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Macro-Economic News

Nigeria’s inflation rate surges to 18.17% in March 2021

Nigeria’s inflation rate for the month of March 2020, rose to 18.17% from 17.33% recorded in February 2021.

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Nigeria’s inflation rate for the month of March 2020, rose to 18.17% from 17.33% recorded in February 2021. This represents 0.82% points higher than the February figures.

This is according to the Consumer Price Index report, recently released by the National Bureau of Statistics (NBS).

On a month-on-month basis, the Headline index increased by 1.56% in March 2021, this is 0.02% points higher than the rate recorded in February 2021 (1.54 percent).

Food inflation

Food inflation, a closely watched index spiked to 22.95% from 21.79% recorded in the previous month.

  • On a month-on-month basis, the food sub-index increased by 1.9% in March 2021, up by 0.01% points from 1.89% recorded in February 2021.
  • The rise in the food index was caused by increases in prices of Bread and cereals, Potatoes, yam, and other tubers, Meat, Vegetables, Fish, Oils and fats, and fruits.
  • Also, the average annual rate of change of the Food sub-index for the twelve-month period ending March 2021 over the previous twelve-month average was 17.93%, representing 0.68% points from the average annual rate of change recorded in February 2021 (17.25%).

Core inflation

The ”All items less farm produce” or Core inflation, which excludes the prices of volatile agricultural produce rose to 12.67% in March 2021, up by 0.29% when compared with 12.38% recorded in February 2021.

  • On a month-on-month basis, the core sub-index increased by 1.06% in March 2021. This was down by 0.15% when compared with 1.21% recorded in February 2021.
  • The average 12-month annual rate of change of the index was 10.01% for the twelve-month period ending March 2021; this is 0.76 percent points lower than 10.77% recorded in February 2021.
  • The highest increases were recorded in prices of Passenger transport by air, Medical services,
    Miscellaneous services relating to the dwelling, Passenger transport by road, Hospital services, Passenger transport by road.
  • Others include; Pharmaceutical products, Paramedical services, Vehicle spare parts, Dental services, Motor cars, Maintenance and repair of personal transport equipment, and Hairdressing salons and personal grooming establishment.

Meanwhile, the urban inflation rate rose to 18.76% (year-on-year) in March 2021 from 17.92%
recorded in February 2021, while the rural inflation rate jumped to 17.6% in March 2021 from 16.77% in February 2021.

State inflation rate

  • In March 2021, all items inflation on year on year basis was highest in Kogi (24.51%), Bauchi (22.24%), and Sokoto (20.70%), while Imo (16.08%), Kwara (15.34%), and Cross River (14.45%) recorded the slowest rise in headline Year on Year inflation.
  • In terms of food inflation, on a year on year basis was highest in Kogi (29.71%), Sokoto (27.02%), and Ebonyi (26.59%), while Abuja (20.10%), Kebbi (19.98%), and Bauchi (18.61%) recorded the slowest rise .in year on year inflation.

What this means

  • The galloping nature of Nigeria’s inflation is an indication of the dwindling purchasing power of Nigerians.
  • This implies that Nigerians spent more on purchasing goods and services in the month of March, compared to February.
  • The last time Nigeria recorded an inflation rate higher than 18.17%, was in January 2017 when headline inflation stood at 18.72%.

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    GSK in big trouble as losses mount

    The results were less than impressive with several key indicators showing a year-on-year decline.

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    GSK Consumer Nigeria Plc records 3.34% increase in 2020 9M revenues.

    GlaxoSmithKline Consumer Nigeria Plc (“GSK Plc” or “the Company”) is a public limited liability company with 46.4% of the shares of the Company held by Setfirst Limited and Smithkline Beecham Limited (both incorporated in the United Kingdom), and 53.6% held by Nigerian shareholders.

    The ultimate parent and controlling party is GlaxoSmithKline Plc, United Kingdom (GSK Plc UK). The parent company controls GSK Plc through Setfirst Limited and SmithKline Beecham Limited.

    The Company recently published its unaudited first quarter (Q1) 2021 consolidated financial statements for the period ended 31 March 2021.

    READ: GSK Consumer Nigeria Plc records 3.34% increase in 2020 9M revenues

    The results were less than impressive with several key indicators showing a year-on-year decline. For example, Group revenue (turnover) declined from ₦4.99 billion in Q1 2020 to ₦3.46 billion in Q1 2021 a drop of over 30.66%. The revenue drop was due to a sharp decline in the local sale of its healthcare products.

    Total loss after tax as of Q1 2021 was ₦238.07 million compared to a profit after tax of ₦113.47 million for the same period to Q1 2020.

    The company is essentially divided into two segments viz: Consumer Healthcare and Pharmaceuticals. While the Healthcare segment was largely profitable in Q1 2021 (making a profit before tax of ₦ 8.73 million by March 31, 2021, the pharmaceuticals segment made a loss of ₦262.93 million in the same period.

    READ: GlaxoSmithKline Nigeria announces changes in its board

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    The Consumer Healthcare segment of the company consists of oral health products, digestive health products, respiratory health products, pain relievers, over the counter medicines, and nutritional healthcare; while the pharmaceutical segment consists of antibacterial medicines, vaccines, and prescription drugs. While goods for the consumer healthcare segment are produced in the country, the pharmaceuticals are all imported.

    The largely imported pharmaceutical products are thus exposed to the vagaries of foreign currency fluctuations coupled with a negligible to no revenue from the foreign sale of its healthcare products (same as in Q1 2020) as it barely exports its products out of the country.

    The cost of importing the antibacterial, vaccines and prescription drugs, and the significant local operating expenses wiped off the marginal gross profits made by the pharmaceutical segment of the company. In effect, the gross profit of ₦508.12 million made by the pharmaceutical segment of the company was eliminated by an operating expense of ₦735.7 million and this resulted in a net loss for the pharmaceutical segment of the business.

    READ: Nigerian Breweries posts N7.66bn as Q1 2021 profit, shares gain 2.2%

    Apart from the impact of imported pharmaceutical products as already discussed, other issues that affected the company’s Q1 2021 results and are likely to continue to affect its performance in future include:

    1. A limited product mix that has only the likes of Macleans and Sensodyne (Oral Healthcare); Pain relievers (Panadol and Voltaren); Digestive Health (Andrews Liver Salt); and Respiratory Health (Otrivin and Panadol Cold and Catarrh) all within the Consumer Healthcare segment.
    2. Increased competition, particularly from local pharmaceutical manufactures of similar over the counter medicines and other prescription medications and vaccines.

    In addition, in October 2016, GSK Plc divested its drinks bottling and distribution business that manufactures and distributes Lucozade and Ribena in Nigeria, and other assets including the factory used for the drinks business to Suntory Beverage & Food Limited. The loss in revenue from these popular brands continues to impact its topline.

    GlaxoSmithKline (GSK) is a global healthcare company and is well-known and acknowledged for its pioneering role in discovering and distributing vaccines for the likes of hepatitis A and B, meningitis, tetanus, influenza, rabies, typhoid, chickenpox, diphtheria, whooping cough, cervical cancer and many more.

    Jaiz bank

    It is also renowned for its manufacture and distribution of prescription medicines such as antibiotics and treatments for such ailments as asthma, HIV/AIDS, malaria, depression, migraines, diabetes, heart failure, and digestive disorders.

    Perhaps GSK Plc’s fortunes may change if the company is able to obtain the parent company’s licence to manufacture GSK-owned vaccines and prescription medicines within the country while also exploring the possibility of extending the sale of its products outside the shores of the country.

    Since different expertise is required for vaccines and prescription drug manufacture and distribution as compared to manufacture and sale of consumer healthcare products, perhaps another alternative may be for the company to create two separate companies with one company being a 100% vaccines and prescription drug pharmaceutical manufacturing and distribution company while the second company specializes entirely in the manufacture and sale of consumer healthcare products.

    As a result of the Q1 2021 performance, the company’s earnings per share (EPS) dropped to -20 kobo compared to the 9 kobo earnings per share reported in Q1 2020. At the start of 2021, GSK Plc’s share price was ₦6.90 but the company has since lost over 10% of its price valuation as the company’s share price closed at ₦6.20 on April 30, 2021.

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    Business

    Is 5% returns on mutual funds enough? Here are 5 things you need to know this morning

    2021 has been a slow year for mutual fund investors as the best performing fund could only return 4.87%

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    Last week was another interesting week with a series of activities and events making the rounds in the economy and markets. These events have an effect on your money, and we will be breaking down what it all means.

    Joe Biden’s Tax Plans

    Biden’s tax plans last week had a strong effect on the market and led to a sell-off in many asset classes – especially crypto. The rumours were that Treasury Secretary Janet Yellen wanted to institute an 80% crypto capital gains tax. The market did not react well to this with over $200 billion dollars lost in cryptocurrencies on Friday as a result.

    President Biden plans to fund his ambitious infrastructural plan with the capital gains tax which targets people who earn over $1 million dollars a year.

    Many investors are still bullish on the long-term with cryptocurrencies, perhaps this is a good time to ‘buy the dip’ and for those unaware, capital gain tax can only be applied when the asset is sold.

    READ: Nigerians can now invest in more mutual funds

    CBN vs Exporters

    Last week, the CBN assured exporters of unhindered access to their dollar earnings. The backstory here is that the CBN had in January 2021, announced that all Nigerian exporters who are yet to repatriate their export proceeds, will be barred from banking services effective from January 31, 2021.

    The exporters instead prefer to sell their forex to the parallel market where it can be exchanged for a higher naira value, boosting their gains on foreign currency conversions. They also avoid regulatory squabbles by opening foreign bank accounts where most of the export proceeds are warehoused and then sold at the black market.

    READ: How to avoid paying excessive taxes in Nigeria

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    Nigerian Mutual funds take a 4% dip in Q1 2021

    Mutual Funds are traditionally a good investment vehicle for many Nigerians. However, so far, 2021 has been a slow year for mutual funds as the net asset value of the funds declined by 4.01% from N1.57 trillion as of 31st December 2020 to N1.51 trillion as of 1st April 2021.

    The highest return for the quarter stacked 4.87% and has a minimum investment of $2,500. However, the question is will investors be satisfied with this return especially with inflation heading to 20%. Considering this particular fund invests in debt instruments an almost 5% ROI should attract a number of investors.

    READ: Best Nigerian Stocks in 2020 based on dividend yield

    Bitcoin peer to peer trading surges 27% after CBN crypto ban

    CBN’s restriction on banks facilitating cryptocurrency exchanges has enabled Nigerians to find other ways to buy crypto through P2P (peer to peer). Data reveals that Nigerians have moved over $103 million.

    Cryptocurrency adoption in Nigeria is still on the rise and there seems very little the regulators can do about it. The Nigerian central bank is not the only regulator trying to control cryptocurrency adoption, last week, the CBRT (Central Bank Republic of Turkey) also announced a ban on cryptocurrency citing excessive volatility and lack of regulation.

    Hyundai & Kia to set up an assembly plant in Ghana in 2022

    Ghana has proven to be a prime investor location for Foreign Direct Investment in Sub-Saharan Africa. This announcement is just a few weeks after Twitter announced its plans to open its first African office in the country.

    An official statement from Alan John Kyerematen, Ghana’s Minister of Trade and Industry reads “The local assembly of vehicles, 3,600 direct and indirect jobs would be created in Ghana, and the addition of components and parts manufacturing will also add about 6,600 direct and indirect jobs.”

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    It has become more glaring that attracting investment into Nigeria is increasingly difficult due to regulatory uncertainties and macro factors.

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