Executive Breakfast Monthly Economic Review - August 2015: LOOT RECOVERY???- Restitution is No Retribution

MONTHLY ECONOMIC
NEWS AND VIEWS
August 5, 2015
Market vs Control
Economy
Presented at Lagos Business School
Executive Breakfast Meeting
by
B.J. Rewane
Financial Derivatives Company Limited
Nigeria goes back to the Future

2
Outline
Part A: Part B: Part C:

Part A: Current State Assessment

4
Economic Snapshot August 6, 2015
 Exchange rate N223/$
 IFEM N198/$
 External reserves $31.52bn
 Payments & import cover 5.1months
 Trade balance $5.6bn

5
208
245

6
Economic Snapshot August 6, 2015
New Data
 Unemployment + underemployment 26.5%
 Headline inflation 9.2%
 Misery index 35.7%
 Interest rates (average NIBOR) 13.10%

7
Economic Snapshot August 2015
New Rules - Nigerians
 40 items now ineligible for any forex payment from the
banks
 Cannot deposit dollar cash into domiciliary accounts
 Can only deposit by Bank transfer
 Allowed to spend up to $50,000 a year on naira debit
cards

Economic Snapshot August 2015
Mandate
 To reorganize the NNPC
 Cut down on waste
 Block leakages
 Incentivize oil companies
Credentials
 Private sector background
 Strong academic
credentials (Harvard Law)
NNPC Mandate for NCC
New Appointments
 New GMD for NNPC and NCC
Mandate
 Block leakages
 Cut down on waste
 Renew GSM licenses
 Incentivize operators to
invest
Credentials
 Strong academic
background
 High integrity
8

10
Global Imperatives - Stable World
 H1‟15 was stable with a lower level of economic activity
 Most global and regional growth estimates were missed or
trimmed
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
U.S.A E.U China Nigeria
Q1'15
Q2'15
Quarterly Growth Estimates

11
Global Imperatives - China Growth Slows
 U.S, the engine of global growth, stuttered while China
shrunk marginally
 The E.U grappled with Grexit or Grelout
 The U.K went from a coalition government to majority
rule
 The Tories exploited xenophobia, making immigration
and E.U referendum the issues
 BRICS were hit by falling commodity prices, corruption
and geopolitical tension

12
Global Imperatives - Gold Loses its Shine
 Financial markets rallied with a higher volatility index
 The U.S dollar rose sharply above all expectations
 The price of gold crashed to an 11 year low: below
$1000 per ounce
 Only 4 major currencies in the world were overvalued
against the U.S dollar

13
Global Imperatives - Strong Dollar
 Using the hamburger PPP analysis by the Economist
magazine
 Global Banking System was stable
 No notable causalities
 Global inflation was muted with the U.S at 0.2%, E.U
(0.2%), U.K (0)%, Japan (0.4)% and Canada (1)%
 Interest rates in most advanced markets were relatively
unchanged except in Canada
 Global trade forecast slashed to 3.3% in 2015

14
Global Imperatives
 Global trade forecast slashed to 3.3% in 2015
 Commodity prices declined, with FFB index dropping by
-22.9%
 Industrial raw materials (IRM) index, including oil, is
down 9.1%
 Global stock markets were riled by the Greek scare
 U.S. markets S&P 500 inched up 0.2% in H1

15
Global Imperatives
 Q2‟15 is expected to be the point of inflection in
earnings
 The federal reserve left rates unchanged in July
 There is a 50/50 chance that rates will increase in
September

16
Notable Events in July
 China‟s stock markets plunged again
 The Chinese government abortively tried to bail out the
market
 Citibank thinks China is already growing at 5%
 Stabilisation looks fragile posing a triple risk
a) Spill-overs from increased global exposure
b) Commodity price shock
c) China‟s export/import substitution

17
SSA Imperatives- Africa Resilient
 SSA economies are facing tough times with sharply
lower commodity prices
 Weaker fiscal revenues and pressure to cut spending
squeezed African countries
 Fears of an increase in U.S interest rates stoked anxiety
about investment flow reversals
 African currencies fell across board due to negative
trade balance

18
Commodity Prices in H1’2015
 The Bloomberg Commodity Index (BCOM) declined by 3.55% in
H1‟15 from H2‟14
 Driven by a decline in the prices of most commodities
-35.00% -30.00% -25.00% -20.00% -15.00% -10.00% -5.00% 0.00% 5.00%
WTI ($/b)
Brent Crude Oil ($/b)
Natural Gas ($/MMBtu)
Gold ($/ounce)
Silver ($/ounce)
Cocoa ($/mt)
Sugar (US cents/pound)
Corn (US cents/bushel)
Rough rice ($/cwt)
Wheat (US cents/bushel)
% Change (H1’15 vs. H2’14)

19
Global Oil Prices at 6-Month Low
 Oil price has fallen 28% since it rallied to $69pb in May
 Brent dropped to a 6-month low of $49.5pb
 Soft commodities average price decline: 8%
 Estimated effect in 2015
 Fiscal revenue: 25% decline
 Trade balance: 79% decline between 2014 & 2015
 Devaluation – commodity price = 3%
 Inflation effect = 3% increase to approx. 12%

20
Soft Commodities - Also Falling
 Average cocoa prices down slightly
with 0.73% in H1‟15
 Concerns over supply shortage of
cocoa in Ivory Coast and Ghana
 Large stockpiles affecting prices of
other agric. commodities
 Grain prices down 7%
 Sugar prices lost 15.96%
 Also affected by weakening Brazilian
real

21
Nigeria – H1 Review-Economic Slowdown
Q1 EVENTS
 Electricity tariff increase postponed till July
 2015 budget haggling between NASS and executive
 N10 cut in PMS pump price to N87 per litre
 Elections pushed forward by 6 weeks to March 28
 Oil price plunged below $46pb
 LNG prices were down 20% to $6.8/MMBtu

22
Q1 Events
 Boko Haram insurgency unabated
 Naira devalued 18% and interest rates left unchanged
 Power supply sharply lower at 2000MW
Impact
 Q1 growth sharply down to 3.96%
 Trade balance falls sharply also

23
Impact
 External reserves down 13.58% to $29.79bn
 Purchasing Managers Index shrank 2.1% to 55.2
 Aberrational and temporary interbank spike in interest
rates to 90% p.a.
 Inflation inched up to 8.5%

24
Nigeria – H1 Review- Economic Slowdown
Q2
 March 28 election peaceful and conceded
 Incumbent out challenger in
 Historical milestone in Nigeria
 Fuel shortage continues and increases
 Oil prices jump 25% to $69pb
 Inflation up again to 9.2%
 MPC maintains status quo on interest and exchange rates

25
Q2
 CRR harmonised to 31%
 Salary arrears build up across most states
 Transition team set up
Impact
 Post election stock market and naira rally, but fizzles after
2 weeks on weak fundamentals
 External reserves haemorrhage reduces

26
Impact
 Import cover flat at 4.7 months
 Naira under attack widening, the parallel market
premium to 20%
 Naira traded at N248/$ at the BDC
 PMI expands to 56
 Retailers average inventory up to 5 weeks

27
Indicators
Jan’15 March’15 June’15 July’15 (Jul/Jan)%
Oil Markets
Spot price (avg $’pb) 47.86 55.93 61.69 56.84 18.76
Production (mbpd) 1.96 1.87 1.90 1.90 3.06
Money Markets (End Period)
OBB (%)p.a 8.67 13.59 7.33 4.58
409bps
Overnight (%)p.a 9.25 13.84 7.75 5.25
400bps
MPR (%)p.a 13.00 13.00 13.00 13.00
-
CPI ( %) 8.20 8.50 9.20 9.30*
1.1
External Reserves ($’bn) 34.28 29.79 29.00 31.46 8.23
Exchange rate (End Period)
Inter-bank (N/$) 187.60 199.16 197.47 198.95 6.05
Parallel (N/$) 210.00 220 229.00 230.00 9.52
Market cap (N’trn) 9.85 10.72 11.42 10.34 6.19
FAAC 500.13 435 518 *520 3.97
M2 (N’trn) 16.81 19.14 18.81 *18.85
12.14
FBN PMI 56.4 55.2 56 50.6
Vacancy Factor (Residential %) 26 25 31 34 8
Vacancy Factor (Commercial %) 22 20 22 24 2
Source: EIA ,FMDQ, OPEC, CBN, FSDH, FDC Research ; (* FDC’s forecasts)
Leading Economic Indicators (LEIs)

30
Global Growth Projections
 IMF projects a moderate global GDP growth of 3.3% for
2015 in its July outlook
 Gradual recovery in advanced economies
 U.S and U.K set to increase interest rates
 Emerging and developing economies continue to slow
down
 IMF projects a 6.8% GDP growth for China in 2015
 4.4% for the SSA region

31
Global Interest Rates
 U.S Fed leaves rates unchanged as expected
 It remains on course to raising rates this year, looking
beyond:
 Volatility in the Chinese financial market
 Falling commodity prices
 BoE unanimously held interest rate at 0.5% p.a.
 Likely timing of a rate hike is towards the end of 2015-
BoE Governor

32
Global Inflation
 U.S inflation was up 0.3% in June
 Positive territory for the first time in 2015
 U.S Fed expects inflation to rise to 2% over the medium
term
 U.K inflation declined to 0% in June from 0.1% in May
 Recent decline in oil price and energy could push
inflation into negative territory in the next few months

34
Advanced Economies
 A setback in U.S Q1‟15 output has led to a downward
revision to global growth
 Underlying fundamentals remain intact
 Easy financial conditions
 More neutral fiscal policy in the euro area
 Lower oil prices
 Improving confidence and labor market conditions

35
Emerging Market Economies
 The growth slowdown is expected to continue in the
second half of the 2015
 This reflects several factors
 Lower commodity prices
 Tighter external financial conditions
 Structural bottlenecks
 Rebalancing in China
 Economic distress related to geopolitical factors
 A rebound in activity is expected to result in a pick up in
growth in 2016

36
SSA
 Fed rate rise likely to exacerbate financial markets
instability & add to currency pressures in the region
 Commodity prices expected to remain low in H2‟15
 Will impact commodity-dependent economies
 Will hamper investment
 Consumption expected to remain robust
 Stronger growth in the advanced economies to shore up
economic activity

37
Source: IMF

39
Impact On Nigeria
 An interest rate hike in developed economies will trigger
capital flow reversals from emerging economies such as
Nigeria
 Heightened currency pressures
 Slowdown in recent reserves accretion
 China is SSA‟s largest trading partner
 A slowdown in economic activities in China will impact
negatively on the external balance of economies such as
Nigeria

41
H2’15 Outlook - Oil
 The U.S dollar will play an increasing role in determining
the direction of commodity prices
 A hike in U.S interest rates will boost the dollar
 Outlook for oil prices remains bearish
 Expected to fluctuate between $50 - $55pb
 Increased supply when Iran ramps up production

42
H2’15 Outlook - Oil
 The lifting of Iranian sanctions is expected to release an
additional 800,000 to 900,000 bpd of oil
 Adding to the supply glut of 2.5mbpd and increasing the
selling pressure
 Iran is the 3rd largest OPEC producer
 EIA projects an increase in global oil demand by 1.4mbpd
in 2016
 Sufficient to offset the supply glut?

43
H2’15 Outlook – Soft Commodities
 Grain prices likely to decline further in H2
 Based on expectations of good harvests
 Rebound in prices will occur in 2016 when large stockpiles
have been worked through
 El Nino concerns and possible supply shortage of cocoa in
Ivory Coast and Ghana may push prices higher

45
Outlook - GDP
 Economic activities will remain tepid until clarity on
fiscal policy direction
 Reduced northern insurgency will allow for an increase
in agric output
 Commencement of the harvest season will provide a
boost
 Improved power supply expected with a reduction in gas
pipelines vandalism
 Average grid output: 4,500-5,000MW

46
Outlook - GDP
 Boosting manufacturing activities
 Supplementary budget in
September
 Increased but targeted spending
 Paying off arrears of salaries and
contractors
5.94
3.96 3.99
4.1
5
0
1
2
3
4
5
6
7
Q4'14 Q1'15 Q2'15 * Q3'15 * Q4'15*
Quarterly GDP Growth Rate (%)
Source: NBS, *: FDC’s forecasts

47
Outlook - Money Supply Growth
 Growth in M2 will be driven by
increased government spending
 Passage of a supplementary
budget in Q3
 Possibility of another bailout fund
 Will still remain below CBN‟s
target of 15.2%
 Increased spending within the
deficit of 3% of GDP -3
-2
-1
0
1
2
3
4
15
15.5
16
16.5
17
17.5
18
18.5
19
19.5
20
Dec'14 Jan'15 June'15 Dec'15
M2 (N'trn) M2 growth (%)

48

49
Inflation to Spike to 11-12% in H2’15
 Inflation increase will be at a
slower pace
 But could move towards 11-12%
due to:
 Impact of 5-10% currency
adjustment
 Likely removal of fuel subsidy with
oil price at $55pb
 Money supply growth of 3%
 Electricity tariff adjustment will be
accepted because of improved
supply
0
2
4
6
8
10
12
Jan'15 Dec'15
Inflation Rate (% )

50
Interest Rates
 Money market rates will trend lower in H2
 Driven by anticipated increase in liquidity
 CBN likely to reduce interest rates by 100bps
 To signal the start of an accommodative monetary policy cycle
 Will encourage lending and boost spending while reinforcing
the fiscal stimulus
 Borrowing costs will decline
 Pressure on margins will reduce

51
Interest Rates
10
10.5
11
11.5
12
12.5
13
13.5
Jan'15 Jun'15 Dec'15
MPR(%p.a.)

52
External Reserves Depletion to Continue
 Factors that could curb
reserves accretion in H2‟15
 U.S Fed interest rate hike
 Further decline in oil prices
 Increased currency pressure
34.28
29
30.5
26
27
28
29
30
31
32
33
34
35
Jan'15 Jun'15 Dec'15
External Reserves

53
Forex Markets
 The forex market is now segmented into 4 layers
 The differential between the segments will widen as the
ability to move between segments becomes more difficult
and risky
 The sharp drop in oil price will lead to a deterioration in
the terms of trade to 47.8 from 70.5
 The desperation for electronic dollars will push that market
to N250
 Cash dollars will be at N240
 The magnitude of the currency value adjustment will be
dependent on when the subsidy is removed

54
Forex Markets
100
150
200
250
300
07-Jul
09-Jul
11-Jul
13-Jul
15-Jul
17-Jul
19-Jul
21-Jul
23-Jul
25-Jul
27-Jul
29-Jul
31-Jul
02-Aug
04-Aug
06-Aug
08-Aug
Export Prices IFEM BDC Electronic dollars

57
Policies Implemented (H1’15)
 Fiscal policy
 N10 reduction in PMS price to N87
 Trade policy
 Common ExternalTariff implemented
 Monetary policy
 Net open position reviewed upwards to 0.5%
 RDAS scrapped, IFEM adopted
 CRR debits now weekly
 CRR harmonized to 31%
 MPR unchanged at 13% p.a.

58
CBN’s Administrative Policies (H1’15)
 RDAS and interbank funds restricted to Letters of Credit
(LCs), Bills for Collection and other invisible transactions
 Limit placed on naira card usage overseas to $50,000
 Dollarization of the economy is illegitimized
 Naira is the only currency for transactions and contracts

59
CBN’s Administrative Policies (H2’15 so far)
 CBN shifts more items away from IFEM
 Staples: rice, poultry and tinned fish in sauce
 Financial instruments and securities
 All forex demand at the CBN intervention window must
be backed by naira cover 48 hours before the request is
sent to the window
 Banks are to credit CBN account with the naira
equivalent of their request

60
Illicit Financial Flows (IFF)
 Nigeria ranked amongst the 10 largest sources of illicit
financial flows by the Global Financial Integrity Group
 An estimated $15.7bn of illicit funds go through the
system annually
 Banks now rejecting foreign currency cash deposits
 Naira strengthens temporarily to N215 and slides again to
N225
 Will go back to N240

61
Policies to expect in H2
 Fiscal stimulus package will be embedded in supplementary
budget
 Recurrent/capex ratio will be pushed to 70/30
 Nigeria will engage the World Bank on Oct 6 in Peru
 Subsidies will go
 Refineries will be revamped

FAAC Allocation up 27% in July
 FAAC allocation shared in July
was N518.5bn
 26.8% higher than N409bn in June
 Lagged effect of higher oil prices
in April/May
 We expect H2 average to be
slightly higher at N480bn
 Recovered funds will help boost
government revenues
Source: FMF, FDC Research 63
500.13
522.05
435
388
409
518.5
462
480
300
360
420
480
540
600
660
720
780
840
900
FAAC (N'bn)
63

Ships Awaiting Berth Picking Up Again
 Ships awaiting berth increased
to 57 in July
 From 49 in June
 Reflects naira volatility
 Some importers abandoning
goods at the ports
 We expect a decline later in
H2 if naira stabilizes
Source: NPA, CBN, FDC Research 64
61
51
49
46
49 49
57
51
48
0
10
20
30
40
50
60
70
Jan-15
Feb-15
Mar-15
Apr-15
May-15
Jun-15
Jul-15
H1'15…
H2'15…
No of Ships Awaiting Berth
64

Rig Count relatively unchanged
 Active rigs in Nigeria remained flat in July
 Down to 10 from 19 at the beginning of the year
 More rigs may be idled if oil price plunge continues
Source: Baker Hughes
874
215
19 10 0
100
200
300
400
500
0
500
1000
1500
2000
Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15
US Canada Nigeria
65

Power Generation Up
 Average power output from
the national grid rose to
4,300MW
 Peak: 4,900MW
 Attributed to reduced gas
pipeline vandalism
 Expect an average of
4,000MW in H2‟15
 Stable gas supply
 Transmission company will
improve support to Gencos
Average Daily Power Generation
(MW)
Source: Nigeria Power Reform
2000
2500
3000
3500
4000
4500
5000
16-Jan
6-Feb
27-Feb
20-Mar
10-Apr
1-May
22-May
12-Jun
3-Jul
24-Jul
66

68
 Sales remained resilient in South Africa despite
macroeconomic challenges
 Apparel and Food/FMCG retailers saw similar total sales
growth of 9%
 But food/FMCG saw stronger same store sales than
apparel
 Food/FMCG: 6%
 Apparel: 4%
Retail – South Africa
Source: Deutsche Bank

69
 Truworths grew sales by 7%
 Same store sales up 1%
 Woolies apparel same store sales slowed to 4% from
8% in previous year
 Pick ‘n Pay lost further market share
 Sales growth of 6% compared to sector‟s growth of 9%
 According to Deutsche Bank, top picks are Foschini,
Truworths,Woolies and Mr. Price
Retail – South Africa
Source: Deutsche Bank

70
 Sales was sluggish in July
 Garment and electronics down by 30%
 FMCGs slightly up due to change in consumer buying
habits
 Switching from expensive items to cheaper substitutes
 Weekday and weekend traffic remained the same but
purchases declined
 More window shopping
Domestic Retail – July 2015

71
 Retailers gradually beginning to increase prices of goods
to reflect increased cost
 Imported rice rose, affected by CBN‟s policy ban on some
imports
 Also partly due to increased demand towards the end of
the Muslim fast

72
 Inventory levels down and frequent stockouts
 Exchange rate volatility and uncertainty is causing
confusion for retailers
 Not clear when is the favorable time to import
 Retailers don‟t want to order too much and end up sitting
on stocks
 Cash-to-card ratio unchanged at 65:35

73
Outlook – H2’15
 Expect slower domestic sales in August due to summer
travel
 Sales will pick up in September due to back-to-school
shopping
 Clarity in policy direction and appointment of ministers
will boost activities
 New brands waiting to tap into the aspirational African
markets including Nigeria
 Number of millionaires in Africa rose 145% between 2000
and 2014 (Bloomberg)

76
 Name and shame by banks forced huge selling of
properties to pay down debts
 War against corruption and money laundering pushing
down property values
 Other investors still waiting for government policy
direction
Real Estate – July 2015
76

77
 Over-supply of office space in the high end
 Oil price plunge and consequent layoff of workers
affecting demand by foreign oil companies
 Commercial vacancy factor in Lekki increased to 54% in
July from 48% in June
77

78
New Office Developments
Source: Northcourt

79
 Demand for residential properties in high-end areas
affected by exchange rate volatility
 High vacancy factor in flooded areas like ParkView, Ikoyi
and Chevy view estate, Chevron, Lekki
 Residential vacancy factor in Ikoyi up to 22% in July from
18% in June
 Lekki: increased to 55% in July from 51% in June
 Victoria Island: increased to 28% in July from 26% in June
79

80
Vacancy Factor Up set to increase in H2’15
Source: FDC Research
0%
10%
20%
30%
40%
50%
60%
Residential Vacancy Factor Commercial Vacancy Factor
Lekki
0%
10%
20%
30%
40%
Ikoyi
0%
5%
10%
15%
20%
25%
30%
35%
Victoria Island

81
Outlook – H2’15
 Real estate activities will rebound in H2‟15 after
appointment of ministers
 Construction will continue as government releases funds
 A lot of mixed developments in the pipeline will continue
 Clarity in policy direction will bring back foreign investors
 Surplus might cause rental prices to fall slightly

82
New Retail Developments
 Over 70,000sq. metres of retail space expected to be available in
2015
Source: Northcourt

84
Aviation
 Airlines continue to report higher profits especially in
the U.S and Asia
 Principally due to lower aviation fuel prices
 Passenger yields are down 5% year-to-year
 Passenger traffic continues to grow
 Growth in seats accelerated in May as more aircraft
came out of storage
 U.S Airline consolidation increased and cost-cutting
intensified

85
Aviation
 Growing business
confidence has increased
demand for passenger and
freight traffic
 Downward trend in global
fares in U.S dollars has
continued
 Air passenger load factors
are sustaining high levels at
79% 0
10
20
30
40
50
60
70
80
90
North America European Union Sub-Saharan Africa

86
Nigerian Aviation
 Naira weakness takes a toll
 International passenger traffic sharply lower in July
 FGN and state government travels down by over 60%
 Forcing carriers to offer discount fares
 Both in premium and economy classes
 Increased traffic to the Middle East and South East Asia
 Load factors to Europe and back are down to 65% in
economy
 Club: 45%
 First Class: 30%

Steals and Deals87
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• Economy from Abuja to:
• New York – from $1304
• Boston – from $1393
• Houston - from $1482
• Washington D.C – from $1341
Lufthansa
• Fares from N241,440
• Travel Dates: Aug 2 till Nov 30,
2015
• Offer Last: Till Aug 12, 2015
South African Airways
• Buy 10 tickets and get one free
Rwandair
• Buy 5 Business class tickets and
get one free
Kenya Airways
 Discount fares and promos are

89
Domestic Aviation
 Nigeria capitalises on IOCA audit pass mark
 Domestic carriers under stringent scrutiny on safety and
maintenance
 Also on punctuality and on-time performance
 Airlines now penalised for late departures
 Carriers also being scrutinised for governance, financial
performance and payment of obligations/salaries

90
Domestic Aviation
 Arik and Aero remain the dominant players
 In the African markets, Ethiopian Air, Asky, Air Ivoire and
SAA are growing rapidly
 Kenya airways is in need of a bailout of $500m-$600m

Global Equities Market
 US stocks witnessed modest gains as firms bought back
stocks to improve valuations
 The S&P 500 rose marginally by 0.37% in July
 Average daily turnover decreased 12.04% to N4.07trn from
N4.62trn
 Despite trading restrictions, stocks crash as Greece reopens
its stock market
 Shanghai index continues to decline amidst worries of a spill
over effect
92

Global Equities Market
-10.50%
-8.50%
-6.50%
-4.50%
-2.50%
-0.50%
1.50%
3.50%
Global Indices July 2015
Source: FDC Research
93

Nigerian Stock Market Review
 NSE ASI declined 8.16% in June, 12.92%YTD
 Market capitalization declined 7.95%YTD, N893billion lost
 Volatility reflects political cycle and uncertainties
 Cappa and D‟Alberto Plc, and IHS Plc delisted on the
Nigerian Stock Exchange
 Primary market activities subdued, as the market witnessed
just 2 IPOs this year.
94

Nigerian Stock Market Review
20,000.00
25,000.00
30,000.00
35,000.00
40,000.00
NSE INDEX (Jan-July) NSE INDEX (July)
Source: NSE, FDC Research
95

96
Key Results Released in July
Turnover (N'
Million) % Change
Profit AfterTax
(PAT) % Change
Dangote Sugar Q2 51,120 3.06 6,311 -7.67
Nestle Q2 65,924 -1.9 8,887 -21.91
Stanbic IBTC Q2 68,295 10.66 9,695 -40.1
Unilever Nigeria Plc
Q2 28,721 -1.91 85.57 -94.16
Dangote Cement 242,215 15.94 121,808 27.63
EcobankTransnational
Inc 273,992 21.63 48,598 52.6
Mobil Oil 31,828 -24.52 2,910 -39.58
Diamond Bank Plc 105,069 6.84 12,154 -11.83

98
Analysis of Q2 Results
 Mixed results and sectorial divide as banking sector
reveals poor outing in Q2
 Impairments and punitive CRR ratio continues to plague
banking sector performance
 Declining oil prices affect top line of oil & gas sector
results
 Results reflect a harsh business operating environment
and macro-economic headwinds

Sector Indexes
 Performance was negative
across all sectors
 Banking sector recorded
the worst performance
 Driven by poor Q2 results
 Consumer goods continue
to suffer as inflation and
rising production costs
increase beyond projections
Source: NSE, FDC Research
99

100
Stock Market Today…
 The market remains bearish as poor H1 results continue
to dampen investor confidence
 Heightened uncertainty as investors grope in the dark
 Debtors sell off stocks and other assets to restructure and
pay-off outstanding debts before debtors lists are published
 SEC suspends implementation of 1kobo bottom price as
equities continue to fall

101
Policy Choices and Implications
 Soothing temporary measures vs harsh market
fundamental measures
 Conflict of ideals– Pain of market reforms vs comfort of
popular choices
 Devaluation and rising inflation rates
 Tightened monetary policy and the effect on general
commerce

102
Q3 Stock Market Outlook
 Market performance to remain subdued in the absence of
a firm policy direction
 Key appointments will serve as the much desired catalyst
for a market rally
 Currency devaluation will attract foreign institutional
investors and stimulate the market

103
Q3 Stock Market Outlook
 Uncertainty in the Nigerian Stock Exchange to persist till
end of Q3
 Price correction for poor corporate earnings results
 New rules on debtor name and shame is forcing M&A activity
 Forcing asset sale and pushing stock prices down
 Increased scrutiny and BVN is killing identity theft and forcing
consolidation of investors

PFAs Shifting Their Portfolios
Asset Class Dec-14 May-15 % Change
Equity 603.04 653.98 8.45%
Money Markets 541.52 585.09 8.05%
FGN Bonds 2396.55 2488.03 3.82%
Treasury Bills 497.78 601.65 20.87%
Mutual Fund 21.03 22.13 5.23%
State Bond 172.40 166.23 -3.58%
Supranatinal Bond 12.36 12.69 2.67%
Corporate Bond 119.44 140.06 17.26%
Real Estate 213.25 209.12 -1.94%
Cash & Others 33.94 34.3 1.06%
4,611.31 4,913.28
 Fear of default by state
governments led to a
reduction in state bond
allocation
 Treasury bills continue to
attract portfolio
investments as yields rise
104

106
Political Update
 Buhari separates party from
government
 The party without a
government is a meaningless
association
 The PDP survived as a party
because of government
patronage
“You go to war
with the army you
have – not the
army you wish to
have” - Donald
Rumsfeld

107
Political Update
 The NASS crisis is a proxy war for 2019
 Also positioning for the spoils of 2015
 The House of Reps resolution is unlikely to be replicated
in the senate
 The election tribunals will take out some key players
 Changing the majority votes and making a resolution
academic

108
Political Update
 Maximum pressure will be applied with the anti-
corruption instruments
 The appointment of cabinet members will have 3 tracks
 Influence from the retired military constituency,
establishment (traditional rulers) and international &
financial community
 Criteria will be competence, pedigree and integrity

109
Political Update
 Political horse trading and federal character will be the
icing on the cake
 The foundation of a third party is being laid
 It will consist of the APC disgruntled and PDP
mercenaries
 All 3 parties are likely to have northern candidates in the
2019 run up
 After power consolidation, the Buhari team will embrace
economic reform

110
Political Update
 Using the savings from anti-corruption as a safety net for
the poor
 Buhari will benefit from a strategic undermining of Boko
Haram capabilities
 This will consolidate his mass support in the northern
states
 The public arraignment of some former ministers and
leading government officers will send a strong signal to
the country

111
Political Update
 Scandals and blackmailing of new ministers and
appointees will force firings and resignations
 The market will be looking to see how Buhari will move
against corruption within his ranks

113
Outlook for August
 More key appointments will be made in August
 The scramble for office will slow after Buhari deals with
first insider culprits
 The CBN will allow for dollar cash evacuation again
 The naira will weaken at the parallel market to N245
 The market will segment further into electronic, cash, IFEM
and export proceeds

114
Outlook for August
 Stock market will retreat before picking up after a cabinet
is announced
 Real estate values will continue to tank in August, with
rents sliding
 Oil prices will trade between $48 - $53pb
 Fiscal revenues (FAAC) for states will be above N400bn in
August
 The election tribunals will swing into action with some high
profile annulments

115
Corporate Humour
115
Carolyn Kizer -
Cynics are right nine times out of ten.
- H. L Mencken
Happiness is a Chinese meal; sorrow is a
nourishment forever.

116
Corporate Humour
116
We came, we saw, we went shopping.
A woman talks to one man, looks at a
second and thinks of a third.
Life is divided into the horrible and the
miserable.
- Jan Barrett
Bhartrihari -
-Woody Allen

117
Corporate Humour
117
Murphy’s Law -
Happiness is good health and a bad
memory.
- Ingrid Bergman
It is easier to get forgiveness than
permission.

118
Corporate Humour
118
John Rostoni-
It is better to be wanted for murder
than not to be wanted at all.
- MartyWinch
Most weightlifters are biceptual.

119
Corporate Humour
119
Jean Paul Sartre
An ambassador is an honest man sent
abroad to lie for his country.
- Sir HenryWotton
3 „o clock is always too late or too early
for anything you want to do.

120

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

Executive Breakfast Monthly Economic Review - August 2015: LOOT RECOVERY???- Restitution is No Retribution

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