FDC - Executive Breakfast Monthly Review - Cctober 2015 - Naira Pressure Continues

1. MONTHLY ECONOMIC NEWS AND VIEWS
October 13, 2015
by
Bismarck J. Rewane
Naira Pressure Continues
Presented at Lagos Business School

2. 2
Outline
September Highlights
Global Economic Update
Domestic Economic Performance
Commodity Update
Capital Markets
Policy & Politics
Outlook for October

3. IT’S SHOWTIME

4. 4
All the President’s men - Dream team or lightweights?
 After 125 days Buhari submits a list of ministers to the
Senate
 A few minutes to the September deadline
 Delay was more from assuaging internal squabbles within
the APC
 Aggrieved Senators have been waiting gleefully for their
pound of flesh
 Screening of the ministers will be a circus

5. 5
September Highlights – GDP is down and falling
 Indications for Q3 GDP growth is that Nigeria is in
stagflation
 GDP growth estimates are for 2.5%
 Higher than initial consensus forecasts of 2%
 Principally because of improved power supply
 Agric. output is also expected to be strong in Q3

6. 6
Power is up and stable
 National grid output in September up to 4,500MW
 Due to higher rainfall and hydro output
 Also due to steadier gas supplies from Escravos and
other fields
 Oil production in September averaged 1.86mbpd
 This is 0.2% above the average in Q2
 Combined with the 23.52% decline in oil prices this is a
major revenue blow

7. 7
Government revenue holding up
 Revenue shared by the 3 tiers of govt., FAAC, is holding
up strongly at N442.6bn
 No new unemployment data, but estimates suggest higher
rural and urban unemployment
 The FBN purchasing managers index which measures
investor confidence recovered to 51.6
 Higher inventory levels due to forex availability fears
 A reading above 50 signals growth
 CBN Governor warned of a possible decline into a
recession

8. 8
Oil price crosses $50 pb again
 Brent oil price stayed below $50pb throughout
September at an average of $48.66pb
 Average for August and September was $48.51pb
 8.47% below the benchmark of $53pb
 Meaning no accrual into the Excess Crude Account
 External reserves declined by 3.03% to $30.3bn
 External reserves cover was flat at 4.94 months

9. 9
It’s Showtime
 The naira firmed up at the forex cash market to N225/$
 Transfers are trading at N240/$
 The CBN disallowed banks from accepting dollar cash
deposits
 And made the importation of 41 items ineligible for forex
transactions
 Banks complained of significant delays by the CBN in the
settlement of forex transactions
 Building up a backlog of arrears on letters of credit

10. 10
Nigeria delisted
 J.P Morgan delists Nigerian Bonds from the Emerging
Market Index
 Broad Money Supply shrank by 2.23% in August
 On an annualised basis, the Money Supply contracted by
3.34%
 TheTreasury Single Account sent shock waves through
the money markets

11. 11
Naira saturation
 The Interbank market froze for 2 days, sending interest
rates through the roof
 The MPC promptly reduced the CRR from 31% to 25%
 Unlocking approximately N700bn of sterilized bank
deposits
 Bringing interest rates sharply lower to 0.5% p.a.
 Inflation increased to 9.3% in August
 Driven both by cost-push pressures and shortages of
banned imports

12. GLOBAL ECONOMIC UPDATE

13. 13
Faltering global recovery
 The international financial community gathers in Peru for
theWorld Bank meetings
 Amidst fears of a faltering global recovery
 And uncertainties as to when the Fed will start increasing U.S.
interest rates
 The IMF in its fall report is forecasting a deceleration in the
global recovery
 Has cautioned commodity dependent economies to adopt
market friendly policies
 As a counterbalance for cyclical downturn

14. 14
Emerging markets diverge
 Emerging markets and advanced economies moving in
opposite growth directions
 TheVolkswagen emission control scandal leads to the
CEO being fired
 Sending its stock price tumbling
 Glencore, the commodity trading giant, saw its stock
price crash
 After analysts warned about the debt level on its balance
sheet

15. 15
Deflation in the EU
 The Eurozone dipped back into deflation as inflation fell
by 0.1%
 Inflation has been below the ECB target of 2% for more
than 2 years
 The European PMI shrank from 54.3 to 53.9 in
September

16. 16
China flat-lining
 Chinese economy on track to expand 7% in 2015
 Slowest pace in 25 years
 Slowing manufacturing and a depressed equity market
likely to limit Q3 growth to 6.4%
 China is being advised to embrace a consumer driven
growth strategy
 Chinese imports have fallen by 20.4% to $145.2 billion
 Leading to softness in global commodities
 Outlook for global economy dampened
 Chinese growth to pick up in Q4
 Stimulus measures and higher government spending to take
effect

17. SUB SAHARAN AFRICA

18. 18
African growth shrinks
 African growth likely to decelerate to 3.7% in 2015 amid
falling commodity prices – World Bank
 From 4.2% initially projected and 4.6% in 2014
 Will be the only developing region to miss global poverty
reduction targets
 Terms of Trade deterioration estimated at 18.3%
 About 40% for oil exporting countries

19. 19
African growth shrinks
 Lower oil price has helped reduce inflation
 Policy adjustment to the adverse terms-of-trade shock will
be especially challenging in countries with depleted policy
buffers
 Regional inflation is an average of 6.9%

20. 20
Post Conflict Economies Growing Faster
 Ethiopia, Ivory Coast, Mozambique, Rwanda andTanzania
likely to achieve annual growth rates of above 7%
 Driven by investments in energy, transport and consumer
spending
 To mitigate impact of new shocks,World Bank
recommends
 Improvement in efficiency of public expenditures
 Strengthening tax administration

21. 21
South Africa – Fears of a recession are real
 Growth forecast revised downwards for the second
consecutive month by the EIU
 From 2% to 1.8% in 2015
 And from 2.5% to 2.2% in 2016
 Growth constraints include:
 Serious power shortages
 Declining demand and prices for key mineral exports
 Rising interest rates
 Downturn in tourism – stringent new visa regulations
 Policy uncertainty
 Renewed concerns over Chinese economy weighing on
the rand
 Has lost over18% so far this year

22. 22
Ghana – Woes ahead of elections
 GDP growth to remain subdued in 2015 at 3.4%
 High inflation will dampen consumer and business
confidence
 Annual inflation of 16.9% expected in 2015
 The cedi will continue to suffer from volatility in the
coming months
 Growing disillusion with economic situation main threat
to economic stability
 The EIU expects further protests against the
government’s management of the economy
 Presidential and legislative elections will hold in Dec
2016

24. CommoditiesCOMMODITIES

25. 25
Commodity Prices in September
 The Bloomberg Commodity Index (BCOM) declined by
2% in September from August
 Volatility in oil prices driven by news from China and
production data from US
-20.00% -10.00% 0.00% 10.00% 20.00% 30.00%
WTI ($/b)
Natural Gas ($/MMBtu)
Silver ($/ounce)
Sugar (US cents/pound)
Rough rice ($/cwt)
PalmOil ($/tonne)
m-o-m change

26. 26
Commodity Prices
 The EIU expects agricultural prices to stabilise in 2016
 After falling for a 4th consecutive year in 2015
 The food, feedstuffs and beverage price index will fall by
17.9% in 2015
 When adjusted for the devaluation the impact on
domestic inflation is only 9%

27. 27
Global Oil Prices remain Low
 Brent crude declined 9.9% to an average of $48.66pb in
September
 From $54pb at the end of August
 Despite reports of slower drilling activities in the US
 New fears from Russia and U.S. airstrikes on Syria
 Weakness in China continues to linger
 OPEC still struggling to battle for market share despite
widening fiscal deficit in member countries

28. 28
Soft Commodities
 Agric. commodities up 8% on average in September
 Gains led by:
 Sugar: 20.5% up m-o-m
 Palm Oil: 9.4% up m-o-m
 Wheat: 5.7% up m-o-m
 Due to adverse weather conditions including drought in
India and haze in Indonesia
 Increasing fears that supply of crops might be affected

29. 29
Outlook and Impact - October
 Low correlation between changes in commodity prices and
movement in stock prices of FMCGs
 Stock prices have been driven majorly by negative investor
sentiments and weak corporate earnings
Share Price(N) as at
30th Sept. 2015
m-o-m (Aug/Sept) YTD (Jan-Sept.)
Nestle 869.99 3.57% -12.62%
Cadbury 24 -15.97% -40.00%
Guinness 156.51 12.61% -5.32%
NB 147 21.00% -9.82%
Honeywell
2.68
9.84% -22.54%
Flourmills 22.21 -8.03% -43.25%

30. 30
Outlook and Impact - October
 Pacific Investment Management Co. (PIMCO) say that
the worst collapse of commodity price is probably over
 In the first week of October, commodities experienced
biggest leap in prices since 2012
 Bloomberg Index advanced 3.9% in the week starting on the
5th of October
 The recent fall in commodity prices is not justified by
the fundamentals

31. 31
Domestic Commodity Spot Prices Today
Commodity Current Prices (50kg)
LAGOS
Current Prices
(50kg)
KANO
Current Prices
(50kg)
ONITSHA
Cement N1,700/bag N1,650/bag
Cassava (Garri) N6,000/bag N5,000/bag
Maize N2,650/bag N2,300/bag
Flour N6,000/bag N6,300/bag N6,800/bag
Sugar N6,000/bag N10,000/bag
Rice N9,000/bag N10,000/bag
Palm Oil N6,300/litre (25L) N5,500/litre (25L)
 Domestic commodity prices were flat to falling in
September
 Wheat flour increased in spite of falling world wheat price

32. CommoditiesDOMESTIC ECONOMIC PERFORMANCE

33. 33
Leading Economic Indicators
INDICATORS
August’15 September’15
(Sep/Aug)%
change
October*
Oil Markets
Spot price (avg $’pb) 48.21 48.56 0.73 48.50-49.00
Production (m’bpd) 1.79(Jul) 1.86(August) 3.91 1.89
Money Markets (End Period)
OBB (%)p.a 8.5 5.42 308bps 5.25-5.50
Overnight (%)p.a 9.25 5.92 333bps 5.50-6.00
MPR (%)p.a 13.00 13.00 -- 13.00
CPI ( %) 9.20(July) 9.30 (Aug) 0.1 9.4(Sept)
External Reserves ($’bn) 31.32 30.37 3.03 29.50
Exchange rate (End Period)
Inter-bank (N/$) 198.97 199.08 0.04 199.1
Parallel (N/$) 219.00 223.5 2.01 220.8
Other
Market cap (N’trn) 10.21 10.73 5.09 11.00
FAAC N’bn) 511.8 442.6 13.5 350-400
M2 (N’trn) 18.43 (Jul) 18.51 (Aug) 0.43 18.50-18.70
FBN PMI 49.2 51.6 4.8 -
Vacancy Factor (Residential %) 39 40 1 40
Vacancy Factor (Commercial %) 30 31 1 30

34. 34
FBN Purchasing Managers’ Index
 FBN’s PMI reading increased
to 51.6 from 49.2 in August
 Output sub-index rose strongly
from 43 in August to 55 in
September
 Employment sub-index rose
marginally from 48 to 50
 New orders sub-index rose
from 47 in August to 51 in
September
 Suppliers delivery times sub-
index fell sharply from 61 to 50
 Stock of purchases sub-index
rose from 47 in August to 52 in
September
0
10
20
30
40
50
60
70
Purchasing Managers' Index
August September

35. 35
LEIs – Oil
 Average oil prices rose marginally to
$48.66pb
 0.93% higher August’s average of
$48.21pb
 2.25% below January’s average of
$49.78pb
 50.06% below September 2014 average
of 97.44
 Fiscal revenue is already feeling the
impact of lower prices
 Oil production increased in August
to 1.86mbpd compared to July’s
1.79mbpd
44
45
46
47
48
49
50
51
52
Brent Oil Price ($)

36. 36
Lower Interest Rates
 Aberrational spike to 50% due to
implementation ofTSA before
easing to 5% with FAAC
disbursement
 Average NIBOR (OBB, O/N and
30-day) closed lower at 8.53% p.a.
relative to 11.26% p.a. in August
 Interbank interest rates are likely
to remain below 10% due to
system liquidity
Source: FMDQ, FDC Research
0
10
20
30
40
50
60
01-Sep
03-Sep
05-Sep
07-Sep
09-Sep
11-Sep
13-Sep
15-Sep
17-Sep
19-Sep
21-Sep
23-Sep
25-Sep
27-Sep
29-Sep
Interest rates (%)
OBB O/N 30 day

37. 37
Inflation Inches Up Marginally
 Inflation inched up to a 2-
year high of 9.3% in August
from 9.2% in July
 Due to a rise in the prices of
Healthcare, Alcohol and
Tobacco, Transportation and
Leisure and recreational
activities
 Cost push effect of
depreciation
 September estimate: 9.4%
7.50
8.00
8.50
9.00
9.50
10.00
Inflation (%)

38. Forex Market
 IFEM and IATA exchange rates
relatively stable at N200/$ &
N199.08/$
 Depreciated 2.05% at the
parallel market to N225/$ this
week
 Transfer dollars down to
N235/$
 Exchange rate differential has
widened to N24.42 from
N20.03 in August
38
180
185
190
195
200
205
210
215
220
225
230
235
July August September
Interbank IATA Parallel

39. External Reserves – Depletion Continues
 External reserves declined
3.03% ($950m) to $30.37bn in
September
 Import cover of 4.94 months
of goods and services
 Way below Emerging Markets’
average of 11months
 Reserves depletion rate will
intensify if oil prices fall below
$45pb
Source: CBN, FDC Research
39
31.46
31.32
30.37
29.80
July Aug Sep Oct**
External Reserves $'bn

40. 40
 Misalignment when the value of a currency is outside the
equilibrium path
 It could be arising temporarily or structurally due to balance
of payment shocks
Misalignment of the Naira
150.7 158.3 157.3 157.3
169.7 220.5
230.5
0
50
100
150
200
250
2010 2011 2012 2013 2014 2015* 2016*
Naira to US Dollar Exchange Rate
N/$
* Economist Intelligence Unit forecasts

41. 41
Deteriorating Trade Balance
31.8
35
40.9
43.8
26.8
4.6
0
5
10
15
20
25
30
35
40
45
50
2010 2011 2012 2013 2014 2015*
Trade balance (US$'Bn)
* Economist Intelligence Unit forecasts
 Down from a high of $44 billion to less than $6 billion
 Due to falling oil revenues and sticky import dependence

42. 42
Net Foreign Direct Investment
* Economist Intelligence Unit forecasts
5.2
8.1
5.6
4.4
3.1
1.8
0
1
2
3
4
5
6
7
8
9
2010 2011 2012 2013 2014 2015*
Net FDI (US$'Bn)
 Net foreign direct investment sharply lower
 From a peak of $8.1 billion to a projected $1.8 billion in
2015

43. 43
Economic Indicators
* Economist Intelligence Unit forecasts
-50
-40
-30
-20
-10
0
10
20
30
40
50
60
2010 2011 2012 2013 2014 2015*
Change in export prices (%) Change in import prices (%)
S/N Indicators % change
1 Change in export prices (37.7%)
2 Change in import prices (-7.6%)
3 Terms of trade 30.1
4 Cumulative devaluation 2014/2015 (26%)
Required adjustment 5% (equal to N10)

44. 44
Economic Indicators
* Economist Intelligence Unit forecasts
32.3 32.9
44.2 43.6
34.5
30.3
0
5
10
15
20
25
30
35
40
45
50
2010 2011 2012 2013 2014 2015*
External Rerserve (US$'Bn) Import/Payment Cover

45. 45
What is the true value of the naira?
Naira/$
Analysts’ Projections
Rencap EIU B of A
230 220 220
Value as per PPP
Rencap (SA) 340
FDC 217.91
Rencap (UK) 185

46. 46
What is the true value of the naira?
Oct-02
=N= US $ PPP ('=N=/US$)
Bottle of Coke (50cl) 100 2.65 37.74
Heineken 350 2.82 124.11
Hamburger (Johnny Rockets Nigeria) 2,100 4.59 457.52
Uncle Ben's rice (S. Pkt) 1,585 3.79 418.21
Toyota Corolla 7,300,000 16,950 430.68
Bottled Water (1ltr) 100 1.43 69.93
Big Loaf Bread 300 2.51 119.52
Irish Spring Soap (1 cake) 300 1.31 190.84
Chicken Drumsticks ( 1 kilo) 800 5.65 141.59
Eggs (One dozen) 480 2.54 188.98
Average PPP 217.91
Naira Price at IFEM 199.05
PPP (%)
Decision: Naira is Overvalued 9.48%
Spot Rate (Parallel) 225
Outcome: Compared to official spot rate of N199.05/$1, the Naira is overvalued by 9.48%

47. 47
What can $100 buy in Nigeria? - RenCap
 According to Renaissance Capital, $100 buys almost 50%
less in Nigeria than in SA
 Analysis based on a 31 food and groceries basket, fuel and
two services (a cinema ticket and cable TV)
 Price variance is due to the fact that most items in the
basket where imported and the fact that the naira is
expensive
 In addition, poor infrastructure inflates the cost of production
and transportation
 Lagos is as expensive as UK, but wages and per capita GDP
in the UK is13 fold that of Nigeria

48. 48
What can $100 buy in Nigeria? - RenCap
Source: Rencap

49. 49
Nigeria’s Daily PMS Consumption - FBN Capital
Source: FBN Capital

50. 50
Amount spent on Subsidy
Source: FBN Capital

51. CommoditiesMAJOR POLICY CHANGES

53. 53
Monetary Policy - Outlook
 Fair value of the naira was the “Elephant in the Room”
at the MPC meeting
 The CBN continues to use administrative measures to
manage the currency
 However, it cannot control the price of crude oil
 Oil prices have stayed below $50pb for 6 out of the last
7 weeks
 External reserves are down to $30.37bn
 A currency adjustment more likely if oil price stays
below $50pb through October
 Forex demand will spike as soon as cabinet is in place

54. CommoditiesBUSINESS PROXIES

55. FAAC Allocation Down in September
55
 FAAC allocation shared was
N442.6bn in September
 13.5% lower than
N511.8bn in August
 Revenue loss of $8.6m due to
$5pb decline in oil prices
between June/July
 Expect further loss based on
$8pb decline in oil prices
between July and August
500.13
522.05
435
388
409
518.5511.8
442.6
300
360
420
480
540
600
FAAC (N'bn)
Source: FMF, FDC Research
55

56. Ships Awaiting Berth Down
 Ships awaiting berth in Lagos
ports declined sharply to 34 in
September
 From 59 in August
 Adverse effect of CBN forex
policy
 Goods likely to be diverted to
Lome and Benin
Source: NPA, CBN, FDC Research 56
61
51
49
46
49 49
57
59
34
0
10
20
30
40
50
60
70
No of Ships Awaiting Berth
56

57. Rig Count Down
 Active rigs in Nigeria not following the global trend
 Increased to 9 in August from 8 in the previous month
 US rigs down by 5% to 640 in the same period
Source: Baker Hughes
885
208
9
0
50
100
150
200
250
300
350
400
450
0
200
400
600
800
1000
1200
1400
1600
1800
Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15
US Canada Nigeria
57

58. Power Generation Up but Becoming
Unreliable Again
 Average power output from
the national grid rose to
4,500MW
 2.3% higher than 4,400MW in
August
 Peak: 4,735MW
 Lost about 1,000MW this 1st
week of October
 Distribution issues
 Chaos in Egbin station
 Power outages now frequent
in Ghana and South Africa
Average Daily Power Generation (MW)
Source: Nigeria Power Reform
4073.75
3926
4735
2000
2500
3000
3500
4000
4500
5000
16-Jan
25-Jan
3-Feb
12-Feb
21-Feb
2-Mar
11-Mar
20-Mar
29-Mar
7-Apr
16-Apr
25-Apr
4-May
13-May
22-May
31-May
9-Jun
18-Jun
27-Jun
6-Jul
15-Jul
24-Jul
2-Aug
11-Aug
20-Aug
29-Aug
7-Sep
16-Sep
58

59. CommoditiesRETAIL INDUSTRY

60. 60
2015 Global Retail Development Index (GRDI)
2015 Rank Country GRDI Score
1 China 65.3
2 Uruguay 65.1
3 Chile 62.3
4 Qatar 59.1
18 Botswana 49.8
23 Nigeria 47.1
30 Angola 44
 A.T. Kearney says SSA will be the big story by 2040
 The region presents opportunities just starting to open up
 Three SSA economies ranked in this year’s Global Retail
Development Index

61. 61
Global Retail
Botswana
 Total retail sales estimated at $6.3bn
 CAGR (2010 -2014): 7.2%
 It is one of Africa’s most stable countries both politically
and economically
 Features fairly well-established infrastructure

62. 62
Global Retail
Angola
 Retail sales estimated at $41.9bn
 CAGR (2010 -2014): 10.3%
 Widespread informal sector still dominates
 Local production facilities are limited
 Infrastructure is underdeveloped
 But locally owned retail networks are expanding rapidly

63. 63
Global Retail
Nigeria
 Retail sales estimated at $135bn
 CAGR (2010 -2014): 12.7%
 Still dominated by traditional and informal formats
 But becoming more organised and modernised
 A growing number of Nigerians order goods online

64. 64
 Domestic retail sales up in September mainly due to
back-to-school shopping
 Sale of stationeries increased
 Stores also increased their inventory levels slightly in
anticipation
 Prices of goods remained relatively unchanged
 Retailers struggle to pass on costs to consumers
Domestic Retail

65. 65
 Weekend traffic increased slightly
 Cash-to-card ratio unchanged at 65:35
 Appointment of ministers will bring some clarity to fiscal
policy
 Expect increased retail investments as investors re-enter
the market
Domestic Retail

66. CommoditiesREAL ESTATE

67. 67
 A lot of vacant properties across Lagos
 Casualty of transparency and money laundering
 Combination of liquidity constraint and fear of probe
 Money has not been released into the sectors with no
ministers
 Treasury Single Account also contributed to liquidity
constraint
 Now a buyer’s market as sellers crash property prices
 Some people selling off their properties in Eko Atlantic to
clear off debts
Real Estate – Domestic
67

68. 68
 Residential vacancy factor sharply up in Lekki to 63% in
September
 From 58% in August
 Vacancy mainly in Agungi, Oniru
 Commercial vacancy factor in Lekki up to 58%
 From 57% in August
 No significant recovery expected this year until 1st half of
2016
Real Estate – Domestic
68

69. 69
Vacancy Factor Up
Source: FDC Research
0%
5%
10%
15%
20%
25%
30%
35%
40%
Victoria Island
0%
5%
10%
15%
20%
25%
30%
35%
40%
Jan-15
Feb-15
Mar-15
Apr-15
May-15
Jun-15
Jul-15
Aug-15
Sep-15
Ikoyi
0%
10%
20%
30%
40%
50%
60%
70%
Residential Vacancy Factor Commercial Vacancy Factor
Lekki

70. CommoditiesAVIATION UPDATE

71. 71
Aviation – Financial Results Weaken
 Airline shares fell 5% in August compared to the 4%
boost in July
 Markets were impacted by developments in the Chinese
economy
 Airlines in Asia Pacific were most impacted with a loss of
15%
 Passenger yields remain weak globally
 Average global fares were down 13% in US $ terms in
Jan-July’15 relative to corresponding period in 2014

72. 72
Aviation - Load Factors
 Global load factor reaches record level of 84.7%
 Passenger load factor in July 2015 was 71.2 % in Africa
compared to 87.6% in North America
 Global load factor for August and September expected to
have increased, as many return to school/work

73. 73
Aviation - Profits
 Global airline industry net post-
tax profit for 2015 is $29.3
billion
 $8.27 per departing passenger
 Compared to $177 profit Apple
made on each product sold in Q1

74. 74
Airline News
 Government of Mozambique has stepped in to rescue
state owned Linhas Aéreas de Moçambique (LAM)
 LAM in bad financial shape despite monopoly status and high
prices
 Prime minister requests independent audit of the airline
which relies on government for financial sustainability

75. 75
Airline News
 Lufthansa Group will serve 261 destinations in 101
countries
 2014: 260 destinations in 100 countries
 Air France cuts 2,900 jobs
 Including 1,700 ground staff, 900 cabin crew and 300 pilots
 Part of effort to cut costs and cope with pressure from low-
costs competition in Europe and the Middle East

76. 76
Airline News
 Arik Air denies bankruptcy allegations previously
published by online site
 Claims that it maintains over 100 flights per day, and is
expanding operations to other African cities including Abidjan
and Cotonou
 Airline has also resumed flight services from Lagos to
Monrovia, Liberia following the end of the Ebola plague in the
country
 Emirates launches $20 million global ad campaign with
new cheeky commercial
 Featuring Hollywood's A-lister, Jennifer Aniston

78. 78
Domestic Aviation
 International air traffic declined by 27.93% in Q2,
according to the National Bureau of Statistics
 Reduced public sector travelling due to Buhari Administration
 Reduction in the use of private jets
 Domestic travel increased marginally by 0.71% to 2.37m
 Domestic flight passengers represented 69.37% of the
Nigeria’s total air traffic in Q2

79. 79
Domestic Aviation
 Murtala Muhammed Airport recorded the highest number
of passengers
 39.4% of total domestic air traffic and 69.43% of international
air travel passengers
 Challenges facing the industry include:
 Poor airport infrastructure
 Cost of operation and fuel
 High interest rate on credit facility from banks
 The national carrier will be another dead on arrival project

80. 80
Steals & Deals
 Lufthansa great value premium economy flights to :
New York $1,206
Washington $1,218
Chicago $1,245
Boston $1,253
Toronto $1,171
Vancouver $1,453
Dublin $622
Madrid $630
Geneva $644
London $765

81. 81
Flight Fare Promos
Airline Destination Price (N)
South African Airways Johannesburg from 124,380
Etihad Airways Dubai from 129,999
Qatar Airways Dubai from 142,500
Virgin Atlantic London from 198,768
British Airways London from 198,768
Delta Airlines New York from 240,500

82. 82
Outlook
 Global GDP for 2015 is projected at $760 billion in 2015
 Translating into higher profits and returns on capital for
airlines
 Predicted 7.5% returns on capital for airlines in 2015
 Air fares are expected to fall as supply increases

83. CommoditiesSTOCK MARKET

84. Global Equity Markets
 Emerging markets indices
drop as traders dump
emerging market equities
 Shrinking global growth and
economic slowdown in Asia
drag the S&P 500 down by
4.47% - worst quarter since
2011
 NSE ASI outperforms major
indices around the world
84

85. 85
Nigerian Stock Market Review
 Market trades sideways on local and foreign news
 BC30 index gained 8.52% in September as against 8.97% in
August
 Scottfree’s average P/E ratio was 7.06x
 30 day volatility was 26.59%
 Dividend yield 3.90%
Scottfree BC30 Index
28,500.00
29,000.00
29,500.00
30,000.00
30,500.00
31,000.00
01-Sep-15
03-Sep-15
05-Sep-15
07-Sep-15
09-Sep-15
11-Sep-15
13-Sep-15
15-Sep-15
17-Sep-15
19-Sep-15
21-Sep-15
23-Sep-15
25-Sep-15
27-Sep-15
29-Sep-15
NSE ASI
NSE ASI
Source: Solactive, FDC Research Source: NSE, FDC Research

86. 86
September 2015 Highlights
 NSE ASI gained 5.16% during the month, -6.69% in Q3, and -
9.92%YTD
 Market capitalization increased by 3.78% from N10.21tn to
N10.59tn
 Diageo announces intent to increase equity stake in
Guinness Nigeria to 70%
 Treasury single account took effect
 Neutralized by reduction of CRR to 25% from 31%
 JP Morgan delists Nigeria from its government bond index

87. 87
 All sectors recorded positive performance except for Oil
& Gas
 Consumer goods sector propped up by NB, Guinness &
Unilever despite rising inflation
Sectoral Performance

88. 88
Corporate Earnings in September
 UBA H1 2015 result mirrored performance of its tier 1
counterparts
 Loan loss provision up 70.82%
 Earnings Per Share of N0.94
 Declared interim dividends of N0.20
 Payout ratio of 21.3%
UBA PLC
N'000mn
H1 2015 H1 2014 % Change
Net Interest Income 65,658 55,211 18.92
PBT 39,046 22,856 70.83
Net Interest Margin (Annualized) 7.23% 9.60% -24.69
Earnings Per Share (Kobo) 0.94 0.71 32.39
Total Assets 2,929,278 2,762,573 6.03
Loan Loss Provision 3,500 2,049 70.82
Total Expenses 73,820 63,947 15.44

89. 89
Corporate Earnings in September
 Rising inflation and reduced disposable income hits the
consumer goods
 Guinness and PZ Cussons report declining PBT and EPS
 No respite in sight for Q3 results

90. 90
Corporate Earnings in September
 Decline in GPI - Reflection of economic activities
 Reduced operating cost boosted underwriting profits
 Standard Alliance’s PBT augmented by increase in
investment income

91. 91
Reallocation of Asset Mix

92. 92
Analysis of Asset Mix
 A gradual shift from supranational bonds as their yields
become less attractive
 Asset managers dump equities as poor corporate results
and volatility erode market capitalization
 A significant shift away from real estate

93. 93
Equity Market Outlook for October
 Poor Q3 results may weigh on the markets and wipe out
gains
 JP Morgan index delisting implementation will hurt
equities in October
 Trade volumes and market capitalization to pick up on
renewed interest in the market
 Trial of oil barons will hit banking stocks
 Exchange rate uncertainty will hurt market sentiment

94. CommoditiesPOLITICAL RISK ANALYSIS

95. 95
Political Outlook/Cabinet Anticlimax
The army you have and not that you wish to have
 Six months after the election
 Five months since the transition committee
 Buhari releases names of his dream team
 Critics called it a downer and some light weights
 Realists said the wait was not worth it

96. Energy/Integrity Economic Output Matrix
ENERGY
INTEGRITYHIGHLOW
LOW HIGH
AGE
AGE
Great
to have!
Good to have!- Median
score
More
likely
Suboptimal
Undesired
Positive
Economic
Output
Minority
outliers
Reveals the bulk of the team in the upper right quadrant,
lower level

97. 97
Political Outlook/ Cabinet Anticlimax
 High physical energy, satisfactory mental energy, astute
political skills
 Those with medium integrity can be controlled and
managed
 Stated priorities
 War against insurgency
 War against corruption
 Blocking leakages
 Stabilizing economy
 Stimulating recovery
 Reform

99. CommoditiesOUTLOOK

100. 100
The Economic Reality
According to the EIU October 2015 report
 “Expect significant upheaval as the patronage networks
of the outgoing administration are dismantled
 Economic policy announcements are likely to be
ambitious
 Actual policy reform- particularly in the vital oil industry-
will be slow
 The politicization of economic policy will also slow the
reform agenda”

101. 101
The Economic Reality
According to the EIU October 2015 report
 “Fiscal expenditure will remain dominated by recurrent
spending, despite efforts to boost capital investment
 Growth will remain below potential
 Hit by troubles in the oil sector and by the country's
crippling infrastructure deficit”

102. 102
The Economic Reality
According to the EIU October 2015 report
 “Inflation will ease after a rise related to currency
weakness in 2015
 The naira will fall sharply in 2015, reflecting lower oil
earnings
 The current account will slip into a deficit in 2015-16
 Owning to the oil price slump”

103. 103
Outlook – Reality will set in
 TheWorld Bank meeting in Peru has shed some light on
policy direction
 Sustained lower oil prices will push monetary policy
towards currency adjustment
 Petroleum subsidies will have to be reviewed in
November/December
 The trial of the Senate President will be adjourned
 As the Senate approves most of the Ministers

104. 104
Outlook – Reality will set in
 More Federal appointments will be announced to
compensate the states not in the cabinet
 The Interpol, EFCC dragnet will take down major
casualties in the private sector
 Reputation, financial and market risks will escalate and
bring down banking stocks
 Simmering systemic risks associated with oil scandals will
affect the banking system

105. 105
Outlook – Reality will set in
 Inflation in September will inch up marginally to 9.5%
 Elections will be annulled in most oil producing states
 The risks of violence in the bye elections and Bayelsa is
very high
 APC clamour for electoral compensations and IOU’s will
put pressure on Buhari
 The President will stay steadfast

106. 106
Corporate Humour
106
Kenneth Tynan
Immature poets imitate; mature poets steal.
- T. S. Eliot
A critic is a man who knows the way, but
cannot drive the car.

107. 107
Corporate Humour
107
The dead actor requested in his will that his
body be cremated and ten percent of his ashes
thrown in his agent’s face.
The United States is like the guy who gives
everybody cocaine at a party and still
nobody likes him.
It is better to be wanted for murder than not to be
wanted at all.
- Anonymous
Jim Samuels-
- Marty Winch

108. 108
Corporate Humour
108
To reduce stress, avoid excitement, spend more
time with your spouse.
Never mistake endurance for hospitality.
- Robert Oben
Anonymous

109. 109
Corporate Humour
109
Never mistake motion for action.
Flies spread disease – keep yours zipped.
- Ernest Hemingway
Anonymous -

110. 110
Corporate Humour
110
One should forgive ones enemies but not before
they are hanged.
Running is an unnatural act, except from
enemies and to the bathroom.
- Heinrich Heine
Anonymous -

111. 111

112. Bismarck J. Rewane, MD/CEO
Financial Derivatives Company Ltd.
Lagos, Nigeria
01-7739889