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Traders’ Voice… The inflation highway

Nigeria’s annual inflation rate soared for a 16th straight month to 15.75 percent in December of 2020.



I visited a supermarket over the weekend, and I was beyond stunned when I got my bill as it just wasn’t adding up. I kept looking at my receipt and asking the cashier to double-check to ensure there were no errors. After much back and forth, it turned out that there were no errors; prices of food items had just gone up. I think it is safe to say that the purchasing power for a lot of Nigerians has weakened significantly and shows very little signs of slowing down.

Like me, I think many Nigerians will be anxiously waiting to see how the fiscal and monetary authorities intend to find solutions to reverse this trend. Nevertheless, we will be looking at the inflation figures that came out last week and some of the plans that the federal government has highlighted in the 2021 budget to help curb the rising inflation rate. 

Nigeria’s annual inflation rate soared for a 16th straight month to 15.75 percent in December of 2020. At this point, it is safe to say inflation is on the “highway.” Food Inflation grew by 1.26% to 19.56% in December as the insecurity in the north coupled with the festive season added further inflation pressure to food prices.     

Core inflation also picked up in December 2020, increasing by 0.32% to 11.37% in December 2020. The highest increases were recorded in prices of Passenger transport by air, Medical services, Hospital services, Shoes, and other footwear, Passenger transport by road, Hairdressing salons and personal grooming establishments, Repair of furniture, Vehicle spare parts, Pharmaceutical products, Motor cars, Maintenance and repair of personal transport equipment, Paramedical services, Motorcycle, Dental services, and Bicycles.   

The Great Conflict… 

With FX illiquidity remaining a concern in 2021, Energy price, which has a strong correlation with crude oil price, is expected to sustain its upward trajectory on the back of the global recovery and continuous vaccine rollout. That means the higher oil prices get, the higher the price of PMS which is a major component in transport costs locally. Which leaves us with a question for you, “rise in oil prices (improves dollar inflow and revenue but increases the price of PMS) or a decline in oil prices (Dampens dollar inflow and revenue but reduces the price of PMS), which do you prefer?” 

The Fiscal play… 

The Minister for Finance, Budget, and National Planning, Dr. Zainab Ahmed disclosed during a virtual presentation of the breakdown of the 2021 FGN Budget that the federal government will be using spending on transportation as a fiscal tool to curb inflation. She stated that the improvement in the transportation sector will help ease the cost of food prices, therefore easing the overall pressure on food inflation. The Ministry of Transport is expected to spend N209.73 billion, out of which N71.14 billion accrues to numerous railway counterpart payments and the Nigerian Railway Modernisation Project (Lagos-Ibadan section which is expected to gulp N129bn). The federal government also implemented a reduction in the importation of transportation vehicles. Reduction of import duty on tractors from 35% to 5%, mass transit vehicles for transport of more than 10 persons and trucks from 35% to 10%, and reduction of import levy on cars from 30%to 5%.  

We expect this development to improve activity in the transportation sector, as well as have a ripple effect on the broader-based economy 

America is Blue again! 

A distant observer of the events that played out in the United States over the past weeks could easily mistake the happenings in the World’s largest economy for the cinematic plot of an upcoming blockbuster movie. The Capitol Building was invaded by rioters, which led to the death and injury of several people. Bombs were found at the headquarters of the Democratic National Committee and the Republican National Committee, and the President of the United States was impeached by the House – AGAIN!  

While a reference to the 2016 drama series “Designated Survivor” might seem hyperbolical given the absence of international terrorist attacks on the Capitol Building, this is still the closest we can get (I hope) in a realistic context in modern times. On the 13th of January 2021, the U.S. House of Representatives passed a single article of impeachment, charging President Trump with “incitement of insurrection.” Of the 429 members of the House that voted on the impeachment article, 232 voted for impeachment, including 10 republicans.  

The series of events that culminated into the impeachment was quite simple – The U.S. had a Presidential election; Trump lost the election to Biden; Trump alleged that the election was stolen through widespread voter fraud; Trump failed to prove these allegations in court; Trump encouraged his supporters to go on a protest at the Capitol house where the Congress was meeting to certify the election results in favour of Biden; and finally, some supporters went “Viking” on the Capitol (Literally! someone was dressed as a Viking, and another held a pitchfork). Sure, you cannot blame the forest fire on a lit matchstick if there was already so much dry wood, but it would be very helpful if no one lit the matchstick at all. The impeachment was not the only backlash President Trump received because of the riot, as several social media outlets banned Trump and his allies from using their platforms, including – Twitter, Facebook, Instagram, YouTube, Reddit, and Snapchat, to mention a few. Despite all these, the U.S. stock market proved to be impervious to the ongoing threat to Democracy, as the Dow Jones industrial average flirted momentarily with the record 31,000 mark the day after the riot at the Capitol.  

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DOW JONE 1-Year Trend


Currently, all attention is on the upcoming inauguration of President-elect, Joe Biden, on Wednesday, January 20th, 2021, as there are security concerns about the event. Nevertheless, this will be a historic moment in the U.S., as the country would have her first African American and Asian-American Vice President. Expectations are locked on further government spending by the incoming Biden administration, which would weaken the greenback. We got a glimpse of this last week when Biden unveiled his US$1.9 trillion COVID-19 relief package. So, grab your popcorn, and watch as the U.S. spirals into debates as to whether the benefits of more government spending are worth bloating the national deficit. It would be dramatic, but nothing compared to the events of the past weeks. 

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Where is the money? 

With Climate change at the top of Biden’s policy agenda, we expect renewable energy stocks to continue to gain traction in near-term. The U.S. Banking sector are also expected to remain resilient as stimulus packages continue to filter into the market

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Central Bank of Nigeria; resuscitating an ailing economy

Since the emergence of the novel coronavirus, the monetary authority has continued to introduce measures to support economic recovery.



Banks' stakeholders express 4 main concerns bothering the sector right now, CBN, MARKET UPDATE: CBN’s historic agriculture lending; Is it yielding the desired results? 

Recently, the financial policy and regulation department of the Central Bank of Nigeria (CBN), in a circular announced the extension of the regulatory forbearance on its intervention facilities to Institutions impacted by the dampening economic effect of the lingering coronavirus pandemic for an additional year.

Though the country has exited recession according to the latest GDP report, the beneficiaries of these facilities still require regulatory support to completely get back to business before assuming the burden of servicing those facilities.

Earlier in 2020, the CBN had given the initial forbearance following the complete stall in economic activities brought about by the need to community transmission following the emergence of the coronavirus pandemic is nipped in the bud.

Consequently, the interest on the facilities was revised from 9.0% to 5.0%, with a one-year moratorium given on all principal repayments from 01 March 2020. Following the expiration of this forbearance, the CBN has announced the extension for another 12 months of the discounted interest rates for the CBN facilities. However, the rollover of the moratorium on these facilities will be considered on a case by case basis.

Since the emergence of the novel coronavirus, the monetary authority has continued to introduce measures to support economic recovery. The Bank has continued to extend support to industries that were hit by the negative effect of the coronavirus through the Anchor Borrowers’ Programme (ABP) Commodity Association, Private/Prime Anchors, State Governments, Maize Aggregation Scheme (MAS), and the Commercial Agricultural Credit Scheme (CACS), among others.

Yesterday, the CBN considering the impact of the economic frailties on the Nigerian poultries value chain and industries, released 50,000mtn of maize to cushion shortage of supply. Consequently, the price per metric tonne of maize has dropped to N180,000/metric tonne from N200,000/metric tonne, with an expectation that it would further plunge.

We acknowledge that farming activities have been significantly affected in 2020 due to covid-19 movement restrictions during the planting season as well as abnormal rainfall patterns which led to flooding of farmlands and the farmers/herders clashes which remain a significant threat to agricultural productivity.

These unfortunate events have led to a spike in food prices reflected in the food inflation rate of 20.57% in January 2021, according to the National Bureau of Statistics (NBS). Thus, we consider the provision of reliefs for farmers important to restore farming activities and output level back to pre-covid levels.

While we welcome these interventions given Nigeria’s current precarious economic situation, and how it has burdened businesses, we are of the view that the government needs to also keep an eye on resolving long-standing structural bottlenecks to truly maximise the full potential of Nigerian businesses.

CSL Stockbrokers Limited, Lagos (CSLS) is a wholly owned subsidiary of FCMB Group Plc and is regulated by the Securities and Exchange Commission, Nigeria. CSLS is a member of the Nigerian Stock Exchange.

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Why NNPC should be commercialised

A commercialized NNPC with more committed employees would mean better accountability and transparency in its operations.



NNPC reports explosion at OML 40 facility

The Nigerian government is seeking efficient ways of positioning the country on its path to recovery and the petroleum industry which contributes about 90% of its exchange earnings would undoubtedly be critical on this journey.

The long-awaited Petroleum Industry Bill (PIB) which seeks to regulate the entire Nigerian Petroleum Industry and repeal a host of existing legislation is paramount in transforming the industry and introducing more efficiency particularly in its government-owned parastatals. The PIB has gained more traction in the current administration and is now awaiting deliberations by legislators.

A key highlight of the PIB is commercializing the State-run behemoth, Nigerian National Petroleum Corporation (NNPC). This move would see the NNPC incorporated as a Limited Liability Company and be known as NNPC Limited. This company would conduct its affairs on a commercial basis without resorting to using government funds.

While this might seem like a bold move by the government, it still should not come off as a surprise…

Owing to the fall in crude oil prices from over $100/barrel to below $50/barrel levels in 2020, Nigeria’s exciting story with crude oil slowed down but has picked up in recent months. The country’s heavy dependence on the volatile crude oil market and its ineptitude in diversifying during its “oil-rich” days have now thrown its growth story in jeopardy. The once 3rd-fastest growing economy with foreign reserves in excess of $40bn now wallows in rising inflation complemented and a weakened currency.

Why do we need to commercialize NNPC?

A core theme with a number of government-owned parastatals is the plague of inefficiency and obscurity in the way they are run. To give an idea of the NNPC’s lack of transparency, the corporation only published the group’s audited financial statements for the first time in its 43 years of operation in 2020. It’ll be right to commend this administration is pushing for transparency but you can go on to imagine what went on during those opaque years of operation.

As expected, the results were not impressive. The corporation reported a recurring loss, albeit 70% lower in 2019. The significant reduction in losses may prove the government’s will in improving the operations of the NNPC, however, comments on the report noted that “material uncertainty exists that may cast significant doubt on the Group and Corporation’s ability to continue as a going concern.”

Moving down to the State-owned refineries with a combined capacity of 445,000 bpd, capacity utilization well below 20%, and recurring annual losses in excess of ₦150bn, we can agree that the condition of these refineries is utterly worrisome. Despite the government’s annual budget for Turn Around Maintenance of these refineries, they have now been shut down with plans to undergo a Build, Operate, and Transfer (BOT) model.

Chief among the NNPC’s problems is corruption. A number of investigative reports have explained how subsidy payments, domestic crude allocation, revenue retention practices, and oil-for-product swap agreements are smeared with corruption. The Senate has initiated countless probes and new management seeking transparency has been introduced by the President, however, it just seems like the rot has eaten too deep into the system.

What does commercializing NNPC mean for the country?

The government-managed NNPC has proved to be inefficient and riddled with corruption. A commercialized NNPC with more committed employees would mean better accountability and transparency in its operations. The possible introduction of more shareholders would strengthen the amount of funding available to the NNPC and further shift the burden of being the sole-financier away from the government.

Exploring an NNPC IPO

An Initial Public Offering (IPO) would see the NNPC’s shares traded on Stock Exchanges and position the corporation to raise much more funding, build trust and endear to the international community. While this might seem like a daunting task, Nigeria can perhaps take a cue from Saudi Arabia whose National Oil corporation; Saudi Aramco began raising capital for its IPO in December 2019.

The Saudi Crown Prince; Muhammad bin Salman (MBS) announced a valuation of $2trn enticing the world’s largest investment banks, appointed a new set of leaders on the board of the corporation, and executed a highly engaging local marketing strategy. Although the valuation figure was brought down to $1.5 – $1.7 trillion by financial advisors, Saudi Aramco successfully achieved its IPO raising nearly $26 billion for 1.5% of Aramco’s value.

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NNPC’s fundamentals might not support an IPO currently as investors might be wary of the high level of risks involved but we can’t deny the immense opportunities an IPO would present not just for NNPC’s transparency and performance but Nigeria’s economic reform.


In Conclusion

The recurring performance of the corporation with several corruption allegations, inefficiency, and unclarity is indeed worrisome. It is time to have the NNPC turn over a new leaf and operate on a commercial basis. This would afford the government the ability to deploy funds into other segments of the economy and have the NNPC focus on being a commercially viable entity.

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