5 things you need to know and what is moving the market

CBN holds MPR at 11.5% for the 7th consecutive month

Last week was interesting for investors and stakeholders in the Nigerian economy as the CBN held the MPR rate at 11.5% and Cash Reserve Ratio was retained at 27.5% while the Liquidity Ratio was also kept at 30%. So, how is this important and what does this mean for the stakeholders in the business environment? It begins and ends with the MPR which is basically the interest rate at which the CBN sets as the basis to control the money supply in the economy.

How does this work in Nigeria? With the CBN setting the benchmark interest rate at 11.5% for the 7th straight month since September 2020. The bank has been on a mission to revive the economy since March 2020 when it became clear that the covid-19 virus was going to cause unprecedented damage to Nigeria’s economy.

The CBN embarked on what is called an expansionary monetary policy when it lowered the interest rate. By doing this they reduced the rate they lend to banks and this, in turn, reduced the interest banks charge when they lend to the real sector. The strategy is to boost economic activity by increasing money in circulation.

However, with inflation rates rising in Nigeria to 17.33% and food inflation over 20%, many were expecting the CBN to raise interest rates to mop up the excess liquidity in the system – this is known as contractionary monetary policy. The CBN has basically washed its hands of controlling Nigeria’s rising inflation, due to banditry and supply chain bottlenecks that are outside of their control. The apex´s bank statement in the last MPC meeting highlights this; ¨The rising inflation was due to the worsening security situation in many parts of the country, particularly, the food-producing areas, where farmers face frequent attacks by herdsmen and bandits in their farms.¨

If this is anything to go by, Nigeria’s inflation problem is not going away soon. With Nigeria’s unemployment rate at 33.3%, the CBN is less incentivized to raise the interest rate. Ladies and gentlemen, we are currently in stagflation.

Is Naira 4 Dollar already a success?

When the CBN rolled out the Naira4Dollar initiative, the objective was clear. Nigeria badly needed diaspora remittances. The latest data by the CBN revealed that diaspora remittances in the first 9 months of 2020 have dropped by 26.8% from $17.5 billion in 2019 to $12.8 billion.

Nigerians have grown to appreciate diaspora remittances for the sheer size of the dollar liquidity it provides, and how it eases the pressure on the naira. With the dwindling revenue from oil and other alternative channels that remit dollars to the country such as cryptocurrency exchanges, the government needed to find creative ways to attract dollar inflow through the official channels. The Naira4Dollar simply means for every dollar received you get an additional N5 from the CBN. We covered what it means and how it works here.

The news here is that Nairametrics reported that Nigerians in the diaspora had remitted $40 million in one week. It will be interesting to see the impact this will have on the period of this CBN promo. The policy is scheduled to end on the 8th of May, 2021.

The Suez Canal and its effects on Oil prices

The 400 meter-long Ever Given cargo ship which got stuck in Suez Canal on Tuesday last week was finally refloated this morning. The market had been largely comfortable throughout the blockage with Brent crude settling at $64.57 on Friday. About 5% of the world’s crude oil transits the canal but oil prices have stayed stable. According to data from Leth Agencies, as of Sunday afternoon, there were 327 vessels awaiting transit due to the blockage. 28 out of the 327 vessels are crude oil tankers, 16 at the Suez and 12 at Port Said 95km North of the Suez Canal.

Although there is a reactionary movement on the oil prices since the refloating. It is not expected to have any significant impact on the market now. The US government had also made plans to intervene and provide support to the Egyptian officials with the White House Press Secretary Jen Psaki stating they saw some ´potential impacts in the energy market´ if the situation persisted.

It is expected that the traffic of ships affected by the blockage will take about one week to cross the canal and out of the Suez corridor. About 12% of global trade passes through the canal as it provides a shorter route from Asia to Europe rather than a two-week journey across Africa.

Dividends Announced in 2021

Investors in the equity market in Nigeria are mostly interested in dividends and after a market-beating performance for the NSE All-Share index when it ended the year with +50% YTD in 2020. Investors are now out for a good return on their investments and in Q1 2021 so far, a couple of companies are offering really attractive dividends. The companies include; Guaranty Trust bank, CAP Plc, Dangote Sugar, Zenith Bank, and United Capital all offering dividend yields above 8%. You can get more information on this here.

Women winning in Nigeria

The month of March is international women’s month and some great women are making great strides in business while some companies are being more intentional about driving workplace gender equality and balance.

Shell Nigeria Exploration and Production Company (SNEPCO) has appointed Elohor Aiboni as its first female Managing Director. The company has been operating in Nigeria since 1937 and this appointment adds to the list of female executives leading flagship corporations in Nigeria.

Kuda bank made the news last week by creating a job opening for only female interns in a bid to balance the gender gap in the company.