(A Member of the Nigerian Stock Exchange)

Transcription

1 (A Member of the Nigerian Stock Exchange) 1 CBP Overview of 2017 & Outlook for 2018

2 2 CBP Overview of 2017 & Outlook for 2018

3 Table of Contents SECTION 1: ECONOMIC ACTIVITIES... 4 CALMER TIDES RETURNING AS SHATTERING STORM EASE... 4 OVERVIEW OF THE GLOBAL ECONOMY... 4 OVERVIEW OF THE DOMESTIC ECONOMY INFLATION RATE EXTERNAL RESERVES EXTERNAL DEBT DOMESTIC DEBT MONETARY POLICIES...22 EXCHANGE RATE CRUDE OIL PRICE INTERNATIONAL TRADE SECTION2: FINANCIAL MARKET OPERATIONS THE NIGERIAN FINANCIAL MARKET THE NIGERIAN MONEY MARKET THE NIGERIAN EQUITIES MARKET THE NIGERIAN STOCK MARKET IN MARKET CAPITALIZATION MARKET ACTIVITY STOCKS PERFORMANCE FOREIGN PORTFOLIO INVESTMENT NEW ISSUES in NEW LISTING in DELISTING in OTHER DEVELOPMENTS IN THE STOCK MARKET IN NASD OTC SECURITIES EXCHANGE NEW ISSUES in FMDQ OTC MARKET BOND MARKET SECTION 3: ANTICIPATING THE FUTURE THE GLOBAL ECONOMY (OUTLOOK FOR 2018) EXPECTED TO FURTHER ADVANCE IN THE NIGERIAN GROSS DOMESTIC PRODUCTS OTHER MACROECONOMIC INDICATORS THE BANKING SECTOR THE BOND MARKET THE STOCK MARKET CBP Overview of 2017 & Outlook for 2018

4 SECTION 1: ECONOMIC ACTIVITIES CALMER TIDES RETURNING AS SHATTERING STORM EASE OVERVIEW OF THE GLOBAL ECONOMY GLOBAL GROWTH IMPROVES DESPITE HEADWINDS Having consistently reported sluggish growth with major economies struggling in recent years, global growth have witnessed a boost as Japan, Europe, China and the United States have reported a much accelerated growth in the last fifteen months. Global growth for 2016 was estimated at 3.2 percent, 0.1 percent higher than the IMF world economic outlook projection of 3.1 percent in January have been estimated to grow at 3.6 percent by the IMF given the current recoveries witnessed among advanced economies and emerging markets. The growth outturns over the last nine months of 2017 have been notable in large emerging and developing economies such as Brazil, China, and Mexico, and in several advanced economies including Canada, France, Germany, Italy, and Spain while specific growth in global trade and industrial production remained well above 2016 rates. Despite the pickup in global growth rate, short term risks to continuous growth in global growth remain largely stable, however, medium term risk are still skewed to the downside as headwinds remain visible. World Bank Projects Global Growth at 3.1% in 2018 IMF Projects Global Growth at 3.7% in 2018 CBP Research Projects Global Growth at 3.5% in CBP Overview of 2017 & Outlook for 2018

5 Given that not all countries are participating in the growth experienced, inflation figures remain below expected target in some countries and the medium term outlook remains weak as most governments are often reactive to crisis situations than being proactive, the expectation of a stable and sustainable recovery and growth in the medium term remains vulnerable. Notwithstanding, the IMF have projected a growth rate of 3.7 percent for 2018 as they expect global growth to be sustained but gradual against a world bank global growth forecast of 3.1 percent for Key Economies Major economies recorded growth in 2017, with exports and investments regaining momentum having experienced subdued growth in With Advanced economies having grown by 1.7 percent in 2016 they have been projected to grow at an average of 2.2 percent in 2017 and 1.9 percent in 2018 while global growth forecast of 3.5 percent in 2018 is expected to be majorly driven by the projected growth in emerging markets and developing economies. The drop in projected growth rate for the advanced economies from an estimate of 2.2 percent in 2017 down to 1.9 percent in 2018 was as a result of the economic implications to changes in policy assumptions for the world s two largest economies, the United States and China with regards to trade and investments. Among advanced economies, the fiscal stance measured by the fiscal impulse in 2017 has been estimated to be broadly neutral, reflecting projected easing in Canada, Germany, Italy and Korea with expected tightening in Spain while for 2018, the forecast for advanced economies assumes fiscal policy tightening projecting tightening in Japan, United Kingdom, and partially the United States. Euro Area Accommodative monetary policy is expected to help sustain domestic demand in the near term. Unconventional measures undertaken by the ECB since 2014 have helped stimulate credit growth, lift inflation expectations, and foster a gradual recovery. Fiscal policy is expected to be broadly neutral to growth in The recovery in private investment and export growth is projected to continue, while private 5 CBP Overview of 2017 & Outlook for 2018

6 consumption decelerates on receding tailwinds from low energy prices. The IMF has projected Growth for the region to rise to 2.1 percent in 2017 before moderating to 1.9 percent in Given the increase in export trade, continued increase in domestic demand which has been supported by accommodative financial conditions amidst diminished political risk and political uncertainty in the region, a growth forecast of 1.9 percent for 2018 remains a rational growth forecast. The IMF has forecasted growth in Germany to hit 2.0 percent in 2017 while moderating to 1.8 percent in Spain s growth is expected to hold steady at 3.1 percent in 2017 and moderate to 2.5 percent in 2018, growth in France is projected at 1.6 percent for 2017 and 1.8 percent in 2018 while Italy has been projected to grow at 1.5 percent in 2017 and soften to 1.1 percent in Euro Area Growth Projection (%) E 2018F Germany France Italy Spain Source: IMF, CBP Research Going into 2018, Projections for the euro area will remain restrained as policy uncertainties continue to hamper decision making even in relation to the direction of Brexit negotiations, financial sector instabilities given the high non performing bank loans in some economies and also the public debt overhang facing some governments. 6 CBP Overview of 2017 & Outlook for 2018

7 Euro Area Unemployment and Inflation Rate (%) Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Unemployment Inflation Source: Eurostat, CBP Research UNITED STATES Despite facing challenges at the domestic level along with a rapidly transforming global landscape, the US economy is still the largest and one of the most important economies in the world. The US Bureau of Economic Analysis reported that the real gross domestic product (GDP) increased at an annual rate of 3.2 percent in the third quarter of 2017, higher than the 3.1 percent reported in the second quarter of 2017 and significantly higher than the 1.2 percent reported in the first quarter of Following the policy rate hike in March 2017, the U.S. Federal Reserve is expected to continue to tighten monetary policy albeit at a more gradual pace than the previous tightening cycles. Overall a moderate expansion in activity is expected to be reported for the last quarter of Growth for the United States has been projected by the IMF to rise to 2.2 percent in 2017 and 2.3 percent in 2018 much higher than the 1.6 percent growth reported in Buoyant asset prices and strong business and consumer confidence will support consumption and investment growth in Fiscal policy is projected to become more supportive in 2018 as measures are assumed that lower tax rates on corporate and personal income tax will be introduced which is expected to stimulate investments and consumption. The unemployment rate is now near rates last recorded in year 2000 as employment continues to grow and participation in the labour force has edged up. 7 CBP Overview of 2017 & Outlook for 2018

8 US GDP at Constant Price Q3 2015Q4 2016Q1 2016Q2 2016Q3 2016Q4 2017Q1 2017Q2 2017Q3 0.90% 0.80% 0.70% 0.60% 0.50% 0.40% 0.30% 0.20% 0.10% 0.00% Real GDP (USD Trillion) GDP QoQ Change(%) Source: Trading Economics, CBP Research Inflation continues to run at a decent rate and a projection of a faster rise in inflation figures remains relatively weak. As at November 2017, the country s consumer price index increased to 2.2 percent from 2.0 percent reported in October Year on year, energy prices jumped in November while cost increased for gasoline, fuel oil, electricity and utility piped gas service. Also, prices rose faster for food and medical care commodities. Meanwhile inflation slowed for transportation services and medical care services and remained steady for shelter. There was a general decline in the cost of apparel, new vehicles and used cars and trucks for the month of November. On the outlook for 2018, the proposed tax reform is expected to support GDP growth in The sizeable reduction in unemployment will continue to drive economic activities as disposable income is expected to considerably improve. In addition, other fiscal measures introduced in 2018 should support growth despite a slight imbalance in its import and export trade. However, risks to the outlook remain visible as the size, structure and timing of the fiscal stimulus remains uncertain. There are also a number of financial market risks as elevated leverage ratios in the corporate sector need careful monitoring and action to ensure that these risks are contained. Finally the emerging interest rate differentials between the United States and other major other countries may contribute to an appreciation of the dollar but possibly increase financial market tensions due to unpredictable currency flows. 8 CBP Overview of 2017 & Outlook for 2018

9 US 2017 Inflation, Unemployment Rate and Fed Fund Rates Inflation Rate Unemployement Rate Fed Fund Rate Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sept-17 Oct-17 Nov-17 Source: Trading Economics, CBP Research CHINA A majority of forecast for china s economy in 2018 have predicted a drop in GDP growth rate from the growth estimate expected in According to the IMF, Chinas growth is estimated to notch up to 6.8 percent in 2017 and is expected to slow to 6.5 percent in 2018 while the World Bank also estimates a similar growth rate of 6.8 percent in 2017 but have projected a growth rate of 6.7 percent for 2018, 0.2 percent higher than the IMF forecast for The expectation of lower growth in GDP are on the back of a an expectation of a global rise in interest rates, a shrinking labour force due to an aging population, slowdown in property and infrastructure which have been major growth drivers while financial risks have reached disturbing levels has been a good year for the Chinese economy as growth was strong particularly in consumption and the services sector. Global economic environment was also supportive given the strong growth in Japan and Europe while the Chinese currency has remained strong against the US dollar. In 2018, the external economic environment is expected to change, monetary conditions are tightening among major central banks and the labour intensive and investment driven old growth model is facing increasingly tighter constraints. 9 CBP Overview of 2017 & Outlook for 2018

10 China GDP Growth Rate Q1'15 Q2'15 Q3'15 Q4'15 Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Q2'17 Q3'17 Q4'17 Source: National Bureau of Statistics of China, CBP Research The major risks to growth outlook come from inflation and interest rates. We are of the view that market underestimates the rise of inflation in If the CPI figures rise above 3 percent and stays elevated, and the rate hikes continue, we anticipate an upside risk to interest rates and downside risk to growth in China. Inflation in year 2017 has mainly stayed below 2 percent with January 2017 being the only month to have reported an inflation rate of 2.5 percent. As at November 2017, inflation figures was reported at 1.7 percent largely as a result of the continuous drop in food prices though nonfood products have continue to rise. In summary, 2018 is expected to witness a stable trend in fiscal and monetary policy while investments should continue to slightly trend downward under tight policies and financial conditions. Quarterly GDP growth is estimated at 6.4 percent and 6.3 percent for Q1 and Q before trending upwards to 6.6 and 6.7 percent in Q3 and Q Overall, we expect China to still remain one of the fastest growing economies in the world. 10 CBP Overview of 2017 & Outlook for 2018

11 China's Consumer and Producer Price Index (percentage year-on-year) Consumer Price Index Producer Price Index Jan '17 Feb'17 Mar '17 Apr '17 May '17 Jun '17 Jul '17 Aug '17 Sep '17 Oct '17 Nov '17 Dec '17 Source: National Bureau of Statistics of China, Trading Economics, CBP Research Sub-Saharan Africa Growth in the Sub-Saharan Africa economy was steady in the third quarter of 2017 and the region remains firmly entrenched on a path to recovery after a sharp slowdown in Preliminary data revealed that regional GDP expanded by 2.6 percent in Q3. The growth rate marks the second strongest growth rate in nearly two years as the Sub-Saharan Africa economy benefits significantly from the firming up in commodities and stronger global growth. For the third quarter of 2017, the South African economy lost momentum and grew by 2.0 percent down by 0.8 percent from the 2.8 percent reported in Q Weak confidence, high unemployment and a sharp drop in exports held back growth while political uncertainties have kept the much needed structural reforms at arm s length. Thus we have forecasted the South African economy to grow at an estimate of 1.4 percent in 2017 against IMF projection of 1.1 percent growth. In Nigeria, the economy gained steam compared to the previous year, growing faster in Q on the back of higher oil prices and production volumes. Kenya economy continues to report slower growth having grown by 4.4 percent in Q3 2017, 0.6 percent lower than the 5.0 percent growth recorded in Q as the country political scene has continued to remain tense weighing down on confidence GDP growth for Nigeria and Kenya have been estimated at 0.72 percent and 4.6 percent respectively. 11 CBP Overview of 2017 & Outlook for 2018

12 Sub-Saharan Africa Growth Rate (%) Sub-Saharan Africa Inflation Rate (%) Source: IMF, CBP Research Source: IMF, CBP Research In Angola, Growth in 2017 has been revised upward to 1.5 percent by the IMF mainly because of the rebound in oil prices which has improved the The IMF has estimated the Sub- Saharan Africa to grow by 2.6 percent for 2017 while forecasting a 3.4 percent growth for 2018 outlook of the economy. Available data revealed that price pressures continued to moderate in November, with regional inflation falling to 12.4 percent in November 2017 the lowest level since July Downward price pressures were also seen in a few other regions, as inflation fell to over a four year low in Kenya however price pressures remain stubbornly high in Nigeria and Angola For 2018, Angola s economy is set to leverage on the oil price rebound and grow moderately but structural imbalances in the economy, lower reserves and delay of reform implementation could dent growth. The IMF has estimated the Sub-Saharan Africa to grow by 2.6 percent for 2017 while forecasting a 3.4 percent growth for Higher commodity prices, lower inflation, improved confidence and better access to international financial markets will continue to drive recovery in 2018, though numerous risks surround the outlook which includes upcoming elections, rising public debts, oil price volatility and exchange rate distortions in many economies. 12 CBP Overview of 2017 & Outlook for 2018

13 OVERVIEW OF THE DOMESTIC ECONOMY GROSS DOMESTIC PRODUCT (GDP) IN 2017 RECOVERY IN OIL PRICE AND PRODUCTION DRIVES GROWTH Coming from an era of negative growth which was sustained for five quarters (Q Q1 2017), Nigeria reported its first GDP growth in Q and exited recession having grown by 0.72 percent for the period (revised from 0.55 percent on the back of revisions by NNPC to oil output which hence led to revisions to oil GDP). The country consolidated on its Q growth, by further growing by 1.40 percent in Q The growth was 3.74 percent higher than the rate recorded in the corresponding quarter of 2016, put at 2.34 percent and higher by 0.68 percent from the rate recorded in the second quarter of 2017, put at 0.72 percent. In nominal terms, aggregate GDP stood at NGN trillion compared to NGN trillion in Q3 16 indicating a nominal GDP growth of percent. Growth recorded in GDP for the two quarters were largely driven by the growth recorded in the oil sector given the rebound in global oil prices and the growth reported in mining and quarrying as well as the agricultural sector of the non-oil sector. Nigeria reported its first GDP growth in Q and exited recession having grown by 0.72 percent for the period ( % 20.00% 10.00% 0.00% % % % % % Nigeria's Oil Sector, Non-Oil Sector and GDP Growth rate (%) GDP GROWTH OIL NON-OIL Q2'16 Q3'16 Q4'16 Q1'17 Q2'17 Q3'17 Source: NBS, CBP Research Despite the overall growth of 1.40 percent in Q3 2017, the non-oil sector continues to underperform having contracted by 0.76 percent while the oil sector grew by percent for the period. Oil production averaged at 2.03 million barrels per day (mbpd), 0.16 mbpd higher from 1.87 mbpd production in Q2 of Oil production was also higher relative to the corresponding quarter in 2016 by 0.42 mbpd when output was recorded at 13 CBP Overview of 2017 & Outlook for 2018

14 1.61mbpd. As a result, real growth of the oil sector was 25.89% (year-onyear) in Q3 of As a share of the economy, the Oil sector contributed 10.04% of total real GDP in Q3 2017, an improvement from the 8.09% recorded in the corresponding period of 2016, and higher from the 9.04% reported in Q2 of CONTRIBUTION OF OIL AND NON-OIL SECTORS TO ECONOMY As a share of the economy, the Oil sector contributed 10.04% of total real GDP in Q % 10.04% OIL NON-OIL Source: NBS, Trading Economics, CBP Research Activities such as Agriculture (crop), gas, steam and air conditioning supply and other services supported performance of the sector which grew by % in real terms in Q3 of This was -0.79% lower from the corresponding quarter in 2016 and -1.20% points lower from the second quarter of In real terms, the Non-Oil sector contributed 89.96% to the nation s GDP, lower from share recorded in Q (91.91%) and lower from Q (90.96%). PUBLIC ADMINISTRATION HUMAN HEALTH AND SOCIAL ADMINISTRATIVE & SUPPORT SERVICES PROFESSIONAL, SERVICES EDUCATION SCIENTIFIC AND TECHNICAL SERVICES FINANCIAL AND INSURANCE REAL ESTATE OTHER SERVICES AGRICULTURE ARTS, ENTERTAINMENT AND RECREATION TRANSPORTATION AND STORAGE ACCOMMODATION AND FOOD SERVICES INFORMATION AND COMMUNICATION TRADE MINING AND QUARRYING CONSTRUCTION 2WATER SUPPLY,SEWERAGE, WASTE MANAGEMENT AND REMEDIATION ELECTRICITY, GAS,STEAM AND AIR CONDITIONING SUPPLY MANUFACTURING Source: NBS, CBP Research 14 CBP Overview of 2017 & Outlook for 2018

15 Given the stability in the country, we expect production volumes to remain stable at between 2.0 and 2.3 million barrels per day while oil prices have stayed above $50 per barrel of oil; it is projected that the country would grow at an estimate of 2.4 percent in Q while overall GDP growth for 2017 is estimated to stay at 0.9 percent at the end of the year GDP at Constant Price (NGN'trn) Q1 Q2 Q3 Q4 Q1 Q2 Q Source: NBS, CBP Research INFLATION RATE INFLATION RATE SLOWLY ON A DESCENDING PATH Consumer Price Index (CPI) for the month of December 2017, released by the National Bureau of Statistics (NBS), showed that inflation rate (year-onyear) in Nigeria decreased marginally by 0.53 percent to percent from percent recorded in the month of November 2017 making it the eleventh consecutive disinflation in headline year on year inflation since January According to NBS, the Composite Consumer Price Index (CCPI) stood at points in the month of December 2017 an increase 1.50 points from points recorded in November The percentage change in the average composite CPI for the twelve month period ending in December 2017 over the average of the CPI for the previous twelve month period was percent, showing 0.26 percent point lower from percent recorded in November It is projected that inflation may decline faster from January 2018 especially if the government can properly manage the fuel crisis as soon as possible. If Nigeria s inflation rate continues to drop 15 CBP Overview of 2017 & Outlook for 2018

16 at the average of 0.30 percent monthly, as we have seen in the year 2017, it will take another 18 months for Nigeria to record a single digit inflation rate Monthly Inflation (%) - Nigeria 20.00% 18.00% 16.00% 14.00% 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% 18.55% 18.72% 17.78% 17.26% 17.24% 0.17% 16.25% 16.10% 16.05% 16.01% 15.98% 15.91% 15.90% 15.37% 0.40% 0.20% 0.00% -0.02% -0.15% -0.05% -0.04% -0.03% -0.07% -0.01% 0.00% -0.20% -0.40% -0.52% -0.53%-0.60% -0.80% -0.94% -0.99% -1.00% -1.20% Dec'16 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: NBS, CBP Research As at November 2017, South Sudan was seen to have the highest inflation in Africa with an inflation rate of percent down to Chad and Somalia which are currently experiencing deflation Core Inflation (that is all items less farm produce) increased by percent during the month, 0.10 percent points lower from the rate (12.20 percent) recorded in November as all key divisions which contributes to the index still remained high. On a month-on-month basis, the Core sub-index increased by 0.51 percent in December, higher from 0.78 percent recorded in November. The Composite Food Index rose percent (year-on-year) in December, down by 0.88 percent points from the rate recorded in November (20.30 percent). The rise in the index was caused by increases in prices of bread and cereal, milk, cheese, eggs, coffee, tea, cocoa, fish and Oil and fats. On a month-on-month basis, the Food sub-index increased by 0.58 percent in December, down by 0.30 percent from 0.88 percent recorded in November. Looking at the Sub-Saharan Africa, Central banks across the region are focused on tackling inflationary pressures as the Central Bank of Ghana in its November meeting cut monetary policy rate by 100 basis points to 20 percent from 21 percent, persistently high inflation drove the National Bank of Angola to hike the main interest rate by 200 basis points to 18 percent. Meanwhile, Policymakers in both Nigeria and South Africa held rates unchanged in November. As at November 2017, South Sudan was seen to have the highest inflation in Africa with an inflation rate of percent down to Chad and Somalia which are currently experiencing deflation. 16 CBP Overview of 2017 & Outlook for 2018

17 Headline inflation slowed across the region in 2017 amid stable exchange rates and slowing food price inflation due to higher food production. The entire region experienced a 6.97 percent decline in its average inflation figures thereby putting the economies at better positions than they were. This significant rise in the country s reserve was attributed to the substantial recovery in oil price, increase in the country s oil production and increased FX inflow from the investor and exporter window (NAFEX). EXTERNAL RESERVES UPTURN IN RESERVES A MAJOR DRIVER OF RECOVERY Data obtained from the Central Bank Of Nigeria (CBN), report that the country s external reserve stood at US$38.76 bn as at December against US$25.84bn as at December 30, 2016, representing an increase of 50.00% (US$12.92 bn) for the period. This significant rise in the country s reserve was attributed to the substantial recovery in oil price, increase in the country s oil production and increased FX inflow from the investor and exporter window (NAFEX). Recall that in April 2017, the CBN introduced the investor and exporter window (NAFEX), which was mainly aimed at improving liquidity in the foreign exchange market, promote transparency by providing the necessary information on price formation and discovery, ensure timely execution and settlement for eligible transactions and restore stakeholders confidence back in the FX market. This window has been a tremendous success as it has witnessed a significant number of transactions which has improved the country s FX liquidity and improved the value of the naira in the process. Billions $45.00 $40.00 $35.00 $30.00 $25.00 $20.00 $15.00 $10.00 $ Movement in FX Reserves 12.00% $ % 10.00% $33.83 $34.95 $29.65 $30.30 $30.86 $30.33 $30.29 $30.84 $31.83 $ % $ % 5.23% 4.11% 4.00% 3.19% 3.31% 2.20% 1.87% 1.83% 2.09% 2.00% 0.00% -0.14% 0.00% -1.73% -2.00% $- 1-Jan-17 1-Feb-17 1-Mar-17 1-Apr-17 1-May-17 1-Jun-17 1-Jul-17 1-Aug-17 1-Sep-17 1-Oct-17 1-Nov-17 1-Dec % FX Reserves Change(%) Source: CBN, CBP Research 17 CBP Overview of 2017 & Outlook for 2018

18 Given that the country s reserves are at the highest levels in over four years, we are confident that the Naira will remain stable in the short term while the medium term outlook will sole be determined by the price of oil as sale of crude oil remains the country s largest means of generating foreign exchange. The CBN s restriction on the 41 banned items from accessing the FX window remains in place while we believe that foreign direct investments remain the best way to strengthen the naira as against Foreign portfolio investments which remain highly volatile and unpredictable, and would weaken the Naira in an event of a massive repatriation of funds. For Nigeria, its rising external debt will have to be managed appropriately given that the country s major revenue is dependent on oil prices which is very unpredictable and outside its control EXTERNAL DEBT DEBT LEVEL CONTINUES TO RISE 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 September 30, 2017 stood at US$15,352.13mn representing an increase of 34.59% from US$11,406.28mn reported in December 31, The rise in foreign borrowing was as a result of the country s need to meet the funding gap of the 2017 budget. Most of the borrowing was presented to be used for servicing existing debt obligation and also to fund critical infrastructural projects. For Nigeria, its rising external debt will have to be managed appropriately given that the country s major revenue is dependent on oil prices which is very unpredictable and outside its control. Nigeria s debt to GDP ratio as at December 2016 stood at 18.6 percent compared to the advanced economies like the United States whose debt to GDP stood at percent as at December This figure may seem decent but when comparing the country s debt service obligation to revenue it becomes worrisome as the country s debt service obligation accounts for percent of the country s revenue as at June 2017 according to reports made available by the DMO. 18 CBP Overview of 2017 & Outlook for 2018

19 World Bank Group, $7,901.63, 51% External Debt (FGN & States) Q3'17 African Development Bank Group, $1,767.76, 12% Commercial, $3,300.00, 21% Bilateral, $2,151.72, 14% Other Multinationals, $231.02, 2% Source: DMO, CBP Research The breakdown of the external debt profile as at September 2017 showed that percent 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 Fund (EDF)). A total of percent was owed to Bilateral Institutions (which comprises of Exim Bank of China, African development Bank, Japan International Cooperation Agency, Exim Bank of India and Germany KFW). The balance of percent was owed in Commercial paper (Eurobonds). DOMESTIC DEBT RECORDED A SIGNIFICANT RISE IN THE PERIOD 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 NGN12.49 trillion, as at September , representing an increase of percent from NGN11.05 trillion as at September 30, Estimates gotten from the DMO indicate that Domestic Debt of states including the Federal capital territory stood at NGN3.72 trillion in June 30, 2017, as against NGN2.95 trillion reported in December 30, 2016 representing an increase of percent for the period. The composition of Nigeria s domestic debt stock by instrument type as at 19 CBP Overview of 2017 & Outlook for 2018

20 September 30, 2017 including the newly introduced FGN Savings Bond shows that Federal Government bonds accounted for percent of total borrowings, Nigerian Treasury bills accounted for percent (against DMO s target of a maximum of 25%. Nigerian Treasury bonds accounted for 1.53 percent, FGN Savings Bond accounted for 0.05 percent while FGN Sukuk accounted for 0.80 percent of total borrowings. FGN DEBT PROFILE (NGN'Millions) Millions Q3'2014 Q3'2015 Q3'2016 Q3'2017 External (FGN & States) Domestic (FGN & States) Source: DMO, CBP Research Remarkably, the country repaid its entire maturing Treasury bills debt obligation for the month of December 2017 which amounted to a total of NGN billion, of which the practice was typically to rollover at maturity. The Treasury bill was redeemed primarily using the proceeds of the USD500 million raised through the Eurobond Issuance done in November The decision to pay all maturing debt was in line with the government s objective to achieving a sustainable debt portfolio mix of 60 percent domestic and 40 percent external. 20 CBP Overview of 2017 & Outlook for 2018

21 21 CBP Overview of 2017 & Outlook for 2018

22 MONETARY POLICIES STABLE ALL YEAR ROUND AS CBN MAINTAINED STATUS-QUO Unlike the previous year, the Central Bank of Nigeria Monetary Policy Committee kept all policy parameters unchanged all through its meetings held in The last adjustment to the policy parameters came in July 2016, in which the Committee decided to increase the MPR by 200 basis points from to percent while other parameters where retained at previous levels. As at November 2017, the committee voted to: 1. Retain the MPR at 14 per cent; 2. Retain CRR at per cent; 3. Retain the Liquidity ratio at per cent; 4. Retain the Asymmetric window at +200 basis point and -500 basis points, around the MPR The Committee s stance to leave all policy parameters unchanged during the course of the year was because it was of the view that adjusting any of the policy parameters at the time will not do the country s financial system and the entire economy any good with high inflation figures, slow GDP growth and a fragile stability in the FX market. The last adjustment to the policy parameters came in July 2016, in which the committee decided to increase the MPR by 200 basis points from to percent while other parameters where retained at previous levels. Implications of the MPC s Decisions on Macro-Economy: The decision to leave all policy parameters unchanged had implications on the macro economy for the period and impressively supported growth during the course of the year. With MPR left unchanged at percent, we saw a continuous inflow of Foreign Portfolio Investors into the country as investor appetite towards Nigerian high yielding instruments continued to increase. This translated to more inflow of foreign currency which aided in growing the country s foreign reserves and helped stabilize the Naira. Also during the period, growth in the real sector of the economy remained sluggish as interests rates remained significantly high and the banks refused to lend to the real sector, with most of the banks pumping funds into the high yielding instruments being offered by the federal government. At the later part of the year 2017, we began to see interest rates for the fixed income instrument drop as FGN Bond Yields continued to fall while the 22 CBP Overview of 2017 & Outlook for 2018

23 CBN began to drop its stop rates for the Treasury Bill Auction. This was possible due to the fact that there was significant accrual in the country s reserves, GDP reported positive growth, relative stability in the FX market, improved investor confidence on the back of successful Euro bond offerings and growing economy and a slow but consistent reduction in inflation figures. In the medium to long term, this gradual drop in interest rates should favor the real sector of the economy as the banks will have no option than to lend to the market participants in that sector as interest rates sin government securities will become unattractive. This in turn will boost output for both the companies and the general economy at large as business activities would increase while the burden of high interest expense for the manufacturing companies would ease on the back of lower interest rate regime. At the later part of the year 2017, we began to see interest rates for the fixed income instrument drop On the Stock Market, investment and confidence in shares significantly improved in 2017 given the improved investor sentiments towards the Nigerian economy. Significant improvement in corporate earnings for companies listed on the stock market drove investment back to the market even as Foreign Portfolio investors came back into the country on the back of a more stable and predictable FX market. This drove the Nigerian stock market to close the year with a return of 42.30%, its first positive return since year The outlook for the banking stocks among other sectors remains positive having seen their brilliant performance as at 9M 2017, while we have seen renewed investor interest in the consumer goods sector as well as the manufacturing sector both of which had suffered immensely in 2016 due to the high exchange rate regime which almost crippled their businesses. Thus, we anticipate a rally in the banking space for tier 1 companies and a few selected tier 2 companies in the banking space while a few blue chip companies listed on the NSE are expected to lead the race in EXCHANGE RATE STABILITY IN RATES SUPPORTS DECLINING INFLATION Data made available by the CBN showed that Nigeria s exchange rate opened for the year at 304/1US$ for the purchase of the dollar while the CBN sold the dollar at 305/1US$ as at January 3, For the most part of the year 23 CBP Overview of 2017 & Outlook for 2018

24 The NAFEX window which was launched by the CBN in April 2017 kicked off trading activities at a rate of /1US$ on Monday April and closed the year at /1US$ on Friday December the exchange rate remained relatively stable, fluctuating between 304/1US$ and 308/1US$ for buy and sell mandates all year round as the CBN remained the major source of liquidity and continued to intervene in the market until the introduction of the NAFEX window in April 2017 which significantly improved liquidity in the FX market. At the end of the year, the Naira closed at the CBN at 305/1US$ for buy positions and 306/1US$ for sale positions representing a depreciation of 0.33% and 0.33% respectively from the price it opened on January 3, This impressive stability observed in the FX market was as a result of a few positive events which include the continuous rise in oil prices which aided our foreign reserves, increased production volumes due to relative peace in the Niger delta region, CBN s establishment of a new foreign exchange window known as the Investor and exporter window (NAFEX) and increased investor confidence which brought about Foreign portfolio investors which was largely as a result of the NAFEX window which gave investors the believe that the naira was trading at a fair price and not overvalued. The NAFEX window which was launched by the CBN in April 2017 kicked off trading activities at a rate of /1US$ on Monday April and closed the year at /1US$ on Friday December This represents an appreciation of 4.00 percent as foreign investors continued to come into the Nigerian market in droves via the window which they believed revealed the true position (Price) of the Naira. The parallel market saw a significant appreciation of the naira given the stability in exchange rate for The parallel market open the trading year with the dollar trading at 490/1US$ to buy and 492/1US$ to sell as at January and closed the trading year at 358/1US$ for buy and 363/1US$ for sell as at December representing an appreciation of percent and percent respectively. 24 CBP Overview of 2017 & Outlook for 2018

25 25 CBP Overview of 2017 & Outlook for 2018

26 Data from OPEC showed that its reference basket price increased by about 10 percent to average at US$60.74/b in November 2017 and reaching the highest value in more than two and a half years. CRUDE OIL PRICE A MAJOR BOOST TO GOVERNMENT REVENUE In recent years 2014 through 2016, global inventories grew rapidly as global oil supply overtook world oil demand. During the same period, the price of crude dropped to its lowest level last seen in Recovery in crude oil prices started from the second half of 2016 as the Organisation of the Petroleum Exporting Countries (OPEC) decided to cut production output in a bid to revive the already low oil price saw increase in stock draw as global oil demand grew by 1.53mb/d compared to the same period in 2016 while oil supply grew by 0.81mb/d in Data from OPEC showed that its reference basket price increased by about 10 percent to average at US$60.74/b in November 2017 and reaching the highest value in more than two and a half years. The uptick continued in the last quarter of the year as bullish sentiments continued due to indications from key OPEC members like Russia and other participating countries that they support extending the 1.8mb/d production adjustment to rebalance the oil market. Data from the United States Energy Information Administration (EIA) indicate that the Brent crude oil spot price averaged US$54.00/b in 2017 and increase of US$10.00/b from 2016 levels. Daily Brent spot prices also ended 2017 near US$67.00/b which is the highest price level since December 2014.The EIA also forecasts Brent spot prices to average at US$60/b in 2018 and US$61/b in 2019 on the back of modest inventory build forecast for 2018 and 2019 which will contribute to Brent crude oil price decline from current levels. 'Mn Barrels / Day Production 2017 Production Saudi Arabia Iraq Iran, I.R. UAE Kuwait Venezuela Nigeria Angola Algeria Libya Qatar Ecuador Gabon Equatorial Guinea Source: OPEC, CBP Research 26 CBP Overview of 2017 & Outlook for 2018

27 In 2017, the US remained the key driver of non-opec supply growth adding 0.61mb/d to non-opec production supported by other countries with Canada adding 0.30mb/d, Brazil adding 0.18mb/d, Kazakhstan adding 0.1 mb/d and Ghana adding 0.07mb/d. While oil supply shrank in Mexico by 0.22mb/d, China by 0.11mb/d, Azerbaijan by 0.05mb/d, Oma by 0.04mb/d, Indonesia by 0.04mb/d, and in Egypt, Colombia and Vietnam by 0.03mb/d each. The US, Canada, Brazil, Kazakhstan, the UK, Ghana, Congo and Australia are expected to be the key countries expected to continue to drive growth in 2018, in contrast to Mexico, China, Russia, Colombia, Azerbaijan and Norway, which are expected to see a further decline in oil supply. Oil supply for 2018 according to OPEC is expected to grow by 0.99mb/d for non- OPEC members and to reach an average of 58.81mb/d for the year 2018 The positive outcome of the extension of the declaration of cooperation between OPEC and non-opec to end of the year 2018 as well as the supply turbulences in the Canadian exports to the US is also expected to support gains in oil price. In 2018 world oil demand is expected to grow by 1.51mb/d with China expected to lead the oil demand followed by Asia which include India and Latin America. The major assumptions behind the growth forecast are firm economic growth expectation which will lead to industrialization and major constructions. Expansion in the transport sector is also expected to provide the bulk of the oil demand growth. Oil supply for 2018 according to OPEC is expected to grow by 0.99mb/d for non-opec members and to reach an average of 58.81mb/d for the year In total OPEC crude in 2018 is expected to stand at 33.2mb/d, which is higher than the OPEC production levels seen last year at 32.6mb/d. 1H 18 is forecast higher by 0.67mb/d than 2H 17, and 2H 18 is forecast higher by 0.28mb/d than the first half, averaging 58.81mb/d in Crude oil Price US$. Jan - Dec Source: Investing.com, CBP Research 27 CBP Overview of 2017 & Outlook for 2018

28 Oil production in the US Gulf of Mexico decreased by 15tb/d month on month, down to 1.65mb/d in September 2017, mainly due to the disruption in production after hurricane Harvey and suggesting that some platforms remained offline for a longer time. However, they indicated average growth of 82tb/d year to date. Hurricane Harvey knocked-out about 80tb/d in August, and Hurricane Irma in September had a similar impact, but some of the additional losses might be due to natural decline. However, Hurricane Nate in October took out about tb/d on average over the month. For 2018 the forecast growth will be higher at 0.82mb/d year on year, to average 5.48mb/d against an average of 4.66mb/d in OPEC reports that US Shale oil production for 2017 grew by 0.42 percent to stand at 4.66tb/d and is projected to grow by 0.82 percent to 5.48tb/d in Mb/d Summarized World Supply/demand Balance for Q1 '17 Q1 '17 Q3' 17 Q4 '17 Q1'18F Q2 '18F Q3 '18F Q4 '18F (a) Total world demand Total supply Total non-opec supply OPEC oil Supply Source: OPEC, CBP Research In Nigeria, the oil sector was the major driver of economic growth for 2017 having grown by 1.64% in Q compared to a growth of 0.45% for the non-oil sector. Q GDP figures also saw the oil sector grow by 25.89% compared to the non-oil sector which contracted by 0.76%. The improvement in oil sector was as a result of rising oil prices as well as significant increase in the country s production volume. As at December 2016, data from the Nigerian National petroleum corporation reported an average daily oil production of 1.57 mb/d down from 1.72 mb/d in 28 CBP Overview of 2017 & Outlook for 2018

29 Production estimate for 2017 was hinged on 2.2 million barrels per day which according to data from NNPC was never achieved all year round November September 2017 reported an average daily oil production of 1.93 mb/d down from 1.99 mb/d reported in August In 2016 the average production stood at 1.80 mb/d while as September 2017, the average production volume stood at 1.86mb/d, up by 0.06mb/d from 2016 levels as at September Given the rising oil prices and increased and stable production volumes government revenue for Nigeria recorded a significant boost against other years of declining government revenues. Month Total production per month barrels Average daily production barrels 16-Sep 49,456,803 1,648, Oct 54,923,620 1,771, Nov 57,854,600 1,928, Dec 48,881,977 1,576, Jan 56,954,098 1,837, Feb 50,901,246 1,817, Mar 49,567,855 1,598, Apr 53,794,121 1,793, May 58,224,738 1,878, Jun 58,603,065 1,953, Jul 62,463,625 2,014, Aug 61,823,669 1,994, Sep 57,920,099 1,930,670 Source: NNPC, CBP Research For the most part of 2017, the price of oil was above US$42.50 per barrel which was Nigeria s budget bench mark price for the period. Fortunately, the price of oil averaged at US$54.00 per barrel in 2017 together with increased oil production volumes due to the enhanced stability in the Niger delta region which significantly improved the country s revenue for the period compared the last two year were oil prices were very low and oil production dipped due to oil pipeline bombings. Production estimate for 2017 was hinged on 2.2 million barrels per day which according to data from NNPC was never achieved all year round as the country produced between 1.59 million barrels and 2.01 million barrels per day from January to September. Presently in 2018, the President has proposed a budget of 8.61 trillion against 7.29 trillion proposed in 2017 representing an increase of 18.11%. 29 CBP Overview of 2017 & Outlook for 2018

30 The 2018 budget bench mark was hinged on a price of US$45.00 per barrel of oil and a production estimate of 2.3 million barrels a day though our daily production remains 0.37 million barrels short as at September 2017 figures. As oil revenues remain a major source of government revenue accounting for a projected 36.96% of total projected government revenue for 2018, the need for oil prices to remain above the budget benchmark price of US$45.00 and for the country s oil production volumes to be at maximum output cannot be over emphasised. In summary; we project further oil price rise and how it affects Nigeria s Stock market and other Economies. Global oil prices have gradually risen over the last year leading to a significant revenue increase in many oil exporting nations, while consumers in many importing countries will have to pay more to heat their homes or drive their cars. This increase has the underlining effect on various areas of the economy; Government Revenue The need for oil prices to remain above the budget benchmark price of US$45.00 and for the country s oil production volumes to be at maximum output cannot be over emphasised. Higher oil price will cause increased government revenue thereby triggering a reduction in fiscal deficit for all oil exporting economies Lower fiscal deficit will translate into lower government borrowing and reduce the country s debt to GDP and Debt to Revenue ratio. Lower government borrowing would result in reduced interest rates Increased government spending which will in turn increase economic activities Interest Rates Interest rates gradually drops as government borrowing lessens due to rising revenue Low interest rates would make fixed income instruments less attractive to the investors as investors seek higher yielding investments We the expect the reduction of interest rate to gradually lure attention back to the capital market and improve liquidity in the market 30 CBP Overview of 2017 & Outlook for 2018

31 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 continue to see: Further appreciation of the Naira as our foreign reserve grow Increased appetite towards Nigerian assets by Foreign investors Increased liquidity in the equities market A gradual inflow of FDI and more inflow of 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 as consumer disposable income may be reduced. INTERNATIONAL TRADE TOTAL TRADE CONTINUES TO RISE Total import and export trade have continued to rise since Q were it reported a total merchandise trade of 3.13 trillion and has consistently risen to its current level of 5.92 trillion as at Q Q saw Nigeria s total merchandise trade increase by 230 billion representing 4.04% rise to 5.92 trillion from the preceding value of 5.69 trillion as at Q This improvement arose due to increase in export trade. Imports dropped to 2.35 trillion in Q a drop of 24 billion representing a 9.27% drop from 2.59 trillion reported in Q2 2017, while exports rose to 3.57 trillion resulting in an increase of 47 billion or 15.16% from 3.10 trillion reported in Q The improvement in export trade saw the country s trade balance remain positive at 1.22 trillion for the fourth time since Q where it reported a trade deficit of 67 billion. 31 CBP Overview of 2017 & Outlook for 2018

32 Trade Summary (NGN 'Trillion) Import Export Q Q Q Q Q Source: NBS, CBP Research Imports by continent as at Q indicate the country imported 43% of goods from Europe amounting to 1.02 trillion, 39% from Asia amounting to 0.90 trillion, 12% from the Americas amounting to 0.27 trillion and 4% from Africa amounting to 0.10 trillion. Nigeria s import trade stood at 2.35 trillion, at the end of Q3, This was 9.27% lower than the value recorded in the preceding quarter 2.59 trillion. Further comparison with the corresponding quarter of last year, showed a decline of 11 billion or 4.47%. Nigeria s import trade by direction showed the country imported goods mostly from China, accounting for 22.26% in Q against 19.8% of total imports in Q This was followed by USA accounting for 13.7%, Netherlands accounting for 7.64%, the India accounting for 5.08 % and United Kingdom accounting for 4.11% of total imports. Imports by continent as at Q indicate the country imported 43% of goods from Europe amounting to 1.02 trillion, 39% from Asia amounting to 0.90 trillion, 12% from the Americas amounting to 0.27 trillion and 4% from Africa amounting to 0.10 trillion. The structure of Nigeria s import trade was dominated by the imports of Machinery and transport equipment accounting for 27.63%, mineral fuel accounting for 25.67%, Motor spirit ordinary which accounted for 20.30% of total imports, Gas oil accounting for 2.42%, Durum wheat (not in seeds) accounting for 2.35%, Durum wheat seed accounting for 1.90%, cane sugar meant for sugar refinery accounting for 1.48%. 32 CBP Overview of 2017 & Outlook for 2018

33 Trade Summary Quarter on Quarter (NGN'Trillion) Import Export Change (%) Q Q Q Q % 8.00% 7.00% 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% Hundreds Source: NBS, CBP Research 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 2, billion or 83.17%. The value of the export trade, totaled 3.57 trillion in Q3, 2017 representing an increase of 47 billion or 15.16%, over the value recorded in the preceding quarter. Year-on-Year analysis shows that the country s exports increased by 1.25 trillion or 53.88% 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 2, billion or 83.17%. Exports by continent showed that Nigeria mainly exported goods to Europe and Asia, which accounted for 1,292.9 billion or 36% and 1,034.8 billion or 29% respectively, of the total export value for Q3, Furthermore, Nigeria exported goods valued at N billion or 23% to the Americas while export to African region totaled billion at 10% for the period. Going forward, despite the restriction on the importation of a few products, we expect further growth in total trade for 2018 with the country s trade balance projected to remain positive on the back of a faster rising export compared to imports. This is expected to increase foreign currency inflow in the Nigerian economy and improve liquidity in the FX market. 33 CBP Overview of 2017 & Outlook for 2018

34 34 CBP Overview of 2017 & Outlook for 2018

35 SECTION2: FINANCIAL MARKET OPERATIONS The Foreign Exchange market experienced some level of stability owning to CBN s actions introduction of Investors and Exporters Window and CBN s direct intervention occasioned by the accretion to the foreign reserves from oil revenues. THE NIGERIAN FINANCIAL MARKET CONTINUES ON THE PATH TO STABILITY The Nigerian financial market performance in 2017 was more stable than the previous year using some economic and market indicators as yardsticks. Unlike the previous year where only 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 appetite for borrowing, the stock market had its fair share in the upbeat with the stock market index closed northward and ranked as the third best performing stock market of 2017 globally. The Foreign Exchange market experienced some level of stability owning to CBN s actions introduction of Investors and Exporters Window and CBN s direct intervention occasioned by the accretion to the foreign reserves from oil revenues. The banking industry also saw some level of better performance as some of the banks were able to latch on the opportunities in Nigerian Treasury bills in the year. The banks also saw an improved provisioning as a result of the improved performance of some of their debtors in the year. THE NIGERIAN MONEY MARKET TAKING ADVANTAGE OF CURRENT OPPORTUNITIES The money market as an integral part of the Nigerian financial market thrive in 2017 offering competitive returns when compared to other markets. Participants in the market were able to achieve positive real returns, especially, those that invested in long-dated instrument as the inflation rates trend down from the high of 18.72% to 15.37% in the year. The CBN in its statutory role used the monetary policies to stabilize prices in the economy. Unlike in 2016 where the MPR was moved three times from 11% to 12% and 14%, the rate was maintained at 14% throughout 2017 as a result of relatively stability in the system. Average interest rates across tenors were fairly stable month on month for the most part of the year apart from interbank call rates. According to the data published by the CBN for January to December 2017, interbank call 35 CBP Overview of 2017 & Outlook for 2018

36 Treasury bills (Tbills) galvanised great participation in the year as a result of high yields across tenors rates ranged between 8.15% and 27.46% in the first quarter of the year, 13.46% and 64.58% in the second quarter, and 22.63% in the third quarter and 9.49% and 43.78% in the last quarter of the year. Saving deposit rates hovered between 4.08% and 4.24% throughout the year (2016: 3.26% and 4.28%) whilst one-month deposit rates swung between 8.24% and 9.15% (2016: 6.32% and 8.48%) with the higher band in the last quarter. Twelvemonths deposit rates swung between 10.27% and 11.70%. The average prime lending rate hovered between 16.91% and 17.88% (2016: 16.13% and 17.18%) while the maximum lending rate remained between 28.88% and 31.39% (2016:26.73% and 28.53%) in the year. Treasury bills (T-bills) galvanised great participation in the year as a result of high yields across tenors. True yields of 91 days, 182 days and 364 days treasury bills ranged between 13.38% %, 16.21%-19.17% and 18.43% % respectively in the year. Banks and other institutional investors seized the opportunities as investment in treasury bills crowded out investments in other asset classes as indicated by the subscription level at every auction. Money Market Indicators (In Percentage) Month Interbank Call Rate MPR Treasury Bill Savings Deposit One Month Deposit Three Months Deposit Six Months Deposit Twelve Months Deposit Prime Lending Max Lending Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: Central Bank of Nigeria. 36 CBP Overview of 2017 & Outlook for 2018

37 THE NIGERIAN EQUITIES MARKET THE NIGERIAN STOCK MARKET IN 2017 PEFORMANCE AIDED BY STABILITY IN THE FOREIGN EXCHANGE MARKET The Nigerian Stock Exchange ranked number one in Africa and third globally on the stock market performance table in The stock market was able to show an impressive performance after consecutive three years drop in its All-Share Index (ASI) from 2014 to The relative stability in the foreign exchange market occasioned by CBN s intervention sales and the introduction of I & E Window helped in two ways. First, it ameliorated the pains of manufacturers as they were able to import raw materials for production and at reduced cost. This reduction in direct cost improved the bottom lines of the listed companies and their fundamentals. Secondly, the stability of the FX engendered confidence in foreign investors to consider investment once again in the Nigerian stock market. The market kicked off on a very shaky note as the NSE ASI reported negative returns in the first two months of the year, -5.75%, thereby leaving the NSE ASI year to date (YTD) return at -4.73% at the end of the first quarter. However, activity picked up in the second quarter resulting in YTD return of the NSE ASI at 29.79%. This momentum was kept through the year as the market index closed at 42.30%. NSE ASI Growth ( ) Year NSE All Share Index 57, , , , , , , , , , , NSE ASI Growth 74.73% % % 18.93% % 35.45% 47.19% % % -6.17% 42.30% Source: NSE, Capital Bancorp Plc Research The improved performance of the listed companies, continued dividend payment, better economic indicators and the news of the exit of the economy from recession boosted investors appetite. Consequently, share price of some companies with good fundamentals recorded good capital appreciation in the year. 37 CBP Overview of 2017 & Outlook for 2018

38 NSE MARKET PERFORMANCE Statistics All Share Index (ASI) 38, , , , , , , 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 1, , , Total Turnover Value (USD billion) Equities Average Daily Turnover Volume (million shares) 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 and for 2017 The NSE ASI recorded positive month-on-month growth in eight out of the twelve months of the year. The index performance in May, June and July was accounted for by the improved activities of the domestic investors (retail and institutional) as well as the inflow from foreign portfolio investors as a result of the stability in the Nigerian foreign exchange market. The index also recorded consecutive quarterly growth after the decline in the first quarter of the year. The Index closed the year with growth of 42.30% as against decline of 6.17% in the previous year. The 2017 performance of the index put a break to its three years consecutive losing streak. The table below shows the NSE ASI monthly movement in 2017 versus performance in the same period in NSE ASI Change (%) NSE ASI Change (%) January 26, , February 25, , March 25, , April 25, , May 29, , CBP Overview of 2017 & Outlook for 2018

39 June 33, , July 35, , August 35, , September 35, , October 36, , November 37, , December 38, , YTD Source: NSE, CBP Research The performance of all the NSE Indices in 2017 were positive except the NSE ASeM Index that dipped by 8.60%. Banking Index performance was phenomenal as it outperformed all other NSE indices by returning gain of 73.32%. The feat was attributable to the positive outlook of the banking industry and the stability in the FX market which has direct impact on both their loan assets and their debt obligations. The NSE Pension index was next in line with gain of 70.33% in the year; it was followed by the NSE Premium Index with 51.23% gain. The Oil & Gas index recorded the least gain with 5.76%; the performance reflects the challenges faced by some stocks in the basket. The table below shows the performance of the indices in the year as against their respective performance in CBP Overview of 2017 & Outlook for 2018

40 NSE Sectorial Indices Performance 73% 70% 51% 46% 42% 39% 37% 24% 2% 7% 10% 6% -1% -7% -10% -8% -4% -11% -12% -9% -2% -26% Banking Pension Premium NSE 30 Main-Board Lotus Islamic Consumer Goods Industrial Insurance Oil/Gas ASeM Index Description Index Index % Change NSE Premium 2, , NSE Main-Board 1, , NSE ASeM 1, , NSE 30 1, , NSE Banking NSE Insurance NSE Consumer Goods NSE Oil/Gas NSE Lotus Islamic 2, , NSE Industrial 1, , NSE Pension 1, Source: NSE, CBP Research A total of billion units worth N1, billion ($3.53 billion) were traded in 2017, as against billion units worth N billion ($1.83 billion) were traded in MARKET CAPITALIZATION The total Market Capitalization increased by 41.59% (24.03% in $ terms) to N22.92 trillion ($63.66 billion) by December 31, 2017 from N16.19 trillion ($51.33 billion) in The Equities Market Capitalisation soared by 47.15% (28.89% in $ terms) to N13.62 trillion ($37.83 billion) in 2017 from N9.25 trillion ($29.35 billion) in 2016 while Bonds Market Capitalisation increased by 34.17% (17.52% in $ terms) to N9.29 trillion ($25.81 billion) in 2017 from N6.93 trillion ($21.96 billion) in CBP Overview of 2017 & Outlook for 2018

41 MARKET ACTIVITY A total of billion units worth N1, billion ($3.53 billion) were traded in 2017, as against billion units worth N billion ($1.83 billion) were traded in The total volume traded in the year increased by 4.85%, while total value traded went up by % (93.45% in $-terms) from the 2016 figure. The average daily volume in 2017 was million units with an average daily value of N5.15 billion ($14.30 million), compared to million units with an average daily value of N2.33 billion ($7.39 million) in TOP TEN STOCKS IN RETURNS STOCKS PERFORMANCE Available data showed that based on total returns (capital appreciation, Bonus and cash Dividend), Dangsugar, Fidelitybk, Intbrew, Dangflour, MayBaker, Fidson, Stanbic, FBNH, Cileasing and NewGold were the top ten (10) gainers on the Daily Official List of The NSE returning %, %, %, %, %, %, %, %, % and % respectively in the year S/N Company/Symbol Sector Mkt Jan DANGOTE SUGAR REFINERY PLC 2 FIDELITY BANK PLC 3 INTERNATIONAL BREWERIES PLC 4 DANGOTE FLOUR MILLS PLC 5 MAY & BAKER NIGERIA PLC 6 FIDSON HEALTHCARE PLC 7 STANBIC IBTC BANK PLC 8 FBN HOLDINGS PLC Mkt Dec Total Return (NGN) CONSUMER GOODS FINANCIAL SERVICES CONSUMER GOODS CONSUMER GOODS HEALTHCARE HEALTHCARE Total Return YTD % FINANCIAL SERVICES FINANCIAL SERVICES 9 C & I LEASING PLC SERVICES NEWGOLD ETF ETF 2, , , Source: CBP Research On the other hand, Morison, Jaizbank, Fo, UPL, MRS, Jberger, 11Plc, AGleventis, NCR and JohnHolt were the top ten (10) losers on the Daily Official List of The NSE s losing 67.88%, 49.60%, 48.37%, 43.87%, 33.95%, 27.42%, 27.38%, 27.08%, 26.14% and 24.24% respectively. 41 CBP Overview of 2017 & Outlook for 2018

42 TOP TEN STOCKS IN NEGATIVE RETURNS S/N Company/Symbol Sector Mkt Jan Mkt Dec Total Loss (NGN) Total Loss YTD % 1 MORISON INDUSTRIES PLC HEALTHCARE JAIZ BANK PLC FINANCIAL SERVICES FORTE OIL PLC OIL AND GAS UNIVERSITY PRESS PLC SERVICES MRS OIL PLC OIL AND GAS CONSTRUCTION/REAL JULIUS BERGER PLC ESTATE PLC (Mobil) OIL AND GAS A. G. LEVENTIS NIGERIA PLC CONGLOMERATES NCR (NIGERIA) PLC ICT JOHN HOLT PLC CONGLOMERATES FOREIGN PORTFOLIO INVESTMENT According to data made available by The NSE, the total Foreign Portfolio Investments (FPI) (the 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, sometimes for speculation) from January to November, 2017 was N1, billion; an increase of % from N billion recorded in the same period of 2016 while the total domestic transactions for the same period stood at N1, billion; an increase of 82.32% from N billion recorded in the same period in The equities market was dominated by the domestic investors (retail & institutional) from January to July in the year before the foreign investors took over from August to November. As at November the domestic players accounted for 51.45% (2016: 55.14%) of total value traded in eleven months. Total foreign inflow stood at N billion (2016: N billion) against total foreign outflow of N billion (2016: N billion) representing a net inflow of N billion as against N0.53 billion in Jan Feb Mar Analysis of Domestic and Foreign Portfolio Investment Transactions for the Period Ended 30 November (All figures are in N Billion) Total Foreign Foreign % Domestic Domestic % Foreign Inflow Foreign Outflow Domestic Retail Domestic Institutional % % % % % % CBP Overview of 2017 & Outlook for 2018

43 Apr % % May % % Jun % % Jul % % Aug % % Sep % % Oct % % Nov % % YTD 2 2, , % 1, % YTD 3 1, % % Source: NSE Domestic & Foreign Portfolio Participation in Equity Trading, Dec Methodology - The FPI outflow includes sales transactions or liquidation of portfolio investments through the stock market, whilst the FPI inflow includes purchase transactions on the Nigerian Stock Exchange (Equities only) YTD represents January to November 2017 transactions YTD represents January to November 2016 transactions. 4. The Exchange rate as at 30 November 2017 was N Year 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 2, , , All figures are in N Billion, Source: The NSE, CBP Research NEW ISSUES in 2017 The primary market end of the stock market was relatively active in the year unlike 2016; as the market recorded some rights issue. The market recorded three new equity issues as against one in the previous year. There were also sixteen (16) supplementary equity issues in 2017 compare to five (5) in the previous year. However, there were no Initial Public offers (IPOs) for the year. 43 CBP Overview of 2017 & Outlook for 2018

44 The number of listed securities on The NSE at the end of 2017 stood at 261 (2016: 247) divided into: 172 (2016: 175) listed equities, 80 (2016: 64) listed bonds and 9 (2016: 8) ETPs. NEW LISTING in Med-View Airline Plc The NSE on January 31, 2017 listed by introduction 9,750,649,400 ordinary shares of Med-View Airline at N1.50 per share on its Main Board 2. Jaiz Bank Plc - The NSE admitted 29,464,249,300 ordinary shares of Jaiz Bank Plc on its daily official list at N1.25 per share by introduction on February 9, Global Spectrum Energy Services Plc - The NSE on November 27, 2017 listed by introduction 800,000,000 ordinary shares of Global Spectrum Energy Services Plc at N5 per share on its Main Board. DELISTING in 2017 Five (5) companies as against Fifteen (15) in 2016 were delisted from the Daily Official List of The NSE in the year based on various reasons. The companies are: S/N Company Reason for Delisting 1 Beco Petroleum Products Plc Regulatory: NSE 2 MTECH Communications Plc Regulatory: NSE 3 MTI Plc Regulatory: NSE 4 UTC Plc Regulatory: NSE 5 Ashaka Cement Plc Voluntary Source: The NSE OTHER DEVELOPMENTS IN THE STOCK MARKET IN 2017 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 some of the achievements for the year 2017; E-Dividend Drive: The Securities and Exchange Commission in collaboration with the other stakeholders in the stock market vigorously 44 CBP Overview of 2017 & Outlook for 2018

45 promoted the campaign for investors to process unclaimed dividends under the E-Dividend Registration Initiative. Members of The NSE on Thursday, March 30, 2017 approved the demutualisation scheme of the Exchange at an Extra-Ordinary General Meeting (EGM) of its members which held at the Stock Exchange House, Lagos. Specifically, members of the Exchange authorised the National Council and Management of the Exchange to proceed with the process leading up to the demutualisation of the Exchange subject to applicable laws and regulations and obtaining the approvals of members and the relevant regulatory authorities. After the Exchange s National Council meeting held immediately after its 56th Annual General Meeting on September 25, 2017, the Council announced the election of Mr. Abimbola Ogunbanjo as the new President of National Council of the Exchange. Mr. Ogunbanjo took over from Mr. Aigboje Aig-Imoukhuede, CON, who has completed his three-year tenure as President of Council of the Exchange. The Exchange launched a state-of-the art Data Centre on August 28, The Data Center which was commissioned by the Honourable Minister of Science and Technology, Dr. Ogbonnaya Onu, has been built to Uptime Institute s TIER III design standards. 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 EXCHANGE STILL ADDING VALUE IN THE FACE OF MARKET CHALLENGES NASD OTC Securities Exchange, the platform for trading of all the shares of unquoted public companies in Nigeria, continues to struggle with all the market challenges in Trading activities on the exchange was below expectations when compare to the numbers of unquoted public companies in Nigeria and the rallies experienced in the equities traded on The NSE. Appetite towards trading on the NASD OTC exchange is still very low as only few stocks are being traded on it. Despite the challenges, NASD Plc was able to record some achievements in the year. Amongst them are: 45 CBP Overview of 2017 & Outlook for 2018

46 Introduction of NASDeP In the bid to add more values to the Nigerian capital market, NASD Plc started sensitisation on its new Enterprise Portal and PE Exchange, NASDeP, in December which will be formally launched in Q1, The portal is to serve as a matching service that encourages flow of information between investors and companies that needed funding. The portal, a central database of private investment opportunities and investor pools, is put in place to present structured information on performance, operations and investment opportunities of companies. Interested investors and companies that needed funding can access this portal through an NASD accredited Investor representative and Enterprise representative respectively. The NASD Unlisted Securities Index (USI) closed the year at as against in 2016; decline of 3.43% in 2017 Market Snapshot Trading activity on the NASD OTC Securities Exchange witnessed a significant drop in the year compare to The NASD Unlisted Securities Index (USI) closed the year at as against in 2016; representing decline of 3.43% in The Market Capitalization also ended the year at billion as against billion in 2017; a decrease of 3.43%. The exchange closed the year with 34 companies as against 32 companies on its Daily Official List in Market Snapshot Change (%) USI Market Capitalization (N )billion Volume (million) Value ( N billion) Deals 2,792 4, Top Price Gainers During the year under review, the top price gainers in the NASD OTC market were; NASD PLC, CSCS PLC, Air Liquide PLC, Ensure Insurance and Friesland Campina WAMCO PLC. 46 CBP Overview of 2017 & Outlook for 2018

47 Dec. 31, 2016 Dec. 31, 2017 Change Change S/N Company (N) % 1 NASD PLC CENTRAL SECURITIES CLEARING SYSTEM PLC AIR LIQUIDE PLC ENSURE INSURANCE PLC FRIESLAND CAMPINA WAMCO NIGERIA PLC Top Price Losers During the year under review, the top price losers in the NASD OTC market were; IGI Plc, Afriland Properties PLC, Acorn Petroleum Plc, Cappa and D Alberto Plc and Trustbond Mortgage Bank PLC. Dec. 31, 2016 Dec. 31, 2017 Change Change S/N Company (N) % 1 INDUSTRIAL AND GENERAL INSURANCE PLC AFRILAND PROPERTIES PLC ACORN PETROLEUM PLC CAPPA AND D ALBERTO PLC TRUSTBOND MORTGAGE BANK PLC AG MORTGAGE BANK PLC MIXTA REAL ESTATE PLC NIGER DELTA EXPLORATION & PRODUCTION PLC NEW ISSUES in 2017 During the year 2017, NASD admitted four (4) securities to trade on its exchange as against eight (8) securities in 2016: Below are the four new securities and date of admission: S/N Company Symbol Price Date Admitted 1 NIPCO Plc SDNIPCOPLC 71.5 February 16 2 COSTAIN WEST AFRICA Plc SDCOSTAIN 0.50 March 10 3 CR (CREDIT BUREAU) Plc SDCRSBUR 1.90 March 29 4 LIGHTHOUSE FINANCIAL SERVICES PLC SDLIGHTFSP 0.50 August 17 FMDQ OTC MARKET CONTINUOUSLY GROWING WITH EACH PASSING DAY FMDQ OTC, the Nigerian OTC Securities Exchange for Foreign Exchange, Treasury Bills (T-bill), Bonds, Money and Derivatives, as at November 30, 2017 recorded an overall turnover of N130.17trn; 30.20% above the value of N99.98trn reported same period in Trading in T-bills continued to 47 CBP Overview of 2017 & Outlook for 2018

48 dominate activities in the market, accounting for 43.13% of total turnover in 2017 (2016: 38.76%). FMDQ OTC Market Turnover Jan - Nov 2017 Jan - Nov 2016 (N'mm) ($'mm) (N'mm) ($'mm) Foreign Exchange 18,702,261 58,479 12,853,815 50,846 Foreign Exchange Derivatives 15,509,566 48,707 9,461,733 37,428 Treasury Bills 56,139, ,357 38,750, ,287 FGN Bonds 9,039,582 28,590 7,461,917 29,517 Other Bonds 27, , Eurobonds 82, , Repurchase Agreement/Buy-Backs 29,160,825 92,115 28,636, ,279 Unsecured Placement/Takings 1,486,496 4,653 2,701,906 10,688 Money Market Derivatives 22, , Total 130,170, ,322 99,975, ,471 No. of Business Days Average Daily Turnover 565,960 1, ,573 1,727 Source: Monthly FMDQ Spotlight Newsletter December 2016 and 2017; 2017: YTD Average Rate ; 2016: ; mm- million Some of the achievements of FMDQ in 2017 include: Partnership with S&P Dow Jones Indices: FMDQ in the year formalised its partnership with S&P Dow Jones Indices through the signing of a memorandum of understanding (MoU) for the development and publication of co-branded fixed income indices in the Nigerian financial market. Launch of the Nigerian Autonomous Foreign Exchange Fixing (NAFEX): Sequel to the introduction of the Investors & Exporters FX Window (I&E FX Window) by the CBN, FMDQ developed and launched the NAFEX in April to serve as the reference rate for activities in the I&E FX Window. The NAFEX was developed to represent Spot FX market rates in the I & E FX Window and support appropriate benchmarking and facilitation of derivatives activities in the I & E FX Window. Launch of the FMDQ Investor Protection Fund: In compliance with the provisions of Part XIV of the Investments and Securities Act 2007 and to provide a secure and credible platform supported by global best practices, as well as serve as a catalyst for sustaining investor confidence 48 CBP Overview of 2017 & Outlook for 2018

49 in the Nigerian financial markets, FMDQ launched its Investor Protection Fund. The Fund would compensate investors who suffer pecuniary losses arising from insolvency, bankruptcy, or negligence of a Dealing Member of the OTC Exchange, as well as defalcation committed by a Dealing Member or any of its Directors, officers, employees, or representatives in relation to securities, money or any property entrusted to, received, or deemed received by the Dealing Member in the course of its capital market activities. Launch of the FMDQ Clients Fixed Income Trading, Reporting & Surveillance System: FMDQ launched its proprietary market systems, PenDealer System, in the year. The system is aimed at delivering improved market connectivity in the Nigerian fixed income market for clients, as well as effective oversight for financial market regulators over the activities of the operators under them. The PenDealer System currently provides a seamless avenue for Pension Fund Operators to engage in activities in the fixed income market with banks via the System, whilst providing the National Pension Commission a means to maintain adequate oversight over the activities the Pension Fund Operators. FMDQ also listed the following Securities in 2017: 1) Listing of the Federal Republic of Nigeria Eurobond on FMDQ: The Federal Republic of Nigeria (FRN) through DMO in March listed, for the first time, its $1.00 billion Notes (Eurobond) under the FRN s $1.00 billion Global Medium-Term Note Programme on FMDQ. 2) Listing of the Pioneer Diaspora Bond and other Eurobonds on FMDQ: The FRN, through the DMO, listed its first Diaspora Bond on the OTC Exchange. The FRN Diaspora Bond $ million 5.625% Diaspora Bond due 2022 issued in June Other the two (2) tranches of the FRN Eurobonds $1.50 billion 6.500% Notes due 2027 and $1.50 billion 7.625% Notes due 2047 under its $4.5 billion Global Medium-Term Note Programme Eurobonds were listed on the OTC Exchange. 49 CBP Overview of 2017 & Outlook for 2018

50 3) Listing of the Pioneer Exchange Traded Fund on FMDQ: FMDQ also welcomed in the year the pioneer listing of an exchange traded fund (ETF) on its platform The Vetiva S&P Nigerian Sovereign Bond Exchange Traded Fund. 4) Listing of the Pioneer Infrastructure Debt Fund in Nigeria and Sub-Saharan Africa: FMDQ listed Series I 49,450,000 Units of under the billion Nigeria Infrastructure Debt Fund (NIDF) Issuance Programme of Chapel Hill Denham Management Limited. 5) Commercial Paper Issuances Listings: Lafarge Africa PLC billion First City Monument Bank Limited billion Wema Bank PLC 3.41 billion Series 1 and billion Series 2 CP Notes under its CP Issuance Programme. Access Bank PLC 8.45 billion Series 1, 4.22 billion Series 2 and billion Series 3 Commercial Paper (CP) Notes under its billion CP Programme BOND MARKET Activities in the Bond market were dominated by the Federal Government. Participation in the market was anchored on the relatively high yields on the back of high interest rates and the Federal Government s appetite for borrowing in the domestic market. The market witnessed more activities and turnover compare to the previous year as a result of attractive yields across tenors of FGN Bonds. The market was also boosted with the introduction of new bond varieties by Federal Government in the year: Maiden 5-year, $300million FGN Diaspora Bond at coupon rate of 5.625%. The first diaspora bond issued in the international capital market targeted principally at Nigerians abroad, to provide them with the opportunity to contribute to national development was 130% subscribed. FGN Savings Bond A retail bond issue monthly by the DMO. It was launched to encourage savings among Nigerians, especially, low income earners. The bonds have a minimum subscription level of 50 CBP Overview of 2017 & Outlook for 2018

51 N5,000. However, the level of subscription to the bond has not been encouraging since its launch in March The Maiden Sovereign Sukuk Bond- The Debt Management Office (DMO) offered its N100 billion debut 7-year Sukuk bond. The fund was raised to close Nigeria s infrastructure gap, specifically, for the construction and rehabilitation of 25 Roads across the 6 Geopolitical zones. The Offer attracted a total subscription of N billion. According to DMO, the Offer also recorded participation by over a thousand retail investors from across the nation who accounted for over 4% of the total subscription. First African Sovereign Green Bond- The DMO in collaboration with the Federal Ministry of Environment launched the first sovereign Green Bond in Africa. A N10.69 billion 5-Year FGN Green Bond due 2022 at % Per Annum was offered in December. The proceeds of the bond will be used solely for Green Projects in the 2017 Appropriation Act already identified and certified. According to the FMDQ report for December 2017 total turnover (January to November) for FGN bonds and other bonds (excluding Eurobonds) stood at N9.07 trillion; an increase of 20.89% Year-on-Year (YoY) from N7.5 trillion in 2016 Bond trading on The NSE recorded mixed performance. New bond issuances increased over the previous year while market turnover declined in 2017 as investor sought for higher returns in alterative product classes. Yields across tenors declined gradually amidst easing inflation and greater FX stability. According to data obtained from The NSE, the bond market grew in terms of market capitalization to N9.29 trillion ($25.81 billion) from N6.93 trillion ($21.96 billion) in 2016 representing growth of 34.17% in naira terms and 17.52% in dollar terms. For the period, the number of listed bonds on the NSE increased to 80 from 64 from in 2016 indicating 16 additions to the listed bonds on The NSE. The domestic corporate bond market activity slowdown compare to According to The NSE date, corporates raised N21.5billion in three (3) listings in 2017, representing a 75% decline from N86.1billion recorded in CBP Overview of 2017 & Outlook for 2018

52 According to the FMDQ report for December 2017 total turnover (January to November) for FGN bonds and other bonds (excluding Eurobonds) stood at N9.07 trillion; an increase of 20.89% Year-on-Year (YoY) from N7.5 trillion in Bond yields across tenors remained attractive for most part of the year. the FGN 5-year, 10-year 20-year bonds yields in the year ranged between 14.97% %; 14.80% and 16.99%, and 15.92% and 16.99% respectively at the primary market 52 CBP Overview of 2017 & Outlook for 2018

53 SECTION 3: ANTICIPATING THE FUTURE 53 CBP Overview of 2017 & Outlook for 2018

54 THE GLOBAL ECONOMY (OUTLOOK FOR 2018) EXPECTED TO FURTHER ADVANCE IN 2018 Evidently the global economy is experiencing a cyclical recovery reflecting a rebound in investment, manufacturing activities and trade. According to the World Bank, the recovery was driven by improved financing conditions, generally accommodative policies, rising confidence and firming commodity prices. With the World Bank s global growth estimate of 2.7 percent in 2017, global growth has been estimated to edge up to 3.1 percent by the World Bank with advanced economies projected to grow by 2.2 percent and the emerging markets and developing economies (EMDEs) projected to grow by 4.5 percent. The IMF however projects a more upbeat growth having projected global growth at 3.7 percent for 2018 on the back of a faster growing Emerging market and developing economic growth of 4.9 percent in 2018 and a growth forecast of 2.0 percent for advanced economies. Risk to this growth forecast remain as financial markets volatility has been unusually low and asset prices have become highly valued suggesting the risk of a sudden market adjustment. Particularly for developing economies, structural reforms remain essential to stem a further decline in potential growth as fiscal policies may remain less impactful without proper reforms. Growth in advanced economies is projected to slow, as labour market slack diminishes and monetary policy accommodation is gradually unwound, moving closer to subdued potential growth rates, which remain constrained by aging populations and weak productivity trends. Conversely, growth in EMDEs is expected to accelerate in 2018 on the back of further pick up of growth in commodity exporters as oil and other commodity prices firm. Although risks to the global outlook continue to be tilted to the downside, they are more balanced than the last two years. This is mainly due to the possibility of stronger than expected growth in the largest advanced economies and EMDEs. All in all we remain bullish about the outlook for the global economy. 54 CBP Overview of 2017 & Outlook for 2018

55 Advanced Economies 2017 saw improved upside momentum in advanced economies as recovery was noticeably stronger than expected in the Euro Area and slightly better in the United States and Japan as capital expenditure increased, countries inventories grew while external demand rose during the period. Into 2018, growth in advanced economies is expected to moderate, with the IMF projecting a growth of 2.2 percent and the World Bank anticipating a slower growth of 2.0 percent. This expected ease in growth forecast reflects the unwinding of the upturn in investments and further normalization of monetary policy as advanced economy output shrink. World Growth Actual / Forcast IMF WORLD BANK Barring any drastic policy changes from the US government, growth is expected improve in 2018, as the World Bank has estimated a forecast growth of 2.5 percent in E 2018F Source: IMF & World Bank The United States saw private investment strengthen in 2017 even as profits continued to rise with increasing external demand despite a few disruptions caused by major hurricane landfalls in September Seeing that the economy is moving closer to full employment and despite inflation running below target, the United Sates Federal Reserve s continue to normalize monetary policy in 2017 by raising interest rates and starting to gradually reduce the size of its balance sheet. With an expectation of the recently legislated corporate and personal income tax cuts, it is expected that activity will increase in the short to medium term particularly to investments though we do not see much benefits by way of fiscal stimulus as the economy is 55 CBP Overview of 2017 & Outlook for 2018

56 already operating at near its optimal capacity. Barring any drastic policy changes from the US government, growth is expected improve in 2018, as the World Bank has estimated a forecast growth of 2.5 percent in 2018 against its estimated growth of 2.3 percent in 2017 while the IMF has projected a 2.3 percent growth for 2018 as against an estimated growth of 2.2 percent in Over the long term low participation and weak productivity trends will remain the most significant drag on the U.S. growth prospect owing to an aging population. With growth in the Euro Area estimated to reach 2.1 percent in 2017 by the IMF and 2.4 percent by the World Bank both growth estimated hinged on the broad based improvements across member countries incited by policy stimulus and strengthening global demand. Given that the aggregate fiscal stance of the Euro Area was somewhat expansionary in 2017 we expect the European Central Bank to keep interest rates unchanged in 2018 with a target to keep inflation below the target rate is expected to see sustained GDP growth in the Euro Area albeit at a more retrained pace due to a momentum drag owing to strong gains in 2017 and even as the effect of policy stimulus begins to ease. The IMF has projected a 1.9 percent growth for percent lower than the estimated growth for 2017 while the World Bank has estimated a 2.1 percent growth for percent lower than its estimated growth for Emerging Markets and Developing Economies Investments recovered in 2017 after a period of contraction in Argentina, Colombia, Iran, Nigeria, Russia and Zambia as a result of the stabilization of global commodity prices and improved domestic conditions EMDEs recorded accelerated growth in 2017 which was estimated at 4.3 percent by the World Bank, 0.3 percent lower than IMF s estimated growth of 4.6 percent in A cyclical upturn continued in commodity exporting countries, raising their contribution to overall EMDE s growth. In turn, the recovery in commodity exporters reflected an upturn in private consumption and investment amid improved confidence and diminishing drag from earlier policy tightening. As most of the large EMDE s recovered from recession (E.g, Brazil, Russia) other economies in similar downturn recovered as the recovery was broad based and seen in more than 50 percent of commodity exporters as they 56 CBP Overview of 2017 & Outlook for 2018

57 enjoyed macroeconomic and currency stability during the period. Investments recovered in 2017 after a period of contraction in Argentina, Colombia, Iran, Nigeria, Russia and Zambia as a result of the stabilization of global commodity prices and improved domestic conditions, which contributed to a reduction in financing costs and a recovery in capital inflows in Activity remained solid in 2017 in a number of more diversified economies and agriculture exporters which include Benin, Burkina Faso, Cote-d Ivoire, Ethiopia, Indonesia, Malaysia, Morocco, Senegal and Tanzania while growth also improved among metal exporters like Armenia, Mongolia and Zambia reflecting higher metal prices and improved domestic conditions. In contrast, adjustment to low commodity prices has proven more protracted than initially expected in some energy exporters especially for countries who implemented oil production cuts like Iraq, Kuwait and Saudi Arabia who experienced sluggish growth in Countries that also began to undertake belated policy adjustments in Sub-Saharan Africa (e.g. Chad and Republic of Congo), Latin America and Caribbean (e.g. Trinidad and Tobago) e.t.c., also suffered similar sluggish growth patterns. The World Bank has projected growth for commodity exporters to average at 5.7 percent between 2018 and For EMDEs in 2018, growth is expected to strengthen to 4.5 percent according to the IMF and 4.9 percent according to the World Bank. The improved outlook for the region is predicated on increased global manufacturing activity and robust global trade, broadly favourable financing conditions and firming commodity prices, amongst an investment led recovery in advanced economies. The World Bank has projected growth for commodity exporters to average at 5.7 percent between 2018 and 2020 while forecasting a growth of 2.7 percent in 2018 from 1.8 percent in 2017 for commodity exporting countries and expects this growth to significantly support growth for EMDEs. The rebound in economies is also expected to be broad based on the basis that oil and other commodity prices continue to rise or stabilize at current levels even as domestic demand is expected to further strengthen. Growth in China is projected to notch up to 6.8 percent in 2017 but slow to 6.5 percent in 2018 as the effects of the stimulus begin to subside. Argentina is projected to grow by 2.5 percent in 2018 same as the 57 CBP Overview of 2017 & Outlook for 2018

58 growth estimate for 2017 as private domestic demand continues to improve and export benefit from stronger external demand supports investments. Sub-Saharan Africa is projected to grow by 3.4 percent in 2018 by the IMF while the World Bank projects a 3.2 growth forecast for Delays in implementing the needed policy adjustments continue to remain a risk to potential growth as beyond the near term, growth is expected to rise gradually but barely above population growth. South Africa is expected to see further rise in GDP from a growth of 0.7 percent estimated in 2017 to 1.1 percent projected in 2018 by the IMF as heightened political uncertainty erodes consumer and business confidence. The IMF has also projected a growth rate of 4.4 percent in 2018 for fuel importing countries up from an estimated growth rate of 3.9 percent in IMF PROJECTIONS FOR GLOBAL ECONOMIC GROWTH (%) Advanced Emerging Markets and Developing Economies World Output E 2018F Source: IMF World Economic Update 2017 THE NIGERIAN GROSS DOMESTIC PRODUCTS RECOVERY IS EXPECTED TO GAIN MOMENTUM In what we describe as a fair outing for the Nigerian economy in 2017 having come from a difficult year in 2016, the country looks poised to record an even better performance in In the early part of the year, the IMF projected a growth rate of 0.8 percent while the World Bank projected a 58 CBP Overview of 2017 & Outlook for 2018

59 growth rate of 1.00 percent for Recent forecast by both bodies have maintained their initial growth forecast for the country however we have estimated a growth rate of 2.4 percent for Q with a growth estimate of 0.90 percent for Growth in 2018 was however projected to significantly improve on the back of firming oil prices, improved FX liquidity, rising government revenues and increase government spending. The IMF for 2018 has projected a growth rate of 1.9 percent, 1.1 percent higher than its 2017 estimated growth while the world bank projected a growth rate of 2.5 percent for 2018 a 1.5 percent increase from the estimated growth rate of CBP research has estimated a growth forecast of 2.2 percent as we believe that downside risk to a higher growth forecast remain visible. Going from the Q GDP report released by the Nigerian Bureau of Statistics (NBS), the non-oil sector of the Nigerian economy needs to report signs of a recovery for growth to reach levels seen before the oil price decline as consistent negative growth in the non-oil sector will continue to remain a drag on the overall growth potential of the Nigerian economy. We also hope that appropriate policies: both monetary and fiscal policies will be put in place in 2018 to drive economic growth. We also hope that the Federal Government will rapidly pass the 2018 Budget into law and execute the projects in desirable time to boost economic activities. We are of opinion that if the government rides on the current events which presently are in the favour of Nigeria, Nigeria will grow by an average of 2.2 percent in 2018, despite downside risk to this growth forecast. 59 CBP Overview of 2017 & Outlook for 2018

60 Nigeria's Real GDP Growth (%) Q4'16 Q1'17 Q2'17 Q3'17 Q4'17 FY'17E FY'18F Source: NBS, CBP Research Downside Risks to The Nigerian GDP growth The projected GDP growth rate for 2018 should become a reality if government continues to boost its non-oil sector revenues and properly deal with issues relating to wasteful government spending and non-friendly business policies. Some of the downward risks to GDP growth also include: A sudden decline in oil prices due to increased production from exporting countries; A sudden rise in insecurity and insurgency which may disrupt economic activities in Nigeria; Improper management and use of its foreign reserves which would lead to further depletion and cause FX volatility Lack of clear and proper fiscal policies to drive different sectors of the economy. The trending patriotic policies by advanced countries may hamper inflow of both FDIs and FPIs even as some advanced countries have reported a rise in interest rates. 60 CBP Overview of 2017 & Outlook for 2018

61 OTHER MACROECONOMIC INDICATORS Unemployment Though the economy is clearly out of a recession and continues to recover, several economic activities are still contracting or growing sub-optimally Though the economy is clearly out of a recession and continues to recover, several economic activities are still contracting or growing sub-optimally and the recovery is still fragile with signs of vulnerabilities to both domestic and external shocks. In Q labour force rose to million from million reported in Q and stood at million as at Q from million in Q Quarter on quarter, labour force grew by 1.77 percent in Q against Q4 2016, 1.63 percent in Q against Q and 1.37 percent in Q3 against Q Unemployment Rate by Gender (Q1'17-Q3'17) Millions Q Q Q Male Female Source: NBS, CBP Research As at Q3 2017, the total number of unemployed population (Those who were actively looking for work but could not find work for at least 20 hours a week during the reference period) rose by percent to stand at million against million reported in Q while Q figure stood at million. This rise in unemployment continued as a result of the periods the country recorded negative growth as we know that when GDP rises, unemployment shrinks during expansionary phases, while reversing in periods of recession as the case was for Nigeria at the time. In Q3 2017, 16.0 million people were unemployed (0 19 hours work per week), an increase of 4.8 million people of 30 percent rise over Q Similarly during the same period under review, a total of 18 million people were said to be 61 CBP Overview of 2017 & Outlook for 2018

62 underemployed and increase of 2.1 million people or 12 percent higher than Q The report indicated that the rate of unemployment and underemployment was increasing at a faster rate in the urban areas than those living in the rural areas as 16.4 percent of the total labour force and percent of the urban labour force are either unemployed or underemployed. Going forward, we expect a reduction in unemployment and underemployment rate for both the rural and urban areas in 2018 on the back of increased government spending on infrastructure, increased government support for farmers and SME s as well as increased white collar job opportunities as most businesses will see their profits rise and thereby begin to realise the need to expand. The expectation of a lower interest rate regime for 2018 is also expected to boost businesses as they will see their interest expense drop which will directly improve the company s bottom line. Inflation Going forward, the risk to the continuous rise in CPI has lessened, but the government needs to properly manage liquidity in the system as well as channel funds to the real sector of the economy Having come from a bad year in 2016 were we saw inflation rise from 9.6 percent in January 2016 to end the year at percent in 2016 representing a rise of 8.95 percent change, 2017 saw a gradual decline in the consumer price index as the index opened the year at percent in January and stood at percent in December 2017 representing a decrease of percent. This gradual decline in inflation was largely driven by the stability in exchange rate during the year and a more effective monetary and fiscal policies. In 2018, the CBN has targeted inflation to fall below 12 percent which we believe is highly obtainable giving the fact that all the major variables that could have supported an upturn in inflation have been considerably controlled. However the major risks of an upturn in inflation for the year 2018 is expected to come from a significant drop in oil prices and the country s reserves which would cause volatility in the exchange rate as well as increased pre-election campaign spending which could flood the economy with a systemic liquidity that would increase the supply of money in circulation with the year being a pre-election year. 62 CBP Overview of 2017 & Outlook for 2018

63 Going forward, we estimate the country s inflation rata to average somewhere between 11 and 12 percent by December 2018 but the government needs to properly manage liquidity in the system as well as channel funds to the real sector of the economy. The need for the Government to be rational in spending and direct funds to vital areas of the economy cannot be over emphasized if inflation is expected to continue to edge lower. External Reserves Being a country that is significantly dependent on importation of goods and services to run several sections of the economy, the country s external reserves plays a significant role in keeping exchange rate balanced especially in times of dwindling revenue. Having suffered a massive depletion of the reserves in 2016 on the back of declining revenue caused by the drop in oil prices and reduced oil production capacity, 2017 was a much more improved year as the country s external reserves grew significantly on the back of firming oil prices and oil production which triggered increased government revenues. The country s external reserves closed at US$38.76 bn as at December with an increase of 50.00% (US$12.92 bn) between the first trading day of 2017 and the last trading day in 2017, and is projected to cross US$48.50 bn by the end of December 2018 as long as the government does not irrationally increase government spending during the year especially in the second half of the as we begin to close in on the election period and the price of oil continues to firm up or remains stable at current level. In the immediate, we also expect capital inflows from both Foreign Portfolio Investment (FPIs) and Foreign Direct Investments (FDI) to support accrual to the country s reserves, though FPI s inflow remain highly volatile as they instantly start exiting in times of rising uncertainty which could trigger a decline in FX reserves and if not properly managed cause exchange rate volatility. In the short term we also expect a further appreciation of the external reserves to boost the Naira as investor confidence improves while we also iterate that the government should improve its non-oil revenues to shift its revenue dependence largely away from oil. 63 CBP Overview of 2017 & Outlook for 2018

64 Interest Rate Having maintained the Monetary Policy Rate (MPR) and Cash Reserve Requirement (CRR) at 14% and 22.50% respectively while also retaining the asymmetric corridor of +200 bps above and -500 bps around the MPR for over a year, we expect a rate cut at the first meeting of the monetary Policy Committee of the CBN in 2018, and we are of the opinion that the committee will cut the benchmark interest rate by 0.5 percent or 1.00 percent thereby taking the Monetary Policy Rate (MPR) to percent or percent. The projected cut in rate is imminent owing to the CBN s continuous slash in stop rates for treasury bills which once stood at a high of about percent in May 2017 and closed the last auction date at percent in November The continuous decline in inflation figures have also supported the Banks target to reduce the interest burden on its debt obligation and also offer real return on its securities. In a bid to reduce the country s domestic debt obligation the CBN repaid all the maturing treasury bills that matured in December 2017 and have signalled that it would continue to drop its stop rate going forward into year 2018 even as the CBN targets and inflation rate below 12 percent for As the CBN drops MPR rate, we expect the real sector of the economy to benefit as a few banks will be forced to lend to the real sector of the economy as government securities become less attractive given the low return being offered. Businesses will also see their interest expense drop on the back of dropping interest rates and we anticipated the MPR to close the year at 12 percent, 2 percent down from 14 percent benchmark rate as at December Foreign Exchange The foreign exchange market in 2017 was fairly stable all through the period and we expect a similar outing in However we anticipate a gradual strengthening of the Naira on the back of a further increase in the country s foreign reserves and improved investor confidence. The Nigerian Autonomous Foreign exchange (NAFEX) also known as the Investor and 64 CBP Overview of 2017 & Outlook for 2018

65 We remain bullish on the outlook of the naira and anticipate the naira to strengthen to about 300/1US$ from 305/1US$ at the end of 2018 at the official market Exporter window (I&E) is expected to remain active and see more transaction volume passed through the platform even as the banks and Bureau de change businesses continue to support the retail end of the market. The CBN s decision to also maintain its restriction on the banned 41 items will continue to reduce the pressure of depleting its foreign reserves. The decision to harmonize the CBN official exchange rate and the NAFEX rate remains a delicate one but we are of the opinion that the CBN may have to harmonize the two rates in a bid to eradicate the prospect for round tripping. Going forward, we remain bullish on the outlook of the naira and anticipate the naira to strengthen to about 300/1US$ from 305/1US$ at the end of 2018 at the official market. THE BANKING SECTOR The Nigerian banking sector has remained one of the most vibrant and delicate sector in the Nigerian economy especially as it has the capacity to send shock waves round the economy if it fails. The sector has since 2015 continued to suffer significant headwinds as CBN monetary policies and economic realities have continued to hamper its ability to significantly grow profits. However, most of the Tier-1 banks have been able to surmount these headwinds and have continued to surpass expectations even in the face of the unfriendly business environment and hostile business policies saw the banking sector continue to post bumper earnings especially for most of the Tier-1 banks and a few Tier-2 banks. The rest of the group have continued to battle with high level of loan impairment which has eaten deep into their operating profit and dampened their ability to grow bottom line. Non-Performing loans as at June 2016 stood at 11.7 percent and rose to 12.8 as at December 2016 with a large portion of the rise attributed to the banks in the Tier-2 space. The CBN may need to increase its oversight of the credit and approval process of the tie-2 banks in a bid to limit the rising NPLs. The banks in 2017 are also expected to report higher interest income on the back of the high interest rate environment observed during the period while we expect an increase in cost to income ratio for the period. 65 CBP Overview of 2017 & Outlook for 2018

66 Going forward, the banking sector is expected to remain robust and continue to return profits into 2018 but with the implementation of IFRS 9 which require banks to recognise impairment sooner and estimate lifetime expected losses against a wider spectrum of assets and is expected take effect from 2018, we expect a prompt increase the banks impairment charge which will reduce its profitability going forward but make banks stronger and less exposed to risk of impairment shocks. Also, despite the reduction in interest rates which is expected to increase banks lending to the real sector of the economy, the implementation of IFRS 9 may hamper some of the banks as an aggressive rise in loan advances would give rise to increased provisioning which may affect the bank s capital buffers in the immediate. All in all, the banks are expected to have a decent outing during the year 2018 with less shocks expected in the sector. THE BOND MARKET The bond market was very active in 2017 with the FGN responsible for a significant portion of the bond transaction done during the year. With the high interest rates being offered, the market issued NGN3.40 trillion worth of bonds for the year with the FGN supplementary issue accounting for 56% of total transactions, FGN new issues accounting for 42% of total transaction, State issue accounting for 1.38 percent of total transaction and the corporate issues accounting for 0.63 percent. Into 2018, the bond market is expected to be dominated by the federal government, especially as the government has signalled its desire to raise NGN0.849 trillion through domestic borrowing to finance its budget deficit. Given the liquidity challenges of most of the state governments which would restrain them from approaching the bond market, we may see one or two viable states approach the market while we expect to see more influx of corporate bond issuance as the rates are becoming more favourable to these institutions as against significantly higher rates offered in More so, the transaction volumes may be hampered on the back of gradually dropping interest rates however this may be supported by improved foreign investor confidence and we expect more FPI inflow to support activity in that market in the short to medium term. 66 CBP Overview of 2017 & Outlook for 2018

67 THE STOCK MARKET IN PURSUIT OF SUSTAINABLE RECOVERY AND GROWTH The primary market is also expected to be active in the year with expectation of new listings, Mergers and acquisitions, Rights issue, listing by introduction etc. The Nigerian stock market had an impressive showing in 2017 having closed the year with return of 42.30% making it the third best performing stock market behind Argentina which returned 77% and Turkey which returned 48%, we have projected a 25% return for the Nigeria Stock Market for 2018 though downside risk to achieving this target remain visible. The market gains in 2017 were driven by impressive returns in the Banking sector which returned 73.32%, the consumer goods sector which returned 36.97% and the industrial goods sector which returned 23.84% while other sectors of the market recorded gains except for the Alternative securities market (ASEM) which closed down by 8.60%. The trading aspect recorded significant recovery while the market witnessed increased issues compared to 2016 were there were no issues. The year 2018 is expected to witness a similar trend observed in 2017 as economic indicators have improved and the world now projects increased investor confidence and GDP growth for Nigerian economy. Going forward we expect to see more trading activities in the secondary market as listed companies will begin to trade at new highs never seen before even as their profitability soars on the back of a vibrant economy. The primary market is also expected to be active in the year with expectation of new listings, Mergers and acquisitions, Rights issue, listing by introduction etc. are all expected to drive overall market activity and deepen the market in the process. Fast forward into the year, the success of the Nigerian stock market will be hinged on many factors. Amongst them are: The firming or stability of oil prices; Constant monitoring and effective management of the foreign exchange market; Improvement in corporate earnings for the period; Significant focus on the non-oil sector to increase output Enhancing the country s non-oil sector export proceeds to improve FX liquidity A lower interest rate regime; 67 CBP Overview of 2017 & Outlook for 2018

68 We note that downside risks to the growth of the Stock Market in 2018 persist Effective implementation and communication of government economic policies; Government focus on the real sectors of the economy to stimulate the economy; Improved market participation by local investors and Domestic Institutional investors; Continuous robust regulatory oversight of the listed companies by all the market regulators; Passage of Petroleum Industry Bill, unbundling of Nigerian National Petroleum Corporation and listing of the resultant companies; Listing of already privatised Companies like MTN, Gencos and Discos Effective use of monetary policies However, we note these downside risks to the growth of the Stock Market in 2018: A sudden rise in insecurity which could trigger exit of FPI s and increase volatility in the FX market Political instability owing to the forthcoming general elections A sudden reversal in rise of crude oil prices Decline in government revenue due to oil pipeline bombings An upturn in yields on fixed income securities Rising cost of fund for companies with dollarized loans/bonds and raw materials in the international market may reduce the margins of the companies; and An unexpected shock/failure in the banking sector would trigger a sell off and cause further damage in the entire stock market. Having seen the nine months earnings result for most of the listed companies, investor will begin to take position in anticipation of the companies audited result, dividend declaration and Q result which we expect to boost stock prices in the immediate and also trigger further activities especially for companies who report impressive performance for their Q numbers. Generally, despite the downside risk to the outlook of the equities market we are optimistic about the performance of the equities market as we believe that 68 CBP Overview of 2017 & Outlook for 2018

69 most of the fundamentals are in favour of a further surge in the equities market. We have therefore highlighted below a list of stocks expected to return decent yields at the end of the period. ACTUAL ESTIMATES 2017 SHARE Yr. Yr. Dividend Dividend P/E COMPANY PRICE* High Low EPS (Naira) yield Ratio RATING WAPCO % BUY FBNH % BUY ETI (2.83) % - BUY FLOURMILL % BUY PRESCO % 3.22 BUY NB % BUY OKOMUOIL % BUY CUSTODIAN % 4.34 BUY FCMB % 4.26 BUY ZENITHBANK % 7.52 BUY ACCESS % 4.96 BUY UACN % 5.72 BUY NASCON % BUY UBA % 5.91 BUY DANGCEM % BUY FIDSON % BUY GUINNESS % BUY UCAP % 3.43 BUY *Share price as at January 24, 2018 Platform Hyperlink Facebook Twitter LinkedIn Instagram In conclusion, despite the rally observed in the equity space in 2017, there remains a pool of untapped potential in the stock market as most of the listed companies still trade at prices below their book value while a few stocks still trade at prices below our recommended target price. We believe the current prices still gives room for ample upside and significant return to investors despite the fact that the dividend yield of the company would have slightly 69 CBP Overview of 2017 & Outlook for 2018