Being an Analyst Note issued by Proshare Research on March 28th, 2023

Diaspora Remittances to Decline in 2023 as Nigerians Send Less Money Home

According to a report by Western Union titled 'Global Money Transfer Index: Uncovering consumer expectations of the remittance industry (The Africa Series)', Nigerians living abroad are currently facing challenges in transferring significant amounts of funds back home due to the harsh global economic conditions abroad. The report however revealed that Nigeria remains the largest receiving market for remittance inflows in Africa, estimated at US$21bn, and the ninth largest in the world. The report which noted that 63% of Nigerian consumers surveyed collect funds at least once a month stated that diasporan remittances would likely decline in 2023. Analysts argue that the recent developments provide the government with the opportunity to invest more in human capital and encourage more skilled Nigerians to relocate abroad (contradicting the more common ‘brain drain’ narrative). Meanwhile, to address the immediate impact of the decline in diasporan remittances analysts recommend that the government ramps up crude oil production to increase crude oil export proceeds. In the medium to long term, they recommend that the government drives Foreign Direct Investment (FDI) by incentivizing Nigerians living abroad to invest in the country by offering properly documented investment opportunities, tax breaks, and other financial incentives (see chart 1 below).

Chart 1:

Nigeria’s LPG Adoption Slows on Rising Domestic Prices

Nigeria’s plan to deepen domestic Liquefied petroleum gas (LPG or cooking gas) demand to 2m tonnes per annum in 2022 has failed to meet the target on rising prices and regulatory issues. However, consumption rose to 1.4m tonnes. Rising gas prices and regulatory difficulties have effects on the affordability of LPG as with other fuels. According to the National Bureau of Statistics (NBS), the average retail price for refilling a 5kg cylinder of cooking gas increased by 24.05% from N3,08.58 in February 2022 to N4,600.57 in February 2023 while the average retail price for refilling a 12.5kg cylinder of cooking gas increased by 37.67% from N7,447.79 in February 2022 to N10,253.39 in February 2023. Monthly, the average price for refilling a 5kg gas cylinder rose by 0.26% while the price for refilling a 12.5kg gas cylinder fell by 0.23%. In line with expectation, zonal disaggregation shows that the three northern regions – North Central, North West, and North East – recorded above-average retail prices for refilling gas in February while the southern regions recorded prices below the national average (see table 1 below).   

Table 1: 

We attribute the rising cooking gas prices to the low domestic supply (imports account for roughly 65% of the country's LPG consumption) and issues related to the imported component, such as VAT reimposition and forex shortages. Stakeholders believe that doubling domestic gas processing capacity and expanding existing infrastructure projects would slash prices and increase LPG adoption by two times the current levels.

GCR Projects that Firms will Increase Corporate Debt Funding in 2023

In the GCR’s Nigeria’s Debt Capital market report, corporate debt issuance is expected to remain robust in 2023. In 2022, corporate debt issuance grew by 133% to N1.5trn despite the rate hikes and rising yields; treasury bill yield rose from 5.4% (365-day) to 14.5% in October 2022. Nigerian corporates sought to fund working capital through bond issuances and commercial papers (CP), given that the average valuation yield of 12.5% as of February 2023 compared to the average prime lending rate of banks at 13.67%. The cheaper funding source coupled with the cash redesign policy has nudged firms to issue debt instruments, especially CPs as treasury bill yields fell in Q1 2023. The rating company also stated that the advent of Basel III regulations will make Nigerian banks need to issue additional Tier 1 and Tier 2 debt capital and the liquidity coverage requirement will make the banks demand high-quality liquid assets (HQLAs) which favour corporate debt instruments. Local analysts agree that corporate debt issuances will increase in 2023 as the Central Bank of Nigeria’s Monetary Policy Committee’s (MPC’s) hawkish outlook suggests higher future lending rates.  

Bitcoin, Crypto Prices Dip as Binance Faces CFTC Lawsuit for Operating Illegal Platform

The prices of Bitcoin and other major cryptocurrencies had gone bearish before trouble started between Binance and U.S. Commodity Futures Trading Commission (CFTC). Binance was slapped with a lawsuit by the U.S. regulators accusing the world’s largest crypto exchange of flouting compliance laws and offering illegal derivatives products. A fresh lawsuit from the U.S. Commodity Futures Trading Commission (CFTC) states that Binance encouraged employees and customers to bypass compliance controls, and likely engaged in insider trading by operating some 300 house accounts that were tied to the CEO of Binance. The crypto market has reacted negatively to the news with a massive drop in the price of Bitcoin BTC and other altcoins. The 3.7% drop in the price of Bitcoin BTC sees Bitcoin trading at US$26,938.09 and 2.9% decline in global market capitalization to US$1.17trn. Analysts think that this is the time that the digital asset world rises to comply with different national jurisdictional laws on digital assets to avoid another crypto market collapse (see chart 2 below).

Chart 2: