utilization in Nigeria fell by a whopping 80% in April as the economic shuttered in reaction to the COVID-19 pandemic. According to data from the central bank, Nigeria’s forex utilization fell to just $1 billion in April, the month where Lagos State and the Federal Capital Territory, FCT, shut down economic activities and movement.
The CBN reports forex utilization in terms of the amount of forex utilized for invisible and visible imports. In April 2020, only $713 million dollars was used for visible imports from major sectors such as Industrials, Mineral, Manufacturing, Agricultural, Oil sector and transport. This compares to about $1 billion in March. The Industrial, Food and Manufacturing sector alone gobbled up $548 million compared to $791 million in March.
Worst hit was the invisible sector, which includes financial services, business services, health and the general services sector in general. it is termed the invisible sector because the forex is utilized for payment of services unlike the visible sectors where forex is utilized for importation of equipment, assets and other physical products.
The invisible sector reported a forex utilization of $361 mullion in April compared to $4.3 billion in March and $3.6 billion in February. This is the worst drop since 2008 the earliest date we have for this dataset. Whilst the drop was recorded across all sectors, the worst hit was the financial services sector. Forex utilization fell from $4.2 billion to just $331 million. The sector constitutes a bulk of forex utilized monthly.
What this means: Forex utilization is a function of how much forex is available for businesses to use for their transactions with counterparties across the world. The economic shutdown in April affected currency markets as forex sales fell across all forex windows.
The impact in April is severe and is probably remained worse throughout May, June and July. The CBN is one of the largest forex suppliers in the country but has staved off any pressure to sell citing limited economic activity in the country and around the world. Pent up demand for forex is thought to be between $1.5 -$5 billion.
Whilst there is a recorded drop in forex utilization as officially recorded, it is likely that some of the demand may have passed through the black market. It is also no surprise that forex utilization also fell between April 2016 and January 2017 as Nigeria faced a currency crisis before it devalued to N307/$1 and launched the NAFEX window.