Nigeria’s economy expanded more slowly in Q1 2019 than in the previous quarter. Nigerian Bureau of Statistics data released on Monday showed that the country’s GDP grew by 2.01% in real terms in Q1, compared to 2.38% recorded in Q4 2018. The statistics office said the general elections held across the country in Q1 may have reflected in the strongest Q1 performance observed since 2015. The aggregate GDP in the quarter under review stood at ₦31.794 trillion in nominal terms. This aggregate was higher than ₦28.439 trillion in Q1 2018, representing a Y-O-Y nominal growth rate of 11.80%. The oil sector declined to -2.40%, a difference of – 0.78 percentage points from the -1.62% recorded in Q4 2018. The agricultural sector grew 3.17%, up from 2.46% in Q4 2018. Finance and Insurance witnessed a decline, contracting to -7.60% from -1.76%. Manufacturing GDP grew by 0.81% in 2019; compared to 2.35% in Q4 2018.

Minister of Finance, Zainab Ahmed, has asked state governors not to anticipate another disbursement from Paris Club refunds as there is no fresh tranche of the fund. Ahmed said the money had already been doled out to all the states in March this year. The total sum of ₦691.560 billion in Paris Club refunds was shared to the states through the CBN after a thorough verification exercise. Ahmed made the clarification following news making the rounds in the media that states would soon receive fresh disbursements of the outstanding balance of the Paris Club debts. According to the minister, the finance ministry allotted ₦691.56 billion to the states instead of ₦649.43 billion. The disparity, Ahmed said, was due to exchange rate differential at the point of payment.

Rivers State Governor, Nyesom Wike, has accused the Nigerian Army of running an illegal oil bunkering operation in the state. According to Wike, the General Officer Commanding, 6 Division of the Nigerian Army, Major General Jamil Sarhem is leading the operation to steal and sell petroleum products to finance his quest for appointment as the next Chief of Army Staff. Speaking to the Commander, Joint Task Force Operation Delta Safe, Rear Admiral Akinjide Akinrinade, Wike also alleged that the GOC is also compromising security in the state through illegal actions. He cited a situation where Sarhem allegedly leaked security details to criminals after security meetings while accusing the current Chief of Army Staff of condoning Sarhem’s actions.

MTN Nigeria Communications continued its rally for a fifth consecutive trading session on 22 May at the Nigerian Stock Exchange, gaining ₦267.6 billion to increase its total gain since listing a week ago to ₦1.12 trillion. MTN Nigeria recorded the maximum daily allowable price gain for five consecutive sessions, rising by N13.15 to close at N144.85 per share. In Thursday’s trading, the price rose 2.87% to ₦149. The closing market price pushed MTN Nigeria’s market capitalisation to N3.03 trillion, an almost 70% increase on the telco’s entry listing value of ₦1.83 trillion. MTN Nigeria listed, by way of introduction, 20.35 billion ordinary shares at ₦90 per share, becoming the second most capitalised company on the Lagos bourse. There had been reports in the Nigerian media that the relative illiquidity of the company’s stock was driven by shareholders attempting to artificially drive up the stock price of the stock in a bid to cash out at a premium.

Commentary

  • It was always expected that the elections would impact economic performance hence the slower growth was to be expected. The details show the areas where the slow down occurred – services and manufacturing, two areas which the elections would have particularly hit. The contraction in the oil industry is worrying. Whilst prices rose during the quarter, average oil production was slightly lower at 1.96 million barrels per day (mbpd) in Q1 2019, against 1.98 mbpd in Q1 2018. The key issues include OPEC production restrictions, pipeline leakages and perhaps most important, the failure of the National Assembly and Presidency to agree on the Petroleum Industry Bill. Until the latter issue is addressed, the oil sector’s long term prospects will be negative. This is significant as the cost of keeping the exchange rate stable by the CBN continues to mount. With the government struggling to generate revenue, we encourage policies that will expand opportunities in the economy as opposed to the current inclination to command and control.
  • Ms Ahmed’s statements are essentially symptoms of the more fundamental issue – Nigeria has a revenue problem and is hurtling towards insolvency. Many of the states are already technically insolvent, unable to meet their obligations. The process around the Paris Club refunds to the states has been less than transparent. This is important seeing that the Federal Government is not getting any refunds itself, with all levels of government left with virtually nothing for capital projects and actual governance. The federal government’s insistence via constitutional means to hold on to the control of vital economic resources remains the heart of the problem, as it removes incentives, as well as the authority to develop such resources from the states. What is even worse is that it appears that the calls for state bailouts via ‘Paris Club refunds’ were a clever way of disguising the printing of money to give states a financial lifeline in the face of dwindling revenue flows for sharing between all the tiers of government. The true picture of this can only be reflected if, and when, the Central Bank of Nigeria releases its annual report for 2018.
  • It is worth noting that Governor Wike’s comments have been met with a strong reaction from the military, with the sceptre of libel charges hanging in the horizon of the Governor. Although the involvement of military officers and even the high military command in the theft of crude oil in the Niger Delta has been speculated and spoken of in many quarters, this is the first time a top government official is openly admitting to it. While Governor Wike has in the past made unsubstantiated allegations, and each time failed to provide backing evidence, this most recent one brings to sharp relief the problem of oil theft, the associated losses to the Nigerian state, and the relationships between politicians, the security services, and militants, who are all in on the crime. Oil theft means less revenue for the FG and states which means fiscal policies cannot be properly executed (even after accounting for graft) and the resulting economic growth will be constrained. At this time, most of the marginal operators cannot account for over 10% of production, which is easily 100,000 barrels per day. This brings the question of who gets this money. Politicians, rogue officers, and militants are the most likely beneficiaries. The trickle-down growth the economy is experiencing has increased the fragility of the peace in the Niger Delta – a peace that has been largely been sustained by oil theft. However, it remains a fragile peace. Stopping (or minimising) oil theft will in the short term increase violence within the region, but if the fiscal revenue realised is well invested and broad-based economic growth results, it could form the basis for a more enduring peace and stability in the region.
  • MTN’s debut on Nigeria’s equity market was eagerly anticipated, and a week in, it has largely lived to its billing. The All Share index has wiped out almost all of its 2019 losses — thanks to the telecom giant, reversing a 10% YTD loss as at listing day on 16 May, to just 1% at the close of Thursday’s trading. The speculation around the behaviour of the company’s shares was due to a combination of outsize interest in the company by all segments of the investing community and an arcane rule in the NSE rulebook. Evolved as a means to curb speculative trading, the 10% cap in price rises essentially prevented a lot of investors from piling into MTN stocks, creating a demand-supply mismatch. Some frustrated investors went to the press with allegations of stock manipulation and the regulator said it would ‘urge’ the company to make more shares available. The reality, however, was blindingly obvious. Seduced by the company’s strong fundamentals and bright growth prospects, many Nigerians want to be a part of the MTN opportunity, with some opening brokerage accounts simply to buy some of the company’s shares. This demand met limited supply as most of the company’s existing shareholders – the listing simply made available existing stock, not creating new ones, like in an IPO – saw the initial opening price as unattractive. With tempers calming down now as the 3.5% share rise suggests that supply is increasingly meeting demand, an NSE intent on wooing other telcos and big private sector players might seriously consider revisiting its limit rules as well as more investor education.