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MONTHLY ECONOMIC NEWS AND VIEWS
September 2, 2015
byB.J. Rewane
Financial Derivatives Company Limited
LOOT RECOVERY???
Presented at Lagos Business School
Executive Breakfast Meeting
Restitution is No Retribution
Financial Derivatives Company Limited
2
Outline
Highlights - August without a rain break
Economic Conditions – China: The Economic Goliath Business Environment – Difference between Stock & Flows of Wealth Monetary Conditions – Tightness to SaturationMonetary Policy – Glide before you Slide (CBN Naira Strategy)
Equity Markets – Never a Dull Moment
Political Update – Restitution is no Retribution
AUGUST WITHOUT A RAIN BREAK
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August 2015 had an
average rainfall of 15
days15% higher
than the previous month
The world is hit by China
blues2nd largest
economy in the world stutters
Nigeria’s GDP growth for Q2’15 came in at
2.35%3.65% lower than
the 5- year average
Confirming that Nigeria is officially in an economic slowdown
August Without A Rain Break
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Business Cycle - Economic Slowdown
Slowdown
This is typically a stage before a recession in the business cycle
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August Without A Break – Economic Slowdown
Economy at near a standstill
Because of absence of decision makers
Leading economic indicators are slowing
Lower oil production, sector down by 6.79% • Oil is now 9.8% of
GDPManufacturing was down 0.07%
Service sector growth declined by 2.39% to 4.67%
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August Without A Break – Stagflation Again!!
Q1'14 Q2'14 Q3'14 Q4'14 Q1'15 Q2'15 Q3'15*
Q4'15*
01234567 6.21 6.54 6.23 5.94
3.96
2.35 2 1.8
Quarterly GDP Growth Rate (%) Annual growth estimate for 2015 is now as low as 2%
Q2 growth was impacted by election lull & economic stagnation
Fuel shortage, power cuts, Boko Haram insurgency, shrinking purchasing power taking its toll
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August Without A Break
FBN PMI shrank in August to 49.2 from an earlier low of 50.6
Reduction in output across most sectors especially manufacturing
Jan Feb Mar Apr May Jun Jul Aug4446485052545658 56.4 56.2 55.2
54
49.4
56
50.649.2
2015 FBN PMI Index
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August Without A Break – Power Output
Power output from the national grid in August spiked to 4,396MW
Average power outage and downtime in the Lagos Metroplex now 30%
Power supply now available 70% of the time Escravos- Lagos Gas Pipeline protected from
vandals and sabotage
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August Without a Break
The price of diesel now down to N120 from N165 per liter in June
Oil prices tumbled to a six-and-a-half low of $42pb Brent futures now trading at $49.3pb 33.9% lower than the Q2 average of $63.55pb No emergency OPEC meeting to slash output
envisaged NNPC fires 38 top managers in major reorganization
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August Without a Break
Capital dollar inflow in Q2 down to $2.67bn according to CBN
50% down from $5.8bn in Q2’2014 External Reserves slightly down in August by
0.2% to $31.4bn The divergence between the IFEM rate and
the BDC rate shrank to N8.37 before slipping again to N20.03
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August Without a Break
NNPC MD hints that subsidy payments are not
sustainable
Cancels offshore processing transactions and
swaps
Reduces the number of oil lifters from 43 to 16
M2 in July was down to N18.43trn
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August Without a Break
2.05% lower than in June, as against a CBN
growth benchmark of 15.24% for 2015
YoY inflation in July was flat at 9.2%
Core inflation rose to 8.8% driven by exchange
rate restrictions and temporary fuel shortage
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Inflation Trend & Outlook Inflation rate flat at
9.2% due to: Favorable harvest Abundant rainfall
dampened food prices August inflation
expected to increase to 9.4% Foreign exchange
restrictions have led to a decrease in imported goods
Lower inventory levelsSource: NBS, FDC Research
Jan'15
Feb'1
5Mar'
15Apr'
15
May'15
Jun'15
Jul'15
Aug'15
7
7.5
8
8.5
9
9.59.2
9.4Headline Inflation (%)
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August Without a Break
Exchange rate appreciation in the parallel market had limited impact on prices
The ineligibility of 41 items has led to shortages of some essentials
Unemployment in Q2 increased by 0.7% to 8.2% Underemployed Nigerians increased also by
1.7% to 18.3% Misery Index increased by 9.5% to 35.7
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August Without a Break
Revenue shared by all governments in August declined to N511.5bn
This was based on average oil prices in June of $63.75pb
Oil price/FAAC correlation Based on this correlation, FAAC estimated to
decline to N320bn in September
Jan-15
Feb-15
Mar-15
Apr-15
May-15
Jun-15
Jul-15 Aug-15
0.0010.0020.0030.0040.0050.0060.0070.00
49.7963.75
56.5648.21
Brent ($pb)
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August Without a Break
The average opening long position of DMB’S was at N75.81bn
Overnight rates averaged 32.28% and OBB was 29.88%
The volatility between top and bottom rates: OBB:94.33% O/N: 98%
The stock market had 11 negative days and 10 positive days
The market lost 1.64% in August
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August Without a Break
The Scottfree BC 30 index, a more reflective
measure of performance shows
Absolute return of -2.22% in 30days
Dividend yield of 3.03%
30-day Volatility: 27.51%
Trailing P/E of 6.83x
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All Presidents Men – Fool me Once, you are the fool
The president formally announced his front office team
These are his trusted and reliable aides Announced on the anniversary of his
being toppled by the trusted but treacherous in August 1985
SSS have raised security alert levels at the Abuja and Lagos Airports and various parts of Southern Nigeria
0
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Source: EIA ,FMDQ, OPEC, CBN, FSDH, FDC Research ; (* FDC’s forecasts)
Leading Economic Indicators (LEIs)Indicators
July’15 August’15 (Aug/Jul)% change September*Oil Markets
Spot price (avg $’pb) 56.56 48.21 14.76% 54Production (mbpd) 1.87
(Jun)1.85 (Jul) 1.07% 2.0
Money Markets (End Period)OBB (%)p.a 6.08 8.5 242bps 10Overnight (%)p.a 6.92 9.25 233bps 10MPR (%)p.a 13.00 13.00 - -CPI ( %) 9.20 9.40* 0.2% 9.5External Reserves ($’bn) 31.46 31.40 0.19% 30
Exchange rate (End Period)Inter-bank (N/$) 198.95 198.97 0.01% 199Parallel (N/$) 230.00 219.00 4.78% 230Market cap (N’trn) 10.34 10.21 1.26% 11FAAC 518.5 511.8 1.29% 400M2 (N’trn) 18.81
(Jun)18.43 (Jul)
12.14% 18FBN PMI 50.6 49.2 2.77% 50
Vacancy Factor (Residential %) 34 39 5% 40
Vacancy Factor (Commercial %)
24 30 6% 30
GLOBAL ECONOMIC UPDATE
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US - Growth Accelerates
GDP expanded by 3.7% in Q2’15 Grew by 0.6% in Q1’15
Faster than initial estimates of 2.3% Led by growth in:
Business investment: 3.2% Government spending: 2.6% Consumer spending: 3.1%
Full year forecast is 1.8% – 2% Fed will weigh growth against volatility in
markets as it considers raising interest rates
Financial Derivatives Company Limited
23US – Unemployment Down
Consumer spending and new home sales rose healthily in July
Decline for orders for durable goods expected Reflecting weaker conditions in the energy and
manufacturing sectors Latest worries revolve around a slowing
Chinese economy and a strong dollar Unemployment is at a healthy 5.3% When Obama came to power it was 7.8%
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A lesson in Global volatility
China has dominated headlines in August Chinese PMI shrank to 49.7 Yuan devaluation, weak export data and global
market volatility Markets are following a classic playbook of
uncertainty and modest de-risking A softening China has huge global implications
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A lesson in Global volatility
China is in the painful process of a changing
growth strategy
Now aiming for consumption and productivity
Rather than exports and capex
Market liberalization, floating the currency
are fundamental to this process
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A lesson in Global volatility
IMF M.D. says global expansion outlook is worse than earlier anticipated
A 4% drop in the yuan is large relative to its trading band
Is this China starting a currency war? Answer is No, the yuan movement is mild compared to
euro weakening, yen and Australia dollar China’s reduced demand for commodities is a big
problem for emerging markets
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The New Financial Turbulence
Relevance of China in Global Economy: GDP of $10.3trn – 2nd largest in the world Holds $3.6trn in external currency reserves Consumes:
50% of world’s copper 45% of global steel
Central role in world trade World’s biggest exporter: exports account for over
11% of world trade
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The New Financial Turbulence
Currently about $15bn in Chinese investments and credit to Nigeria Over 30% of Chinese investment in Africa
Nigeria holds 7.5% of its external reserves in yuan China is Nigeria’s leading supplier Chinese exports to Nigeria rose from 5% in 2003
to 25.5% in 2014 From airports to rail tracks, wagons and satellites China has been on a roll in Nigeria
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Relevance Of China
A slowdown in the largest exporter & 2nd largest importer in the world would be likely to reverberate around the world
SUB SAHARAN AFRICA
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Concerns over Chinese economic slowdown rattles commodity-linked African currencies
China is Africa’s largest bilateral trading partner – over $200bn
Many SSA economies would be at risk if China crashes and the flow of cash is curbed
Further weakening could curtail Chinese investment and Chinese financial support to SSA
Sub Saharan Africa
Financial Derivatives Company Limited
33Sub Saharan Africa African exports to China to fall as they become
more expensive Currencies of major exporters to feel the pressure
South Africa (gold & wine) Angola (oil) Zambia (copper)
Domestic products will face stronger competition from cheaper Chinese imports
Local wages will cost more for Chinese firms seeking to open shop on the continent
Retailers and consumers will have access to cheaper Chinese goods
COMMODITIES
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35Commodity Prices In August The Bloomberg Commodity Index (BCOM) declined by
0.92% in August from July Almost all major commodities have fallen by 10-20% YTD
WTI ($/b)Brent Crude Oil ($/b)Natural Gas ($/MMBtu)Gold ($/ounce)Silver ($/ounce)Cocoa ($/mt)Sugar (US cents/pound)Corn (US cents/bushel)Rough rice ($/cwt)Wheat (US cents/bushel)PalmOil ($/tonne)
-40.00% -30.00% -20.00% -10.00% 0.00% 10.00%
YTD change
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Global Oil Prices At A 6-year Low Brent fell to its lowest in 6 years due
to Chinese malaise and oversupply issues YTD low of $42.69pb
Fear that devaluation of yuan will reduce Chinese demand for imports
An unprecedented 3-day recovery in oil prices Strongest rally since 1990 Before crashing again to $49.23pb Now a roller coaster ride
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Global Oil Prices At A 6-year Low
Oil prices may have bottomed out Markets will continue to exaggerate
sentiments from China And frackers have found more
efficient ways to increase production OPEC insists on battling for market
share but open to negotiation with non-OPEC members Producing above 30mbpd quota
WHEN WILL OIL PRICES BOTTOM OUT?
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Outlook And Impact Bloomberg survey shows that US Fed increases interest
rates despite Chinese woes US dollar appreciation may push oil prices further down August FAAC down slightly by 1% but will fall sharply in
September – estimates at N350bn States beginning to receive CBN intervention fund of
N338bn Debt repayment will become difficult with a slide in oil
prices Some states have already restructured previous debt
obligations
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39Softs Commodities
Soft commodities average price decline in August: 9.8%
Losses led by: Sugar: 24.56% decline YTD Palm Oil: 23.7% decline YTD Wheat: 16.56% decline YTD
Combination of negative sentiments from China and large stockpiles
Cocoa struggling to remain above $3,000/mt due to weak demand
Currency pressures offset gains from lower commodity prices for FMCGs companies
MAJOR POLICY CHANGES
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Naira To Glide Before The Slide
Interest rates at the interbank oscillating between 10 and 80%p.a
The naira is now at N220 at the parallel market again and dropping
Monetary policy is back between a rock and a hard place
The MPC meeting of September 21/22 is the last before the World Bank annual meetings in Peru on October 9th 2015
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The naira has been held artificially stable by administrative measures
Supported by reduced leakages from oil and revenue management
Capital inflows have shrunk to as low as $2.6bn per quarter
Inflation has spiked 7 out of 9 months in 2015
Naira To Glide Before The Slide
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Naira To Glide Before The Slide The lull in demand for forex is because of two
principal reasons: No cabinets in states and federal – so curbed
spending Interest rates have been at their highest level in
many years - naira liquidity tightening Once a cabinet is in place and spending starts The naira pressure will resume The CBN will yield to market pressure The Governor has done his best But markets usually win and policy makers
tend to buckle Like in China, Malaysia, Indonesia
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The Way Out??
Allow the currency float and set a buying range of parallel market minus N10
Intervene with as many levers as the CBN can spare to ensure that the market rate is between (– and + 10%) of the PPP currency value - N189
The exchange rate will be approximately N210 – N215/$
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Possible Scenario – Gliding Through Turbulence
Allow naira float downwards by 5%
Ahead of policy decision on fuel subsidies
Cut CRR from 31% to 20%
Leave MPR unchanged at 13%p.a
Reduce some of the administrative
measures
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MPC Decision
Rationale: Administrative measures are temporary and
unsustainable Cannot guarantee long term conservation of, or
accretion in reserves The currency will be closer to fair value Encourage lending & stimulate economic growth
with accommodative monetary policy Remove the fear factor
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MPC Decision
Impact: Slowdown in the depletion rate of the external reserves
level Relative stability of the exchange rate Increased banking system liquidity Short term increased inflationary pressure Risk investment flow reversal Lead to 2% decline in interest rates Govt borrowing costs will fall by N18.8bn in 2015
BUSINESS PROXIES
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FAAC Allocation Down in August
FAAC allocation shared in August was N511.8bn
1.3% lower than N518.5bn in July
Actual allocation was N424.1bn
Exchange rate gain of N6.4bn
NNPC refunded N6.3bn
VAT: N74.95bn49Source: FMF, FDC Research
49
Financial Derivatives Company Limited
FAAC Allocation Down in August
Revenue loss in September will increase by at least 3% Oil price decline of 11% minus exchange rate depreciation
of 8% in June/July
50Source: FMF, FDC Research
Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15300
360
420
480
540
600
500.13 518.5 511.8
FAAC (N'bn)
50
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Ships Awaiting Berth Up Again Ships awaiting berth increased by 4% to 59 in
August From 57 in July
Slower increase due to forex restrictions and declining imports
September will be worse than August
51Source: NPA, CBN, FDC Research
Jan'15 Feb'15 Mar'15 Apr'15 May'15 Jun'15 Jul'15 Aug'150
10203040506070
050100150200250300
Ships Awaiting Berth Parallel Rate (N/$)
51
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Rig Count Down
Active rigs in Nigeria down by 20% to 8 IOCs are retrenching people and equipment Producers likely to relocate to areas with lower
production cost Service contractors are giving up houses in Ikoyi
and Victoria Island The good news is that Schlumberger is acquiring
Cameron Schlumberger is the world’s largest oil servicing
company with revenues in excess of $48.6bn
Source: Baker Hughes
52
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Rig Count Down
Source: Baker Hughes
Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-150
200
400
600
800
1000
1200
1400
1600
1800
0
50
100
150
200
250
300
350
400
450
885
208
8
US Canada Nigeria
53
Financial Derivatives Company Limited
Power Generation Up
Average power output from the national grid remained stable
Rose to 4,396MW in August 2.2% higher than
4,300MW in July Peak: 4,748MW
Constraint is transmission currently capped at 5,000MW
Power output may decline in September due to Shell’s force majeure
Average Daily Power Generation (MW)
Source: Nigeria Power Reform
2000250030003500400045005000
40743926
4748
54
RETAIL INDUSTRY
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Retail Industry - Luxury
Estimates of Nigerian destination shopping ranges from $500 – 1bn p.a.
Nigerians own significant real estate in London, New York and Miami
Destination weddings, birthday and anniversaries are now prevalent
The luxury goods segment is targeted at the Nigerian elite
And aspirants to climbing the social stratification ladder
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Global Luxury Market - Bain
Global luxury goods market is growing – Bain & Co.
Total sales at 224bn euro in 2014 Estimated to reach 250bn euro in
2015 with a growth of 4%
Accessor-ies (e.g. Shoes)
Apparel Hard Luxury (e.g.
Watches)
Beauty Other0%
10%
20%
30% 29%25% 22% 20%
4%
Global Personal Luxury Goods Market by Category (2014 Estimate)
Financial Derivatives Company Limited
Global Personal Luxury Goods Market Evolution- Bain
Limited price awareness and consciousness Limited role of online
Market more balanced between tourist and local consumption 35% of sales were made
to tourists Approx. 140million
luxury consumers globally Chinese accounting for
less than 2% of total
Significant price awareness and growing price consciousness Many brands have
websites Huge role of touristic
spending 50% of sales made to
tourists About 350million luxury
consumers Chinese accounting for
over 30% of total
2000: Valued at €128bn 2015 Estimate: Valued at €228 - 233bn
58
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Global Luxury Goods Market - Bain
Positive performance of mature markets and Middle East Oil price drop impacting spending in oil-dependent
economies like Russia and Nigeria
Europe Americas Asia-Pacific Japan Rest of World0%5%
10%15%20%25%30%35%40%
34% 32%
21%
8%5%
Global Personal Luxury Goods Market by Area (2014 Estimate)
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Global Luxury Goods Market - Bain
Shoes are the top performing category
Men’s segment outperforming
Apparel hit by negative impact of Mainland China
Watches sales stable as Euro devaluation and Swiss franc movement offset Asia issues
New York
Paris London Hong Kong
Tokyo Milan 0
5
10
15
20
25Top Shopping Destinations
(€'bn)
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What Are People Spending On??
Ready to wear Men: 26bn euro Women: 27bn euro
Casual wear maintaining momentum Urban style pushed by music and sports
celebrities Handbags: 3% growth to 37bn euro
Prices are 130% higher than in 2008
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Shoes up 5% to 14bn euro Shoes outperforming leather goods first time
since 2007 Average prices at 1000 euro range Men’s shoes up especially made to measure Watches 0% growth at 35bn euro Key brands reducing production Price range 2k euro
What Are People Spending On??
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Luxury jewels growth of 4% to 13bn euro
Global demand for diamonds registering
strong growth esp. U.S. Market
Wealthy women in Emerging Africa e.g. Nigeria
and Egypt
What Are People Spending On??
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3 Broad Segments Of Luxury Goods
Absolute: 10%
Aspirational: 17%
Accessible: 11%
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Domestic retail sales slightly up in August
FMCGs and white products: rose by 3%
In spite of falling disposable income and state
government salary arrears
All 22 states benefited from FGN bail out
package to meet salaries shortfall
Domestic Retail – Sales Marginally Up
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Exchange rate volatility caused an increase in the prices of some goods Bag of rice (50kg): 5% higher Vegetable oil (3 litres): 6% higher Bed-side refrigerator: 3% higher
Weekday traffic increased slightly in tandem with daily needs Increased beverage demand for children on holidays
Cash-to-card ratio unchanged at 65:35
Domestic Retail – Sales Marginally Up
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Outlook
Expect an increase in sales due to back-to-school shopping
Household spend may likely remain under pressure due to muted disposable income growth
Total retail sales growth remain constrained by slow credit growth and forex restrictions
Appointment of ministers and increased government spending may boost retail growth
REAL ESTATE UPDATE
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Real Estate – South Africa
Rise in demand for properties in former apartheid areas like Soweto
Property prices in black townships rose 17% More than double the real estate market growth of 7%
Demand is driven by: Boom in new shopping centres and gyms A revamp of stadiums for the 2010 FIFA world cup drew
more attention to those areas
Source: The Economist, FDC Research
Financial Derivatives Company Limited
71Real Estate – Domestic
GDP figures show real estate contributed 7.8% to Q2’15 GDP
Grew by 18.78% in Q2 from Q1’15 but only up 2.97% from Q2’14
Market sentiments still negative Banks are unable to find buyers for foreclosed
properties due to economic slowdown
71
Financial Derivatives Company Limited
72Real Estate – Domestic
Vacancy factor for both residential and commercial
properties increased in high end areas especially in
V.I
New office spaces in Adeyemo Alakija and Sanusi Fafunwa
Empty flats in Sinari Daranijo
Approximately 260,000 square metres of additional
office space in the Ikoyi & VI market72
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Vacancy Factor Up
Source: FDC Research
0%10%20%30%40% 36%
25%
Victoria Island
0%10%20%30%40%
23%
9%
Ikoyi
Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-150%
20%40%60%80% 58%
57%
Residential Vacancy Factor Commercial Vacancy Factor
Lekki
AVIATION UPDATE
AVIATION UPDATE
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Aviation – Strong Financial Results
Global aviation benefited substantially from sharply lower oil prices
Oil prices are 54% lower than a year ago Airline share prices increased 4% in July Buoyed by stronger financial results 7.5%
average airline ROIC Global air travel rose by 5.7% in June year on
year
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International travel on Asia-pacific carriers remained robust with a 6.8% increase
India stands out for strong passenger growth of 16.3%
European carriers recorded a 4.1% rise in international RPKs in June
A total market passenger load factor of 79.4% In SSA route rationalisation and market
consolidation is continuing
Aviation – Load Factors Up
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B/A the legacy network carrier, has pulled out of Entebbe airport in Uganda
Lufthansa is pulling out of Accra Brussels airlines, a lower market player
owned by LH, will take over the Accra-route Lufthansa have returned to the more
customer friendly frequency in the summer schedule
Aviation – Lufthansa Reorganisation
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Load factors outbound Lagos to European destinations average 90%
Inbound traffic average 80% Direct flights to the U.S. are enjoying average
load factors of 95% outbound Delta are reducing frequency into Lagos from
daily to 6 a week from October Emirates remains the leading carrier into
Nigeria Whilst Dubai is still the airport with the
highest international passenger traffic of 71m passengers a year
Aviation – Load Factors Up
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2 helicopter crashes in one month: Bristow in Lagos with 6 casualties and 6 survivors And NAF in Kaduna with 7 casualties no survivors
National carriers are yesterday’s views and unlikely to take off
Government owned national carriers are mostly unviable Ethiopia Kenya SAA
Aviation – National Carrier
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Aviation – National Carrier
A 12-member ministerial committee to look into how to revive national carrier commences work
Establishment of national carrier is justified by economic considerations, national interest, national pride and job creation
Policies to stifle multiple-destination-designation of business carriers may be implemented
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National carriers have bi-lateral service agreements Funding gap, inefficiency, proper management and
poor safety records are the major challenges to Nigerian national carrier
Domestic point-to-point carriers are at a disadvantage
Nigerian government lacks the business acumen to run airlines profitably
Aviation – National Carrier
STOCK MARKET
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Global Equities Market
Equity markets remained volatile throughout the month in reaction to equity market events in Shanghai
S&P 500 declined by 6.26% during the month Greece equities battered by Prime Ministers
resignation and headwinds from China Johannesburg stock exchange drops 4.00% in August Foreign portfolio flows to emerging markets turn
negative Spillover effect from China and fall in commodity
prices responsible for poor global equities market performance
Financial Derivatives Company Limited
Nigerian Stock Market Review
Scottfree’sBC30 index lost 2.22% in August as against 8.40% in July
Trailing P/E ratio of 6.83x 30 day volatility was 27.51% Dividend yield 3.03% 30 Sharpe ratio of (1.32)
Market performance mirrors Q2 GDP growth rate
Source: Scott free Index31-
Dec-14
24-Jan
-15
17-Feb
-15
13-Mar-
15
06-Apr-
15
30-Apr-
15
24-May
-15
17-Jun
-15
11-Jul
-15
04-Aug
-15
28-Aug
-15 20,000.00 23,000.00 26,000.00 29,000.00 32,000.00 35,000.00 38,000.00
NSE INDEXAugust
Source: NSE, FDC Research
84
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August 2015 Stock Market Highlights
Sustained volatility as investors exited positions and speculators went bargain hunting
NSE ASI declined1.64% in August, 14.35% YTD after a sharp recovery at the end of the month
NSE ASI lost 2.22% on Monday 24th August, mirroring sentiments in global equities markets
Market capitalization declined 11.06% YTD, N1.27 trillion investor funds lost
Average daily turnover decreased by 14.74% to N3.47bn from N4.07bn
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Key Results Released in August
Tier 1 banks outperform industry peers with impressive H1 results
Access bank and GTB pay interim dividends of 25k
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Sector Indexes Performance remained
negative across all sectors Banking sector is worst yet
again as impressive results of tier1 banks failed to spur a sector rally
Weak fiscal positions by states and federal government affects performance of industrial goods sector
Cuts in government revenue, spending and disposable income rubs off on consumer goods
NSE 30
Insurance
Banking
Oil & Gas
Consumer Goods
Industrial Goods
-15.00% -12.00% -9.00% -6.00% -3.00% 0.00%
Source: NSE, FDC Research
87
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Stock Market Today
Bargain hunters ride mini-bull as key
appointments are made and oil prices
recover slowly
Net punitive CBN regulations continues to
weigh on the economy and the exchange
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September Stock Market Outlook
Ministerial announcements and increased liquidity to bring about volatility in the market
Anticipated weak Q3 results will subdue mini-rally
Reforms in banking and oil & gas sectors will see transactions unwind, dampening sector performance
Banking sector performance to worsen as operating environment remains volatile and economic slowdown persists
POLITICAL RISK ANALYSIS
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Political Risk and Update
Buhari’s 100 days Promise or Covenant Buhari under pressure to be more engaging He is trying very hard to shrug off his military
antecedents He is looking, living and acting like a dye in
the wool democrat Accused by opponents of being aloof and
distant from the political class They want him to be in government and also
in power
Financial Derivatives Company Limited
93
Political Risk and Update
Insisting that he must dismantle the PDP infrastructure within the bureaucracy
Delays and poor sequencing of appointments is squandering political capital
The NASS ambush is a testimony to weakness in the political and strategic positioning
The presidency in Nigeria is a pivotal position with concentration of powers
There is a thin line between being effective and being autocratic
Financial Derivatives Company Limited
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Political Risk and Update
The appointment of personal staff is reflective of his demographic and personality profile
He is not a professional politician with numerous hangers-on
Unlikely to have far flung associates except within the old military
He is seeking to methodologically but slowly implement selectively the transition report
Is not able to accept the fundamental principles of economic reform
Financial Derivatives Company Limited
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Political Risk and Update
He has found out in 100 days that oil prices are out of the control of Nigeria
And that the forex market cannot be controlled
That what is necessary may not be sufficient to solve Nigerian economic problems
Political economics is a slippery and treacherous business
BUHARIMACRO-ECONOMIC
SCORECARD
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Macroeconomic Scorecard (100 Days)
Exchange Rate• IFEM:•Parallel:
Oil Price (Brent)
FAAC
External Reserves
Inflation
Stock Market Cap.
May 29
•N197.93/$•N219/$
$65.56pb
N409bn
$29.6bn
8.7%
N11.66trn
Sept 2
•N197.55/$•N220/$
$48.67pb
N511.8bn
$31.32bn
9.2%
N10.27trn
Change and
Direction
•Flat•Flat
25.6% Negative
25.1% Positive
5.8% Positive
0.5% Negative
11.92% Negative
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Unemployment
Misery Index
Power output
Price of Diesel
Vacancy Factor• Ikoyi•Victoria Island
Insurgency
May 29
24.1%
32.8
3,205MW
N160
•19%•11%
High Frequency
Sept 2
26.5%
35.7
4,396MW
N108
•31%•16%
Reduced Frequency
Change and
Direction2.4%
Negative
8.8% Negative
37% Positive
32.5% Positive
•12% Negative
•5% NegativePositive
Human Development Factors
QualitativeS/N Indicator Comment Positive/Negative
1 Security
• Insurgency attacks have decreased during the period• New service chiefs have been
appointed
2 Power grid • Improved national power supply, from 1,962 MW to 4,396 MW
3 Petrol queues •Reduced fuel shortages and queue
4 Investor confidence • Reduced investor confidence due to uncertainty in policy direction ???
S/N Goal Comment 0 - 25 26 - 50 51 - 75 76 - 100
1 Improved power supply
• Improved national power supply from 1,962 MW to 4,396 MW
2 Improved transparency
• New national psyche of accountability and responsibility
3 Reorganisation of the energy sector
• Downstream saboteurs have been silenced• NNPC management has been
reshuffled to improve accountability
4Enhanced
international perception
• Cleaned up the international image of Nigeria• Improved the immigration
service and passport process
5 Addressed fuel scarcity
• Reduced the fuel shortages and queues
6 Revamped EFCC • Got the EFCC to wake up after a 6-year slumber
AccomplishmentsPercentage of accomplishment
(%)
S/N Goal Comment 0 - 25 26 - 50 51 - 75 76 - 100
1 Fuel subsidies • Subsidies still in place and could be abused
2 Refineries • Refineries are up today and down tomorrow
3 Official appointments
• Appointments appear lopsided and responses to criticism are reactive• Delay in announcing the
cabinet is eating into the reputation of his assertiveness
4 Consolidation of APC
• He needs to engage the APC to drive the legislative agenda• APC needs to be reformed and
made an effective tool of civil society engagement
5 Transparency
• Emphasis on integrity and anti corruption is ideal• But there are no saints in hell• You go to war with the army
you have, not the one you wish to have – Don Rumsfeld
Unfinished BusinessPercentage of accomplishment
(%)
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Outlook
Cabinet likely to be named in a few days The combination of technocrats, political
machine boys and retired military To be quickly followed by some juicy board
appointments This will settle the affirmative action and federal
character issues There will be major governorship and senatorial
election annulments by the tribunals
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Outlook
This will alter the political chess board
Also the balance of power in the NASS and both
political parties
A wave of defections move into and out of the APC
More high profile investigation and indictments of
former ministers
OUTLOOK
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Outlook for September
Oil price will trade between $45-55pb FAAC will decline towards N350bn August inflation will spike to 9.4% The TSA will sterilize approximately N0.5trn of banking
sector float Keeping interbank rates higher than levels of 18-
20%p.a. The stock market will trade sideways at current low
levels
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Outlook for September
The naira will fall towards N230 at BDC level And N240 at electronic transfer market The MPC will leave things unchanged but reduce
the CRR from 31 to 20% A supplementary budget will be announced The nation will be relieved that a cabinet is
announced So that the business can start
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Corporate Humour
107
Goodman Ace-
A Vegetarian is a person who eats nothing that can have children
- Anonymous
Familiarity breeds attempt.
Financial Derivatives Company Limited
108
Corporate Humour
108
A murderer is one who is presumed to be innocent until proven insane.
Women who miscalculate are called mothers.
Memorial Service : Farewell party for someone who has already left.
- Anonymous
Abigail Van Buren -
- Robert Byrne
Financial Derivatives Company Limited
109
Corporate Humour
109
A Holding Company is a thing where you hand an accomplice the goods while the policeman searches you.
A painter can hang his pictures, but a writer can only hang himself.
- Will Rogers
Edward Dahlberg
Financial Derivatives Company Limited
110
Corporate Humour
110
Diplomacy is the art of letting someone else have YOUR way.
A committee is a group of important individuals who singly can do
nothing but who can together agree that nothing can be done.
- Anonymous
Anonymous -
Financial Derivatives Company Limited
111
Corporate Humour
111
A man’s Will and last Testament. I owe much, I have nothing, the rest I
leave to the poor.
Two heads are better than none.
- Rabelais
Anonymous -
Financial Derivatives Company Limited
112
Bismarck J. Rewane, MD/CEO Financial Derivatives Company Ltd.
Lagos, Nigeria01-7739889
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