nigeria, still betting on oil
TRANSCRIPT
St ra p la n
Nigerian Economics
Nigeria, Still
January 2013A complimentary publication of Straplan AdvisoryNigeria, Still Betting on Oil
Nigeria, Still
Betting on Oil
St ra p la n
It is a capital mistake to theorize before one has data. Insensibly one
begins to twist facts to suit theories, instead of theories to fit facts.
- Arthur Conan Doyle (Sherlock Holmes)
January 2013A complimentary publication of Straplan AdvisoryNigeria, Still Betting on Oil
- Arthur Conan Doyle (Sherlock Holmes)
This report has been prepared to serve a broad range of subscribers, basically, individuals and organizations interested in the dynamics of the Nigerian
economy. The Nigerian Economics series is a complimentary publication of Straplan. It seeks to bring insight into trends in the Nigerian economy, its markets
and industries.
Our mission in Straplan is to provide direction for our clients’ planning, decision-making, and stakeholder consultation with creative and insightful information.
Straplan’s reports target both international and local investors, corporate and public institutions, business students and teachers, foundations, interest groups,
policy-makers, quasi-governmental institutions and media companies. For more information. See the Contacts Page.
Straplan provides advisory services in research, strategy, trainings, and stakeholder consultation.
St ra p la n
A country without focus on research and development would keep searching for
development …
2012 was a difficult year for the global economy but the outlook appears brighter for 2013.
Perhaps new domestic US crude oil production will not affect OPEC prices, however, we
expect that terms of trade between the US and its trade partners will be affected. We have
observed a gradual decline in America’s crude oil imports from Nigeria with a corresponding
steady increase in imports from Saudi Arabia, since 2011.
The state of the euro area is expected to weaken growth in other economies, as was the
case in 2012, thereby dampening the steady rise in global oil consumption.
Recent rally in oil prices on announcement of a pick-up in China’s oil imports supports the
Summary
January 2013A complimentary publication of Straplan AdvisoryNigeria, Still Betting on Oil
Recent rally in oil prices on announcement of a pick-up in China’s oil imports supports the
fact that demand from China and other emerging economies can buoy the price of oil and
counterbalance the dampening effect of weak OECD demand.
The debate over Nigeria’s deficits, debt, savings, income and expenditure were outside the
context of their implications on specific economic enablers such as power, infrastructure
and research and development.
We are concerned about Nigeria’s ability to manage and effectively harness its oil receipts
during this period of high oil prices, without a working blueprint that articulates a clear
process of socio-economic transformation.
St ra p la n
2012 was a difficult year for the global economy but the outlook for 2013
appears brighter.
It is a good time for factor driven economies, especially countries like
Nigeria whose main export, crude oil, is currently enjoying a higher market
value, due to strong demand and threats to supply from geopolitical
tensions. The outlook on Nigeria’s economic growth remains positive in
2013, and its potential as a frontier investment destination is indisputable.
The issue is ‘how much longer would oil prices remain high,’ that
economies like Nigeria would continue to benchmark their consumption
patterns on a single commodity?
Agreeably, oil prices are expected to remain above a $100 in 2013, even
Nigeria: Still Betting on Oil…
5.0
15.0
25.0
35.0
45.0
55.0
65.0
Jan
-99
Ap
r-9
9
Au
g-9
9
No
v-9
9
Ma
r-0
0
Jul-
00
Oct
-00
Fe
b-0
1
Ma
y-0
1
Se
p-0
1
Jan
-02
Ap
r-0
2
Au
g-0
2
De
c-0
2
Ma
r-0
3
Jul-
03
Oct
-03
Fe
b-0
4
Jun
-04
Se
p-0
4
Jan
-05
Ap
r-0
5
Au
g-0
5
De
c-0
5
Bonny Light ($/bbl) 1999 – 2005 7-yr Simple Ave. = 28.95
7-yr Median Ave. = 26.95
L H$40 $100
Benchmark Oil Price
January 2013A complimentary publication of Straplan AdvisoryNigeria, Still Betting on Oil
Agreeably, oil prices are expected to remain above a $100 in 2013, even
though economic slowdown in the OECD, especially in the euro area is
expected to dampen the rise in global oil consumption. Recent rally in oil
prices on announcement of a pick-up in China’s oil imports, supports the
fact that demand from China and other emerging economies can buoy the
price of oil and counterbalance the dampening effect of weak OECD
demand.
We are concerned about Nigeria’s ability to manage and effectively harness
its oil receipts during this period of high oil prices. Our outlook on Nigeria’s
economic growth in 2013 remains positively strong, anchored on the
nation’s seeming commitment to macroeconomic stability and proceeds of
high oil prices. Nigeria will still record a relatively strong growth (7%) that is
quite far behind its potential. We do not expect growth and development to
be revolutionary on a national level, though we are confident about the
positive performance of certain states of the federation.
30.0
45.0
60.0
75.0
90.0
105.0
120.0
135.0
150.0
30
-De
c-0
5
19
-Ap
r-0
6
07
-Au
g-0
6
25
-No
v-0
6
15
-Ma
r-0
7
03
-Ju
l-0
7
21
-Oct
-07
08
-Fe
b-0
8
28
-Ma
y-0
8
15
-Se
p-0
8
03
-Ja
n-0
9
23
-Ap
r-0
9
11
-Au
g-0
9
29
-No
v-0
9
19
-Ma
r-1
0
07
-Ju
l-1
0
25
-Oct
-10
12
-Fe
b-1
1
02
-Ju
n-1
1
20
-Se
p-1
1
08
-Ja
n-1
2
27
-Ap
r-1
2
15
-Au
g-1
2
03
-De
c-1
2
Bonny Light ($/bbl) 2006 - 2012
01
-Ja
n
21
-Ap
r
09
-Au
g
27
-No
v
16
-Ma
r
04
-Ju
l
22
-Oct
09
-Fe
b
30
-Ma
y
17
-Se
p
05
-Ja
n
25
-Ap
r
13
-Au
g
01
-De
c
21
-Ma
r
09
-Ju
l
27
-Oct
14
-Fe
b
03
-Ju
n
21
-Se
p
09
-Ja
n
29
-Ap
r
17
-Au
g
05
-De
c
7-yr Simple Ave. = 87
7-yr Median Ave. = 80
St ra p la n
America: delaying spending cuts
The temporary "fiscal deal"—may lead to some US$600bn in tax increases and spending cuts that will continue over the next 10 years, starting
from 2013. Taxes were firmed on the wealthy in form of hike in capital gains, dividend rates and such. There are more hurdles to jump as policy
makers deliberate on the debt ceiling in February.
The moral of the story … ‘America has got to start paying its debt’..
The fiscal logjam threatening the world’s largest economy cannot be loosened by a mere ‘fiscal cliff deal.’ America’s fiscal logjam necessitates a
cut in spending while ‘risking an economic slowdown’ now or facing worse consequences later. The logjam was caused by inordinate
consumption, aided by debt and the only way out is to restructure the flow and/or cut back on spending to pay the bills.
We are rather positive about the performance of the US economy into the first quarter of the year 2013, in that the rising optimism due to its
positive performance recently, though marginal, would help stabilize its course in 2013. We also anticipate a clear restructuring in US spending
over the next five years as the nation intensifies its course towards self reliance in certain industries. On the other hand, we expect the US to seek
better terms of trade and credit among its trade and finance partners.
Perhaps new domestic US crude oil production will not affect OPEC prices, however, we expect that it will affect terms of trade between the US
and its trade partners. We have observed a gradual decline in America’s crude oil imports from Nigeria with a corresponding steady increase in
Global Issues - United States to restructure its oil consumption
January 2013A complimentary publication of Straplan AdvisoryNigeria, Still Betting on Oil
and its trade partners. We have observed a gradual decline in America’s crude oil imports from Nigeria with a corresponding steady increase in
imports from Saudi Arabia, since 2011.
Canada, 29%
Saudi Arabia,
14%
Venezuela, 11%
Nigeria, 10%
Mexico, 8%
Top Sources of US Oil Imports in 2011
100
300
500
700
900
1100
1300
1500
1700
Jan
-10
Ma
r-1
0
Ma
y-1
0
Jul-
10
Se
p-1
0
No
v-1
0
Jan
-11
Ma
r-1
1
Ma
y-1
1
Jul-
11
Se
p-1
1
No
v-1
1
Jan
-12
Ma
r-1
2
Ma
y-1
2
Jul-
12
Se
p-1
2
‘000 bpd Declining (Crude-oil) imports from Nigeria
Saudi Arabia Nigeria Angola (OPEC Series)Source: EIA
St ra p la nThe Euro problems are far from over …
Our outlook on the euro area and the entire OECD region remains the same as encapsulated
in our October 2012 global strategy report, ‘A new world order?’ We expect the region to
continue in recession well into 2013, with a weak growth in 2014.
The problems facing the EU, especially the euro area, are far from over as the euro economy
continues to drag and consumption levels drop. Reports from Germany showed that its GDP
shrank by 0.5% in Q4 on slow exports and investments. We however observed a sense of ease
in the financial markets since the ECB’s announcement of a commitment in principle to
unlimited sovereign debt purchases.
Austerity measures …
There will clearly be stricter fiscal measures across the European Union in 2013, which would
lead to the discovery or unfolding of other fiscal problems attendant to the debt crisis. There
are concerns over the depth of France’s fiscal challenges, political activities in Italy and
turmoil in Greece.
Weak consumption will dampen global oil consumption …
The state of the euro area is expected to weaken growth in other economies, as was the case
in 2012, perhaps slightly better, thereby dampening the steady rise in global oil consumption.
Global Issues- Euro Area to dampen global oil consumption
13.8%
13.3%
9.5%
6.6%
4.4%
3.7%
3.6%
2.5%
2.3%
2.1%
1.1%
United States
China
Russia
Switzerland
Norway
Turkey
Japan
India
Brazil
South Korea
Nigeria
12
34
56
78
91
02
1
% of (EU) Total TradeRanking
January 2013A complimentary publication of Straplan AdvisoryNigeria, Still Betting on Oil
in 2012, perhaps slightly better, thereby dampening the steady rise in global oil consumption.
10.6%
7.9%
11.4%
5.4%
10.4%
10.8%
16.2%
14.8%
26.0%
25.9%
10.7%
7.8%
11.8%5.4%
10.5%
11.1%
16.3%
14.6%
26.0%
26.2%
EU (27)
United …
Euro …
Germany
France
Italy
Portugal
Ireland
Greece
Spain
Unemployment
November September
-8
-6
-4
-2
0
2
4
6
2008 2009 2010 2011 2012f 2013f 2014f
GDP trends in the EU
EU-27 Euro area-17 Germany Ireland
Greece(p) Spain France Italy
Portugal UK Source: EuroStat
St ra p la n
9.7 9.6 9.4 9.2
8.17.6 7.4
0
2
4
6
8
10
12
Q1'11 Q2'11 Q3'11 Q4'11 Q1'12 Q2'12 Q3'12
China's GDP Growth %
China to buoy global oil consumption
China preparing to regain momentum
In 2012, growth in China’s economy was particularly weak due to strong decline in European Union
imports and general consumption. Nevertheless, we project that China’s economy will rebound to an
average 8.1%, as from Q4, 2012 into the year, by way of higher investments and personal spending.
supported by recent stimulus. China’s exports improved strongly in December, with a positive trade
balance of $31.6bn.
To buoy global oil consumption …
China’s oil imports increased by 6.8% in 2012 (8% in December), up from 6.1% in 2011 but well below
10% in 2010. Oil prices rallied on the announcement of china’s increased oil imports, signaling potential
rise in global oil consumption. China’s crude oil imports, sourced majorly from middle east countries,
have grown substantially over the last decade.
China is the world's second-largest consumer of oil behind the United States, with net oil imports at
about 5.5mbpd, and the second-largest net importer of oil as of 2009. At 4.5bpd China is the fifth largest
producer of oil. The EIA in 2011 projected that China would be world’s largest importer of oil by 2020.
January 2013A complimentary publication of Straplan AdvisoryNigeria, Still Betting on Oil
Source:EIASource: eiu.com
producer of oil. The EIA in 2011 projected that China would be world’s largest importer of oil by 2020.
10
6.26.6
10.1
6.8
4.9
6
4
5
6
7
8
9
10
11
2007 2008 2009 2010 2011 2012f 2013f
India’s GDP Growth %
Source: China Customs
8.7
5.5
4.3
2.3
2.3
2.2
1.7
1.3
1.3
1
US
China
Japan
India
Germany
S. Korea
France
Spain
Italy
Taiwan
Top 10 Net Oil Importers
20%
12%
11%
8%
7%
5%
5%
5%
4%
4%
Saudi …
Angola
Iran
Russia
Oman
Iraq
Sudan
Venez…
Kazak…
Kuwait
Top 10 Sources of China's Crude Oil Imports
St ra p la n
A large deficit may stimulate the economy, whereas a large surplus may dampen the economy , it is all about
the objective of the society and how efficiently it uses its resources. . .
The debate over Nigeria’s deficits, debt, savings, income and expenditure were outside the context of their
implications on specific economic enablers such as power, infrastructure and research and development. We think
countries can borrow to strengthen the layers of industrialization and improve its competitiveness, there are no
sentiments in the business principle of ‘leverage.’ Conversely, a country can invest in its goals with its savings. The
important thing is focus and commitment towards specific goals with the highest multiplier factor. A country
would have to determine its expenditure and debt ceiling vis-a-vis its goals, income, savings and resources.
Nigeria: Fiscal Policy of debt, savings, income and expenditure based on oil price
Domestic
Debt,
6,346.04 External
Debt, 2,000
3,000
4,000
5,000
6,000
7,000
N bn Total DebtClassification 2012 Total
Budget N’ Bn
2013 Budget
Prop. N’ Bn
Recurrent Exp. 2,425.05 2,412.05
Capital Exp. 1,519.99 1,540.77
Statutory Transfers 372.59 380.02
Debt Service
Year in year out… a revolutionary structural
transformation is imperative…
In 2009, following a sharp decline in crude oil
prices, Nigeria’s budget projected a revenue
anchored on oil at an average international
price of $45/barrel, living on its savings; and
in 2010, when oil prices improved, the
budget benchmark price rose to $60, still
paying salaries on windfall. The parliament
has now voted for a benchmark oil price of
$78/barrel in the 2013 Appropriation Bill, as
against the executives’ proposal of
$75/barrel.
Both sides made a show over two
supposedly different ideologies, that of debt
reduction by the parliament and savings for
the latter. To our dismay, while the
January 2013A complimentary publication of Straplan AdvisoryNigeria, Still Betting on Oil
Debt,
1,007.39
0
1,000
Domestic Debt External Debt
FGN Bonds,
61%
Multilateral,
81%
Nigerian
Treasury
Bills, 34%
Non-Paris,
11%
Treasury
Bonds, 5%
International
Capital
Market, 8%
0%
20%
40%
60%
80%
100%
120%
Domestic Debt External Debt
Debt Composition
Debt Service 559.58 591.76
Total Exp. 4,877.21 4,924.60
050
100150200250300350400450
Ed
uca
tio
n
De
fen
ce
Po
lice
He
alt
h
Wo
rks
Ag
ricu
ltu
re
Po
we
r
SU
RE
-P
(20
12
…
N'bn Budget Priority Areas
Source: Media reports, DMO
the latter. To our dismay, while the
authorities beamed the spotlight on the
benchmark price, little was said about the
effectiveness or implication of the increase
or decrease on the ease of doing business,
diversification of exports base,
industrialization and or competitiveness of
the economy in quantitative terms.
We are concerned about Nigeria’s ability to
manage and effectively harness its oil
receipts during this period of high oil prices,
without a working socio-economic blueprint
that articulates a clear process of
transformation. An outstanding example is
the Lagos Mega City Plan, a working socio-
economic blueprint of a vision, cascaded into
actionable plans and steps to guide future
generations with a working slogan to
promote an ideology of collective
commitment … ‘eko oni baje o.’
St ra p la nA country without a focus on research and development would keep searching for development ….
No sustainable transformation is expected in the agriculture sector without the foundations of research and
development in technology and inputs (seedlings, fertilizers etc.), assuming an effective infrastructure exists… more
so, the development in technology should be able to translate in creative and innovative manufacturing and
marketing techniques, instep with the nation’s diverse environmental and economic challenges. The agricultural
sector development requires a mid to long term approach and policies must be drawn accordingly.
37.2% 37.5%
27.1%31.9% 31.8%
10%
20%
30%
40%
50%
60%
70%
80%
Nigeria’s Imports
Agriculture,
40.21
Crude
Petroleum &
Natural Gas,
Finance &
Insurance,
3.45
Wholesale
and Retail
Trade, 19.36
Building and
Construction
, 2.08
Hotel and
Restaurants,
0.52
Real
Estate,
1.78
Business and
Other
Services,
0.92Others, 6.67
Share of GDP
The vicious cycle continues …
Nigeria’s drive towards industrialization
remains slow as the contribution of the
manufacturing sector to GDP remains
marginal. It is instructive that food items
constitute 21% of foreign exchange
utilization as at h1 2012. The country’s
industrial capacity continues to be
outsourced to other countries as
indicated by the fact that food,
manufactured and industrial items
accounted for 61% of forex utilization.
The above scenario underscores the
nation’s inability to diversify its export
base from 90% crude oil. On the other
hand, Nigeria’s non-oil exports are mainly
unrefined, raw agricultural products
Nigeria: Fiscal Policy
January 2013A complimentary publication of Straplan AdvisoryNigeria, Still Betting on Oil
Oil Sector,
30%
Manufacture
d Products,
15%
Food
Products,
21%
Industrial
Sector, 25%
Agricultural
Sector, 1%
Minerals, 2%
Transport
Sector, 6%
Foreign Exchange Utilization (Visibles)
96.9% 97.1% 96.5% 97.0% 96.5%
3.1% 2.9% 3.5% 3.0% 3.5%
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
Q2'2011 Q3'2011 Q4'2011 Q1'2012 Q2'2012
Nigeria's Exports
Crude-Oil Non-Oil
0%
Q2'2011 Q3'2011 Q4'2011 Q1'2012 Q2'2012Oil & Gas Non-Oil
Solid
Mineral, 0.36
Natural Gas,
14.78
Manufacturi
ng, 4.16
Telecommun
ication &
Post, 5.71
3.45 unrefined, raw agricultural products
which are characteristically not
competitive in international markets,
being the bulk of most of sub-Saharan
Africa’s total non-oil exports. Thus, basis
for deepening African regional trade
becomes blurred.
Local food production is not mechanized,
poor infrastructure further weakens the
coordination of the value chain..
While agriculture accounts for over 40%
of the country’s GDP, it is highly
fragmented and at a mere subsistence
level. The muted effect of the recent
flood disaster on food availability is an
indication of Nigeria’s fragmented and
non-mechanized agricultural sector.
Most Nigerians will import food instead of
agricultural instruments and equipment.
Sources:CBN, NBS
St ra p la nFiscal policy: Of ease of doing business and competitiveness
30 years
and below,
70%
Above 30
years, 30%
Population (Age-Group)
The fundamental economic questions of
the society :
• What to produce
• How to produce it
• For whom to produce
• In what quantity and how efficiently are
the goods produced?
The Nigerian Bureau of Statistics
observed an increasing disinterest by the
emerging younger generation in highly
labour intensive activities. Hence, many
of them would rather remain jobless as
the country’s infrastructure still relies on
manual equipment instead of automated
machines. Since many policy makers are
not exactly technology oriented, they fail
to factor in its development and
Of limited resources and unlimited wants and needs... Nigeria must be creative and promote innovation
Nigerian leaders must think in terms of creating 1-10 million jobs (not 50, 000) just by focusing on the enablers.
We have observed that fundamentally, there is usually a mismatch between policy objectives and key challenges
of supposed beneficiaries. Over 41 million Nigerians (unemployed + economically active but not in the labour
force) out of the 92million economically active in 2011 have added no contribution to the economy. Current
policies should be reviewed in line with the outlook of about 70% of the country’s population who are either 30
years or below. Technology development has become more important as a focus for leaders more than ever.
36% 36%
38%
42%
43%
45%
30%
32%
34%
36%
38%
40%
42%
44%
46%
0
20
40
60
80
100
120
140
160
180
Millions Unemployment
January 2013A complimentary publication of Straplan AdvisoryNigeria, Still Betting on Oil
41.6
17
11.5
16.7
15-24
25-44
45-59
60-64
Unemployment Rate % (Age –Group)
30 years and below Above 30 years
Food
64.7%
Clothing and
Foot wear
4.8%
Rent
12.1%
Fuel/Light
4.4%Household
Goods
4.3%
Health
0.7%
Transport
3.4%Education
0.6%
Entertainmen
t
0.3%Water
0.1%
Other
Services
4.5%
% of Total Household Expenditure 2009/10
to factor in its development and
emergence as an enabler of efficiency,
accountability and transparency during
policy formulation.
Direction of household expenditure
indicates the need for stakeholders
(private and public) to strongly focus on
housing and food development. It can be
seen that an improvement in housing,
power and food would free up funds to
increase household spending on health
and education. It is also instructive to
note that tubers and plantains represent
14.62% of total household expenditure.
This food segment accounted for 22.6% of
total expenditure on food, compared to
rice, other cereals and vegetables at 5.8%,
6.8% and 9.9%, respectively.
30%0
2006 2007 2008 2009 2010 2011
Population Economically Active
Labour Force Unemployed/economically active
Source: NBS
St ra p la nSSA Countries Laggards of the table … Doing Business Rankings
Countries Ranking Countries Ranking Countries Ranking
�Mauritius 19 �Uganda 120 �Sao Tome and Principe 160
�South Africa 39 �Kenya 121 �Cameroon 161
�Rwanda 52 �Cape Verde 122 �Equatorial Guinea 162
�Botswana 59 �Swaziland 123 �Senegal 166
�Ghana 64 �Ethiopia 127 �Mauritania 167
�Namibia 87 �Nigeria 131 �Gabon 170
�Zambia 94 �Tanzania 134 �Djibouti 171
�Lesotho 136 �Angola 172Considerations
Electricity is chief among
the constraints to doing
business in most middle
to lower-income
countries.
Even as it was observed
that sub-Saharan
countries made the most
changes towards
reformation of their
electricity sector in
2011/2012, they still
remain one of the most
difficult places to get
electricity.
Nigeria would benefit more from a deeper integration with other African economies if it industrialize itself…
Doing business in Nigeria is better than in most African countries, hence deepening regional integration is imperative as part of
Nigeria’s foreign policy and comparative advantage strategy. A revolutionary improvement in power, technology development
and consequent industrialization would enable Nigeria to effectively diversify its product base and access other homogenous
African exports at a comparative advantage. On one hand, the exports basket would be larger and serving more markets. On
the other hand, deeper African integration would enable easy access to cheaper raw materials and goods imports. Nigeria’s
huge market makes it a potential interest of savvy African investors and more affordable, African oriented products .
January 2013A complimentary publication of Straplan AdvisoryNigeria, Still Betting on Oil
�Sierra Leone 140 �Zimbabwe 173
�Madagascar 142 �Benin 175
�Sudan 143 �Niger 176
�Mozambique 146 �Cote d'Ivoire 177
�The Gambia 147 �Guinea 178
�Liberia 149 �Guinea-Bissau 179
�Mali 151 �Democratic Republic of the Congo 181
�Burkina Faso 153 �Eritrea 182
�Togo 156 �Republic of the Congo 183
�Malawi 157 �Chad 184
�Comoros 158 �Central African Republic 185
�Burundi 159
Considerations
1 Starting a business
2 Dealing with construction
permits
3 Getting Electricity
4 Registering Property
5 Getting Credit
6 Protecting Investors
7 Paying Taxes
8 Trading Across Borders
9 Enforcing Contracts
10 Resolving Insolvency
Nigeria, which introduced
the most reforms to ease
getting electricity, along
with Malawi, Senegal,
Guinea Bissau, and
Madagascar ranked
lowest among SSA
countries at 178, 179,
180, 182 and 183
respectively on the table,
respectively.
Source: Doing Business Rankings , world Bank + IFC Publication.
St ra p la n
152.0
154.0
156.0
158.0
160.0
162.0
164.0
15
20
25
30
35
40
45
50
N/$$Billion Reserves and Exchange Rate movement
Monetary Policy Committee Decisions in
2012
The MPR was unchanged in 2012 to rein in
potential rise in prices, as the CBN used
other monetary instruments such as the CRR
(cash reserve ratio) LRR (liquidity reserve
ratio) and DMBs foreign exchange Net
Open Position to dispel threats to price and
exchange rates stability.
Monetary policy opened in 2012 with the
policy rate at 12% after raising the MPR six
times in 2011 from 6.25% to 12%. The CRR
was increased three times from 1% to 8%
and LR once from 25% to 30% in 2011. The
Naira was also devalued to N155.
30th - 31st January, 2012
Retain MPR (12%), CRR(8%) and LRR
maintained. The impact of upward11
11
12
12
13
13
14
156.00
157.00
158.00
159.00
160.00
161.00
162.00
163.00
164.00
165.00
%N/$ Naira/Dollar, Inflation and MPR Trends
Nigeria’s Monetary Policy Committee successfully met its objectives in 2012, in the light of the global and domestic
developments and trends within that period.
The MPC reined-in the rate of inflation, stabilized the Naira, maintained a positive real return and attracted a strong
inflow of foreign funds. Enabled by high oil prices, these actions supported the accretion of Nigeria’s external reserves
up to $44billion by December 28, 2012. We expect the MPC’s approach to the MPR to be accommodative in 2013 as
the rate of inflation moderates and positive real return is still achieved on moderating yields. We expect the MPC to
continue to effectively regulate speculative activities that may put pressure on the Naira. Consequently, our optimism
supports a continued trend in foreign inflows as the financial markets add more depth.
Monetary policy and Financial Markets- Investment Inflows
January 2013A complimentary publication of Straplan AdvisoryNigeria, Still Betting on Oil
152.015
03
-Ja
n-1
2
23
-Ja
n-1
2
12
-Fe
b-1
2
03
-Ma
r-1
2
23
-Ma
r-1
2
12
-Ap
r-1
2
02
-Ma
y-1
2
22
-Ma
y-1
2
11
-Ju
n-1
2
01
-Ju
l-1
2
21
-Ju
l-1
2
10
-Au
g-1
2
30
-Au
g-1
2
19
-Se
p-1
2
09
-Oct
-12
29
-Oct
-12
18
-No
v-1
2
08
-De
c-1
2
28
-De
c-1
2
Reserves FX (Interbank)
maintained. The impact of upward
adjustment in fuel price was fresh.
19th - 20th March, 2012
MPR (12%), CRR (8%) and LR (30%) in view
of persistent underlying inflationary
pressures, need to attract foreign
investment and build up reserves .
21st - 22nd May, 2012
MPR, CRR, LRR unchanged from previous
levels
23rd – 24th July, 2012
•Retain MPR at 12%, increased CRR to 12%
from 8% and reduced NOP to 1% from 3%
to reduce currency speculation
17th – 18th September, 2012
•Maintain MPR, CRR & NOP at previous
levels.
19th – 20th November, 2012
•maintain MPR, LRR & CRR at previous
levels.
11156.00
Jan
-12
Feb
-12
Ma
r-1
2
Ap
r-1
2
Ma
y-1
2
Jun
-12
Jul-
12
Au
g-1
2
Sep
-12
Oct
-12
No
v-1
2
Exchange Rate (N/$) Inflation (%) MPR
0
1,000
2,000
3,000
4,000
5,000
6,000
Q2'2011 Q3'2011 Q4'2011 Q1'2012 Q2'2012 Q3'2012e
$million Investment Inflows
Direct Investment Inflows Portfolio Investment Inflows
10.0%
12.0%
14.0%
16.0%
18.0%
0 12 24 36 48 60 72 84 96108120132144156168180192204216228240
Yield (%)
Tenor (Months)
The Yield Curve
17-Jan-12 21-Dec-12Source: FDHL Analytics
St ra p la n
We expect the posture of stability
and higher returns to bolster the
Nigerian equities market in 2013.
Locally, yields on money market
securities are expected to moderate
lower than they averaged in 2012,
hence, more investors would seek
higher returns in the stock market.
International investors on the other
hand will find the Nigerian bourse
attractive as uncertainty and lower
trade and investments growth
further encourages diversification
of portfolios to include African
securities.
In 2012, the capital market
Financial Markets- The Nigerian Stock Exchange is moving forward
18.93
-16.31
35.45
-30
-20
-10
0
10
20
30
40
Annual Returns %
Siz
e
$1 Trillion
Efficiency
Growth Path
The NSE
$60 billion
The management of the Nigerian Stock Exchange envisions a market capitalized to $1 trillion by 2017…
This vision considers Nigeria’s revolutionary growth and the listing of large firms across all borders on the Nigerian bourse.
The vision is being anchored on the introduction of more products and services, on an efficient platform, to attract a
variety of investors and ensure market robustness and stability. The introduction of an active derivatives market would play
a critical role in deepening the African intra-regional commodities market. We remain optimistic about continued growth
in the NSE in 2013, even as local confidence in the market improves and more initiatives are introduced by the authorities.
January 2013A complimentary publication of Straplan AdvisoryNigeria, Still Betting on Oil
In 2012, the capital market
authorities introduced enabling
initiatives to enhance the level of
investment activities in the market.
We expect this trend to continue in
2013 and look forward to issuing
reports on such themes as they
unfold. They include:
•Increased activities for investment
banking
•More Private equity interests
•Alternative investments and
trading platforms
• Increased retail Bond sales
•Encouraging listing of Energy firms
•Cross-listing of securities and
companies
•Closer integration of Africa’s
financial markets
-45.77
-33.78
-50
-40
2008 2009 2010 2011 2012
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
40%
3-J
an
-12
23
-Ja
n-1
2
12
-Fe
b-1
2
3-M
ar-
12
23
-Ma
r-1
2
12
-Ap
r-1
2
2-M
ay-
12
22
-Ma
y-1
2
11
-Ju
n-1
2
1-J
ul-
12
21
-Ju
l-1
2
10
-Au
g-1
2
30
-Au
g-1
2
19
-Se
p-1
2
9-O
ct-1
2
29
-Oct
-12
18
-No
v-1
2
8-D
ec-
12
28
-De
c-1
2
NSE vs Other Markets
Hang Seng Nasdaq FTSE GDAXI NSE
16.5
3136.1
66.859.9
83.5
6963.9
33.240.1
0
20
40
60
80
100
2008 2009 2010 2011 2012
%Foreign Portfolio Investments Vs Domestic
Investments
FPI Domestic
Efficiency
Source: NSE, Straplan Research
St ra p la nDisclaimer
January 2013A complimentary publication of Straplan AdvisoryNigeria, Still Betting on Oil
Disclaimer
Whilst reasonable care has been taken in preparing this document to ensure the accuracy of facts stated herein and that the information, estimates
and opinions also contained herein are objective, reasonable and fair, no responsibility or liability is accepted either by Straplan or any of its
employees for any error of fact or opinion expressed herein. No reliance should be placed on the accuracy, fairness or completeness of the
information contained in this report as it is based on secondary information. All information and opinions set forth in this document constitute the
analyst(s) position as at the date of the report and may not necessarily be so after the report date as they are subject to change without notice.
This document is for information purposes only and for private circulation. No portion of this document may be reprinted, sold or redistributed without
the written consent of Straplan Research. The report is available primarily electronically.
St ra p la n
Nigerian Markets Research & Analysis / Strategic Planning
What We Do
Information &
Data Gathering
(Database)
Analysis,
Modelling &
Valuation
Preparation of
Research Reports
Dissemination of
Information
You can engage our Research Assistants for independent analysis on the following:
January 2013A complimentary publication of Straplan AdvisoryNigeria, Still Betting on Oil
(Database) Valuation
•Policy updates
• Economy
• Financial Markets
• Sectors/Industries
• Companies’ Performance
•Ratios
•Forecasting
• Valuations
• Models
•Industry Drivers
• Demand and Supply
Dynamics
• Electronic
• Internet
• Telephone
• Publications
• Media
• Weekly Reports
• Annual Reports
• Quarterly Reports
• Monthly Reports
• Industry-Specific
Reports
St ra p la n
Ajibola Alfred
Straplan Research
10B, Apapa Lane,
All comments, suggestions and enquiries should kindly be sent to:
Contact Details
Tel: +234 803 860 8755 email: [email protected];
January 2013A complimentary publication of Straplan AdvisoryNigeria, Still Betting on Oil
10B, Apapa Lane,
Dolphin Estate, Ikoyi,
Lagos.
Tel: +234 803 860 8755
or
+234 808 311 3785
email: [email protected];
or