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Old Notes Circulation Fails to Change Q1 2023 GDP Forecast as NUPRC Initiative Expected to Boost Oil Field Development

Mar 15, 2023   •   by TheAnalyst, Proshare Research   •   Source: Proshare   •   eye-icon 290 views

Being an Analyst Note issued by Proshare Research on March 15th, 2023

 

Re-circulation of Old Notes Fails to Alter Lower Q1 GDP Growth Forecasts

Following the CBN’s directive to Deposit Money Banks (DMBs) to reintroduce the old N500 and N1000 notes, observers have noted improvements in the rate of acceptance of the old banknotes by banks, filling stations, and in markets.  Automated Teller Machines (ATMs) have also begun to disburse the old notes. The Supreme Court had on March 3, 2023, ruled that the Central Bank of Nigeria should extend the deadline of its Currency Swap Policy to December 31, 2023.  In the period between December and January, the Central Bank of Nigeria (CBN) mopped up a total of N1.78trn of currency outside of bank vaults. 

 

The implication was a severe reduction in the volume of trade and commerce reflected in the 44.7 Purchasing Managers Index (PMI) for February 2023 indicating the sharpest decline in business activity in the history of the data series. While Analysts are upbeat about the implications of the recirculation of the old N500 and N1000 notes they observe that the deed may have already been done with most GDP growth forecasts coming in between 1% and 2% due to the adverse impact of the demonetization policy. A strong performance by the services sector helped the economy manage a 3.52% real GDP growth in the final quarter of 2022 (see table 1 below).

 

Table 1: 

 

NUPRC Initiative to Spur Oil Field Development 

The Nigerian Upstream Petroleum Regulatory Commission (NUPRC) says it is planning a production-based lending engagement to assist license awardees of the 2020 Marginal Field Bid Round in obtaining the needed funds.  According to the NUPRC CEO, Engr. Gbenga Komolafe, the engagement would be between the Commission, Petroleum Production Licence (PPL) Awardees, Exploration and Production (E&P) service providers, and Nigerian Banks. 

 

Analysts have argued that the development of marginal oil fields in Nigeria has been hampered by the low level of support infrastructure, funding constraints, high operational and capital expenditure, policy ambiguity, and institution lapses. Thus, the recent move of the upstream regulator, in addition to its earlier engagement and mediation with oil field awardees on governance and regulatory requirements, would spur the development of many oil fields subject to investors’ optimism about the Nigerian oil and gas industry. Analysts believe the regulator should also prioritize resolving the legacy concerns, which have been inhibiting investment in the fields, such as infrastructure vandalism, oil theft, and host community issues.

 

FX Demand to Spike as Banks Slash PTA and BTA to US$2,000

As the country grapples with insufficient FX inflow resulting in a smaller foreign reserve of US$36.19bn on March 13, 2023, from US$41bn as of December 2021. The accessibility of the dollar in the country for average Nigerians to cater for schooling and business purposes will continue to thin out. The process of receiving Personal Travel Allowance (PTA) and Business Travel Allowance BTA has been adjusted again as FX scarcity worsens. Nigerian banks have reduced the quantity of dollars available to PTA customers by 50% from US$4,000 to US$2,000 and BTA by 60% from US$5,000 to US$2,000. Also, the payment of school fees is subject to a maximum of US$7,500 each twice in a year and the processing time is now raised to a minimum of 16 weeks after approval. Analysts mull that the recent development will further pressure the local currency as the demand for dollars at the parallel market will spike, leading to a depreciation of the naira. 

 

NGX and SEC Collaborate to Support Capital Market Access by Free Trade Zone Companies.

NGX announced during the NGX Group investors and analyst conference call its plans for the 2023 financial year to collaborate with SEC to enable companies in Free Trade Zone areas to access the Equity market. Analysts believe the collaboration of regulatory bodies to enable a conducive and free market environment would attract investors and more listings in the equity market. NGX's CEO, Mr. Temi Popoola, stated that the Exchange is working extensively with the apex regulator to enable companies within the tax haven zone such as the Dangote refinery and others, to assess the capital market and raise funds, while also expressing the board's willingness to work with the new government to drive revenues and improve liquidity. By implementing the right approach and technology infrastructure in the capital market, analysts anticipate an increase in market participation and foreign investment, which could help ease pressure on the money market.

 

Deal Activity on the Rise as Fairmoney Acquires Payforce

FairMoney, a Nigerian digital banking platform, has acquired PayForce, which implies that FairMoney will now be able to offer payment services to small businesses in addition to their existing services. The transaction was completed for an undisclosed sum, but insiders estimate it to be between US$15 million to US$20 million.    The acquisition is part of FairMoney's strategy to broaden its offerings beyond credit-based digital banking. FairMoney is also said to be in talks with new and existing investors to raise about US$30 million to fund further acquisitions and expand its African operations.

 

Growing deal activity in Nigeria, particularly in acquisitions, has been aided by a combination of domestic and cross-border activity. Data from Techcabal reveal a rising trend in 2022 compared to 2021, with African companies weathering the funding slowdown through acquisitions. Overall acquisitions surged to 43 deals by Q3 2022 compared to 32 reported in FY 2021. Analysts foresee greater acquisitions as the funding slowdown continues due to restricted funding options, rising interest rates, and lenders’ increasingly cautious attitude towards funds disbursement. Companies should capitalize on this as it will bolster innovation and growth in the Nigerian market.

 

Filecoin Virtual Machine Launches Smart Contracts

The decentralized storage platform Filecoin announced the launch of the Filecoin Virtual Machine (FVM) on the mainnet blockchain. The FVM launch will add smart contracts and user programmability to the Filecoin blockchain, unlocking the enormous potential of an open data economy. Notably, the Filecoin Virtual Machine (FVM) would enable developers to write and deploy custom code to run on the Filecoin blockchain which would unlock the enormous potential of an open data economy. Filecoin Virtual Machine has some interesting features that would improve the utility and value of the network, democratizing the services of centralized cloud into open access markets. 

 

Analysts are of the view that the Nigerian government can adopt the blockchain virtual machine to address budget-related corruption, a scenario where all transactions and expenditures will be saved and everyone in the network will be alerted once there is an update. Meanwhile, the excitement of Filecoin Virtual Machine (FVM) arrival has already boosted the trading activity of Filecoin (FIL) crypto in the last 24hrs, the FIL price surged to US$7.47 but currently trading at US$6.85 (see chart 1 below).

 

Chart 1:

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