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

MONTHLY ECONOMIC NEWS
AND VIEWS
September 2, 2015
by
B.J. Rewane
Financial Derivatives Company Limited
LOOT RECOVERY???
Presented at Lagos Business School
Executive Breakfast Meeting
Restitution is No Retribution

2
Outline
Highlights - August without a rain break
Economic Conditions – China: The Economic
Goliath
Business Environment – Difference between
Stock &
Flows of Wealth
Monetary Conditions – Tightness to Saturation
Monetary Policy – Glide before you Slide (CBN
Naira
Strategy)
Equity Markets – Never a Dull Moment
Political Update – Restitution is no Retribution

4
August 2015
had an average
rainfall of 15
days
15% higher
than the
previous month
The world is
hit by China
blues
2nd largest
economy in
the world
stutters
Nigeria’s
GDP growth
for Q2’15
came in at
2.35%
3.65% lower than the
5- year average
Confirming that Nigeria
is officially in an
economic slowdown
August Without A Rain Break

5
Business Cycle - Economic Slowdown
Slowdow
n
 This is typically a
stage before a
recession in the
business cycle

6
August Without A Break – Economic Slowdown
 Economy at near a
standstill
 Because of absence of
decision makers
 Leading economic
indicators are slowing
Lower oil production,
sector down by
6.79%
• Oil is now 9.8% of
GDP
Manufacturing was
down 0.07%
Service sector
growth declined by
2.39% to 4.67%

7
August Without A Break – Stagflation Again!!
6.21
6.54
6.23 5.94
3.96
2.35
2 1.8
0
1
2
3
4
5
6
7
Q1'14 Q2'14 Q3'14 Q4'14 Q1'15 Q2'15 Q3'15* Q4'15*
Quarterly GDP Growth Rate (%)  Annual growth
estimate for 2015 is
now as low as 2%
 Q2 growth was
impacted by election
lull & economic
stagnation
 Fuel shortage, power
cuts, Boko Haram
insurgency, shrinking
purchasing power
taking its toll

8
August Without A Break
 FBN PMI shrank in
August to 49.2
from an earlier low
of 50.6
 Reduction in
output across most
sectors especially
manufacturing
56.4 56.2
55.2
54
49.4
56
50.6
49.2
44
46
48
50
52
54
56
58
Jan Feb Mar Apr May Jun Jul Aug
2015 FBN PMI Index

9
August Without A Break – Power Output
 Power output from the national grid in August
spiked to 4,396MW
 Average power outage and downtime in the Lagos
Metroplex now 30%
 Power supply now available 70% of the time
 Escravos- Lagos Gas Pipeline protected from
vandals and sabotage

10
August Without a Break
 The price of diesel now down to N120 from N165
per liter in June
 Oil prices tumbled to a six-and-a-half low of $42pb
 Brent futures now trading at $49.3pb
 33.9% lower than the Q2 average of $63.55pb
 No emergency OPEC meeting to slash output
envisaged
 NNPC fires 38 top managers in major

11
 Capital dollar inflow in Q2 down to $2.67bn
according to CBN
 50% down from $5.8bn in Q2’2014
 External Reserves slightly down in August by 0.2%
to $31.4bn
 The divergence between the IFEM rate and the
BDC rate shrank to N8.37 before slipping again to
N20.03

12
 NNPC MD hints that subsidy payments are not
sustainable
 Cancels offshore processing transactions and
swaps
 Reduces the number of oil lifters from 43 to 16
 M2 in July was down to N18.43trn

13
 2.05% lower than in June, as against a CBN growth
benchmark of 15.24% for 2015
 YoY inflation in July was flat at 9.2%
 Core inflation rose to 8.8% driven by exchange rate
restrictions and temporary fuel shortage

14
Inflation Trend & Outlook
 Inflation rate flat at 9.2%
due to:
 Favorable harvest
 Abundant rainfall dampened
food prices
 August inflation expected to
increase to 9.4%
 Foreign exchange restrictions
have led to a decrease in
imported goods
 Lower inventory levels
Source: NBS, FDC Research
9.2
9.4
7
7.5
8
8.5
9
9.5
Headline Inflation (%)

15
 Exchange rate appreciation in the parallel market
had limited impact on prices
 The ineligibility of 41 items has led to shortages of
some essentials
 Unemployment in Q2 increased by 0.7% to 8.2%
 Underemployed Nigerians increased also by 1.7%
to 18.3%
 Misery Index increased by 9.5% to 35.7

16
 Revenue shared by all governments in August
declined to N511.5bn
 This was based on average oil prices in June of
$63.75pb
 Oil price/FAAC correlation
 Based on this correlation, FAAC estimated to
decline to N320bn in September
49.79
63.75
56.56
48.21
0.00
20.00
40.00
60.00
80.00
Brent ($pb)

17
 The average opening long position of DMB’S was at
N75.81bn
 Overnight rates averaged 32.28% and OBB was
29.88%
 The volatility between top and bottom rates:
 OBB:94.33%
 O/N: 98%
 The stock market had 11 negative days and 10
positive days
 The market lost 1.64% in August

18
 The Scottfree BC 30 index, a more reflective
measure of performance shows
 Absolute return of -2.22% in 30days
 Dividend yield of 3.03%
 30-day Volatility: 27.51%
 Trailing P/E of 6.83x

19
All Presidents Men – Fool me Once, you are the fool
 The president formally announced his
front office team
 These are his trusted and reliable
aides
 Announced on the anniversary of his
being toppled by the trusted but
treacherous in August 1985
 SSS have raised security alert levels
at the Abuja and Lagos Airports and
various parts of Southern Nigeria
0

20
Source: EIA ,FMDQ, OPEC, CBN, FSDH, FDC Research ; (* FDC’s forecasts)
Leading Economic Indicators (LEIs)
Indicators
July’15 August’15
(Aug/Jul)%
change
September*
Oil Markets
Spot price (avg $’pb) 56.56 48.21 14.76% 54
Production (mbpd) 1.87 (Jun) 1.85 (Jul) 1.07% 2.0
Money Markets (End Period)
OBB (%)p.a 6.08 8.5 242bps 10
Overnight (%)p.a 6.92 9.25 233bps 10
MPR (%)p.a 13.00 13.00 - -
CPI ( %) 9.20 9.40* 0.2% 9.5
External Reserves ($’bn) 31.46 31.40 0.19% 30
Exchange rate (End Period)
Inter-bank (N/$) 198.95 198.97 0.01% 199
Parallel (N/$) 230.00 219.00 4.78% 230
Market cap (N’trn) 10.34 10.21 1.26% 11
FAAC 518.5 511.8 1.29% 400
M2 (N’trn) 18.81
(Jun)
18.43 (Jul)
12.14% 18
FBN PMI 50.6 49.2 2.77% 50
Vacancy Factor (Residential %) 34 39 5% 40
Vacancy Factor (Commercial %) 24 30 6% 30

22
US - Growth Accelerates
 GDP expanded by 3.7% in Q2’15
 Grew by 0.6% in Q1’15
 Faster than initial estimates of 2.3%
 Led by growth in:
 Business investment: 3.2%
 Government spending: 2.6%
 Consumer spending: 3.1%
 Full year forecast is 1.8% – 2%
 Fed will weigh growth against volatility in markets as
it considers raising interest rates

23
US – Unemployment Down
 Consumer spending and new home sales rose
healthily in July
 Decline for orders for durable goods expected
 Reflecting weaker conditions in the energy and
manufacturing sectors
 Latest worries revolve around a slowing Chinese
economy and a strong dollar
 Unemployment is at a healthy 5.3%
 When Obama came to power it was 7.8%

24
A lesson in Global volatility
 China has dominated headlines in August
 Chinese PMI shrank to 49.7
 Yuan devaluation, weak export data and global market
volatility
 Markets are following a classic playbook of
uncertainty and modest de-risking
 A softening China has huge global implications

25
 China is in the painful process of a changing growth
strategy
 Now aiming for consumption and productivity
 Rather than exports and capex
 Market liberalization, floating the currency are
fundamental to this process

26
 IMF M.D. says global expansion outlook is worse
than earlier anticipated
 A 4% drop in the yuan is large relative to its trading
band
 Is this China starting a currency war?
 Answer is No, the yuan movement is mild compared
to euro weakening, yen and Australia dollar
 China’s reduced demand for commodities is a big
problem for emerging markets

27
The New Financial Turbulence
 Relevance of China in Global Economy:
 GDP of $10.3trn – 2nd largest in the world
 Holds $3.6trn in external currency reserves
 Consumes:
 50% of world’s copper
 45% of global steel
 Central role in world trade
 World’s biggest exporter: exports account for over 11% of
world trade

28
The New Financial Turbulence
 Currently about $15bn in Chinese investments and
credit to Nigeria
 Over 30% of Chinese investment in Africa
 Nigeria holds 7.5% of its external reserves in yuan
 China is Nigeria’s leading supplier
 Chinese exports to Nigeria rose from 5% in 2003 to
25.5% in 2014
 From airports to rail tracks, wagons and satellites
 China has been on a roll in Nigeria

29
Relevance Of China
A slowdown in the
largest exporter & 2nd
largest importer in the
world would be likely to
reverberate around the
world

31
 Concerns over Chinese
economic slowdown rattles
commodity-linked African
currencies
 China is Africa’s largest
bilateral trading partner –
over $200bn
 Many SSA economies would
be at risk if China crashes
and the flow of cash is
curbed
 Further weakening could
curtail Chinese investment
and Chinese financial
Sub Saharan Africa

33
Sub Saharan Africa
 African exports to China to fall as they become more
expensive
 Currencies of major exporters to feel the pressure
 South Africa (gold & wine)
 Angola (oil)
 Zambia (copper)
 Domestic products will face stronger competition
from cheaper Chinese imports
 Local wages will cost more for Chinese firms
seeking to open shop on the continent
 Retailers and consumers will have access to
cheaper Chinese goods

35
Commodity Prices In August
 The Bloomberg Commodity Index (BCOM) declined
by 0.92% in August from July
 Almost all major commodities have fallen by 10-20%
YTD
-40.00% -30.00% -20.00% -10.00% 0.00% 10.00%
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 ($/cwt)
Wheat (US cents/bushel)
PalmOil ($/tonne)
YTD change

36
Global Oil Prices At A 6-year Low
 Brent fell to its lowest in 6 years due to
Chinese malaise and oversupply issues
 YTD low of $42.69pb
 Fear that devaluation of yuan will reduce
Chinese demand for imports
 An unprecedented 3-day recovery in oil
prices
 Strongest rally since 1990
 Before crashing again to $49.23pb
 Now a roller coaster ride

37
Global Oil Prices At A 6-year Low
 Oil prices may have bottomed out
 Markets will continue to exaggerate
sentiments from China
 And frackers have found more
efficient ways to increase production
 OPEC insists on battling for market
share but open to negotiation with
non-OPEC members
 Producing above 30mbpd quota
WHEN WILL
OIL PRICES
BOTTOM
OUT?

38
Outlook And Impact
 Bloomberg survey shows that US Fed increases
interest rates despite Chinese woes
 US dollar appreciation may push oil prices further
down
 August FAAC down slightly by 1% but will fall sharply
in September – estimates at N350bn
 States beginning to receive CBN intervention fund of
N338bn
 Debt repayment will become difficult with a slide in oil
prices
 Some states have already restructured previous debt

39
Softs Commodities
 Soft commodities average price decline in August:
9.8%
 Losses led by:
 Sugar: 24.56% decline YTD
 Palm Oil: 23.7% decline YTD
 Wheat: 16.56% decline YTD
 Combination of negative sentiments from China
and large stockpiles
 Cocoa struggling to remain above $3,000/mt due
to weak demand
 Currency pressures offset gains from lower
commodity prices for FMCGs companies

41
Naira To Glide Before The Slide
 Interest rates at the interbank oscillating between
10 and 80%p.a
 The naira is now at N220 at the parallel market
again and dropping
 Monetary policy is back between a rock and a hard
place
 The MPC meeting of September 21/22 is the last
before the World Bank annual meetings in Peru on

42
 The naira has been held artificially stable by
administrative measures
 Supported by reduced leakages from oil and
revenue management
 Capital inflows have shrunk to as low as $2.6bn per
quarter
 Inflation has spiked 7 out of 9 months in 2015

43
 The lull in demand for forex is because of two
principal reasons:
 No cabinets in states and federal – so curbed spending
 Interest rates have been at their highest level in many
years - naira liquidity tightening
 Once a cabinet is in place and spending starts
 The naira pressure will resume
 The CBN will yield to market pressure
 The Governor has done his best
 But markets usually win and policy makers tend to
buckle
 Like in China, Malaysia, Indonesia

44
The Way Out??
 Allow the currency float and set a buying range of
parallel market minus N10
 Intervene with as many levers as the CBN can
spare to ensure that the market rate is between (–
and + 10%) of the PPP currency value - N189
 The exchange rate will be approximately N210 –
N215/$

45
Possible Scenario – Gliding Through Turbulence
 Allow naira float downwards by 5%
 Ahead of policy decision on fuel subsidies
 Cut CRR from 31% to 20%
 Leave MPR unchanged at 13%p.a
 Reduce some of the administrative measures

46
MPC Decision
 Rationale:
 Administrative measures are temporary and unsustainable
 Cannot guarantee long term conservation of, or accretion
in reserves
 The currency will be closer to fair value
 Encourage lending & stimulate economic growth with
accommodative monetary policy
 Remove the fear factor

47
MPC Decision
 Impact:
 Slowdown in the depletion rate of the external reserves
level
 Relative stability of the exchange rate
 Increased banking system liquidity
 Short term increased inflationary pressure
 Risk investment flow reversal
 Lead to 2% decline in interest rates
 Govt borrowing costs will fall by N18.8bn in 2015

FAAC Allocation Down in August
 FAAC allocation shared in August was N511.8bn
 1.3% lower than N518.5bn in July
 Actual allocation was N424.1bn
 Exchange rate gain of N6.4bn
 NNPC refunded N6.3bn
 VAT: N74.95bn
49Source: FMF, FDC Research
49

FAAC Allocation Down in August
 Revenue loss in September will increase by at least
3%
 Oil price decline of 11% minus exchange rate
depreciation of 8% in June/July
50Source: FMF, FDC Research
500.13
518.5 511.8
300
360
420
480
540
600
Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15
FAAC (N'bn)
50

Ships Awaiting Berth Up Again
 Ships awaiting berth increased by 4% to 59 in August
 From 57 in July
 Slower increase due to forex restrictions and
declining imports
 September will be worse than August
51Source: NPA, CBN, FDC Research
0
50
100
150
200
250
300
0
10
20
30
40
50
60
70
Jan'15 Feb'15 Mar'15 Apr'15 May'15 Jun'15 Jul'15 Aug'15
Ships Awaiting Berth Parallel Rate (N/$)
51

Rig Count Down
 Active rigs in Nigeria down by 20% to 8
 IOCs are retrenching people and equipment
 Producers likely to relocate to areas with lower
production cost
 Service contractors are giving up houses in Ikoyi
and Victoria Island
 The good news is that Schlumberger is acquiring
Cameron
 Schlumberger is the world’s largest oil servicing
company with revenues in excess of $48.6bn
Source: Baker Hughes
52

Rig Count Down
Source: Baker Hughes
885
208
8
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
53

Power Generation Up
 Average power output from
the national grid remained
stable
 Rose to 4,396MW in
August
 2.2% higher than 4,300MW
in July
 Peak: 4,748MW
 Constraint is transmission
currently capped at
5,000MW
 Power output may decline
in September due to
Shell’s force majeure
Average Daily Power Generation
(MW)
Source: Nigeria Power Reform
4074
3926
4748
2000
2500
3000
3500
4000
4500
5000
16-Jan
27-Jan
07-Feb
18-Feb
01-Mar
12-Mar
23-Mar
03-Apr
14-Apr
25-Apr
06-May
17-May
28-May
08-Jun
19-Jun
30-Jun
11-Jul
22-Jul
02-Aug
13-Aug
24-Aug
54

56
Retail Industry - Luxury
 Estimates of Nigerian destination shopping ranges
from $500 – 1bn p.a.
 Nigerians own significant real estate in London,
New York and Miami
 Destination weddings, birthday and anniversaries
are now prevalent
 The luxury goods segment is targeted at the
Nigerian elite
 And aspirants to climbing the social stratification
ladder

57
Global Luxury Market - Bain
 Global luxury goods market is growing –
Bain & Co.
 Total sales at 224bn euro in 2014
 Estimated to reach 250bn euro in 2015
with a growth of 4%
29%
25%
22% 20%
4%
0%
5%
10%
15%
20%
25%
30%
35%
Accessories
(e.g. Shoes)
Apparel Hard Luxury
(e.g.
Watches)
Beauty Other
Global Personal Luxury Goods Market by
Category (2014 Estimate)

Global Personal Luxury Goods Market
Evolution- Bain
 Limited price awareness
and consciousness
 Limited role of online
 Market more balanced
between tourist and local
consumption
 35% of sales were
made to tourists
 Approx. 140million
luxury consumers
globally
 Chinese accounting for
less than 2% of total
 Significant price
awareness and growing
price consciousness
 Many brands have
websites
 Huge role of touristic
spending
 50% of sales made to
tourists
 About 350million luxury
consumers
 Chinese accounting for
over 30% of total
2000: Valued at €128bn
2015 Estimate:
Valued at €228 - 233bn
58

59
Global Luxury Goods Market - Bain
 Positive performance of mature markets and Middle
East
 Oil price drop impacting spending in oil-dependent
economies like Russia and Nigeria
34%
32%
21%
8%
5%
0%
5%
10%
15%
20%
25%
30%
35%
40%
Europe Americas Asia-Pacific Japan Rest of
World
Global Personal Luxury Goods Market by Area
(2014 Estimate)

60
Global Luxury Goods Market - Bain
 Shoes are the top
performing category
 Men’s segment
outperforming
 Apparel hit by negative
impact of Mainland
China
 Watches sales stable
as Euro devaluation
and Swiss franc
movement offset Asia
issues
0
5
10
15
20
25
New
York
Paris London Hong
Kong
Tokyo Milan
Top Shopping Destinations
(€'bn)

61
What Are People Spending On??
 Ready to wear
 Men: 26bn euro
 Women: 27bn euro
 Casual wear maintaining momentum
 Urban style pushed by music and sports celebrities
 Handbags: 3% growth to 37bn euro
 Prices are 130% higher than in 2008

63
 Shoes up 5% to 14bn euro
 Shoes outperforming leather goods first time since
2007
 Average prices at 1000 euro range
 Men’s shoes up especially made to measure
 Watches 0% growth at 35bn euro
 Key brands reducing production
 Price range 2k euro

64
 Luxury jewels growth of 4% to 13bn euro
 Global demand for diamonds registering strong
growth esp. U.S. Market
 Wealthy women in Emerging Africa e.g. Nigeria and
Egypt

65
3 Broad Segments Of Luxury Goods
Absolute: 10%
Aspirational:
17%
Accessible: 11%

66
 Domestic retail sales slightly up in August
 FMCGs and white products: rose by 3%
 In spite of falling disposable income and state
government salary arrears
 All 22 states benefited from FGN bail out package
to meet salaries shortfall
Domestic Retail – Sales Marginally Up

67
 Exchange rate volatility caused an increase in the
prices of some goods
 Bag of rice (50kg): 5% higher
 Vegetable oil (3 litres): 6% higher
 Bed-side refrigerator: 3% higher
 Weekday traffic increased slightly in tandem with
daily needs
 Increased beverage demand for children on holidays
 Cash-to-card ratio unchanged at 65:35
Domestic Retail – Sales Marginally Up

68
Outlook
 Expect an increase in sales due to back-to-school
shopping
 Household spend may likely remain under pressure
due to muted disposable income growth
 Total retail sales growth remain constrained by slow
credit growth and forex restrictions
 Appointment of ministers and increased government
spending may boost retail growth

70
Real Estate – South Africa
 Rise in demand for properties in former apartheid
areas like Soweto
 Property prices in black townships rose 17%
 More than double the real estate market growth of 7%
 Demand is driven by:
 Boom in new shopping centres and gyms
 A revamp of stadiums for the 2010 FIFA world cup drew
more attention to those areas
Source: The Economist, FDC

71
Real Estate – Domestic
 GDP figures show real estate contributed 7.8% to
Q2’15 GDP
 Grew by 18.78% in Q2 from Q1’15 but only up 2.97%
from Q2’14
 Market sentiments still negative
 Banks are unable to find buyers for foreclosed
properties due to economic slowdown
71

72
Real Estate – Domestic
 Vacancy factor for both residential and commercial
properties increased in high end areas especially in V.I
 New office spaces in Adeyemo Alakija and Sanusi Fafunwa
 Empty flats in Sinari Daranijo
 Approximately 260,000 square metres of additional
office space in the Ikoyi & VI market
72

73
Vacancy Factor Up
Source: FDC Research
36%
25%
0%
5%
10%
15%
20%
25%
30%
35%
40%
Victoria Island
23%
9%
0%
5%
10%
15%
20%
25%
30%
35%
40%
Ikoyi
58%
57%
0%
10%
20%
30%
40%
50%
60%
70%
Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15
Residential Vacancy Factor Commercial Vacancy Factor
Lekki

AVIATION UPDATE
AVIATION UPDATE

75
Aviation – Strong Financial Results
 Global aviation benefited substantially from sharply
lower oil prices
 Oil prices are 54% lower than a year ago
 Airline share prices increased 4% in July
 Buoyed by stronger financial results 7.5% average
airline ROIC
 Global air travel rose by 5.7% in June year on year

76
 International travel on Asia-pacific carriers remained
robust with a 6.8% increase
 India stands out for strong passenger growth of
16.3%
 European carriers recorded a 4.1% rise in
international RPKs in June
 A total market passenger load factor of 79.4%
 In SSA route rationalisation and market
consolidation is continuing
Aviation – Load Factors Up

77
 B/A the legacy network carrier, has pulled out of
Entebbe airport in Uganda
 Lufthansa is pulling out of Accra
 Brussels airlines, a lower market player owned by
LH, will take over the Accra-route
 Lufthansa have returned to the more customer
friendly frequency in the summer schedule
Aviation – Lufthansa Reorganisation

78
 Load factors outbound Lagos to European
destinations average 90%
 Inbound traffic average 80%
 Direct flights to the U.S. are enjoying average load
factors of 95% outbound
 Delta are reducing frequency into Lagos from daily
to 6 a week from October
 Emirates remains the leading carrier into Nigeria
 Whilst Dubai is still the airport with the highest
international passenger traffic of 71m passengers a
year
Aviation – Load Factors Up

79
 2 helicopter crashes in one month:
 Bristow in Lagos with 6 casualties and 6 survivors
 And NAF in Kaduna with 7 casualties no survivors
 National carriers are yesterday’s views and unlikely
to take off
 Government owned national carriers are mostly
unviable
 Ethiopia
 Kenya
 SAA
Aviation – National Carrier

80
 A 12-member ministerial committee to look into how
to revive national carrier commences work
 Establishment of national carrier is justified by
economic considerations, national interest, national
pride and job creation
 Policies to stifle multiple-destination-designation of
business carriers may be implemented

81
 National carriers have bi-lateral service agreements
 Funding gap, inefficiency, proper management and
poor safety records are the major challenges to
Nigerian national carrier
 Domestic point-to-point carriers are at a disadvantage
 Nigerian government lacks the business acumen to
run airlines profitably

83
Global Equities Market
 Equity markets remained volatile throughout the
month in reaction to equity market events in
Shanghai
 S&P 500 declined by 6.26% during the month
 Greece equities battered by Prime Ministers
resignation and headwinds from China
 Johannesburg stock exchange drops 4.00% in
August
 Foreign portfolio flows to emerging markets turn
negative
 Spillover effect from China and fall in commodity
prices responsible for poor global equities market

Nigerian Stock Market Review
 Scottfree’sBC30 index lost 2.22% in August as
against 8.40% in July
 Trailing P/E ratio of 6.83x
 30 day volatility was 27.51%
 Dividend yield 3.03%
 30 Sharpe ratio of (1.32)
 Market performance mirrors Q2 GDP growth rate
Source: Scott free Index
20,000.00
23,000.00
26,000.00
29,000.00
32,000.00
35,000.00
38,000.00
NSE INDEX
August
Source: NSE, FDC Research
84

85
August 2015 Stock Market Highlights
 Sustained volatility as investors exited positions and
speculators went bargain hunting
 NSE ASI declined1.64% in August, 14.35% YTD
after a sharp recovery at the end of the month
 NSE ASI lost 2.22% on Monday 24th August,
mirroring sentiments in global equities markets
 Market capitalization declined 11.06% YTD, N1.27
trillion investor funds lost
 Average daily turnover decreased by 14.74% to
N3.47bn from N4.07bn

86
Key Results Released in August
 Tier 1 banks outperform industry peers with
impressive H1 results
 Access bank and GTB pay interim dividends of 25k

Sector Indexes
 Performance remained
negative across all sectors
 Banking sector is worst yet
again as impressive results
of tier1 banks failed to spur
a sector rally
 Weak fiscal positions by
states and federal
government affects
performance of industrial
goods sector
 Cuts in government
revenue, spending and
disposable income rubs off
on consumer goods
-15.00% -12.00% -9.00% -6.00% -3.00% 0.00%
NSE 30
Insurance
Banking
Oil & Gas
Consumer Goods
Industrial Goods
Source: NSE, FDC Research
87

88
Stock Market Today
 Bargain hunters ride mini-bull as key appointments
are made and oil prices recover slowly
 Net punitive CBN regulations continues to weigh on
the economy and the exchange

89
September Stock Market Outlook
 Ministerial announcements and increased liquidity
to bring about volatility in the market
 Anticipated weak Q3 results will subdue mini-rally
 Reforms in banking and oil & gas sectors will see
transactions unwind, dampening sector
performance
 Banking sector performance to worsen as operating
environment remains volatile and economic
slowdown persists

91
Political Risk and Update
Buhari’s 100 days Promise or Covenant
 Buhari under pressure to be more engaging
 He is trying very hard to shrug off his military
antecedents
 He is looking, living and acting like a dye in the wool
democrat
 Accused by opponents of being aloof and distant
from the political class
 They want him to be in government and also in
power

93
 Insisting that he must dismantle the PDP
infrastructure within the bureaucracy
 Delays and poor sequencing of appointments is
squandering political capital
 The NASS ambush is a testimony to weakness in
the political and strategic positioning
 The presidency in Nigeria is a pivotal position with
concentration of powers
 There is a thin line between being effective and
being autocratic

94
 The appointment of personal staff is reflective of his
demographic and personality profile
 He is not a professional politician with numerous
hangers-on
 Unlikely to have far flung associates except within
the old military
 He is seeking to methodologically but slowly
implement selectively the transition report
 Is not able to accept the fundamental principles of
economic reform

95
 He has found out in 100 days that oil prices are out
of the control of Nigeria
 And that the forex market cannot be controlled
 That what is necessary may not be sufficient to
solve Nigerian economic problems
 Political economics is a slippery and treacherous
business

BUHAR
IMACRO-ECONOMIC
SCORECARD

97
Macroeconomic Scorecard (100 Days)
Exchange Rate
•IFEM:
•Parallel:
Oil Price (Brent)
FAAC
External Reserves
Inflation
Stock Market Cap.
May 29
• N197.93/$
• N219/$
$65.56pb
N409bn
$29.6bn
8.7%
N11.66trn
Sept 2
• N197.55/$
• N220/$
$48.67pb
N511.8bn
$31.32bn
9.2%
N10.27trn
Change and
Direction
•Flat
•Flat
25.6%
Negative
25.1%
Positive
5.8%
Positive
0.5%
Negative
11.92%
Negative

98
Human Development Factors

Qualitative
S/N Indicator Comment Positive/Negative
1 Security
• Insurgency attacks have decreased during
the period
• New service chiefs have been appointed

2 Power grid
• Improved national power supply, from
1,962 MW to 4,396 MW

3 Petrol queues • Reduced fuel shortages and queue 
4 Investor confidence
• Reduced investor confidence due to
uncertainty in policy direction
???

S/N Goal Comment 0 - 25 26 - 50 51 - 75 76 - 100
1
Improved power
supply
• Improved national power supply
from 1,962 MW to 4,396 MW
2
Improved
transparency
• New national psyche of
accountability and responsibility
3
Reorganisation of
the energy sector
• Downstream saboteurs have been
silenced
• NNPC management has been
reshuffled to improve accountability
4
Enhanced
international
perception
• Cleaned up the international image
of Nigeria
• Improved the immigration service
and passport process
5
Addressed fuel
scarcity
• Reduced the fuel shortages and
queues
6 Revamped EFCC
• Got the EFCC to wake up after a 6-
year slumber
Accomplishments
Percentage of accomplishment (%)

S/N Goal Comment 0 - 25 26 - 50 51 - 75 76 - 100
1 Fuel subsidies
• Subsidies still in place and could be
abused
2 Refineries
• Refineries are up today and down
tomorrow
3
Official
appointments
• Appointments appear lopsided and
responses to criticism are reactive
• Delay in announcing the cabinet is
eating into the reputation of his
assertiveness
4
Consolidation of
APC
• He needs to engage the APC to
drive the legislative agenda
• APC needs to be reformed and
made an effective tool of civil society
engagement
5 Transparency
• Emphasis on integrity and anti
corruption is ideal
• But there are no saints in hell
• You go to war with the army you
have, not the one you wish to have
– Don Rumsfeld
Unfinished Business Percentage of accomplishment (%)

102
Outlook
 Cabinet likely to be named in a few days
 The combination of technocrats, political machine
boys and retired military
 To be quickly followed by some juicy board
appointments
 This will settle the affirmative action and federal
character issues
 There will be major governorship and senatorial
election annulments by the tribunals

103
Outlook
 This will alter the political chess board
 Also the balance of power in the NASS and both
political parties
 A wave of defections move into and out of the APC
 More high profile investigation and indictments of
former ministers

105
Outlook for September
 Oil price will trade between $45-55pb
 FAAC will decline towards N350bn
 August inflation will spike to 9.4%
 The TSA will sterilize approximately N0.5trn of banking
sector float
 Keeping interbank rates higher than levels of 18-
20%p.a.
 The stock market will trade sideways at current low
levels

106
Outlook for September
 The naira will fall towards N230 at BDC level
 And N240 at electronic transfer market
 The MPC will leave things unchanged but reduce
the CRR from 31 to 20%
 A supplementary budget will be announced
 The nation will be relieved that a cabinet is
announced
 So that the business can start

107
Corporate Humour
107
Goodman Ace-
A Vegetarian is a person who eats
nothing that can have children
- Anonymous
Familiarity breeds attempt.

108
Corporate Humour
108
A murderer is one who is presumed to be
innocent until proven insane.
Women who miscalculate are called
mothers.
Memorial Service : Farewell party for
someone who has already left.
- Anonymous
Abigail Van Buren -
- Robert Byrne

109
Corporate Humour
109
A Holding Company is a thing where you
hand an accomplice the goods while the
policeman searches you.
A painter can hang his pictures, but a
writer can only hang himself.
- Will Rogers
Edward Dahlberg

110
Corporate Humour
110
Diplomacy is the art of letting someone
else have YOUR way.
A committee is a group of important
individuals who singly can do nothing but
who can together agree that nothing can
be done.
- Anonymous
Anonymous -

111
Corporate Humour
111
A man’s Will and last Testament.
I owe much, I have nothing, the rest I leave
to the poor.
Two heads are better than none.
- Rabelais
Anonymous -

112

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

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

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