Nigeria in 2022 was between a crisis and a puzzle. Gross domestic product (GDP) started at a spritely pace at the beginning of the year a sputtered like a spent candle by Q4. The country’s domestic inflation rate was less charitable as it started to climb a rocky mountain from Q1 2022 until Q4 when it rose to 21.47% by November. Stalling GDP growth with spiking headline inflation rates nudged the Central Bank (CBN) to tighten monetary policy by raising monetary policy rates (MPRs) from 11.5% at the beginning of the year to 16.5% by year-end. Troubled by rising inflation and the widening budget deficit accompanied by a rising debt profile, the fiscal and monetary authorities have taken the last stand, insisting on adopting policies that go against the grain of common economic wisdom. The fiscal authorities have piled on the debt (like Ghana), while the monetary authorities have primed the spending pump by covering the government’s oversized fiscal expenditure by Ways and Means accommodation in what some analysts have considered a brutal violation of section 38(2) of the Central Bank Act.

The sluggish GDP growth had an impact across different sectors of the economy from technology to the banking and finance sector, the fast-moving consumer goods (FMCGs) sector, the Oil & Gas sector, and the fixed-income securities market. The selection of stories below represents a few of the original Proshare articles for the year 2022 that paints a picture of a year full of bluster and brigandage speckled with unique sectorial insights.

Back in March when party politics took center stage, and the plots to choose the Presidential candidates of various political parties thickened, Governor of the Central Bank of Nigeria (CBN), Godwin Emefiele was rumoured to be vying for the office of the President. In this editorial, Proshare stated that the CBN's role as the principal signalling agency for monetary policy action influencing macroeconomic activity requires that whoever occupies the position of CBN governor must be technically skilled, professionally committed and administratively focused, ethically responsible and morally principled. In that light, it was our view that the CBN governor could be interested in a political office, as was his right, however, he should first:

• Clear out his desk, prepare his hand-over notes and resign as the CBN governor to respond to what he perceived as a higher calling; and
• Explain his intentions to his audiences and thereafter contest the primaries of a political party of his choice; and win or lose such primaries under the INEC rules. 

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In April, Proshare examined the running battle for supremacy between Nigerian Banks and Fintech companies. Proshare Analysts noted that the financial ecosystem was evolving to ensure that banks and their fintech rivals look for grounds where "co-opetition" (collaborative competition) improved earning outcomes for each type of organization. Even telcos were barging into the new digital battlefield with telecoms giant, MTN, spinning off its fintech operations into a separate business and providing it with the support to build products and services that increased financial market penetration. The convergence of digital payment systems, social media, mobile telecoms devices and retail services created a bustling metaverse requiring new rules of corporate engagement. The digital world was where place gave way to space (see illustration 1 below). 

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In a bid to plug the large fiscal hole in the 2023 budget, the Federal Government contemplated the introduction of a 20% Ad Valorem tax on Manufacturers of carbonated soft drinks.  In this article, Proshare argued that carbonated 'soft drink' makers in Nigeria would face a severe downturn in fortune were such a tax to be introduced. For some players, an existential challenge by 2023 will occur if the Federal Government plans to introduce an Ad Valorem or percentage tax of 20% on fizzy drink products. The new tax bite could affect companies like the Nigerian Bottling Company (a local subsidiary of Coca-Cola), 7-Up, Rite Foods (makers of Bigi drinks), and Nestle Nigeria. 

Market analysts noted that the new ad valorem or value-added tax would put severe downward pressure on sales. Analysts forecast that sales would decline by an estimated -16%. The weighted industry average decline in volume as of the third quarter (Q3) 2022 was -10%. The tax would also increase the stock of finished goods in warehouses and raise input costs. For example, manufacturers' data show that the plastic raisins needed to produce PET bottles will have increased by +40% in 2022, up from the +36% as of Q3 2022 (see illustration 2 below).

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In this piece, Proshare considered the need for Nigerian corporations to flex their artificial intelligence and machine learning (AI/ML) credentials in 2022 as consumers tighten their criteria for making spending decisions. Also, as younger consumers become more deliberate or less emotional about their choices, the rampant binge buying of a decade ago would be confined to the grubby pages of history. Generation Z was, until recently, known for its fast and furious buying sprees. As the new gizmos elicited a rush of blood to the head, students and young adults instinctively bought new phones, laptops, wristwatches, shoes, dresses, bags, and cars in response to social media buzz rather than functionality (see illustration 3 below).

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In this piece, Proshare addressed the fact that very few Nigerian banks are priced at values equal to the liquidation value of their underlying assets. Banks were priced based on investors' wild whims and wobbly expectations. But why? Like the sands of the Sahara, Nigeria's equity market moves in mysterious ways.

Stockbrokers asked about local banks' relatively low price-to-net asset value (NAV) listed on the Nigerian Exchange Limited (NGX) come with explanations that confirmed confusion rather than established conviction. One of the brokers questioned concerning bank net asset valuation noted that "nobody can tell why prices are low relative to net assets. A general notion is that bank loan asset qualities are black boxes and trying to value bank loan assets is like figuring out how water gets into coconuts. The market simply discounts loan assets, and the higher the loan assets as a proportion of total assets, the lower the likely price to book value " (see illustration 4 below)

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In this writeup, Proshare Analysts considered the implications of the CBN’s Cash withdrawal policy. Analysts argued that the policy which was a follow-up to the Naira Redesign Policy of the Apex bank would have some unintended consequences.   In an earlier article titled: Understanding the CBN's Decision to Redesign Banknotes: The Hard bite of Unintended Consequences, the report stated that the restriction on the amount withdrawable weekly for private and business spending, would require Fintechs and payment switches to up the ante. At any rate, the policies would result in a wider adoption of USSD-enabled transactions powered by feature phones as well as a wider adoption of Point of Sale (PoS) systems to accept payment (see illustration 5 below).

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In its banking sector report titled “Nigerian Banking Industry: The Case for Redefining Tier 1 Banks,” Proshare noted that FBNH may have been knocked off its tier 1 pedestal based on newly introduced matrices. However, in this follow-up commentary, FBNH, one of the traditional five Nigerian banks within the previous tier 1 banking institutions’ measurement, moved up for 4 spots.

In the report, FBNH dropped to the 12^th position in the NGX-listed bank ranking and fell into the tier 2 deposit money bank (DMB) category. However, the report noted that the analysis was based on the bank’s Q3 2021 financial statement as against the FY 2021 financial statement of other bank lenders. Proshare, therefore, notes that with the recent release of the Holdco’s FY 2021 and Q1 2022 financial statements there was a need to review the report’s ranking outcome (see illustration 6 below)

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Following media headlines that suggested Zenon Petroleum & Gas Limited had petitioned a Federal High Court in Lagos to wind up Ardova Plc over an alleged US$6m debt, Proshare analysts engaged market entities related to the matter to establish clarity and understanding, from an investor’s perspective.

In an earlier article titled: Zenon Petroleum vs Prudent Energy: Beyond the Noise, Proshare Analysts reported that Ardova Plc had issued a press statement repudiating news reports of a charge to wind up Prudent Energy and Services Limited (PESL) over an alleged inability to pay a US$6m debt presented to the Federal High Court by Zenon Petroleum and Gas Limited (Zenon). Ardova had stated that there was no claim against it as a corporate entity. The company represented that the issues were between two old and new shareholders concerning claims and warranties under a Share Purchase Agreement (SPA) between Ignite Investments and Commodities Limited (Ignite I&C Ltd) and Zenon with its affiliates. The warrants issued were for acquiring shares in the old Forte Oil Plc (now Ardova Plc) (see illustration 7 below).

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9. Nigeria records 3.54% GDP growth in Q2 2022, Electricity Buckles Despite CBN Interventions

In this report, Proshare Analysts examined the GDP growth figures for the second quarter while questioning the effectiveness of the concessionary lending of the CBN to the Electricity sector. Under the Nigeria Electricity Market Stabilization Facility – Phase 2 (NEMSF-2), CBN's cumulative disbursement currently had reached N254.46 bn, while under the National Mass Metering Programme (NMMP), the Bank had disbursed N47.82 bn for the procurement and installation of 865,956 meters across the country in 2022 alone. Despite these, the Electricity sector contracted by -11.48% in Q2 2022, even more than it contracted in Q1 2022 by -11.2%.

The overall economy recorded a +3.5% real GDP growth in Q2 2022, surpassing analysts' forecasts. The economy had grown by +3.11% in the first quarter making a +3.32% growth in H1 2022. Last year, the GDP growth averaged +2.27% over the first two quarters (H1 2022). The better-than-expected Q2 2022 figures came in despite the 150bp hike in the Monetary Policy Rate (MPR) in May. Projections had come in lower than +3% on the back of unprecedented levels of Inflation which affected household spending and new investment (see illustration 8 below)

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