(A Member of the Nigerian Stock Exchange)

Transcription

1 (A Member of the Nigerian Stock Exchange) 1 CBP Overview of 2016 & Outlook for 2017

2 2 CBP Overview of 2016 & Outlook for 2017

3 Table of Contents SECTION 1: ECONOMIC ACTIVITIES... 4 TRUDGING TOWARDS THE PATH OF RECOVERY... 4 OVERVIEW OF THE GLOBAL ECONOMY... 4 OVERVIEW OF THE DOMESTIC ECONOMY INFLATION RATE EXTERNAL RESERVES EXTERNAL DEBT DOMESTIC DEBT MONETARY POLICIES EXCHANGE RATE CRUDE OIL PRICE INTERNATIONAL TRADE SECTION2: FINANCIAL MARKET OPERATIONS THE NIGERIAN FINANCIAL MARKET THE NIGERIAN MONEY MARKET NASD OTC SECURITIES MARKET FMDQ OTC MARKET THE NIGERIAN STOCK MARKET IN MARKET CAPITALIZATION MARKET ACTIVITY STOCKS PERFORMANCE FOREIGN PORTFOLIO INVESTMENT NEW ISSUES in DELISTING in OTHER DEVELOPMENTS IN THE STOCK MARKET IN BOND MARKET SECTION 3: ANTICIPATING THE FUTURE THE GLOBAL ECONOMY (OUTLOOK FOR 2017) THE NIGERIAN GROSS DOMESTIC PRODUCTS OTHER MACROECONOMIC INDICATORS THE BANKING SECTOR THE BOND MARKET THE STOCK MARKET CBP Overview of 2016 & Outlook for 2017

4 SECTION 1: ECONOMIC ACTIVITIES TRUDGING TOWARDS THE PATH OF RECOVERY OVERVIEW OF THE GLOBAL ECONOMY GLOBAL GROWTH EXPECTED TO REMAIN SLUGGISH Having consistently experienced sluggish growth rate for over half a decade with global growth rate stuck between 2.63% and 3.09% from 2011 to Growth rate for year 2016 reported a similar trend with global growth rate estimated at 3.10% for the period. IMF world economic outlook for released in January 2017 estimates global growth to remain slow at 3.4% while an anticipated improvement and stabilization in energy and commodity prices may provide a small boost for producing economies in However, on the larger front, growth continues to be dampened by activity slowdown in mature economies, skill deficiency in emerging markets and further political uncertainties in advanced European economies following the Brexit vote and the unexpected outcome of the US 2016 election. Beyond 2017, the IMF World Economic outlook projects global growth to gradually increase to 3.6% and is expected to be driven entirely by emerging markets and developing economies. World Bank Projects Global Growth at 2.7% in 2017 IMF Projects Global Growth at 3.4% in 2017 CBP Research Projects Global Growth at 3.1% in CBP Overview of 2016 & Outlook for 2017

5 Regions under stress like Russia, South Africa, Nigeria, Latin America and parts of the Middle East are expected to be drivers of global growth once they return to normalcy as well as China maintaining its transition towards being a consumption and service based growth economy while other countries continue to show resilience in activity. Given current realities, we are encouraged to be 0.4% more bullish than the 2.7% forecast by the World Bank for Key Economies Growth in mature economies is also expected to remain restrained as their potential for aggressive growth continues to diminish with an aging population in Japan and the past appreciation of the US dollar gradually easing. Emerging market economies like china and India will continue to grow far above world average and at a steady rate. Growth in Japan is expected to be boosted by an accommodative monetary policy and a weaker yen which we believe will boost business confidence in the region. The United Kingdom has to a large extent reacted fairly to the Brexit news and the resignation of their Former Prime Minister David Cameron with a smooth political transition to their next Prime Minister. The US economy has gradually continued to find its way back from the political violence which erupted following the announcement of the new president Donald Trump. Given the strong economic position handed over to the new President, he faces a difficult challenge of further growing the US economy, though he has vowed to boost US growth to about 3.5% a year on average. Euro Area The Euro area is expected to grow slightly lower than what was reported in 2016 due to the projected oil prices rebound, low investor confidence following the Brexit vote, the depreciation of the pound and rising inflation. In 2017, growth is being estimated at between 1.4% and 1.5% in 2017 as oil prices rebound, investor confidence continues to be shaky following the Brexit vote, the depreciation of the pound and rising inflation. However, a modest fiscal expansion in 2016 and easy monetary policy will support growth for the period. 5 CBP Overview of 2016 & Outlook for 2017

6 France is expected to experience stable growth rate at 1.3 percent for 2016 and 2017 (vs. 1.3 percent in 2015) while the growth in Germany is expected to increase to 1.7 percent in 2016 (vs. 1.5 percent in 2015) but decline to 1.5 percent in In Spain, growth rate is expected to remain to 3.1 percent in 2016 (vs. 3.2 percent in 2015) but projected to decline to 2.3 percent in In Italy, growth is projected to notch up to 0.9 percent in 2016 (vs. 0.7 percent in 2015) but decline to 0.7 percent in Euro Area Growth Projection (%) E 2017F Germany France Italy Spain Source: IMF, CBP Research Unemployment rate in the Euro areas has been slightly reducing in the months of 2016 while inflation rates continue to increase in the same periods. Unemployment rate stood at 9.8 percent in November 2016, unchanged from 7-year low in the previous month and lower than 10.5 percent a year earlier. In Euro Area, Germany recorded the lowest unemployment rate of 4.1 percent while Greece recorded the highest rate of 23.1 percent in During this period, Inflation rate rise to 0.6 percent in November 2016 and it is the highest inflation rate since September CBP Overview of 2016 & Outlook for 2017

7 Euro Area Unemployment and Inflation Rate (%) Jan Feb-16 Mar Apr May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Unemployment Rate (%) Inflation Rate (%) Source: Eurostat, CBP Research UNITED STATES According to the report released by the US Bureau of Economic Analysis on December , real gross domestic product for Q in United States increase by 1.7 percent to $ trillion (vs. $ trillion in Q3 2015). The upward trend in real GDP in the third quarter primarily reflected an upturn in private inventory investment, an acceleration in exports, a smaller decrease in state and local government spending, an upturn in federal government spending, and a smaller decrease in residential investment, that were partly offset by a smaller increase in Personal Consumption Expenditure (PCE) and an acceleration in imports. We expect the improvement in major macroeconomic variables to continue in fourth quarter of Also we expect United States to benefit from the slowdown and rebalancing in China and political change within the country. As a result, we estimate the growth in United State to improve to 2.0 percent and 2.4 percent for 2016 and Q respectively. 7 CBP Overview of 2016 & Outlook for 2017

8 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% US GDP at Constant Price Q2'15 Q3'15 Q4'15 Q1'16 Q2'16 Q3'16 Q4'16E Q1'17F 17,000 16,900 16,800 16,700 16,600 16,500 16,400 16,300 16,200 16,100 Real GDP (USD Billion) GDP QoQ Change(%) Source: Trading Economics, CBP Research Inflation in the United States increased by 1.7 percent year-on-year in November 2016, the highest rate since October 2014, following a 1.6 percent rise in October This figure was mainly boosted by higher energy cost, upward pressure from: shelter (+3.6 percent from +3.5 percent in October); transportation services (+2.5 percent from +2.6 percent) and medical care (+3.9 percent from +4.1 percent) while food price fell by 0.4 percent. Increase in Inflation rate was offset by the decrease in the US unemployment rate which fell to 4.6 percent in November 2016 (vs. 4.9 percent in October 2016), as the number of unemployed persons declined by 387,000 to 7.4 million. It should be noted that the November rate is the lowest unemployment rate since August Interest Rate has been stable around 0.5 percent from January to November 2016, except for December when the Federal Open Market Committee (FOMC) raised it to 0.75 percent during its December 2016 Meeting. The urge by the FOMC to increase the interest rate may be attributed to the rise in inflation rate during the period. 8 CBP Overview of 2016 & Outlook for 2017

9 US 2016 Inflation, Unemployment Rate and Fed Fund Rates Inflation Rate Unemploment Rate Fed Fund Rates 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Source: Trading Economics, CBP Research CHINA The sharp increase in the China s share of global imports over the past few years has made it a main source of export for over 100 economies that account for about 80 percent of world GDP. Recently, the decline in the world global growth can be attributed to the necessary slowdown in investment and current transition to consumption-led growth in China. As expected, this transition does not only affect the world economy at large but also China. This is reflected in the China s growth rate which remains at 6.7 percent in the Q1, Q2 and Q3 of 2016 (vs. 6.9 percent in Q3 2015). The IMF WEO and World Bank, in its GEP of January 2017 Edition, estimated the growth in China to remain at 6.7 percent in However, IMF and World Bank have a pessimistic view for 2017 as they both forecasted 6.5 percent for CBP Overview of 2016 & Outlook for 2017

10 China GDP Growth Rate (%) Q1'15 Q2'15 Q3'15 Q4'15 Q1'16 Q2'16 Q3'16 Source: National Bureau of Statistics of China, CBP Research The inflation rate which has been increasing since September 2016 dropped to 2.1 percent in December 2016 (vs. 2.3 percent in November 2016) while the Producer Price Index increased throughout the year. The Producer Price Index which started the year with 94.7 (-5.3 percent) continues to worsen for all the months in 2016 and struck at (5.5 percent) in December. Going forward, we expect the inflation rate to continue in an upward trend as there is slowdown in private and State-Owned Enterprise (SOE) investment growth in China China's Consumer and Producer Price Index (percentage year-on-year) Consumer Price Index (%) Producer Price Index (%) Source: National Bureau of Statistics of China, Trading Economics, CBP Research 10 CBP Overview of 2016 & Outlook for 2017

11 Sub-Saharan Africa Growth in sub-sahara Africa continues to diminish as the largest economies, such as Nigeria, South Africa and Angola, continue to experience sharp slowdown in economic activities. Investment growth in Sub-Saharan Africa in 2016 has continued to shrink, reflecting a severe term-of-trade deterioration, weak infrastructural and weak investor confidence. The region s growth has continued to be hampered with the likes of Nigeria suffering from a slowdown in economic activities and the rise in inflation leading to a recession, the South Africa economy continues to battle with policy uncertainty while Angola is adjusting to a sharp drop in oil export receipts. Sub-Saharan Africa Growth Rate (%) Sub-Saharan Africa Inflation Rate (%) E 2017F E 2017F Source: IMF, CBP Research Source: IMF, CBP Research By contrast, growth rate for 2017 is expected to increase as Nigeria and Angola are likely to benefit from the recent increase in the crude oil prices. As a result, IMF WEO estimated the growth rate in Sub Sahara Africa to decline to 1.6 percent in 2016 (vs 3.4 percent in 2015) while the World Bank, in its latest Global Economic Prospects of January 2017 edition, estimate the growth rate to decline to 1.5 percent in 2016 (vs. 3.1 percent in 2015). By contrast, growth rate for 2017 is expected to increase as Nigeria and Angola are likely to benefit from the recent increase in the crude oil prices. Prices of goods and services has continued to rise in Sub-Saharan Africa as a result of dwindling government revenue from oil, depreciation of domestic currency against the dollar, increase in the prices of raw materials, declining productivity, among others. In Angola, inflation rate jumped to percent 11 CBP Overview of 2016 & Outlook for 2017

12 in December 2016 (vs percent in November 2016) and this is the highest inflation rate since June of The rise in inflation rate in Angola can be attributed to fall in oil prices causing lower government revenues and weakened the Kwanza. The naira has also continued to depreciate in Nigeria, inflation rate rose for the 11th straight month to percent in December 2016 (vs percent in November). Inflation rate in Senegal jumped 2.1 percent year-on-year in December 2016 (vs. 0.2 percent rise in November 2016). However, IMF estimated inflation rate in Sub-Saharan Africa to rise to 11.3 percent in 2016 (vs. 7.0 percent in 2015) but projected it to decline to 10.8 percent in CBP Overview of 2016 & Outlook for 2017

13 OVERVIEW OF THE DOMESTIC ECONOMY GROSS DOMESTIC PRODUCT (GDP) IN 2016 The country experienced negative growth rate in all three quarters of 2016 and we expect the trend to continue in the fourth quarter. TOUGH TIMES AS GROWTH SHRINKS Nigeria technically entered recession in the second quarter of 2016 as a result of a sharp slowdown in economic activities. The country experienced negative growth rate in all three quarters of 2016 and we expect the trend to continue in the fourth quarter. The inability of the government to meet its projected daily production capacity of 2.2 million barrels per day due to pipeline bombings negatively impacted the government revenue base and limited the ability of the federal government to disburse funds for both capital and recurrent expenditure. During the period other areas of the economy remained challenged as price of Premium Motor Spirit (PMS) was increased, FX volatility intensified and inflation rose to new levels leaving business at the brink of collapse. Nigeria's Oil Sector, Non-Oil Sector and GDP Growth rate (%) Oil Sector Non-oil Sector Real GDP Q1'15 Q2'15 Q3'15 Q4'15 Q1'16 Q2'16 Q3'16 Real growth of oil sector slowed by percent (year-on-year) in the third quarter of The slowdown in oil sector reflected in its contribution to the total real GDP in third quarter of 2016 as it contributed 8.19 percent (vs percent in third quarter of 2015). In the non-oil sector, activities of Agriculture (crop production), Information and Communication and Other services largely drove the growth. The non-oil sector grew by 0.03 percent in the real terms in the third quarter of 2016 (vs percent in the preceding quarter). In real term, the non-oil sector contributed 91.81percent to GDP in the third quarter (vs percent in third quarter of 2015). 13 CBP Overview of 2016 & Outlook for 2017

14 Contribution to GDP Q3'16 Non-Oil, 91.81% Oil, 8.19% Oil Non-Oil Source: NBS, Trading Economics, CBP Research Under the Mining and Quarrying sector, crude petroleum and natural gas contributed 8.19 percent to GDP while quarrying and other minerals contributed 0.14 percent to GDP. Agricultural sector contributed the largest percentage of percent to the non-oil sector, closely followed by trades (16 percent), information & communication (10.14 percent), Manufacturing (9.19 percent) and Real Estate (7.17 percent). Financial and Insurance 3% Art, Entertainment and Recreation 0% Public Administration Perfessional, Scientific and 2% Technical Service 4% Real Estate 7% Education 2% Human Health and Socio Services 1% Other Services 3% Agriculture 29% Information & Communication 10% Trade 16% Manufacturing 9% Mining and Quarrying 8% Transport and Strorage 1% Accommodation and Food Services 1% Construction 3% Electricity, Gas Steam and Air Co. 0% Source: NBS, CBP Research The overall contribution of the oil sector to the country s GDP in the third quarter of 2016 dropped by percent while the contribution of non-oil sector marginally improved by 0.03 percent. The effect of this is noticeable in the Nigeria s real GDP as it contracted by percent (year-on-year) in the 14 CBP Overview of 2016 & Outlook for 2017

15 third quarter of 2016 (vs percent in third quarter of 2015). In third quarter of 2016, aggregate GDP remained at N26.56trillion (in nominal terms) at basic prices (vs N24.31trillion in third quarter of 2015). GDP at Constant Price (NGN'trn) Q1 Q2 Q3 Q4 Q1 Q2 Q Source: NBS, CBP Research For the year 2016, inflation figure was constantly on the rise as it started the year at 9.6% growing to its present 18.48% and is projected to close the year at 18.55% in December 2016 INFLATION RATE RISING INFLATION THREATENS REAL INCOME Consumer Price Index (CPI) for the month of November 2016, released by the National Bureau of Statistics (NBS), showed that inflation rate (year-onyear) in Nigeria increased marginally by 0.15% to 18.48% from 18.33% recorded in the month of October For the year 2016, inflation figure was constantly on the rise as it started the year at 9.6% and closed the year at 18.55% in December The continuous rise in inflation was principally due to FX volatility and scarcity coupled with the increase in PMS during the course of According to NBS, the Composite Consumer Price Index (CCPI) stood at points in the month of December 2016 an increase 2.30 points from points recorded in November The percentage change in the average CPI for the twelve-month period ended December 2016 over the average of the CPI for the previous twelve-month period was 15.70%, marginally higher from 15.00% recorded in November CBP Overview of 2016 & Outlook for 2017

16 Nigeria's CPI Jan -Dec % 18.00% 16.00% 14.00% 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% 17.10% 17.60% 17.90% 18.30% 18.48% 18.55% 16.50% 15.60% 12.80% 13.70% 11.40% 9.60% Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec Source: NBS, CBP Research Core Inflation (that is all items less farm produce) increased by 18.10% during the month, 0.10% points lower from the rate (18.20%) recorded in November as all key divisions which contributes to the index increased. On a month-on-month basis, the Core sub-index eased by 0.62% in December, down by 0.09% points from the 0.71% recorded in November. The Composite Food Index rose by 17.39% in December The rise in the index was mainly driven by increase in prices of vegetables, Oil and fats, egg, milk, cheese, potatoes, yam, Meat, Bread and cereals and Fish. On a month-on-month basis, the Food sub-index increase by 1.33% in December from 0.88% recorded in November. The average annual rate of change of the Food sub-index for the twelve-month period ending in December 2016 over the previous twelve-month average was %, 0.56% percent points from the average annual rate of change recorded in November (14.39%). Looking at the Sub- Saharan region, rising inflation in many of the struggling countries is eroding real income, as it reached double digits in some countries. Looking at the Sub-Saharan region, rising inflation in many of the struggling countries is eroding real income, as it reached double digits in some countries. The rise has been as a result of various causes which range from a higher domestic fuel prices following fuel subsidy reforms and loose monetary policy in Angola, an increase in administrative prices and a past laidback fiscal stance in Ghana and large currency depreciation in the likes of Nigeria and Zambia. In the region, inflation has rising significantly among the oil exporting countries as Angola s inflation has spiked to 38% almost double 16 CBP Overview of 2016 & Outlook for 2017

17 the rate from 6 months ago and from 7.5% at the end of 2014, while the same can be said for Nigeria. Nigeria s external reserves (Gross) stood at US$25.84bn as at December 30, 2016 against US$28.97bn reported on January , US$'bn EXTERNAL RESERVES DARKEST HOUR MIGHT BE OVER According to CBN, Nigeria s external reserves (Gross) stood at US$25.84bn as at December 30, 2016 against US$28.97bn reported on January , representing a decline of 10.82% (US$3.13 bn) for the period. This significant drop in the country s reserve was attributed to the massive drop in oil price and increased funding of the foreign exchange market in a bid to stabilise the exchange rate. As we recall the CBN announced the flexible exchange rate policy in June 2016, Naira Settled Future market the following month and appointed primary dealers to help boost FX liquidity. The argument remains that the CBN has yet to fully hands off the FX market and allow market forces determine the exchange rate, though we are of the view that the country continues to lack adequate inflow of dollar to meet local demand both from public and private sources but we remain optimistic that with the recent and gradual increase in oil price which will lead to increased government revenue, the much experienced FX volatility will begin to ease. Movement in Nigeria's External Reserve Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec-16 Source: CBN, CBP Research The CBN also maintained that the restriction on the 41 banned items remains in place while it introduced the futures option into the FX market 17 CBP Overview of 2016 & Outlook for 2017

18 where those in need of the dollars in the future can hedge against price fluctuations to enable them plan properly and reduce the pressure of front loading the dollar. Given the fact that the Nigerian Government has signified its intention to borrow approximately US$30.00 billion, our debt profile might witness a surge in the near term if successful EXTERNAL DEBT ON THE EDGE OF A SIGNIFICANT SURGE Data made available from the Debt Management Office (DMO) shows that Nigeria s total external debt stock for both the Federal and State governments as at June 30, 2016 stood at US$11,261.89mn representing an increase of 9.16% from US$10,316.82mn reported in June 30, Though the 9.16% increase in dollar terms seems moderate, when converted to naira using the different exchange rate of 1 US$ to Naira used in June 2015 and an exchange rate of 1 US$ to 285 Naira used in June 2016, it amounts to NGN2.03 trillion and NGN3.18 trillion respectively representing a significant increase of 56.92% for the period. Q2 16 level of external debt also represents an increase of 0.60% over US$11,194.65mn as at March 31, Given the fact that the Nigerian Government has signified its intention to borrow approximately US$30.00 billion, our debt profile might witness a surge in the near term if successful. External Debt (FGN & States) Q2'16 Commercial (Eurobond), $1,500.00, 13% Bilateral, $1,770.90, 16% African Development bank Group, $1,138.77, 10% World bank Group, $6,852.22, 61% Source: DMO, CBP Research The breakdown of the external debt profile showed that 70.96% was owed to Multilaterals (which includes World Bank Group, International Fund for Agricultural Development (IFAD), African Development Bank Group (ADB), International Development Bank (IDB) and Economic Development 18 CBP Overview of 2016 & Outlook for 2017

19 Fund (EDF)). A total of 15.72% was owed to Bilateral Institutions (which comprises of Exim Bank of China, African development Bank, Japan International Cooperation Agency and Germany KFW). The balance of 13.32% was owed in Commercial paper (Eurobonds). DOMESTIC DEBT DOMESTIC DEBT CONTINUES TO RISE In terms of the country s Domestic debt profile, statistics from the DMO indicates that the country s domestic debt stock for the Federal Government of Nigeria stood at NGN10.60 Trillion, as at June 30, 2016, representing an increase of 26.34% from NGN8.39 Trillion as at June 30, Domestic Debt of states stood at NGN2.50 Trillion in June 30, 2016, as against NGN1.69 Trillion reported in June representing an increase of 47.93% for the period. The composition of Nigeria s domestic debt stock by instrument type as at June shows that Federal Government bonds accounted for 70.46% of total borrowings, Nigerian Treasury bills accounted for 27.36% while Treasury Bonds accounted for 2.18% of total borrowings. FGN DEBT PROFILE (US$'Millions) US$ 65,000 60,000 55,000 50,000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 External Debt (FGN & States) Domestic Debt (FGN & States) 60, , , , , , , , Mar June Mar June Source: DMO, CBP Research 19 CBP Overview of 2016 & Outlook for 2017

20 20 CBP Overview of 2016 & Outlook for 2017

21 The CBN MPC Committee made further adjustments to the Monetary policies at its July MPC meeting were it further increased the MPR by 200 basis points from to percent MONETARY POLICIES EVIDENTLY NOT ENOUGH TO TRIGGER ECONOMIC GROWTH It was an interesting year for the Nigerian Central Bank Monetary Policy Committee as they battled to keep the Nigerian economy afloat by tweaking its monetary policies to drive economic activity and sustainability. In the course of the year 2016, the CBN Monetary Policy Committee (MPC) had its regular meetings six times and the CBN opened the year with its monetary policies of which it retained the Monetary Policy Rate (MPR) at percent, retained the Cash Reserve Ratio (CRR) at percent, retain Liquidity Ratio at percent, and retain a symmetric corridor at +200/- 700 basis points around the MPR. Most of these parameters were soon to be adjusted in the course of the year as major events which include the significant surge in inflation and the country finally entering into a recession made the changes inevitable during the period under review. In the course of the year major adjustments were made to the monetary policies in the under listed order; At its March MPC meeting the committee voted to; 1. Raise the MPR by 100 basis points from percent to percent. 2. Raise CRR by 250 basis points from percent to percent. 3. Retain Liquidity ratio at percent; and 4. Narrow the asymmetric corridor from +200 and -700 to +200 and basis points. The CBN MPC Committee made further adjustments to the Monetary policies at its July MPC meeting were it further increased the MPR by 200 basis points from to percent while other parameters where retained at previous levels. These policy parameters were retained at the same levels at its last meeting which held in November, Implications of the MPC s Decisions on Macro-Economy: The increase in the MPR from to percent and the increase in CRR from to percent in a bid to fight inflation had little or no effect on the trajectory of the country s inflation figures. The lack of visible and working fiscal policies, the increase in PMS and the continuous 21 CBP Overview of 2016 & Outlook for 2017

22 depreciation of the Naira due to the unavailability of FX ensured that the level of economic activities in the country remained depressed. Capital expenditure of governments remained slow in 2016, but we anticipate an improvement in the new year, especially with the continuous rise in oil price So also, the low crude oil price witnessed in 2016 combined with the increased oil pipeline bombing by militants compounded the economic woes as the government continued to struggle with low government revenue which in turn halted government spending and its ability to execute projects already approved in its 2016 budget. In the short term, given the continuous volatility and scarcity in the FX market, we expect that the productivity of most corporate entities will continue to be hampered as a result of a direct rise in its cost of sales and the high interest rate regime. Capital expenditure of governments remained slow in 2016, but we anticipate an improvement in the new year, especially with the continuous rise in oil price which should improve government revenue and enable the government drive growth through increased spending in infrastructure as seen in the proposed 2017 budget. Hence, we expect that with rising government revenue, visible fiscal policies to support the already stressed monetary policies and a less volatile FX market, the Nigerian Economy should be out of recession by the second quarter of Interest rates with the CRR at percent, coupled with the increase in MPR to 14% from 12%, we do not expect rates to drop in the medium term especially with rising inflation. This however will continue to negatively impact the real sector as economic activities will remain depressed as the banks will not lend especially as they continue to battle with increased nonperforming loans but rather place their funds in high yielding government instruments which in turn will be bad for the economy. On the Stock Market, investment and confidence in shares significantly reduced in 2016 given the high interest rate regime which has shifted investor appetite away from the equities market to guaranteed high yielding fixed income instruments of the financial market. The outlook on the banking stocks among other sectors remains positive having seen the performance of the banks in Q3, Thus, we anticipate a rally in the banking space for tier 1 companies and a few selected tier 2 companies in the banking space 22 CBP Overview of 2016 & Outlook for 2017

23 while a few blue chip companies listed on the NSE are expected to lead the race to a stock market recovery in the medium term as the country s economic outlook begin to improve. EXCHANGE RATE At the end of the year, the Naira closed at the CBN at 304/1US$ for buy positions and 305/1US$ for sale positions A SIGNIFICANT DRIVER OF INFLATION Data made available from the CBN showed that Nigeria s exchange rate opened for the year at 196/1US$ for the purchase of the dollar while the CBN sold the dollar at 197/1US$ as at January 4, This exchange rate was managed until the CBN in June 2016 announced the free float of the naira which analyst and investors believed to be the way forward towards an effective FX market which demand and supply dictate the price. This announcement immediately depreciated the naira by 42.13% from 197/1US$ to 280/1US$ as investors believed the Naira to be overvalued and the Naira has since then continued to gradually depreciate. At the end of the year, the Naira closed at the CBN at 304/1US$ for buy positions and 305/1US$ for sale positions representing a depreciation of 55.10% and 54.82% respectively from the price it opened on January 4, The decision to float the Naira was due to increased demand on CBN to meet the dollar need, significant pressure from the investing community in order to attract foreign direct investment into the country which has suffered capital outflow in recent time and the significant decline in reserve accretion owing to the significant drop in oil price. At present the dollar sells at 490/US$1 in the parallel market. Going forward, we anticipate a gradual appreciation to the Naira on the back of increased government revenue and the ability of the CBN to meet more dollar demand. 23 CBP Overview of 2016 & Outlook for 2017

24 24 CBP Overview of 2016 & Outlook for 2017

25 Crude oil prices have continued to fluctuate unpredictably but hovered between US$27.00 per barrel and US$57.20 per barrel all through 2016 CRUDE OIL PRICE CAN THE RALLY BE SUSTAINED? Dropping from a high of US$ a barrel in June 2014 down to as low as US$27.00 per barrel in January 2016; the lowest since year 2004, Crude oil prices have continued to fluctuate unpredictably but hovered between US$27.00 per barrel and US$57.20 per barrel all through The drop in prices was attributed to over eighteen months of unrestrained production and supply into the market in a bid to gain market share. During the latter part of the year, crude oil prices reported a continuous gradual increase in price following OPEC s decision at its November meeting to limit production to 32.5 million barrels per day in the first half of 2017, down by 1.2 million barrels per day from October 2016 production levels, with a possibility of an extension of the limit for the remainder of the year. A different meeting in December saw eleven non-opec countries pledge to cut approximately 0.6 million barrels of oil per day, with Russia in agreement to also cut production by about 0.3 million barrels per day. If these agreements are implemented without countries failing to meet their production cuts, we expect that oil prices should rally to new highs in recent time as projections have estimated oil prices to average between US$55.00 per barrel and US$60.00 per barrel throughout DAILY PRODUCTION VOLUME OF OPEC MEMBERS IN 2015 'Mn Barrels / Day Source: OPEC, CBP Research 25 CBP Overview of 2016 & Outlook for 2017

26 Reports of increased production in the US and the fears of a few countries failing to meet their production cuts continues to threaten the sustainability of the oil price rally as some analyst fear the rally might not last as long as expected. The rally will also be threatened by unconventional oil producers; (US shale oil) knowing that the rising oil prices have already led to a rebound in shale drilling and estimates suggests a sizable increase in US shale activity once oil price hit US$60.00 per barrel where it then becomes profitable to drill. Though less strict environmental regulations in the United States could potentially boost shale drilling and cause lower oil prices as well as political uncertainties and imbalances among producing countries, further disruptions among politically stressed producers like Iraq, Libya, Venezuela and even Nigeria could exert additional upward pressure on oil prices. Further disruptions among politically stressed producers like Iraq, Libya, Venezuela and even Nigeria could exert additional upward pressure on oil prices The low price of oil continues to have major implications in Nigeria and producing countries around the world. Individuals in the United States, Europe, Japan and other regions that import oil have enjoyed the low oil prices which have seen their spending power increase as they pay less for gasoline. (Arguably the low prices of oil have helped juice the US economy), while oil producers like Saudi Arabia, Russia and Nigeria continue to struggle to balance their budgets and seeing major revenue hit. All oil exploration and producing companies continue to watch their profits evaporate and this continues to pose a significant threat to the existence of their businesses. Crude oil Price Jan - Dec 2016 $60.00 $55.00 $50.00 $45.00 $40.00 $35.00 $30.00 $25.00 $ Jan-16 4-Feb-16 4-Mar-16 4-Apr-16 4-May-16 4-Jun-16 4-Jul-16 4-Aug-16 4-Sep-16 4-Oct-16 4-Nov-16 4-Dec-16 Source: OPEC, CBP Research 26 CBP Overview of 2016 & Outlook for 2017

27 On crude oil price recovery, some analysts continue to predict a further rise in crude oil price in 2017 to as high as US$70/barrel while some analyst predict even as high as US$80/barrel, though a few analyst expect the rally to ease and the price remain at US$55/barrel. However, we believe that once OPEC s production cut is sustained throughout the year and non OPEC members countries keep to their pledges to also cut production, oil price will well remain above an average of US$55/barrel for Hence, if the price of oil is to be sustained at reasonable levels, we must maintain a state where supply never outweighs demand. Summarized World Supply/demand Balance for 2016 'Mb/d Total Non-OPEC Oil Supply OPEC Oil Supply Total Oil Supply World Oil Demand Q1'16 Q2'16 Q3'16 Q4'16 FY'16 FY'17F Source: OPEC, CBP Research In 2016, Nigeria s oil sector continued to suffer production challenges which it also experienced in 2015 as the sector failed to reach its full production capabilities. The downtrend in global oil prices has continued to affect the energy industry worldwide, while local operational challenges continue to hamper maximum output. However, a total of million barrels of crude oil was produced in the month of October 2016, representing an average daily production of 1.78 million barrels. This represents an increase of 11.43% when compared to a daily production of 1.65 million barrels produced in September and an increase of 11.45% when compared to the million barrels produced in September. 27 CBP Overview of 2016 & Outlook for 2017

28 Currently in 2017, the President has proposed a budget of 7.29 trillion against 6.08 trillion proposed in 2016 representing a 19.90% increase Month Average Daily production Total production per month Jan-16 2,149, ,626, Feb-16 2,041, ,200, Mar-16 1,954, ,601, Apr-16 1,985, ,559, May-16 1,688, ,339, Jun-16 1,768, ,065, Jul-16 1,654, ,285, Aug-16 1,502, ,564, Sep-16 1,650, ,528, Oct-16 1,780, ,192, Source: NNPC, CBP Research For the most part of 2016, the price of oil was above US$38.00 per barrel which was the budget bench mark for the period. Though, the price of oil averaged at US$45.00 per barrel in 2016, Nigeria continued to suffer significant revenue decline due to reduced production capacity caused by pipeline bombings by the Niger delta militants. Production estimate for 2016 was hinged on 2.2 million barrels per day which was never achieved all year round as the country produced between 1.5 million barrels and 2.1 million barrels per day. Currently in 2017, the President has proposed a budget of 7.29 trillion against 6.08 trillion proposed in 2016 representing a 19.90% increase. The 2017 budget bench mark was hinged on a price of US$42.50 per barrel of oil and a production estimate of 2.2 million barrels a day though our daily production remains 0.5 million barrels short as at October 2016 figures. Going forward, we expect the government to seek a lasting solution to the pipeline bombings to improve production to projected estimates to improve revenue generation as the government is already planning to borrow about 32.37% of total budget via domestic and foreign deficit financing. In summary; further Oil price rise and how it affects Nigeria s Stock market and other Economies Government Revenue Higher oil price will cause increased government revenue thereby triggering a reduction in fiscal deficit Lower fiscal deficit will translate into lower government borrowing Lower government borrowing would result in reduced interest rates 28 CBP Overview of 2016 & Outlook for 2017

29 Interest Rates Q saw Nigeria s total merchandise trade increase by billion representing 16.3% rise to trillion from the preceding value of 4.06 trillion as at Q Interest rates gradually drops as government borrowing lessens Low interest rates would make fixed income instruments less attractive to the investors We the expect the reduction of interest rate to gradually lure attention back to the capital market and improve liquidity in the market Exchange Rates Given the expectation of an improved revenue base for the period, we expect significant accretion to the government s reserve which should strengthen the value of the naira, thus we expect to see: Foreign investors increased appetite towards Nigerian assets Increased liquidity in the equities market A gradual inflow of FDI and possibly FPI in the medium term Oil Consuming Economies Liquidity would likely be reduced due to higher spending on energy Economic activities in such regions may also be dampened INTERNATIONAL TRADE TRADE BALANCE STILL NEGATIVE Q saw Nigeria s total merchandise trade increase by billion representing 16.3% rise to trillion from the preceding value of 4.06 trillion as at Q This improvement arose due to increase in both imports and exports. Imports rose to 2.41 trillion in Q an increase of billion representing 6.2% from 2.27 trillion reported in Q2 2016, while exports stood at 2.30 trillion resulting in an increase of billion or 29.1% from 1.79 reported in Q The improvement in export trade saw the country s deficit trade reduced for the period from billion as at Q to billion in Q CBP Overview of 2016 & Outlook for 2017

30 NGN'bn Trade Summary (NGN 'billion) Import Export Jul - Sep 2014 Jul - Sep 2015 Jul - Sep 2016 Source: NBS, CBP Research Nigeria s import trade stood at 2,413.0 billion, at the end of Q3, This was 6.2% more than the value recorded in the preceding quarter 2,272.3 billion Nigeria s import trade stood at 2,413.0 billion, at the end of Q3, This was 6.2% more than the value recorded in the preceding quarter 2,272.3 billion. Further comparison with the corresponding quarter of last year, showed an increase of billion or 42.9%. Nigeria s import trade by direction showed the country imported goods mostly from China, with an import value of billion or 19.8% of total imports. This was followed by Belgium at billion or 13.7%, Netherlands with billion or 12.4%, the United States with billion or 6.9% and India with billion or 5.0% of total imports. The structure of Nigeria s import trade according to Standard International Trade Classification (SITC) was dominated by the imports of Mineral fuel, lubricant etc., Machinery and transport equipment, and Chemicals and related products, which accounted for 30.3%, 25.1%, and 14.4% respectively in These commodities contributed the most to the value of import trade in 2016, whereas commodities such as Crude inedible materials, except for fuel, Beverages and Tobacco, and Animal and Vegetable oils, Fats and Waxes, contributed the least, accounting for 1.5%, 0.6%, and 0.3% respectively 30 CBP Overview of 2016 & Outlook for 2017

31 Trade Summary (NGN 'billion) Jul - Sep 2014 Jul - Sep 2015 Jul - Sep Source: NBS, CBP Research Exports by continent showed that Nigeria mainly exported goods to Europe and Asia, which accounted for billion or 33.3% and billion or 29.1% respectively The value of the export trade, totaled 2,308.9 billion in Q3, 2016 showing an increase of billion or 29.1%, over the value recorded in the preceding quarter. Year-on-Year analysis shows that the country s exports decreased by 24.4 billion or 1.0% against the export value recorded in the corresponding quarter of The structure of Nigeria s export trade is still dominated by crude oil exports, with the contribution of crude oil to the value of total domestic export trade amounting to 1,944.0 billion or 84.2%. Exports by continent showed that Nigeria mainly exported goods to Europe and Asia, which accounted for billion or 33.3% and billion or 29.1% respectively, of the total export value for Q3, Furthermore, Nigeria exported goods valued at N371.2 billion or 16.1% to the continent of Africa while export to the ECOWAS region totaled billion. 31 CBP Overview of 2016 & Outlook for 2017

32 32 CBP Overview of 2016 & Outlook for 2017

33 SECTION2: FINANCIAL MARKET OPERATIONS The CBN was on its toes as various measures and policies were introduced in the year aimed at stabilising prices and ensuring a stable forex market. THE NIGERIAN FINANCIAL MARKET STILL ON A PATH TO STABILITY The challenges that the Nigerian financial market faced in 2015 persisted in year 2016 and eventually defined its performance. Whilst the Money and Bond markets were active as a result relatively high interest rates occasioned in part by the ever increasing inflation rate and federal government s borrowing appetite, the Stock market did not generally fared well in the year as the market index closed the year southward. The Foreign Exchange market experienced serious volatility in the first half of the year before the introduction of flexible exchange rate regime in June and Naira-settled OTC FX Futures contracts on FMDQ OTC Securities Exchange in July by the CBN. The market saw Naira depreciated grossly in the year. The CBN was on its toes as various measures and policies were introduced in the year aimed at stabilising prices and ensuring a stable forex market. THE NIGERIAN MONEY MARKET HIGH RATES CONTINUES TO ATTRACT INVESTORS The money market enjoyed investors patronage in the year due to the relatively higher returns when compared to stock market. Although in nominal terms the returns were higher than the returns in the equities market but in real terms they were negative returns considering the inflation rate. The CBN in performing its statutory role used monetary policies to stabilize prices in the economy all year round through its Monetary Policy Committee. At the start of the year, the CBN Monetary Policy Committee in January kicked of its MPC meeting and retained its MPR at 11.00%. This was later adjusted to 12.00% at its March MPC meeting and further adjusted to 14.00% at its July MPC meeting. These increases were triggered majorly by the significant rise in inflation which the CBN believed could be managed by raising its MPR, though inflation have since continued to rise suggesting a more structural issue. Nonetheless, though the country continued to battle with rising inflation figures, investors on the other hand continued to show increased interest in 33 CBP Overview of 2016 & Outlook for 2017

34 Interest rates across tenors continued to increase month on month for the most part of the year. the money market especially as the equities segment of the financial market remained highly volatile and continued to underperform. The first CBN MPC meeting in January 2017 ended in consensus vote to hold all parameters of the monetary policy constant with previous levels especially given the state of the economy now and the fact that the 2017 Budget is yet to be passed for implementation. Interest rates across tenors continued to increase month on month for the most part of the year. According to the available data, interbank call rates range between 2.04% and 4.32% in the first four months of the year until the second quarter when it increased drastically to 7.67% and 36.42%. Saving deposit rates ranged between 3.26% and 4.28% throughout the year whilst one-month deposit rates swung between 6.32% and 8.48% with the higher band in the last quarter of The average prime lending rate hovered between 16.13% and 17.18% while the maximum lending rate remained between 26.73% and 28.53% throughout the year. Money Market Indicators (In Percentage) Month Interbank MPR Treasury Savings One Three Twelve Prime Max Call Rate Bill Deposit Month Months Months Lending Lending Deposit Deposit Deposit Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec* Source: Central Bank of Nigeria.*CBP Estimate 34 CBP Overview of 2016 & Outlook for 2017

35 Amidst the challenges being faced by the Nigerian economy and the stock market Nigeria in particular, the exchange was able to record some milestones in the year. NASD OTC SECURITIES MARKET SHOWING RESILIENCE IN THE FACE OF CHALLENGES The NASD PLC, an over-the-counter market for trading of all securities of unquoted public companies in Nigeria, is an integral part of the Nigerian Stock Market. The OTC Securities exchange continues to make trading in the shares off these public unquoted companies seamless and at the same time making information available in respect of these companies. Amidst the challenges being faced by the Nigerian economy and the stock market Nigeria in particular, the exchange was able to record some milestones in the year. Amongst them are: Talk with LMC on Listing NPFL Clubs on the NASD OTC Securities Exchange The exchange started discussion with the League Management Company (LMC) on how to partner to transform the Nigeria Professional Football League (NPFL) Clubs ownership from Governments to community-based and public subscription ownership. The aim of the discussion is on how LMC can leverage on the NASD network within corporate Nigeria to create awareness for the inherent commercial and social investment opportunities in the football industry. Analyst Call In the bid to encourage free flow of information between the issuers (Companies) and the investing public, NASD continues to provide a platform in form of analyst call where Issuers are made to discuss their figures with the analyst with the aim of making them understand the facts behind the figures posted by the company. Capital market analysts and OTC market investors joined the session via Voice over Internet Protocol social media as well as physical attendance in NASD office. Release of Operational Guidelines for Equity Linked Notes In a joint effort to broaden the products range on the NASD OTC platform, the SEC approved the operational guidelines for Equity Linked Notes on the NASD. The Equity Linked Notes tradable on the 35 CBP Overview of 2016 & Outlook for 2017

36 NASD OTC Market can be created from securities of companies which satisfy the following criteria: o The securities must be those of a company in operation for at least one year. o It must be a public company or be held by more than 50 beneficial owners. o The Company is not listed on any recognised exchange. NASD also admitted to trade on its exchange the shares of the following companies. They are: The NASD Unlisted Securities Index (USI) closed the year at as against in 2015; a gain of 7.43% in AG Mortgage Bank Plc 2. Air Liquide Plc 3. Ensure Insurance Plc 4. FAMAD Nigeria plc 5. Fan Milk Plc 6. International Packaging Industries of Nigeria Plc 7. NASD Plc 8. Vital Products Plc The NASD Unlisted Securities Index (USI) closed the year at as against in 2015; a gain of 7.43% in The Market Capitalization also ended the year billion as against billion in 2015; an increase of 10.41%. The exchange closed the year with 32 companies as against 24 companies on its Daily Official List in FMDQ OTC MARKET CONTINUOUSLY GROWING WITH EACH PASSING DAY FMDQ OTC, the Nigerian OTC market for Foreign Exchange (FX), Treasury Bills (T-bill), Bonds, Money and Derivatives, as at September 30, 2016 achieved an overall turnover of N82.32trn; 21.88% above the value of N105.37trn recorded within same period in Member-Member trades continued to dominate activities in the market, accounting for 70.72% of total turnover. Member- Client transactions accounted for 24.16% of OTC market turnover; while Members transactions with CBN accounted for 5.84% of total turnover. 36 CBP Overview of 2016 & Outlook for 2017

37 2016 OTC MARKET TURNOVER (NGN trn) Jan Feb Mar Apr May Jun Jul Aug Sep YTD 2016 YTD 2015 Foreign Exchange T-bills FGN Bonds Other Bonds Repos/Buy-Backs Unsecured Placements / Takings Source: FMDQ Financial Market Report Review - November 2016 Some of the achievements of FMDQ in 2016 include: Inclusion of Associate Member (Clients) on FMDQ Bloomberg E-Bond Trading System: By this inclusion, these AMCs, through their respective Bloomberg terminals, will be able to trade (requests for quote) fixed income securities with the FMDQ Dealing Member (Banks) (DMBs). Re-Launch of the Nigerian Spot FX Two-way Quote Market: The twoway quote inter-bank FX Market went live in June, on FMDQ s Platform. Introduction of OTC Derivatives -Launch of the Naira-settled OTC FX Futures Market: The Naira-settled OTC FX Futures market also kicked off in July, with the CBN as the pioneer seller, offering OTC FX Futures contracts of non-standardised amounts for different tenors (from one (1) month through to twelve (12) months) to Authorised Dealers Approval for the Listing of Short-Term Bonds: In October, FMDQ obtained the approval of SEC to introduce Short-Term Bonds to the Nigerian fixed income market, to essentially bridge the funding gap for corporates, between the money market debt instruments and the traditional medium-to long-term debt securities Release of Guideline on Mandatory Quotation of Commercial Papers on FMDQ: The CBN, also in July, released a guideline mandating that all deposit money banks in Nigeria deal only in Commercial Papers (CPs) registered and quoted on authorised securities exchanges such as FMDQ 37 CBP Overview of 2016 & Outlook for 2017

38 FMDQ also listed the following Securities: 1) Listing of the Pioneer Money Market Fund: FMDQ welcomed the pioneer money market fund memorandum listing-the Greenwich Plus Money Market Fund-to its platform 2) FMDQ approved the listing of the Wema Funding SPV PLC 6,295,000, Series 1 7-year 18.50% Fixed Rate Unsecured Bond ( Wema SPV Bond ) on FMDQ. 3) FMDQ platform welcomed the registration of the Sterling Bank PLC N100.00bn CP Programme (the Sterling Bank CP Programme). 4) Sterling Investment Management SPV PLC 7.97bn Series 1, 7-Year 16.50% Fixed Rate Unsecured Bond under a 65.00bn Debt Issuance Programme 5) C & I Leasing PLC 0.06bn 18.25% Fixed Rate Bond 6) 10,000,000 Units of the Vetiva S&P Nigerian Sovereign Bond Exchange Traded Fund 7) Guinness Nigeria PLC 7.22bn Series 2 and 2.77bn Series 3 CPs (under a 10.00bn CP Issuance Programme) 8) UACN Property Development Company PLC 16.79bn Series 1, N2.27bn Series 2 and N4.00bn Series 3 (under a 24.00bn CP Issuance Programme) 9) FSDH Merchant Bank Limited 14.98bn CP (Series 1 and 2 under a 30.00bn CP Issuance Programme) 10) Dufil Prima Foods PLC 4.41bn 90 days Series 1 CP (under its N30.00bn CP Programme) 11) Ecobank Nigeria Limited 8.29bn 162 days Series 1 CP (under its N100.00bn Multicurrency CP Programme) 12) Access Bank PLC N8.45bn Series 1, N4.22bn Series 2 and N22.33bn Series 3CPs (under itsn100.00bn CP Programme) 38 CBP Overview of 2016 & Outlook for 2017

39 THE NIGERIAN STOCK MARKET IN 2016 LOW INVESTOR APPETITE DAMPENED PEFORMANCE The Nigerian Stock Market in 2016 continued its unimpressive performance similar to that witnessed in year Trading for the year kicked off on a negative note as the Nigerian Stock exchange kicked off with a negative return of -0.95% while it ended the year with a negative year to date (YTD) return of -6.17%. This Uninspiring performance was triggered by various factors and a series of chain reaction which include the sudden surge in inflation which triggered the CBN to adjust its benchmark MPR rate higher allowing interest rate to hit record high over the last two years and thereby increasing the outflow of funds from the stock market to the fixed income segment of the financial market. Other factors which also aided the downward trajectory of the equities market include the significant depreciation of the naira, the continuous low price of crude oil, the harsh economic conditions which reduced the disposable income of consumers and the unimpressive performance of companies over the period. All this factors kept foreign investors away while those that decided to invest in the region opted for investments in the fixed income space. Statistics All Share Index (ASI) 26, , , , , , All Share Index (ASI) Growth (%) Total Market Capitalization (N trillion) Total Market Capitalization (USD billion ) Number of Listed Securities Total Turnover Volume (billion shares) Total Turnover Value (N ' billion)-equities , , Total Turnover Value (USD billion) Equities Average Daily Turnover Volume (million shares) 10 Average Daily Turnover Value (N billion) Average Daily Turnover Value (USD million) ,52 Source: NSE, CBP Research. Note: Exchange Rate (Naira: USD) for 2015, for 2016 For the major part of 2016, the NSE ASI recorded negative YTD return with the index only returning a positive YTD return for twenty one (21) days out of two hundred and forty seven (247) trading days of the year Closing the year with a negative return of -6.17% made it the third consecutive year of recording a negative return having closed year 2015 and 2014 with a 39 CBP Overview of 2016 & Outlook for 2017

40 decline of-17.36% and % respectively. Though, it was anticipated that the stock market may not do well in the early part of 2016 but expected to see signs of recovery at the later part of the year when the budget implementation, fiscal policies and monetary policies would be aligned to boost investor confidence. The year however did not go as expected as the Budget approval took longer than expected and was never fully implemented due to lack of funds owing to low oil price and low production volume caused by pipeline bombings while monetary policies and fiscals policies were never aligned for the most part of the year leaving the NSE ASI in negative region all through the 3rd and 4 th quarter of The table below shows the NSE ASI monthly movement in 2016 versus performance in the same period in NSE ASI Change NSE ASI Change January 23, % 29, % February 24, % 30, % March 25, % 31, % April 25, % 34, % May 27, % 34, % June 29, % 33, % July 28, % 31, % August 27, % 29, % September 28, % 31, % October 27, % 29, % November 25, % 27, % December 26, % 28, % YTD Source: NSE, CBP Research Regarding the performance of the NSE indices in the year, the NSE Premium Index and NSE Banking Index were the only indexes with a positive return in the year with a gain of 6.98% and 2.17% respectively. Other indices returned negative with the worst being the NSE Industrial Index shedding 26.37%, followed by NSE Oil & Gas Index 12.31% and NSE 40 CBP Overview of 2016 & Outlook for 2017

41 Insurance Index 11.44%. The table below depicts the performance of the indices in the year as against their respective performance in Index % Change Index % Change NSE 30 1, (7.18) 1, (17.63) NSE BANKING (23.59) NSE INSURANCE (11.44) (4.70) NSE CONSUMER GOODS (4.49) (17.41) NSE OIL & GAS (12.31) (6.20) NSE LOTUS II 1, (7.87) 1, (10.92) NSE INDUSTRIAL GOODS 1, , (15.98) NSE ASEM 1, (1.57) 1, NSE PENSION (0.63) (0.63) NSE MAIN BOARD 1, (10.02) 1, (10.02) NSE PREMIUM 1, , Source: NSE, CBP Research, NA: Not Applicable, the indices were launched in A total of billion units worth N billion ($1.89 billion) were traded in 2016, as against billion units worth N billion ($4.78 billion) were traded in 2015 MARKET CAPITALIZATION The total Market Capitalization decreased by 4.81% to N16.18 trillion ($53.06 billion) by December 31, 2016 from N17.00 trillion ($85.29 billion) it closed on December 31, The Equities Market Capitalisation dropped by 6.12% (38.64% in $ terms) to N9.25 trillion ($30.34 billion) in 2016 from N9.85 trillion ($49.46 billion) in 2015 while Bonds Market Capitalisation dipped by 3.01% (36.61% in $ terms) to N6.92 trillion ($22.70 billion) in 2016 from N7.14 trillion ($35.82 billion) in MARKET ACTIVITY A total of billion units worth N billion ($1.89 billion) were traded in 2016, as against billion units worth N billion ($4.78 billion) were traded in The total volume traded in the year increased by 3.19%, while total value traded went down by 39.58% (60.51% in $-terms) from the 2015 figure. The average daily volume in 2016 was million units with an average daily value of N2.33 billion ($7.64 million), compared with million units with an average daily value of N3.86 billion ($19.35 million) in CBP Overview of 2016 & Outlook for 2017

42 TOP TEN STOCKS IN RETURNS STOCKS PERFORMANCE Available data showed that based on total returns (capital appreciation, Bonus and cash Dividend), Dangote Flour, United Capital, Total, Seplat, Mobil, Eterna, AGLevent, Etranzact, NEM and Conoil were the top ten (10) gainers on the main board of The NSE s Daily Official List returning %, %, %, 91.11%, 78.88%, 71.79%, 70.97%, 67.76%, 65.67% and 63.62% respectively in the year S/N Company/Symbol Sector Mkt Jan Mkt Dec Total Return (NGN) Total Return YTD % 1 DANGFLOUR Consumer Goods UCAP Financial Services TOTAL Oil and Gas SEPLAT Oil and Gas MOBIL Oil and Gas ETERNA Oil and Gas AGLEVENT Conglomerates ETRANZACT Services NEM Financial Services CONOIL Oil and Gas Source: CBP Research On the other hand, Forte Oil, Skye bank, Diamond bank, Caverton, Sterlnbank, Wapco, UAC-Prop, Vitafoam, Portpaint, and Glaxosmith were the top ten (10) losers on the main board of The NSE s Daily Official List losing 74.42%, 66.67%, 61.74%, 61.70%, 58.47%, 57.70%, 56.98%, 55.64%, 52.13% and 51.52% respectively. TOP TEN STOCKS IN NEGATIVE RETURNS S/N Company/Symbol Sector Mkt Jan Mkt Dec Total Loss (NGN) Total Loss YTD % 1 FO Oil and Gas SKYEBANK Financial Services DIAMONDBNK Financial Services CAVERTON Services STERLNBANK Financial Services WAPCO Industrial Goods UAC-PROP Construction & Real Estate 8 VITAFOAM Consumer Goods CBP Overview of 2016 & Outlook for 2017

43 9 PORTPAINT Industrial Goods GLAXOSMITH Healthcare FOREIGN PORTFOLIO INVESTMENT According to data made available by The NSE, the total Foreign Portfolio Investments (FPI) (entry of funds into a country where foreigners deposit money in a country's bank or make purchases in the country's stock and bond markets) from January to November, 2016 was N billion, a decrease of 51.37% from N billion recorded in the same period of 2015 while the total domestic transactions for the same period stood at N billion, a decrease of 29.15% from N billion recorded in the same period in All through the year Foreign Portfolio investments was higher in the equities market for only the months of January and June at 51.57% and 51.18% respectively compared to domestic investments. Overall, total foreign inflow stood at N billion against total foreign outflow of N billion representing a difference of marginal difference of 0.22%. Analysis of Domestic and Foreign Portfolio Investment Transactions for the Period Ended 30 November 2016 Total Foreign Foreign % Domestic Domestic % Foreign Inflow Foreign Outflow Domestic Retail Domestic Institutional Jan % % Feb % % Mar % % Apr % % May % % Jun % % Jul % % Aug % % Sep % % Oct % % Nov % % YTD 2016 YTD % % % % All figures are in N Billion. Source: NSE Domestic & Foreign Portfolio Participation in Equity Trading, Dec 2016 Also, the total transactions from January to November 2016 decreased significantly by 41.20% to N1, billion from N1, billion in the same period of Foreign portfolio investments accounted for N CBP Overview of 2016 & Outlook for 2017

44 Year billion (44.86%), while Domestic investors accounted for N billion (55.14%) of total transactions done from January to November 2016 while FPI accounted for N billion (54.24%) and Domestic investors accounted for N billion (45.76%) of total transactions for the same period of The table below also shows the FPI and Domestic participation between 2008 and Total Transactions Total Foreign Transactions Total Domestic Transactions Foreign Transactions (%) Domestic Transactions (%) , , , , , , , , , , , , , , Jan-Nov , All figures are in N Billion, Source: The NSE, CBP Research NEW ISSUES in 2016 For 2016, given the lacklustre performance and activities in the equities market, primary market activities was almost missing for the year as there was no Initial Public offers (IPOs) for the year as the market only managed one new listing by introduction (The Initiates Plc) and one memorandum listing (ARM Investment Managers Limited). The number of supplementary Equity issue stood at a total of 5 in 2016 against a total of 23 recorded in The number of listed securities on The NSE as at December 31, 2016 was 247, (2015: 257) divided into: 175 (2015: 190) listed equities, 64 (2015: 60) listed bonds and 8 (2015: 7) ETPs. DELISTING in 2016 Fifteen (15) Companies were delisted from the Daily Official List of The NSE in the year based on various reasons. The securities are: 44 CBP Overview of 2016 & Outlook for 2017

45 S/N Company Reason for Delisting 1 Ipwa Plc Regulatory: NSE 2 G. Cappa Plc Regulatory: NSE 3 West African Glass Industries Plc (Wagi) Regulatory: NSE 4 Investment & Allied Insurance Plc Regulatory: NSE 5 Alumaco Plc Regulatory: NSE 6 Jos International Breweries Plc Regulatory: NSE 7 Adswitch Plc Regulatory: NSE 8 Rokanna Plc Regulatory: NSE 9 Vono Products Nigeria Plc Merged with Vitafoam Plc 10 Lennards (Nigeria) Plc Regulatory: NSE 11 P.S Mandrides & Company Plc Regulatory: NSE 12 Premier Breweries Plc Regulatory: NSE 13 Costain (W.A) Plc Regulatory: NSE 14 Navitus Energy Plc Regulatory: NSE 15 Nigerian Ropes Plc Regulatory: NSE Source: NSE, CBP Research OTHER DEVELOPMENTS IN THE STOCK MARKET IN 2016 In a bid to improve Capital Market activities the NSE continued to execute strategies aimed at improving the standard of the market. Listed below are a few achievements for the year 2016; Business Development Demutualization: Concluded due diligence process, established member relations desk and credible member register, and developed a roadmap to demutualization. Derivatives: Established corporate vehicle for a Central Counterparty Clearing House (CCP), engaged legal and financial advisers to support launch of the CCP, and engaged extensively with key stakeholder groups (NASS, CBN, SEC, CSCS, Bankers Committee, Dealing members, etc.), and started derivatives product development. 45 CBP Overview of 2016 & Outlook for 2017

46 Monetization of Market Services Suite: Launched thirteen (13) new products and implemented the first market data conference in Nigeria. Competitive Price Structure: A pilot fee structure for fixed income products was launched and the development of a market wide framework has reached an advanced stage. Domestic/ Foreign Investor Drive Product Launch: Launched a Vetiva S&P Nigerian Sovereign Bond ETF. Workshop Events: World-class workshops for fixed income, ETFs and market data products. Stakeholder Engagement Events: Held a number of key stakeholder events including two (2) NSE/LSE dual listings conferences in Lagos and London with key policymakers in attendance; International Events: Hosted the Building African Financial Markets (BAFM) capacity building seminar held outside South Africa for the first time; Investor Protection Technology: Launched SMARTs solution for efficient/effective market surveillance. Minimum Operating Standards (MOS): 94% of Dealing Member firms achieved NSE s MOS. Investor Protection Fund: 83 claims valued at N27.8Mn approved for payment in Compliance Status Indicator (CSI): Launched CSI symbols for near realtime tracking of compliance status of listed companies. Corporate Governance Rating System (CGRS): Rolled out CGRS to all listed companies. Direct Cash Settlement (DCS): Played key role in implementation of DCS for the market BOND MARKET Given the tough economic conditions in 2016, the Nigerian Bond market also suffered slight reduction in market activities and turnover for the period though investors were more attracted to that segment of the financial market due to its safe and guaranteed return of capital and interest compared to the bearish stock market. According to data obtained from the NSE, the bond 46 CBP Overview of 2016 & Outlook for 2017

47 market dropped in terms of market capitalization to N6.92 trillion ($22.70 billion) in 2016 against N7.14 trillion ($35.81 billion) as at 2015 representing a decline of 3.01% in naira terms and 36.61% in dollar terms. For the period, the number of listed bonds on the NSE increased to 64 from 60 in 2015 indicating 4 additions to the listed bonds on the NSE. According to the FMDQ report for November 2016, January to September turnover for FGN bonds stood at N6.62 trillion; an 8.06% (N0.58 trillion) Year-on-Year (YoY) decline. Turnover for Other bonds during the same period under review dipped by 46.67% to N0.08 trillion against N0.15 trillion reported in the same period of According to the FMDQ report for November 2016, January to September turnover for FGN bonds stood at N6.62 trillion; an 8.06% (N0.58 trillion) Yearon-Year (YoY) decline Bond yields across tenors remained attractive from the second quarter of the year when they began to rise and surged to new highs as at the last quarter of At the beginning of the year the 5Y FGN Bond and 20Y FGN bonds traded at average yields of 11.7% and 11.95% respectively as MPR was held at 11%. However, due to the increase in MPR to 14% in July there was a significant shift to fixed income securities, yields across tenors increased by average of 300bps in the Third quarter. The last quarter of the year saw the yields go further up with 5Y-10Y bonds trading around % and 20Y bonds stood around 16.00%. Treasury bills (T-bills) yields also moved in tandem with the bonds yields throughout the year. The 30 days, 62 days, 90 days and 342 days T-bills traded at an average of 3.31%, 3.52%, 4.47% and 8.00% respectively in the first quarter, the yields trended significantly upward rising on the average of 400bps in the third and fourth quarter. The last quarter saw the yields rise significantly with 30 days, 62 days, 90 days and 356 traded as high as 15.95%, 12.61%, 13.22% and 22.05% in December. 47 CBP Overview of 2016 & Outlook for 2017

48 48 CBP Overview of 2016 & Outlook for 2017

49 SECTION 3: ANTICIPATING THE FUTURE THE GLOBAL ECONOMY (OUTLOOK FOR 2017) The IMF through its World Economic Outlook projects growth to rise to 3.4% in 2017 The IMF and the World Bank projections for 2017 have remained mixed as both bodies estimate growth to increase for the period. The IMF through its World Economic Outlook projects growth to rise to 3.4% in 2017 as growth forecast for China, United Kingdom, Germany, Japan, Spain, and other Emerging Markets and Developing Economies were revised upward but suggests that downside risk to it global growth forecast remain in light of factors which include the potential changes in the policy stance of the United States under the new administration, while growth forecasts in a few other regions like India, emerging Asia, Italy, Korea, Latin America and the Middle East were revised down. On a similar but slightly lower projection, the World Bank has estimated world growth to rise from its 2.3% estimate in 2016 to 2.7% in 2017 mainly on the back of a recovery in emerging markets and developing economies (EMDMs). We however expect global growth rate at 3.1% on the back of rising commodity prices expected to provide significant buffer for commodity exporting EMDEs though downside risk to this forecast remain visible. Advanced Economies Advanced economies continue to struggle with subdued growth and low inflation in a context of increased uncertainty about policy direction, tepid investment, and sluggish productivity growth. After recording sluggish activities in the United States for the first half of 2016, activities rebounded in the later part of the year though we remain uncertain as to the direction of the US economy in view of policy changes that may come into play by the new administration. Advanced economy growth is now projected by the World Bank to grow at an average pace of 1.8% in 2017 against an estimated growth of 1.6% in Given the better than expected outcome with regard to the aftermath of the Brexit vote, we anticipate that supportive monetary policies in the Euro area and Japan will stimulate activity throughout the forecast period even as inflation is expected to rise but remain below central 49 CBP Overview of 2016 & Outlook for 2017

50 banks target for both regions. The IMF also projects that Advanced economies would grow by 1.9% in 2017 and 2.0% in Growth in the United States slowed markedly, from 2.6 percent in 2015 to an estimated 1.6% in 2016, 0.3% point below previous projections. The U.S. economy was held back in 2016 by soft exports, a continued drawdown in inventories, and a deceleration in private investment. In the run-up to the U.S. elections in November, activity had picked up again, and a further tightening of labour markets had led to slowly rising wage growth. This supported continued gains in real disposable income, which could help deliver a further reduction in poverty rates. Euro Area growth slowed from 2.00% in 2015 to 1.6% in 2016, as both domestic demand and exports lost momentum Euro Area growth slowed from 2.00% in 2015 to 1.6% in 2016, as both domestic demand and exports lost momentum. Confidence in the Euro Area has been resilient following the United Kingdom s vote to exit the European Union (EU) in June The U.S. election results could also heighten policy uncertainty in Europe. A rebound in oil prices, from their trough in early 2016, implies diminished support to real income and private consumption growth relative to Investment rates are particularly low in the Euro Area region, with increased policy uncertainty likely weighing further on capital spending in Going forward in 2017, we believe the new prime minister will have to find ways to boost both domestic demand and exports. Emerging Markets and Developing Economies The prognosis for EMDEs for the current period appears encouraging even in the face of possible downside risks. Growth rate in China was a bit stronger than expected, supported by continued policy stimulus. But activity was weaker than expected in some Latin American countries currently in recession, such as Argentina and Brazil, as well as in Turkey, which faced a sharp contraction in tourism revenues. Activity in Russia was slightly better than expected, in part reflecting firmer oil prices. 50 CBP Overview of 2016 & Outlook for 2017

51 Emerging market and developing economies face starkly diverse cyclical positions and structural challenges. In general, enhancing financial resilience can reduce the vulnerability to a tightening of global financial conditions, sharp currency movements, and the risk of capital flow reversals. Economies with large and rising non-financial debt, unhedged foreign liabilities, or heavy reliance on short-term borrowing to fund longer-term investments must adopt stronger risk management practices to improve their individual economies. In addition to the risks already mentioned in the previous section, underlying vulnerabilities remain among some other large emerging market economies. High corporate debt, declining profitability, weak bank balance sheets, and thin policy buffers imply that these economies are still exposed to tighter global financial conditions, capital flow reversals, and the balance sheet implications of sharp depreciations. In many low-income economies, low commodity prices and expansionary policies have eroded fiscal buffers and led in some cases to a precarious economic situation, heightening their vulnerability to further external shocks. the long-term EMDEs outlook is clouded by a number of factors most prominently, uncertainty about global trade prospects and advanced economy policies, EMDEs growth is expected to accelerate to 4.2% in 2017 and to an average of 4.6% in 2018 according to the World Bank Group. EMDEs are forecast to contribute 1.6% points to global growth in 2017, accounting for about 60% of global growth for the first time since With the anticipated increases in commodity prices, particularly for oil, the divergence in growth outlooks between commodity exporters and importers is set to narrow. The waning effect of currency depreciations in commodity exporters, and of past declines in energy prices for importers, should also narrow differences in inflation between the two groups. That said, the long-term EMDEs outlook is clouded by a number of factors most prominently, uncertainty about global trade prospects and advanced economy policies, a weakening in potential output resulting from subdued investment, sluggish productivity growth, and demographic factors. In EMDEs, finding an appropriate balance between fiscal adjustment, measures to reduce vulnerabilities, and growth-oriented reforms aimed at raising human capital and physical infrastructure will be challenging for 51 CBP Overview of 2016 & Outlook for 2017

52 some countries but policies that boost domestic sources of long-term growth critically, long-term investment and productivity remain top priority. IMF PROJECTIONS FOR GLOBAL ECONOMIC GROWTH (%) World Output Advanced Economies Emerging Market and Developing Economies E 2017F 2018F Source: IMF World Economic Update 2017 THE NIGERIAN GROSS DOMESTIC PRODUCTS PROJECTED TO IMPROVE IN THE CURRENT PERIOD In January 19, 2016, IMF forecast Nigerian growth rate of 4.1% and 4.2% for 2016 and 2017 respectively. This projection was a mirage as the country plunged into a recession in 2016 reporting negative growth all year round. The World Bank Group in its Global Economic Prospects projected Nigeria s growth to average at 1.00% while the IMF in its World Economic Outlook earlier projected Nigeria s growth at 0.7% before adjusting it to 0.8%, a 0.1% increase from previous estimates for For the Nigerian Economy, being an oil exporting country put her on the back foot for the larger part of 2016 given the low oil price as government revenues dipped for the period; negatively affecting activities in other areas of the economy. While prices have gradually continued to inch higher since the latter part of 2016 and with expectation of it remaining above $50 per barrel in 2017 given OPEC s and Non-OPEC members decision to cut production, we expect that the country s ability to implement infrastructure projects in its 52 CBP Overview of 2016 & Outlook for 2017

53 2017 Budget to be enhanced while improved government spending is expected to boost economic activities. We also hope that adequate policies: both monetary and fiscal policies will be put in place in 2017 to drive economic growth. We also hope that the Federal Government will implement faithfully her recently rolled out 10-point roadmap to revive economy and continue to engage the private sector in the development of the economy. We are of opinion that if adequate measures are pursued, Nigeria will grow by an average of about 1% to 1.5% in 2017, meanwhile downside risk to this growth rate remains visible Nigreia's Real GDP Growth (%) Q1'15 Q2'15 Q3'15 Q4'15 Q1'16 Q2'16 Q3'16 Q4'16E FY'17F Source: NBS, CBP Research Downside Risks to The Nigerian GDP growth The projected GDP growth rate for 2017 should become a reality if government continues to boost its non-oil sector revenues and issues relating to wasteful government spending, passage of non-friendly business policies and unrealistic FX and Monetary policies are addressed. Some of the downward risks to GDP growth also include: A sudden decline in oil prices due to increased production from exporting countries; Insecurity and insurgency which may disrupt economic activities in Nigeria; 53 CBP Overview of 2016 & Outlook for 2017

54 Lack of clear monetary policy direction, especially on foreign exchange, could increase FX volatility and Lack of clear and proper fiscal policies to drive different sectors of the economy. The trending nationalistic policies by advanced countries may hampered inflow of both FDIs and FPIs Within the reference period, the total number of person in full time employment (did any form of work for at least 40hours) decreased by 272,499 or 0.51% when compared to the previous quarter OTHER MACROECONOMIC INDICATORS Unemployment In Q3 2016, the labour force population (those within the working age population willing, able and actively looking for work) increased to million from 79.9 million in Q2 2016, representing an increase of 0.98% in the labour force during the quarter according to data by NBS. This means about 782,886 persons from the economically active population entered the labour force that is individuals that were able, willing and actively looking for work.. Unemployment Rate by Gender (Q1'15-Q3'16) Male Female % Q1'15 Q2'15 Q3'15 Q4'15 Q1'16 Q2'16 Q3'16 Source: NBS, CBP Research This magnitude of increase between Q2 and Q is smaller when compared to Q1 and Q2 2016, which was an increase of 1.39m in the Labour force population. Within the reference period, the total number of person in full time employment (did any form of work for at least 40hours) decreased by 272,499 or 0.51% when compared to the previous quarter, and decreased 54 CBP Overview of 2016 & Outlook for 2017