Most read articles
The FPN Newsletter Issue #66: Elevated prices stifle customer spending; threatens a longer Icarian flight
Analyst Corner Inflationary Pressures? Time for the Hawks The International Monetary Fund (IMF) just released its Global Economic outlook for the month of April where it revised its projects for global growth over the course of the year. In its report, Global growth is projected to slow from an estimated 6.1% in 2021 to 3.6% in 2022 and 2023. This underpins a 0.8 and 0.2 percentage points lower growth for 2022 and 2023 than in the January World Economic Outlook Update. The IMF predicts a decline in global growth beyond 2023 to about 3.3% in the medium term. Crucially, this forecast assumes that the conflict remains confined to Ukraine, further sanctions on Russia exempt the energy sector (although the impact of European countries' decisions to wean themselves off Russian energy and embargoes announced through March 31, 2022, are factored into the baseline), and the pandemic's health and economic impacts abate over the course of 2022. The IMF has also revised growth projections in Nigeria upwards for 2022 by 0.7 percentage points to 3.4%, compared to the 3.8% growth in Sub-Saharan Africa (SSA) during the same period. The higher growth prospects for Nigeria are largely due to the sustained increase in oil prices. For example, over the course of April, Brent Crude traded above $100 which is nearly two times the benchmark price of $57 for the 2022 budget. According to the report, global inflation is expected to remain elevated for longer than in its previous forecasts, driven mostly by war-induced commodity price increases and other price pressures. Source: Global Economic Outlook 2022, International Monetary Fund The report further describes the persistence in global inflation as largely due to several factors such as the Ukraine-Russia war which has sparked a surge in commodity prices, the aggregate demand-supply imbalances, and limited availability of labour due to pandemic induced factors and the general demand imbalances for goods and services. By 2022, the IMF projected a 5.7%inflation level in advanced economies and 8.7%in emerging market and developing economies—1.8% and 2.8% points higher than in the January World Economic Outlook. Inflation in 2023 is projected at 2.5%t for the advanced economy group and 6.5% for emerging market and developing economies (0.4 and 1.8 percentage points higher than in the January forecast). Governments around the world have been responding hawkishly to these inflationary pressures as many central banks adopt tighter monetary policies. For example, in mid-March 2022, the US Fed approved a 0.25% point hike, the first increase since December 2018. Fed officials have hinted at further interest hikes, with rate rises coming at each of the remaining six meetings in 2022. What do all these mean for Nigeria? More inflation. The Nigerian Bureau of Statistics (NBS) released the Consumer Price Index (CPI) report for the month of March, which showed that Nigeria’s inflation rate accelerated to a five-month high at 15.92%, a 0.21% increase from 15.71% recorded in the previous month. The rise in the rate was attributed to the 17.2% rise in the food index, while the core inflation stood at 13.91% for March 2022. The uptick in the food inflation rate was attributed to the increase in the prices of bread and cereals, Food product, Potatoes, yam and other tubers, fish, meat, oils, and fats. According to the IMF, food prices are a critical factor in consumption levels in SSA, including Nigeria. Higher food prices will always impact the purchasing power of consumers, given the high poverty rate prevalent in the region. On the global scene, higher commodity prices like wheat and grain are likely to contribute to higher inflation levels in Nigeria. Locally, the insecurity in food-producing regions in the country continues to aggravate supply constraints, with total goods produced failing to effectively meet the demand across the country, thus increasing prices. Finally, because many of the factors contributing to higher prices are less monetary and more structural (Ukraine-Russia war, Supply Constraints, Insecurity etc.) in Nigeria, policy tools may not be as effective in mitigating the effects of inflation. However, the Central Bank must continue to clearly monitor the effects of price pressures across various facets of the economy and clearly communicate its inflation outlook and monetary policies while determining an appropriate response. Week’s Headlines IMF raises Nigeria’s economic growth forecast to 3.4% The International Monetary Fund, IMF, has raised its forecast for Nigeria’s economic growth in 2022 to 3.4 per cent, citing an increase in crude oil prices. However, the IMF reduced its projection for global growth to 3.6 per cent in both 2022 and 2023, citing the impact of the costly humanitarian crisis economic damage from the Russian war on Ukraine. The Washington based lender reduce the expected global output in 2022 to 3.6% in April down from 4.4% expected in January. The International Monetary Fund (IMF) has on the other hand projected the Nigerian economy to grow by 3.4% in 2022, up from 2.7% earlier projected. Also, the IMF upgraded its economic growth forecast for the Sub-Saharan African region to 3.8 per cent in 2022, representing a 0.1 percentage point increase from the 3.7 per cent forecast made in January. The increase in oil prices has projected a positive outlook for the region particularly oil-exporting countries like Nigeria and Angola. The major downside risk to the projection is sub-optimal oil production. Nigeria may fail to benefit from these higher oil prices due to sub-optimal production as a result of oil theft and vandalism. This has implications for foreign exchange earnings and government finances in a time of high-interest rates and excruciating debt service burden. World Bank plans $170bn financing to ease ‘multiple crises’ The World Bank is preparing a $170bn package of financial help in response to the overlapping global crises of war, pandemic and inflation that are hitting the poorest countries particularly hard, its president has said. David Malpass warned that Russia’s invasion of Ukraine had added to pressures caused by the Covid-19 crisis and soaring cost of living, and there was a need to provide assistance quickly. Malpass repeated his concern for poor countries facing high debt levels, noting that 60% of low-income countries already face debt distress or are at high risk. He noted that the world is facing COVID-19, inflation, and the war in Ukraine, which have led to the forecast of the global economic growth outlooks being lowered, just as the International Monetary Fund (IMF) has also downgraded its outlook, and stressed that “China’s COVID-related shutdown is part of that and may weigh on the world economy in 2022.” Netflix suffers first subscriber loss in a decade Netflix Inc says inflation, the war in Ukraine and fierce competition contributed to a loss of subscribers for the first time in more than a decade and predicted deeper losses ahead, marking an abrupt shift in fortune for a streaming company that has thrived during the pandemic. The company said it lost 200,000 subscribers in its first quarter, falling well short of its forecast of adding 2.5 million subscribers. Suspending service in Russia after the Ukraine invasion took a toll, resulting in the loss of 700,000 members. Wall Street sent Netflix's stock tumbling 26% after the bell on Tuesday and erased about $40 billion of its stock market value. The lagging subscriber growth is prompting Netflix to contemplate offering a lower-priced version of the service with advertising, citing the success of similar offerings from rivals HBO Max and Disney+. Did You Know Did you know that Switzerland consumes the most chocolate per year with approximately 10 kilos a year per person? Can anybody blame them? I certainly can’t. Every beautiful city in Switzerland appears to have an even more beautiful chocolate scene. Since chocolate making began in Switzerland in 1819, they have continually worked to discover innovative new techniques to produce more chocolate for consumers each year. Box Office: The High Note What do you get when you mix Tracee Ellis Ross (the daughter of the legendary Diana Ross), Ice Cube and Dakota Johnson in one film? The High Note: a feel-good movie about a music icon (played by Tracee) who's about to sign on to do a residency engagement after not releasing any new music in a while. The Movie was grossed at $2.5million at Box Office in 2020 and had a budget of $20million. The High Note has it all: love, music, drama and tears! Quote for the week "It is during our darkest moments that we must focus to see the light." -Aristotle
The Finance Professionals Network
Apr 25, 2022 · 7 min read
The FPN Newsletter Issue #65: Looming interest hikes and a tough time ahead
Analyst Corner EM economies are on a Collusion course with tighter Capital flows The Federal Reserve for the first time since 2018 made an announcement to raise the Fed rate last month stating a new target range increase to 0%-0.50% from the initially stated 0%-0.25% to address the growing inflation rate of the United States. The United States hit the highest inflation in four decades (1982). This led to a regulating move by the US to control the spur in inflation rate which spurred up to 8%. While some price increases are clearly a result of pandemic-related shortages resulting in the increase in the cost of necessities such as rent, electricity and the price of labour, the Russia-Ukraine war has led to a rise in the price of commodities such as wheat, gas, etc has questioned the effectiveness of the move of the Fed. However, a lack of care in the execution of the Fed’s move can tip the economy into recession. Although the U.S. has now recovered more than 90% of the jobs that were lost during the pandemic, businesses continue to struggle with shortages of workers and materials. What are the effects of the rise of the U.S economy? The Fed policymakers have lowered their forecast for economic growth this year to 2.8%, 3000points lower than the 4% projected in December. It is believed that government bonds are almost risk-free and thus attract the least rate of interest, and the cost of borrowing becomes more expensive. This will discourage spending as consumers will demand less for goods and services. The reduction in the demand for consumers will lead to a decline in production, hence the need for less labour, thus unemployment. Ultimately, an interest rate rise will slow down the economy leading to recession. However, the financial sector is expected to benefit from interest rate rise as revenue of banks and other financing firms are expected to increase. The bond market is expected to improve significantly thus leading to a surge in the value of the dollar. However, the satisfactory performance of the New York Stock Exchange does not seem attainable. What are the likely impacts on Emerging Market economies? The U.S. dollar is the king among other currencies as it is the benchmark of current and future economic growth. This results in every economy reacting to a structural change in the U.S. economy. The impact of an increase in the Fed rate is usually very disastrous for Emerging market economies. A spike in the Fed rate will result in a higher yield on Treasury bonds. This will attract investors thus leading to capital flight from many EM economies. The capital outflow of foreign investment in these countries will impact negatively the economic growth of these economies. As the Fed rate increase, the value of the dollar is expected to rise. This will result in the widening of the exchange rate and the EM economies. This will worsen the debt position of these EM economies as debt tends to increase. As the U.S. dollar remains the medium exchange acceptable for international trade, many of these emerging economies import more than they export. This spike is most likely to in an unfavourable balance of trade which in turn results in withdrawal from their foreign reserves and eventually result in resorting to debt. Top headlines for the week China imposes fresh lockdown as covid cases surge The number of Covid cases in China is growing according to the report. Shanghai revealed a new record number of symptomatic COVID-19 cases on Saturday, as the nation enforced fresh lockdowns, emphasizing its "dynamic clearance" approach to COVID management. The Zhengzhou Airport Economic Zone, an industrial district in Henan's centre province that has production facilities for corporations like Apple Inc supplier Foxconn, declared a 14-day lockdown on Friday in response to the situation. In addition, the northeastern city of Xian declared a temporary partial lockdown for its 13 million citizens in response to several COVID-19 infections this month. These new restrictions emphasize broad supply chain problems, which will cause delays in shipments from businesses such as Apple. Economists predict that the restrictions will have an impact on the country's economic growth rate this year. Headline inflation accelerates to 15.92% According to the National Bureau of Statistics (NBS), Nigeria's headline inflation rate in March was 15.92% year on year. This is the highest rate in five months, compared to the prior month it increased by 0.22%. Month on month, the headline index increased by 0.11% in March to 1.74%, up from 1.63% in February. Looking at the sub-index performance, the food inflation index for March increased by 0.09% year on year to 17.20%, up from 17.11% in February. Month-on-month, it grew to 1.99% in March, up from 1.87% in February. On the other end, the core inflation index dropped to 13.91% in March from 14.01% recorded in February 2022. Month-on-month basis, the core sub-index increased to 0.98% in March 2022. This was down by 0.35% points compared to 1.33% recorded in February 2021 With the recent crisis in Eastern Europe and its impact on staple food, which is compounded by the insecurities in the food-producing region in the country we foresee this current trend to persist. Nigeria is projected to grow by 2.7% in 2022 According to the World Bank's most recent projection, growth in Sub-Saharan Africa would be 3.6% in 2022, down from 4% in 2021, as the area continues to contend with new COVID-19 variations, global inflation, and supply disruptions, and climatic shocks. The bank said that recovery remained uneven, incomplete, and progressed at varying rates across the region. Nigeria is expected to continue its growth level, with a growth projection of 2.7% this year. Some of the key drivers of this growth projection are elevated oil prices and good performance in the non-oil sector. The bank pointed out that the region is set to face a number of challenges that will impede its growth. Issues such as rising global commodity prices have been further worsened by the war between Russia and Ukraine. Tightening of global conditions and reduced foreign financial flows into the region. And high purchase cost of fuel and food will translate into higher inflation across the region. Did you know Africa is home to the world’s oldest university The oldest existing, and continually operating educational institution in the world is the University of Karueein, ( Athen’s of Africa) founded in 859 AD by Fatima al-Fihri in Fez, Morocco and was originally a madrassa. The University of Bologna, Italy, was founded in 1088 and is the oldest one in Europe. Box Office Banger One of the best movies of 2022 so far is Matt Reeve's‘ The Batman’. It has the biggest box office debut, opening at USD128million. The movie’s dark themed style, gritty tone and excellent cinematography made it a very appealing watch to millions of viewers around the world. Standing at a strong IMDb (Internet Mobile Database) and rotten tomatoes rating of 8.3/10 and 85% respectively, the movie is regarded as a huge box office hit. Quote for the week “You’ve got to tell your money what to do or it will leave” – Dave Ramsey
The Finance Professionals Network
Apr 18, 2022 · 6 min read
The FPN Newsletter Issue #64: Elon
Analyst Corner Elon Musk x Twitter: If you can’t beat them, buy them Last week, the media space and markets were left amused as the controversial ‘tweeter’, Elon Musk bought shares in Twitter, the U.S.-based microblogging and social networking service most popular as a hub for political discussions, business advertising, and up-to-date commentary. The $2.89 billion invested by Musk in the company represents a 9.2 % stake, thus making him the largest shareholder in the corporation. However, the SpaceX and Tesla investors’ action has sparked lots of controversy and opinions considering Musk’s unequivocal support for free speech, and freedom of expression on social media, and Musk’s recent appointment to the board is expected to usher reforms to Twitter’s operations and usability. Why Twitter? On the 25th of March, 2022, Elon Musk questioned Twitter’s adherence to free speech principles and created a poll to this effect. Over 70% of Twitter users voted in support, accusing Twitter of impeding free speech. Also, well before his call for free speech, in August 2018, Mr Musk caused a significant market disruption when he tweeted that he could take Tesla private without filing the regulatory notices at $420, a price which carried a premium at the time. The tweet led Tesla’s stock price to leap by over six per cent on August 7, against the Securities and Exchange (SEC) guidelines. This resulted in fraud charges slammed on Musk, and a requirement for the SEC to vet his tweets containing material business information before publishing, however, Musk wants to tweet freely and seeks to end this legal agreement in court. Further, Twitter has been accused by various political commentators of taking sides in U.S. politics, after blocking the accounts of several U.S. republicans who use their tweets for partisan, and political messages, including former President Donald Trump in January 2021. Republicans have claimed that social media companies like Twitter have favoured Democrats, and have prevented them from speaking openly. The big question is- Does Elon Musk want free speech for everyone or is trying to get away from the SEC’s net? Hence, Twitter and the entire social media space eagerly await the changes that Elon Musk’s big spot on the Twitter board will bring to the table. Is Elon Musk the next Warren Buffett? Following Elon Musk’s investment in online payment systems, transportation, artificial intelligence, space travel, and most recently, social media, it is quite possible to liken him to Warren Buffett, one of the world’s most successful investors, and the CEO of Berkshire Hathaway’s, which owns more than 60 companies. Also, Elon Musk might have beaten Buffett to it, as he is currently the richest person on the Forbes 2022 World Billionaires List with a net worth of $219 billion [April 05, 2022], almost doubling the worth of 5th-placed Buffett worth $118 billion, showing an eye for strategic investments like the Berkshire Hathaway’s chief. SEC’s Reservation Despite Elon Musk’s big catch, the investor appears to have violated the regulations of the Securities and Exchange Commission (SEC). Is this another long “Elon-SEC-Twitter” quandary”? According to SEC regulations, Elon Musk was required to notify the market when his stake in a company surpassed the 5% threshold. Truth is, Musk’s investment in Twitter was at 5% on March 14, however, the markets were not notified of further acquisitions until Monday, 4th April. Until disclosures were made public last week, Musk kept the stock price low whilst he continued to buy up shares. In addition, Musk misled the public when he filed forms indicating he would be a ‘passive investor’, against his appointment on the Twitter board, as announced by Parag Agrawal, Twitter’s CEO. Fun Fact After Elon Musk disclosed his stake on Monday, Twitter’s stock price jumped 27%, its biggest-ever one-day gain. This earned him almost a third of his investment, increasing the value of his Twitter stake to $3.7 billion on the day. Top headlines for the week Nigeria is at high risk of debt distress Nigeria and 72 other countries are at high risk of debt distress or already in debt distress, according to a new report by the International Monetary Fund (IMF). The report, titled “Restructuring debt of poorer nations requires more efficient coordination,” noted that low-income countries face fewer debt challenges today than they did 25 years ago. “Now, the economic shocks from COVID-19 and the war in Ukraine are adding to the debt challenges faced by low-income countries, even as central banks start to raise interest rates.” CBN, others partner to close infrastructure deficit, raise $37bn The Governor, of the Central Bank of Nigeria, Godwin Emefiele, has said the Infrastructure Corporation of Nigeria is signing an agreement with some public and private sector partners to raise funds to close the infrastructure deficit in the country. He spoke during an event on InfraCorp term sheet signing with independent asset managers in Lagos. The Central Bank of Nigeria (CBN) said InfraCorp was launched with initial seed capital from the promoters of N1tn ($2.5bn) and aims to raise three times as much in private capital over the next three years, and up to $37bn for infrastructure investments in Nigeria’s economy by 2030. Chile announces a $3.7 billion recovery plan to aid the struggling economy Chile's President Gabriel Boric announced a $3.7 billion economic recovery plan that includes a hike in the minimum wage, subsidies, and financing for sectors of the economy still battling fallout from the COVID-19 pandemic. Key goals of the plan, the president said, including creating 500,000 jobs and raising the current monthly minimum wage of 350,000 pesos ($434) to 400,000 pesos ($496) by the end of the year. Did you know The stars and stripes make up the U.S. flag, one of the most recognizable flags of any country in the world. But did you know the modern iteration containing 50 stars was designed for a class project by an enterprising high school student in 1958? Quote of the week “Never wait for tomorrow, what if tomorrow never comes?” – Elvis Presley Box Office banger The most expensive movie ever made was “Pirates of the Caribbean: On Stranger Tides”. It had a budget of $422 million, the only movie to surpass the $400 million benchmark. It was the third highest-grossing film of 2011. There were a number of reasons why it was ranked the most expensive movie. First, 4 different states were used for filming locations and this drove up the budget of the movie. Second, the cameras used on set during the filming process were 3D cameras, similar to those used in the production of Avatar.
The Finance Professionals Network
Apr 12, 2022 · 6 min read
The FPN Newsletter Issue #63: We are BACK!
Analyst Corner Prepare for more insecurity, war! A gentle reiteration of the known Last week, we got news of the terror attack on the Kaduna-Abuja rail track with many casualties recorded. This development joined the long list of issues that have continued to plague Nigeria in recent years. Although shocking, it was not unexpected that the country would soon be exposed to such an anomaly seeing how the macro-economic health of the Nation has continued to worsen over the years. At the return of democracy in 1999, the Nation had reasons for optimism, as it seems at the time that all hands were on deck to move it to the “promised land.” At that point, the aspirations were verifiable, however, the seed that would later germinate into insecurity, descent into the macro-economic abyss, and prolonged mismanagement were preparing to sprout. The seeds, inexistent the sound institutions to contain the excesses of the powerful people and the abysmal level of social justice had since germinated. While the former had led to prolonged mismanagement of human and natural resources, the latter had emerged to amplify the concerns, seeing as such discontent was left to fester. Worthy of note is that the prolonged mismanagement as earlier mentioned had deprived the Nation of the opportunities to utilise the series of economic prosperity. Now, there are a plethora of concerns ranging from an Infrastructure deficit, rising prices, shrinking output (when considered in the light of population growth), and mass exodus of capital. Funnily, you might have heard all of these before now. Nonetheless, I would still tell it with the hope that it would appear to you in a new light. Infrastructure Deficit and Rising Prices One of the many issues in recent years is the continued surge in the price level, as the prices of items continued to pose a burden on the overall wellbeing of the Nation, seeing as income levels have not recorded a commensurate rise within the same time. For context, a bottle of Bigi Cola has surged in excess of 50% in the last eighteen (18) months. During that time, we observed that the average household income has only done an estimated 9.2%. One of the reasons that we have attributed to this anomaly is the obvious economic frailties that Nigeria has consistently had to cope with over time. As we earlier mentioned, there is the issue of infrastructures such as motorable roads, power supply, and port facilities. The inadequate supply of such facilities makes for an elevated cost of moving items across the country, a cost that adds some extra layer of cost concern for producers and suppliers alike. The implication is rising prices amid a tepid growth in household income. The exodus of capital In addition to the eroding purchasing power and dwindling income per household, there is now the issue of insecurity, which has added some extra concern for businesses. To contextualize this, Donald Cressey laid out three factors Opportunity , Pressure (also known as incentive or motivation) and Rationalization (sometimes called justification or attitude) for any anomaly (fraud) committed. Recently, we learnt that the concern has now extended to crude pipelines across the Nation, with several sabotages reported. The implication of this is that investors are now selling down or closing their businesses, hence, the Nation’s hard-earned capital flow is finding safety in other climes. We have seen that with the recent move by IOCs to sell their blocks with the hope of going fully offshore. What can Nigerians do? Whenever this comes to mind, it usually leaves us in a place where I am locked with several options, but none without the input of everyday Nigerians. One of the many things I have earmarked is the need for more Nigerians to take responsibility. Yes, there is currently in force a National Development Plan, meant to mitigate these concerns. The need to have conscientious leaders, which can only happen when Nigerians, especially corporate Nigerians participate actively in leadership and public service across the length and breadth of Nigeria. When this eventually happens, then can we re-work Nigeria and create a prosperous country where the populace is not susceptible to being lured into banditry, crime, terrorism and all other forms of unacceptable practices. Top headlines for the week 180 million barrels to be released over 6 months This week the US President in response to increasing demand pressure and supply shortfalls of Crude oil as a direct result of the Russo-Ukrainian conflict, has again ordered the release of 180 million barrels of crude oil from its strategic petroleum reserve for the next six months the largest release in its 50-year history. The price of crude oil has since declined to less than $100/barrel. Supply concerns as a result of sanctions on Russian crude sent benchmark prices soaring to $139/barrel, as 3 million barrels/day of Russian crude is being threatened to be taken offline. OPEC still maintains its 400,000 barrels per day increase even as many members still do not meet their quotas and Saudi Aramco still reels from its most recent attacks from the Jihadist Houthi militant group. Improved local production to 60,000 per annum Innoson Motors is a privately held and indigenous car manufacturing company operating within Nigeria. This past week it announced plans to establish another manufacturing plant in Owerri, the Imo state capital. With a population of over 1.4 million the plant is expected to produce 60,000 cars per annum. The establishment of a manufacturing plant will directly increase economic activities within the state, in the form of employment and internally generated revenue as the firm looks to increase production by over 300% Inflationary pressures influencing key global lending rates The supply shock as a result of the European conflict is set to send Global inflationary pressures skyward as the curtains open on a new week to high commodity prices across the board. Russia in this past week expressed new terms where it would soon begin accepting the Ruble for its Crude and gas supplies to most of its European buyers as they still flow to these countries through Ukraine. Another result of the pressures is the Hawkish stances of major Central banks. The American Federal Reserve Chairman looks to raise interest rates by 50 basis points instead of the standard 25 basis points. Did you know… Colombia is the fifth largest country in Latin America, with a surface of 1.1 million km2; it is the only South American country that borders both the Atlantic and Pacific Oceans. Colombia has a dualistic distribution of land ownership where traditional subsistence smallholders co-exist with large-scale commercial farms. Colombia’s agro-food exports is almost equally split between those destined for final consumption 53% and those that are sold as intermediate inputs, pegged at 47% for use in manufacturing sectors in foreign markets. Box Office banger for the Week Covered, in under 19 feet of ash, soot and Volcanic debris lie the old city of Pompeii, which in a matter of hours was lost forever. The 2014 movie was Directed by Paul W. S. Anderson, with a box office of $ 117.8 million that told the story of the final moments of the Old City as a young Gladiator race against time to save his love. The movies starred Kit Harington as the Young Milo, most popularly remembered for his role in the award-winning Game of Thrones series as “Jon Snow”. Rotten Tomatoes rating: 27%
The Finance Professionals Network
Apr 12, 2022 · 7 min read