Oct 28, 2016 - 3 debts, especially low cost loans from multi-lateral agen- cies such as the World .... Korean companies
October 28, 2016 | Vol.11 No.43
Editorial Team Marcel Okeke Editor
AGRICULTURAL SECTOR UPDATE
Eunice Sampson Deputy Editor
Joy Patrick-Akpan Kazeem Aremu Sunday Enebeli-Uzor Ugochi Chibuzor Nweke Chinemerem Okoro Research Economists
Rotimi Arowobusoye Sylvester Ukut Layout/Design
Nigeria is targeting Europe’s over €100 billion agri-food import market with farm produce export. Specifically, the country is set to commence exportation of farm produce to the region from some northern states... pg. 1
Nigeria Targets EU’s €100bn Agri-Food Market Nigeria is targeting Europe’s over €100
represents huge opportunities for Nigerian
billion agri-food import market with farm
farmers and agribusinesses operating in
produce export. Specifically, the country
Nigeria’s agricultural sector. Already, European
is set to commence exportation of farm
Countries have concluded plans to open their
produce to the region from some north-
markets to more agricultural products from
ern states. The export processing, which
Nigeria as well as assist Nigerians in growing
is set to begin during the November and
the products and making them exportable.
December harvest of 2016, will focus on
According to agri-food trade statistical fact
key farm produce such as sesame and
sheet by the EU, the region is the largest agri-
arabic grains, among other types of ex-
Top EU Agri-food imports from Nigeria in 2015
The federal government is seeking the approval of the National Assembly for a 3year external borrowing programme, which could gulp a whopping $29.9 billion between the period of 2016 and 2018.This will likely raise Nigeria’s aggregate external debts by 272 percent to $41 billion, within the next three years... pg. 2 The African Export-Import Bank (Afreximbank) has signed a memorandum of understanding (MOU) with the Export-Import Bank of Korea (KEXIM). KEXIM is expected to provide a credit line of up to $100 million to Afreximbank to support transactions between South Korea and its African Trade Partners... pg. 4 Nigeria’s sovereign national debt position has deteriorated and slipped from a Low-risk of debt distress to a Medium-risk of debt distress, according to the 2016 Debt Sustainability Analysis (DSA) of the Debt Management Office (DMO)... pg. 5
Source: Agri-food trade statistical fact sheet, European Commission
portable grains. The Europe Union (EU)
food importers with a value of imports of €114
market of 28 countries and over 500 mil-
billion in 2015. Of that amount, about €431
lion people represent a huge market for
million value of agri-food product was im-
some of Nigeria’s sought-after agricultural
ported from Nigeria, with cocoa bean top-
produce.
ping the list of produce.
Opportunities for Nigerian Agribusinesses and farmers
Rejection of export remains a constraint The rejection of Nigeria’s export produce remains a major constraint to penetrat-
The commencement of farm pro-
ing the huge export market. Only last year,
duce export to Europe through the North
the European Union banned some food ex-
Nigeria Targets EU’s €100bn Agri-Food Market 20 top EU Agri-Food Imports From Nigeria, 2011 – 2015
Source: Agri-food trade statistical fact sheet, European Commission
ports from Nigeria for not meeting with standards. The
(dried beans) comply with the relevant EU food law re-
produce banned include beans, sesame seeds, melon
quirements. However, the Nigerian Export Promotion
seeds, dried fish and meat, peanut chips and palm oil.
Council is targeting ‘zero rejection’ of Nigeria’s exports in
The ban will apply until the Nigerian authorities provide
Europe in particular and the international market at large,
strong guarantees that an adequate official export con-
by building capacity for exporters in standards and re-
trol system has been put in place and has been effec-
quirements in the global market.
tively implemented to ensure that products in question
NIGERIA’S EXTERNAL DEBT UPDATE FG Targets $30 billion External Borrowings by 2018 The federal government is seeking the approval of the
lion, Euro Bonds of $4.5 billion, while the remaining
National Assembly for a 3-year external borrowing
$3.5billion is dedicated for Federal Government’s budget
programme, which could yeild $29.9 billion between the
support initiative. This will provide the much needed fi-
period of 2016 and 2018. If approved, this will raise
nance to key sectors of the economy such as agriculture,
Nigeria’s aggregate external debts by 272 percent to $41
transport, power, health, education and water supply. It
billion, within the next three years.
will also enable the federal government to cater for its
A critical analysis of the planned $29.9 billion external loans shows that $11.3 billion is for programmes loan, special national infrastructure projects of $10.7 bil-
social safety net programmes, reform the country’s financial management and promote good governance. Besides, the external loan will focus on concessional
2
FG Targets $30 billion External Borrowings by 2018 debts, especially low cost loans from multi-lateral agen-
2015, which was within the Country’s Specific limit of
cies such as the World Bank, African Development Bank,
19.39 percent for 2017. However, the ratio of Public Debt
China Exim Bank, and the Japanese International Coop-
Service-to-Revenue of 28.10 percent reveals mark weak-
eration Agency (JICA), among others. In the short run,
nesses in Nigeria’s economic structure, violating the 28
the government envisages a drastic reduction in the inci-
percent Country-Specific threshold set by the Interna-
dence of poverty, unemployment and a quick recovery
tional Monetary Funds, IMF. Therefore, the potential li-
from the lingering economic recession.
quidity risks in Nigeria’s debt portfolio could be wors-
At present, the total external debt stocks of the
ened given the fresh borrowing plan of about $30 billion
country is put at about $11.2 billion as at end-June
by the federal government, except there is a sustained
2016.The recommendation of the 2016 Debt Sustainability
rebound in global oil price and a meaningful diversifica-
Analysis’ report limits the maximum amount of loan Ni-
tion of the economy away from oil.
geria can borrow in 2017 (without violating country specific threshold) to $22.08 billion, with external loans
Economic Implications
pegged at $16 billion. These limits will likely boost out-
• The injection of US$29.9 billion will likely boost
put and steady the ‘ship’ of Nigeria’s economic recovery.
Nigeria stock of infrastructures, provided the money
It may also avoid debt overhang provided expenditures
is efficiently utilized.
on critical infrastructures were prioritized. Also, the proposed external loan may realize its stated objectives if Nigeria could fast-track the implementation of key re-
• Could provide adequate liquidity in the nation’s foreign exchange market, easing the pressures on the Naira.
forms that may reduce costs, ensure sound financial man-
• May increase perceived risks of the country’s assets,
agement and enshrine strong institutional frameworks.
causing a spike in the interest rates demanded by foreign investors and creditors.
FGN’s External Debt Outstanding by Source, 2011-2015 (US$’Million)
Source: Debt Management Office
Debt/GDP Sustainability Ratio Nigeria, Debt/GDP ratio, is considerably low compared with its peers. According to the latest data from Debt Management Office, the ratio of Public Debt-to-GDP was 13.02 percent at the end of the fourth quarter of
• The huge size of the proposed external loans would increase Nigeria’s debt burden and overhang. • Debt servicing obligations could become unsustainable and may triple to about US$1 billion dollars in the near term, up from the $331 million recorded as
3
FG Targets $30 billion External Borrowings by 2018 at end-December, 2015. • Foreign exchange downside risks could be higher than expected as future streams of oil and gas receipts remain uncertain.
Outlook The federal government should limit the size of the planned external debts to about $22 billion, as recommended by the 2016 Debt Sustainability report. Besides, the cost of running government should be reviewed and reduced drastically. This will create more funds for capital expenditures and may facilitate a significant reduction in the magnitude of
external
borrowings
needed
for
infrastructural development. Indeed, the planned $30 billion external loans may pro-
Source: Debt Management Office
vide the quantitative easing to jumpstart the economy, provided it result in a significant capital-output ratio to spur economic development.
EXTERNAL TRADE UPDATE Nigeria, Others to Benefit from South Korea’s $100m Trade Facility The Export-Import Bank of Korea (KEXIM) has signed a
leader in automobile, cell phone, semiconductor, ship-
memorandum of understanding (MOU) with the African
building, IT, steel, petrochemical and construction with
Export-Import Bank (Afreximbank) to provide a credit
multinationals like Daewoo, Hyundai and Samsung. Ni-
line of up to $100 million to Afreximbank to support trans-
geria has also become South Korea’s 52nd largest export
actions between South Korea and its African Trade Part-
market and its 30th biggest source of imports globally.
ners. This line of credit is very timely, given Afreximbank’s
Korean companies investing in Nigeria include; Samsung,
current focus on financing the import of investment goods
Daewoo, Hyundai, and Korean Energy Management Com-
to accelerate the structural transformation of African
pany Limited (KEMCO). Nigerian’s major export to Korea
economies including Nigeria. Nigeria currently has the
is natural gas. In addition to this, copper and lead are
third largest South Korean investment in Africa.
also traded between both countries. The bilateral rela-
Afreximbank and KEXIM have committed to seeking other
tionship between South Korea and Nigeria have contin-
possible financing schemes to promote trade between
ued to grow since the formal establishment of ties in
South Korea and Africa.
1980.
According to the world trade organisation (WTO),
South Korea has expressed its belief that the growth
Korea is the 7th largest trading nation in the world with a
prospects for Nigeria remain positive in spite of current
trade volume of over $1trillion. It has become a global
economic challenges facing the economy. Korea envoy
4
Nigeria to Benefit from South Korea’s $100m Trade Facility to Nigeria - Mr Noh Kyu-Duck - has stated that Nigeria is an important partner for Korea. Economic cooperation between Nigeria and Korea has continued to grow both quantitatively and qualitatively with annual bilateral trade surpassing USD 4 billion. Nigeria is rapidly becoming one of Korea’s major economic partners. In Africa, Nigeria is
vestments in the automotive industry. Korean businesses equipped with top-notch technology in ICT, energy, electronics, heavy industries, constructions and many other fields, are ready to play a bigger role in Nigeria.
Outlook South Korea’s willingness to make significant con-
one of Korea’s biggest export markets, importing USD 1.5 billion worth of goods a year, particularly in the areas of LNG carriers, offshore oil production facilities, automobiles and mobile phones. Korean companies’ presence in Nigeria has continued to increase with more than ten major Korean companies involved in the country’s key business sectors such as oil and gas, electricity, international trade, electronics and automobiles. Korea seeks to increase its corporate presence in Nigeria from the construction of oil and gas plants to various non-oil sectors, including the expansion of infrastructure such as roads, railroads and power grids. In addition, Korea is also interested in the development of
tributions to Nigeria’s economic growth through this trade facility is a welcome development. This is an opportunity for Nigeria to exploit the sophisticated technologies of Korea to advance in the fields of shipbuilding, power plant construction, and mobile phones. This is in addition to, having a major buyer of our natural gas providing the country with the much needed foreign exchange earnings. The Republic of Korea can also serve as a good economic model for Nigeria. It has built their economy from scratch and emerged a developed economy from Japanese colonial rule.
minerals like iron ore and coal as well as involvement in agriculture, services, international trade, and greater in-
DEBT MANAGEMENT UPDATE Nigeria Slips to Medium-Risk of Debt Distress Nigeria’s sovereign national debt position has deterio-
According to the DMO, the ratio of Public Debt-to-
rated and slipped from a Low-risk of debt distress to a
GDP was 13.02 percent as at the end of December 2015,
Medium-risk of debt distress, according to the 2016 Debt
which was still within the Country’s Specific limit of 19.39
Sustainability Analysis (DSA) of the Debt Management
percent in the medium-term (up to 2017), and far below
Office (DMO). Although the level of debt stock is still
the Country Policy and Institutional Assessment (CPIA)
appreciably low relative to the country’s Gross Domestic
threshold of 56.00 percent for countries in Nigeria’s peer-
product (GDP), the debt portfolio remains mostly vulner-
group. However, the liquidity ratio revealed gross weak-
able to the various shocks associated with revenue, ex-
nesses in the structure of the economy, as the ratio of
ports, and substantial currency devaluation. According
Public Debt Service-to-Revenue of 28.10 percent as at
to the DSA, while the GDP-related indicators appear nor-
the end of December 2015, breached the Country-Spe-
mal, as they remained below their respective thresholds,
cific threshold of 28 percent. This highlights a potential
the revenue-based indicators were mostly sensitive to
risk to the debt portfolio, which could be exacerbated by
the revenue shocks. The results of the 2016 DSA showed
the developments in the international oil market, as a
that for the first time since the exit from the Paris and
further decline in global oil prices would exert undue pres-
London clubs of creditors in 2005 and 2006, Nigeria’s
sures on the already fragile economy, including the debt
debt position experienced some deterioration.
position in the medium to long-term.
5
Nigeria Slips to Medium-Risk of Debt Distress Output Indicator – (Debt/GDP)
cent in 2019, before trending downwards from 15.0 per-
According to the 2016 DSA report, the estimated
cent in 2020 to 3.6 percent by the end of the projection
average real GDP growth rate of 4.49 percent over the
period, 2036.These compare favourably with the peer
projection period outweighs the expected rate of debt
group threshold of 56 percent.
accumulation of 1.64 percent, indicating that under the
Also, the fiscal sustainability of the Federation (FGN,
fiscal sustainability of the FGN-only (External1 & Domes-
States, and FCT) mirrored the performance of FGN-only.
tic Debt), the FGN debt portfolio is at a low risk of debt
The result showed that the PV of Total Debt-to-GDP ratio
distress. The Present Value (PV) of Total Debt-to-GDP
at 15.9 percent in 2016 is still within the standard peer
ratio is projected at 13.5 and 15.5 percent in 2016 and
group threshold of 56 percent and the country-specific
2017, respectively. This is expected to peak at 16.1 per-
threshold of 19.39 percent, up to 2017. The ratio is ex-
FGN’s External Debt Sustainability Indicators in Percent (2016-2036)
Source: Debt Management Office (DMO)
FGN’s Fiscal Sustainability Indicators in Percent (2016-2036)
Source: Debt Management Office (DMO)
6
Nigeria Slips to Medium-Risk of Debt Distress pected to peak at 19.0 percent in 2019, before trending
borrowed (domestic and external) by the FGN in
downwards from 2020 throughout the projection period
2017 without violating the country-specific thresh-
to reach 4.3 percent in 2036.The decline in the PV of
old will be US$22.08 billion (i.e. 5.89 percent of
Total Debt-to-GDP ratio would be due to lower rate of public debt accumulation at an average of 1.59 percent
US$374.95 billion). iii. The Debt Management Strategy, 2016-2019,
over the projection period against the relatively higher
provides for the rebalancing of the debt portfolio
average real GDP growth rate of 4.49 percent.
from its composition of 84:16 as at end-December, 2015, to an optimal composition of 60:40 by end-
Key Recommendations of the DMO
respectively. The shift of emphasis to external
From the results of the 2016 DSA, the DMO made the
borrowing would help to reduce debt service burden
December, 2019 for domestic to external debts,
following key policy recommendations among
in short to medium-term and further create more
others:
borrowing space for the private sector in the
i. The end-period NPV of Total Public Debt-to-GDP
domestic market. Accordingly, for the fiscal year
ratio for 2016 for FGN is projected at 13.5 percent.
2017, the maximum amount that could be borrowed
Given the Country-Specific threshold of 19.39
is US$22.08 billion, and it is proposed to be
percent for NPV of Total Public Debt-to-GDP ratio
obtained from both the domestic and external
(up to 2017), the borrowing space available is 5.89 percent of the estimated GDP of US$374.95 billion
sources as follows: New Domestic Borrowing US$5.52 billion (equivalent of about N1,600.00 billion); and,
for 2017. ii. To this end, the maximum amount that could be
New External Borrowing: US$16.56 billion (the equivalent of about N4, 800.00 billion).
CAPITAL MARKET UPDATE Market Highlight In the outgone week, the Nigerian equities market con-
lower than the sixteen equities of the previous week. At
tinued its bearish run for the second consecutive week,
the close of the week’s trading, a turnover of 678.710
as key market indices trended downwards. Specifically,
million shares worth N6.875 billion were traded by inves-
the market performance gauge, the All-Share Index (ASI),
tors in 11,808 deals, in contrast to a total of 674.721
depreciated by 1.10 percent or 302.61 to close at
million shares valued at N7.657 billion that exchanged
27,294.21, from 27,596.82 recorded in the preceding
hands in the previous week in 12,290 deals.
week. Market Capitalization also dipped by 1.10 per cent or N104 billion, slipping to N9.375 trillion from the N9.479
Recent Development
trillion recorded the previous week. However, all other
• Zenith Bank Plc released its unaudited financial state-
Indices finished higher during the week with the excep-
ments for the period ended September 30, 2016, Gross
tion of the NSE Premium, NSE 30, NSE Banking, NSE
earnings rose to N380.352 billion, from N336.853 bil-
Insurance Indices that depreciated by 3.53 per cent, 0.43
lion recorded in the corresponding period of 2015.
per cent, 0.44 per cent, and 0.29 percent, respectively.
Profit after Tax also rose to N100.074, from the 2015
Market sentiment was also higher as twenty-one equities appreciated in price during the week, significantly
figure of N83.087 billion. • Unity Bank Plc released its unaudited financial state-
7
Market Highlight ments for the period ended September 30, 2016. Gross Revenue slipped to N35.174 billion, from N49.201 billion recorded in the same period in 2015. Profit after
also rose to N1.763 billion, from the 2015 figure of N1.618 billion. • GlaxoSmithKline Consumer Nigeria Plc released its
Tax also dropped to N3.426 billion, from the 2015
unaudited financial statements for the period ended
figure of N9.313 billion.
September 30, 2016.
Gross Revenue dipped to
• Nem Insurance Plc released its unaudited financial
N20.540 billion, from the 2015 figure of N23.040 bil-
statements for the period ended September 30, 2016.
lion. Loss after Tax stood as N4.046 billion as against
Gross Revenue rose to N9.009 billion, from the 2015
the 2015 profit position of N485.942 million.
figure of N8.708. However, Profit after Tax dropped to
• Royal Exchange Plc released its unaudited financial
N1.249 billion, from the 2015 figure of N2.107 billion.
statements for the period ended September 30, 2016.
• Chemical and Allied Products Plc released its unau-
Gross premium rose to N10.821 billion, from the 2015
dited financial statements for the period ended Sep-
figure of N8.874 billion. Profit after Tax also rose to
tember 30, 2016. Gross Revenue slipped to N4.710
N186.725 million, from the 2015 figure of N75.712
Source: Nigeria Stock Exchange (NSE)
billion, from the 2015 figure of N5.098 billion. Profit after Tax fell marginally to N1.031 billion, from the 2015 figure of N1.172 billion. • Nascon Allied Industries Plc released its unaudited fi-
million. • Sterling Bank Plc released its unaudited financial statements for the period ended September 30, 2016. Gross earnings slipped to N79.652 billion, from the 2015
nancial statements for the period ended September
figure of N81.812 billion. Profit after Tax also dipped
30, 2016. Gross Revenue rose to N12.795 billion, from
to N5.537 billion, from the 2015 figure of N7.548 bil-
the 2015 figure of N10.192 billion. Profit after Tax
lion.
8
Market Highlight Outlook
• Fidelity Bank Plc released its unaudited financial statements for the period ended September 30, 2016. Gross
The Nigerian equities market continued its bearish
earnings rose to N110.346 billion, from the 2015 fig-
run amid dampened market pulse. The negative market
ure of N107.140 billion. However, Profit after Tax
performance was as a result of weak investors’ senti-
dropped to N8.753billion, from the 2015 figure of N
ment occasioned by less than impressive nine months
11.445 billion.
financials released by many quoted companies. In trad-
• Ecobank Transnational Incorporated released its un-
ing sessions ahead, mixed activities are expected as some
audited financial statements for the period ended Sep-
investors take a position in performing sectors like the
tember 30, 2016. Gross Revenue rose to N456.438
banking sector, ahead of further release of third quarter
billion, from the 2015 figure of N411.833 billion. How-
results/financials while others adjust their portfolio mix
ever, Profit after Tax dropped to N51.577 billion, from
in favour of other high return investment instruments.
the 2015 figure of N60.417 billion.
N S E A L L S H A R E I N D EX 28,600.00 28,400.00 28,200.00 28,000.00 27,800.00 27,600.00 27,400.00 27,200.00 27,000.00 26,800.00 26,600.00
2 8 - O C T -1 6
2 7 - O C T -1 6
2 6 - O C T -1 6
2 5 - O C T -1 6
2 4 - O C T -1 6
2 1 - O C T -1 6
2 0 - O C T -1 6
1 9 - O C T -1 6
1 8 - O C T -1 6
1 7 - O C T -1 6
1 4 - O C T -1 6
1 3 - O C T -1 6
1 2 - O C T -1 6
1 1 - O C T -1 6
1 0 - O C T -1 6
0 7 - O C T -1 6
0 6 - O C T -1 6
0 5 - O C T -1 6
0 4 - O C T -1 6
3 0 - S EP- 16
2 9 - S EP- 16
2 8 / 0 9 /2 0 1 6
26,400.00
Source: Nigeria Stock Exchange (NSE)
Volume Traded
180,000,000 159,989,368 160,000,000
155,591,509
148,448,272
140,000,000 113,498,732
120,000,000 101,182,480 100,000,000 80,000,000 60,000,000 40,000,000 20,000,000 24/10/2016
25/10/2016
26/10/2016
27/10/2016
28/10/2016
Source: Nigeria Stock Exchange (NSE)
9
Crude Oil Market Update Oil Market Review (October 24th - 28th, 2016) At the end of trading on Friday, October 28th, crude oil
from OPEC production cuts.
prices settled below $50 to mark their biggest weekly
On Tuesday, October 25th, crude oil prices settled
loss in six weeks, on concerns that OPEC will not fully
down; then U.S. crude slid further below $50 a barrel in
carry out a planned output cut, even as data showed
post-settlement trade after an industry group reported
U.S. oil drillers removed rigs from production for the first
that U.S. oil inventories grew nearly three times as much
time since June. West Texas Intermediate (WTI) crude
as forecast. During midweek trading on Wednesday, Oc-
lost $1.02, or 2 percent, to close the week at $48.70 a
tober 26th, oil prices fell even after a surprise drawdown
barrel on the New York Mercantile Exchange. Brent crude,
in U.S. crude inventories, as traders remained cautious
the global benchmark, fell 76 cents, or 1.5 percent, to
that OPEC would be able to cut production come late
$49.71 a barrel on ICE Futures Europe. Earlier at the
November. On Thursday, October 27th, oil prices settled
beginning of trading this week on Monday, October 24th,
higher as commitments from Gulf OPEC members to cut
oil prices dipped, with U.S. crude briefly falling below
production assuaged some lingering doubts in the mar-
$50 per barrel, on news of the impending restart of
ket about cooperation from other producers.
Britain’s Buzzard oilfield and Iraq’s wish to be exempted
Oil & Gas Price Movement: October 24th, – 28th, 2016
Date
24/10/2016
25/10/2016
26/10/2016
27/10/2016
28/10/2016
WTI Crude ($)
50.52 ↓
49.96 ↓
49.18 ↓
49.72 ↑
48.70 ↓
Brent Crude ($)
51.46 ↓
50.79 ↓
49.98 ↓
50.47 ↑
49.71 ↓
Natural Gas ($)
2.831 ↓
2.774 ↓
2.731 ↓
2.764 ↑
3.105 ↑
Source: Reuters and New York Mercantile Exchange. ↑ indicates an increase in price. ↓ indicates a price reduction – indicates no change
This publication is strictly for information purposes only. Zenith Bank Plc and its employees make no representation as to the accuracy and completeness of the information contained in this publication. Therefore we accept no liability for any loss that may arise from the use of such information.
10
