Being an Analyst Note issued by Proshare Research on January 3rd 2023

Fuel Queues Persist but Optimism of Supply Restoration Buoys Marketer Confidence 

Against analysts' expectations of a moderation in fuel scarcity after the seasonal holiday, fuel queues at filling stations have persisted across the country. However, the National Operations Controller of the Independent Petroleum Marketers Association of Nigeria (IPMAN), Mike Osatuyi, disclosed that there was no more fuel scarcity in the country, but the continuous price differential creates fuel queues at stations selling below N200 per litre. Available evidence suggests that NNPC Ltd retail outlets are selling petrol at around N179 per litre, major marketers selling at about N180 per litre, while independent marketers are selling above N200 per litre. Analysts remain optimistic that the scarcity will ease in days as independent marketers registered with the NNPC retail, getting the products at the regulated ex-depot price of N148 per litre. 

Nigeria’s Energy Sector May Not Achieve Vision 30:30:30

According to the latest data on electricity generation in Nigeria, available generation capacity in Nigeria's power sector dropped in 2022, crashing from 6,336.52MW in 2021 to 5,346.82MW. The fall was despite earlier optimism expressed last year by the Ministry of Power that the first phase of the deal with Siemens AG would deliver 7,000MW by 2022 and 25,000MW by 2025. Under the vision 30:30:30, the Ministry of Power also targets electricity generation of 30,000MW by 2030. With average annual power generation at just 100MW, however, Analysts note that unless urgent steps are taken to improve power generation by onboarding the private sector, the 2025 and 2030 targets will be left unmet. Analysts also say that the mounting annual capacity payment loss of N1.8trn over the nine years 2015 – 2022 suggests that the demand for public power is dropping as more businesses and households have opted for privately generated electricity which is steadier and more reliable (see chart below).

Chart:

Analysts Call for Review of Security Strategy in the Oil & Gas Sector

In line with the ongoing efforts to curb crude oil theft, NNPC Ltd, in collaboration with its private security contractor and government security, has arrested and destroyed a barge loaded with stolen crude oil and a filling station dispensing the illegal fuel. The NNPC Ltd disclosed that it arrested the MT Brighton 1 barge at one of the creeks running into the Ramos River in Agge Community, a village between Delta and Bayelsa states. Analysts questioned the immediate destruction of arrested vessels, noting that security surveillance agencies are often quick to destroy evidence. They noted that the quick destruction of arrested vessels would not deter crude oil thieves as the gains from the theft outweighed the cost of building vessels. They also expressed worries that the project is yet to finger or publicly prosecute any culprit.

DMO Lowers Borrowing Rates for FGN Savings Bonds in 2023

January 2023 FGN savings bond commenced today to close on January 6, 2022. The interest rate for the 2-year tenor at 9.60% and 3-year at 12.60% per annum are lower than the December interest rate at 12.255% and 13.255%, respectively. The coupon payment will be quarterly on April 11, July 11, October 11, and January 11. Investors can subscribe with a minimum of N5,000 to a maximum of N50,000,000. Analysts expect the decline in interest rates to affect investors' subscriptions slightly.  

Equity Market Could Reverse Bullish Trend in Q1 2023 Say Analysts

The Nigerian Equity Market ended 2022 on an impressive bounce as investors increased their buying interest, closing the year at 51,251.06 index points representing a Year-to-date of 19.9%. Despite the economic challenges characterised by a 34.86% increase in inflation Year-on-Year, with inflation closing at 21.47% and a 500-basis point increase in MPR by the Central Bank in the year under review, the equity market exceeded analysts' expectations with the Stock Market value stood at N27.9trn, a gain of N5.618trn in market capitalisation in 2022. 

Analysts note that institutional investors dictated the pace of the equity market as they are required to diversify their portfolio to include the equity market. However, despite the impressive performance in the equity market, analysts have expressed mixed feelings over 2023. The market will likely experience two administrations, with the present one looking to hand over by May 29. Analysts expect sell-offs as the country gear towards the election period. Investors would want to remain liquid to show support for their preferred candidate. It is believed that if the upcoming elections are conducted on a free and fair basis, stability will return, and investors will re-enter the market. 

Africa to Become the Go-to-Source for Rare Earth Minerals from 2023

Rare earth elements (REE) are used in various industrial applications from electronics to clean energy and defence. Its use is largely for magnets, catalysts, and polishing. As demand for rare earth increases, China still seems to be the primary beneficiary of the sale of rare earth elements, given that the country holds about 60% of global production. With countries trying to reduce their reliance on China's output, African countries could leverage this to increase their share in the global market. The Steenkampskraal mine in South Africa is said to have the highest grade of REEs in the world, containing about 15 REEs. This gives South Africa hope to become a significant supplier in the global market, especially after setting a US$900m annual mineral exploration target. Africa's mining budget has largely dropped over the years, affecting the amount of REE produced in Africa (see chart 2 below). 

Chart 2: 

Analysts considered it ideal for the countries to not depend only on mining and selling rare earth but to get the primary products and improve their production into finished or semi-finished goods. The only issue is that many African countries like Nigeria do not have enough finances to take up that kind of investment.

Sun King's Series D jumps 27% with LeapFrog investment

LeapFrog, a private investment firm, has invested US$70m in Sun King's latest Series D fund bringing the total amount raised for this round to US$330m. Sun King is Africa and Asia's leading supplier of solar energy products for off-grid homes. This deal supports analysts' forecast that impact-investing activity will gain more traction in the region in 2023. The alternative energy scene is an attractive playing ground for fund managers, particularly given that Africa has 60% of the world's finest solar resources and the Agenda 2030 net zero carbon emissions deadline. Strong fund managers will continue to invest in long-run interest-accruing assets, which may take the shape of solution-driven companies in Africa.