In the week under review, American billionaire and philanthropist, Bill Gates, expressed concerns over the lack of progress in Nigeria’s economy, noting that the country’s revenue-to-GDP ratio was stronger 15 years ago. Speaking at a National Executive Council meeting held at the State House in Abuja, Gates emphasised the need for the Federal Government to refocus its spending on healthcare as a strategy to rejuvenate the economy. Despite the current financial challenges, he underlined the importance of investing in Nigeria’s most valuable resource—its people. To the astonishment of many, Mr. Gates expressed the view that Nigeria should consider increasing tax collection.
The week opened with a liquidity position in excess of N570 billion on Monday and closed with a deficit of about N270 billion. At the NAFEM window, the Naira traded as high as N1,665.00 on Friday and as low as N1,410 on Thursday. At the end of the week, however, we saw the market close at N1593.32.
At the OMO auction held at the beginning of the week, the direction was consistent with the last auction, a decline of 9 basis points (from 21.89% to 21.80%) was observed for the 364-day tenor, which was also the only tenor sold at the OMO auction. Excess system liquidity was mopped up at the end of the auction and the interbank market remained short for the rest of the week.
TENOR | AUCTION DATE | OFFER (₦’B) | BIDS (₦’B) | RANGE OF BIDS (%) | STOP RATES (%) | PREVIOUS STOP RATES (%) | TOTAL SALE (₦’B) |
85-DAY | 02-09-2024 | 25.00 | NIL | NIL | NIL | 18.4890 | NIL |
183-DAY | 02-09-2024 | 25.00 | 33.50 | 21.7800-21.7800 | NIL | 19.2880 | NIL |
365-DAY | 02-09-2024 | 450.00 | 644.50 | 21.4300-21.8500 | 21.8000 | 21.8900 | 495.60 |
On Wednesday, the first NTBs (Nigerian Treasury Bills) auction for the quarter was conducted. The total amount on offer was over N233 billion and over N1 trillion was recorded as subscriptions across all tenors. It was observed that on a few occasions, the amount allotted was equivalent to the amount on offer. The range of bids climbed as high as 30.0000% for the 364-day tenor. The 91-day closed at 17.00% (with a decline of 120 basis points), the 182-day closed at 17.50% (declining by 170 basis points), and the 364-day closed at 18.94% (with a notable decline of 196 basis points).
AUCTION DATE | 04-09-2024 | 04-09-2024 | 04-09-2024 |
ALLOTMENT DATE | 05-09-2024 | 05-09-2024 | 05-09-2024 |
MATURITY DATE | 05-12-2024 | 06-03-2025 | 04-09-2025 |
TENOR | 91-DAY | 182-DAY | 364-DAY |
OFFER (₦) | 19,605,970,000 | 10,554,288,000 | 203,153,245,000 |
SUBSCRIPTION (₦) | 41,743,235,000 | 17,966,804,000 | 1,069,707,310,000 |
ALLOTMENT (₦) | 7,860,385,000 | 1,990,728,000 | 223,462,390,000 |
STOP RATES (%) | 17.0000 | 17.5000 | 18.9400 |
PREVIOUS RATES (%) | 18.2000 | 19.2000 | 20.9000 |
The decrease in rates for the NTBs auction was quite notable, while a slight decrease was noted in the OMO (Open Market Operations) auction. Lower yields on these instruments may indicate that the DMO is confident about raising the funds required by the government through its local Eurobonds issuance.
From the foregoing, the decline in rates could have significant implications in the forthcoming bond auction which may likely lead to increased demand for bonds, both at the forthcoming auction and in the secondary market. This decline could result in lower yields for new bond issuances, rising bond prices in the secondary market, and heightened trading activity as investors adjust their portfolios to navigate the evolving interest rate environment.
In addition, a successful bond auction with lower yields would reinforce the broader trend of declining interest rates in the fixed-income market, encouraging more liquidity in the secondary market. Market participants may be driven to trade bonds more actively, seeking opportunities in a low-yield environment. The increased secondary market activity could enhance price discovery and market depth, making it easier for investors to enter and exit positions.
In a different development, contrary to Bill Gates’ position on taxation, the Global System for Mobile Communications Association (GSMA) has called on the Nigerian government to lower taxes in the telecommunications sector to stimulate investment and promote digital economic growth. In a report by Angela Wamola, Head of Sub-Saharan Africa at GSMA, she explained that the country’s complicated tax scheme is stifling the expansion of its telecom industry. With rising operational costs, driven by soaring energy prices and challenges in accessing foreign currency for importing essential equipment, she stated that telecom operators are under immense pressure.
Meanwhile, investment of pension assets in Federal Government securities rose by 19% year-on-year, climbing from N11.03 trillion in July 2023 to N13.18 trillion in July 2024, according to a report from the National Pension Commission (PenCom). Worth noting is the fact that this growth proves the steady returns and perceived confidence of government securities within the broader pension fund portfolio. Additionally, other asset classes such as private equity investments, have experienced significant growth, further diversifying pension fund investments.
Last week, Dangote Refinery produced its first batch of petrol. The news was followed by NNPC announcing that it will sell its petrol at N868 (at some locations in Lagos State) and as high as N930 in other parts of the country. Although the CBN had somewhat signaled an eased monetary policy stance by limiting interest earned at the SDF window, inflationary pressures and FX will inevitably be major considerations at its MPC scheduled for the 23rd and 24th of this month given the recent spikes in FX rates and impact of higher oil prices going forward.
The DMO is expected to announce results from its first local Dollar bond auction. The auction is expected to be oversubscribed as it was observed that the DMO borrowed lower amounts in Naira.
Despite views that the local Dollar bond issuance and potential 50 basis points cut by the US Federal Reserve at its September meeting will drive a rally for emerging market investments, the outlook might remain predominantly bearish for Nigerian markets which have seen a significant drop across the yield curve. Oil prices and cryptocurrencies are expected to trade within tight bands given global uncertainty amidst a broad array of considerations (in some cases, too much to consider).
