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Macro-Economic News

EFG Hermes highlights sectors that will boom Post-COVID

Investors and executives will nevertheless have to navigate a changed landscape.

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EFG Hermes, Impact of COVID-19 pandemic on consumer packaged goods in Nigeria

EFG-Hermes Holding, a financial service corporation, has said that investments across certain sectors of the Nigerian economy would receive boosts when the COVID-19 pandemic ease by September, 2020.

The sectors, according to the experts, that would attract more investments and patrons  after the pandemic subsided are Agriculture, Digital payments, health, consumer goods and capitalised financial institutions among others.

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This was disclosed by experts during a virtual investors conference organised by EFG-Hermes and attended by Nairametrics.

READ MORE: FG to go ahead with Eurobond payment, seeks debt relief from china, multilateral agencies

Head, Frontier research, EFG-Hermes, Kato Mukuru, explained that the sectors will be investors delights post-COVID, as more investments would be attracted to them and they are essential products/services consumers can not do without. He said,

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The good thing about COVID-19 is that it has forced new sectors to come through. More local and foreign investors will be going into food cultivation, processing, storage and distribution to take advantage of the expansion in the industry.

Mukuru added that Nigeria’s biggest financial institutions would also attract new investments and customers as most lenders are deficient in capital and many will need capital to stabilise after the pandemic.

“There are clients that are looking at very good opportunities and we are discussing with them. I know a local investor who is looking to do hospitals post Covid-19. We have started that dialogue,” he added.

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READ ALSO: SEC expresses worry as banks’ credit to agriculture sector remains low

The lockdown introduced by the Federal Government created opportunities for some operators in the digital payment space, as many moved from cash to digital payments.

Also, a crash in the price of crude oil, the nation’s major revenue earner intensified effort by the government to diversify income sources by supporting investments in agriculture and processing industries.

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Despite current challenges facing the Frontier Emerging Markets (FEM), Mohamed Ebeid, co-CEO of the Investment Bank at EFG Hermes, explained that changes in the macro picture might create new opportunities for countries, markets and companies.

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He said, “We do see the prospect of some relief from immediate pressures, with an easing of FEM portfolio outflows expected as major central banks continuing to implement large expansionary programs.

‘We could also see a floor put under commodity price drops as major oil producers solidify their commitment to large output cuts. Investors and executives will nevertheless have to navigate a changed landscape, where previously more-or-less hidden structural trends come to the fore and accelerate.”

Ebeid added that the main objective of the Virtual Investor Conference was to provide participants with first-hand insights from key international players, spurring further investment in FEMs.

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Patricia

Abiola has spent about 14 years in journalism. His career has covered some top local print media like TELL Magazine, Broad Street Journal, The Point Newspaper. The Bloomberg MEI alumni has interviewed some of the most influential figures of the IMF, G-20 Summit, Pre-G20 Central Bank Governors and Finance Ministers, Critical Communication World Conference. The multiple award winner is variously trained in business and markets journalism at Lagos Business School, and Pan-Atlantic University. You may contact him via email - [email protected]

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Macro-Economic News

FPI and FDI drop to $68 million and $18 million respectively in April, lowest since 2016

The Covid-19 economic lockdown impacted negatively on investor inflow into Nigeria.

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FDI, foreign direct investment, Covid-19: Nigerian government explains how it will fund proposed N2.3 trillion stimulus

Nigeria attracted just $67.9 million in Foreign Portfolio Investment (FPI) inflow for the month of April 2020, the lowest inflow recorded this year. This is contained in the latest capital importation data obtained from the Central Bank of Nigeria (CBN).  

A cursory look at the Central Bank data shows that FPI sharply reversed from $2.30 billion at the beginning of the year (January) to just $67.9 million inflow in April 2020. Nigeria like most emerging markets relies heavily on foreign portfolio investments to shore up its external reserves and manage its exchange rate position.  

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Nigeria shut down its economy in the whole of April as part of its measures to contain the spread of the COVID-19 pandemic.  

READ MORE: UPDATED: Inflation rate jumps to 12.40%, highest in over 2 years

FPI and FDI hit 2016 recession low 

The outbreak of the COVID-19 pandemic has affected the global economy with emerging markets like Nigeria feeling the full brunt from a fiscal and monetary perspective  

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With the pandemic projected to spread recession across major countries including G20 nations, investors are wary of pumping money into poorer countries like Nigeria. This is despite trillions of dollars in stimulus packages injected by the likes of Japan, the US, Europe, and Canada. Foreign investor apathy is also due to the global lockdown which is still in full force in many sub-Saharan countries like Nigeria.  

In total, Nigeria attracted only $316.8 million capital inflow in April, a 113.5% drop representing a significant decline when compared to the $2.30 billion capital inflow received in January 2020. Total capital importation was $2.4 billion and $615 million in February and March respectively. The majority of the inflows recorded in January and February flowed into Money Market Instruments.

The breakdown of capital inflow shows that the main components of capital inflow (FPI and Foreign Direct Investment) plunged significantly.  

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READ MORE: Nigeria receives $17.5 billion diaspora remittances in 2019 

Source: CBN

As at the end of April 2020, Foreign Direct Investment (FDI) received was estimated at $18.5 million, down from $110.9 million received earlier in January 2020. FPI, on the other hand, recorded a 3,297% decline from $2.30 billion in January to $67.9 million inflow in April 2020.  

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This is the lowest capital inflow received in the Nigerian economy in a single month since the 2016 recession. In 2016 December, Nigeria recorded $76.15 million FPI and $67.9 million in January 2017 respectively.  

READ ALSO: Nigeria received $96 billion diaspora remittances inflow in 6-years

According to the recent report released by the World Bank on the Nigerian economy, in the first quarter of 2020, the total FPI flows into Nigeria declined by 54%, and this is due to increased risk aversion in global capital markets.  

While FPI and FDI both declined, the Central Bank continues to offer high yield to foreign investors, causing the share of FPI in total capital inflows to rise to over 50 percent in 2019. The shift from FDI to FPI represents an increase in Nigeria’s reliance on “hot money” to finance the Balance of payment, which exacerbates the vulnerability of the current account.  

Although, the foreign reserves have improved in recent weeks, averaging $36 billion in June 2020. Meanwhile, a sustained reversal in capital flow may further expose the country’s foreign reserves, a situation which may necessitate another round of exchange rate unification (Naira devaluation). 

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Economic Reopening still a longshot 

In the past weeks, major economies of the world have embarked on gradual easing of lockdown, a move targeted at restarting local trade and initiate the recovery process. However, there are new pushbacks on reopening plans as renewed concern about the possibility of a second wave of the COVID-19 pandemic across the globe remains high    

Nigeria has also faced similar pushbacks on reopening the economy further prolonging a restart of full economic activities. Just recently, the federal government approved a N2.3 trillion stimulus package which they will fund from special accounts and a $3 billion loan from the World Bank. This is in addition to the $3.4 billion already drawn from the IMF.  Whilst, these are all geared towards stimulating the economy, the economic devastation from COVID-19 remains a huge concern. 

Both the IMF and World Bank have predicted the Nigerian economy to contract by 3.4% and 5.4% respectively in 2020. According to the World Bank, in 2020, the current account is expected to hold steady at about -3.1 percent of GDP in 2020, although imports and exports are both projected to contract considerably. 

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Also, the World Bank disclosed that Nigeria’s exports are expected to fall by US$40.3 billion, 9% of GDP, because of the drop in global oil prices, and imports are expected to fall by US$50.5 billion, 12% of GDP, due to sluggish demand and disruptions in global supply chains.  

Indeed, Nigeria is in a significantly weaker macroeconomic position than it was during the 2015/16 recession, and it has fewer policy instruments to cushion the shocks induced by the pandemic. 

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Macro-Economic News

Nigerian businesses are optimistic about July – CBN 

Regarding the currency outlook, respondent firms expect the Naira to depreciate in the current month.

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CBN survey revealed that Nigerian businesses have an optimistic outlook for the months of July, August, and December. The confidence index for the months stood at 31.8., 47.4 and 67.8 index points, respectively. This is following the largely pessimistic outlook towards the Nigerian economy for the month of June which had an overall confidence index (CI) of -24.3 index points. 

READ ALSO: CBN projects macroeconomy confidence to rise by 118.3% in November 

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The survey was conducted by the Statistics department of the Central Bank of Nigeria and it involved a sample of 1050 businesses that cut across small & medium enterprises (SMEs) as well as large corporations in NigeriaRespondent firms also included import-based and export-based businesses alike. It attained a response rate of 96% and the sample took cognisance of companies in the agricultural industryservices, manufacturing, wholesale/retail trade, and construction.  

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The overall outlook of respondents on financial conditions like working capital, access to credit, and average capacity utilization was also negative. The only good expectation was from expected volume of business activities.  

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The Major Challenges 

The firms that took part of the survey highlighted issues like insufficient power supply, competition, high-interest rate, financial problems, unfavourable economic climate, unclear economic laws, insufficient demand, unfavourable political climate, access to credit and lack of equipment as the primary factors that constrain business activity.  

READ ALSO: Nigeria’s COVID-19 cases projected to top 240k as positivity tests approach 20% 

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Regarding the currency outlook, respondent firms expect the Naira to depreciate in the current month. Much like the overall outlook, they also expect it to appreciate in JulyAugust and December. Inflation level is also expected to rise and borrowing rate is equally expected to rise in the same months respectively.  

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Macro-Economic News

Nigeria’s external reserve drop by $261 million in 15 days, oil firms to sell forex to CBN 

Nigeria’s external reserve position is now $9 billion years to date and down from its peak of $45.17 billion achieved.

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external reserves, After loosing $520 million in two weeks, Nigeria's external reserves rise again, Foreign reserves, Nigeria’s external reserve drop by $261 million in 15 days, oil firms to sell forex to CBN 

Nigeria’s external reserve fell by $261 million in 15 days as the central bank marginally increased sale of forex in the I&E window.

Data from the website of the apex bank reveals Nigeria’s external reserve is now $36.3 billion as at June 18th 2020. Nairametrics tracks the external reserve position on a weekly basis.

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The last time Nairametrics checked the external reserve position on June 3rd the central bank has $36.57 billion. The drop is in line with expectations considering the limited dollar earnings due to stiff OPEC cuts and low crude oil prices.

Nigeria’s external reserve has declined for a second consecutive week since June 3, 2020, when it stood at $36.577 billion. This represents a decline of $261 million or 0.71% in 15 days when compared to the $36.316 billion as of June 18, 2020.

READ ALSO: Will Monetary policy Committee (MPC) alter rates this week?

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Also, note that Nigeria’s external reserve position is now down $9 billion years to date and down from its peak of $45.17 billion achieved.

The naira has been under pressure against other major currencies, particularly the dollar, since the fall in oil prices and the outbreak of the COVID-19 pandemic. This has triggered a wave of currency speculators who believe the devaluation which occurred in March should be have been more. The CBN devalued it’s the official exchange rate in March from N307/$1 reacting to the fall in crude oil prices. However, Brent crude oil prices have risen since then to over $43 per barrel but yet to hit pre-crash level prices. Speculators are betting that the government may devalue further if they are to fund the government’s huge revenue gap.

READ MORE: Naira falls against the dollar across forex markets as liquidity drops by 43%

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However,  dollar shortages, which is impacting on the external reserve, continues to be on the burner and widening the exchange rate at the I&E window and the black market. Several reports monitored by Nairametrics suggest the accumulated demand for foreign exchange in the market especially by importers and foreign investors who want to repatriate their funds could be between $1.5–$5 billion as supply shortages persist. The rise in dollar demand and the contrasting fall in supply has given rise for calls for another round of devaluation by CBN.

Nairametrics had reported that the Federal Government through the Economic Sustainability Committee had proposed the unification of the exchange rate to maximize naira returns to FAAC from the foreign exchange inflows. The policy measures by the committee is also to help manage the exchange rate in a sustainable manner.

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As part of the measure to improve the foreign exchange supply to CBN, the committee had recommended the sales of foreign exchange supply directly to the apex bank by oil companies and oil service companies instead of NNPC.

The naira depreciated to N386.50 to a dollar at the Investors and Exporters (I&E) window last week Friday. It also depreciated to N455 to a dollar at the parallel market otherwise known as the black market.

 

 

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