Economic. Financial. Update. First Quarter 2015 in Review

Transcription

1 Economic & Financial Update First Quarter 2015 in Review

2 Sectoral Updates The Economy in General Global growth remained moderate in the first quarter of 2015, with uneven performance across countries and regions. The United States economic growth slowed while the Asian region saw steady growth. With the simultaneous decline in oil prices and exchange rates, the Euro area and Japan showed signs of rebound, albeit downside risks remained. Furthermore, it was observed that the economy grew by 0.1% quarter-on-quarter. On 18th March, 2015 the Federal Open Market Committee (FOMC) emphasised the improved labour conditions within the United States, with strong job gains and a lower unemployment rate. Accordingly, the United States Bureau of Labour Statistics in February 2015 reported a decrease in unemployment rate to 5.50% from 5.70% in January The FOMC further recognised that household spending was rising moderately as decline in energy prices improved household purchasing power, which brought the consumer spending growth rate quarter-on-quarter to 0.5%, reflecting the fact that households were not yet taking advantage of the low oil price to increase spending. In the first quarter, the US economic growth slowed with the gross domestic product (GDP) rising by 2.7% year-on-year, and falling by 0.7% quarter-to-quarter. However, economic growth in the Euro area remained stable even though the German economy slowed while France rebounded: the first quarter GDP increased by 1.0% year-on-year, and by 0.4% quarterto-quarter. The benefits from falling oil prices and gradual recovery of advanced economies helped the economic growth of the Asian region which remained stable, while the performance of the regional economies varied quarter-to-quarter due to continued expansion of domestic demand. The Nigerian Economy Based on available economic data, the Nigerian economy underperformed in the first quarter of Despite being Africa s largest oil producer, the country succumbed to several months of unpleasant negative oil price shocks and repatriation of investment income, as well as lower foreign investment flows associated with the unpredictable political environment that was occasioned by national electioneering that prevailed in the review period. The outcome of the general elections was eventually relatively peaceful, marked by the conceding of defeat at the polls by President Jonathan Goodluck, GCFR, to the newly elected President Mohammadu Buhari, GCFR. This signaled a deepening of democracy in Africa s most populous nation that only a few stakeholders had expected. Moreover, the socioeconomic development in the review period can be better appreciated when considered against a backdrop of the fight against terrorism, particularly in the North East geopolitical zone. The success of the Nigerian military (in joint efforts with coalition forces) gained ground in the fight, as lands previously seized by the radical Islamist group Boko Haram were repossessed. 2

3 In the financial services sector, the country s stock of external reserves decreased to US $29.36 billion, which could only finance about 7.1 months of the country s current import commitment. As such, and in a bid to prevent further depletion of the external reserve, prevent a multiple exchange rate regime, and realign the exchange rate with current realities, the Central Bank of Nigeria closed the Wholesale Dutch Auction System (WDAS) and Retail Dutch Auction System (RDAS) windows, and adopted the interbank exchange rate in February In the wake of these actions, the Naira exchange rate depreciated and closed at N by the end of March, 2015, as against N as at the end of December, In the review period, oil production figures came short of the budget assumptions as the oil sector produced 1.9 million barrels per day (bpd) in January, compared to 2.3 million bpd presumed in the 2015 budget. These informed some analysts to express concerns about possible serious fiscal implications for the country as a result of the production shortfall, and given the oil price decline and devaluation of the naira. International investors factored in the economy s underperformance in the period, judging by ratings revision by Standard and Poor s (S&P) and Fitch Ratings: S&P downgraded Nigeria s credit rating to B+ from BB- in March, citing the impact of political tension and oil price declines on the economy, while Fitch Ratings revised Nigeria s long-term outlook to negative from stable, but affirmed the country s BB- rating. However, the negative outlooks on the Nigerian economy were mostly linked to the election uncertainties in the short term, so much so that Paul Gamble, a director at Fitch Ratings, wrote that a smooth electoral process and reduced political uncertainty could lead to Nigeria s outlook returning to stable. The CBN s Monetary Policy Committee (MPC) shared a similar view as it opined at the end of its meeting in March, that the conclusion of the presidential elections would bring about expected improvement in business confidence, and a transition from politics to policy management with resultant benefits for the economy. Money Market Other Development within the Financial Services Sector In the first quarter of 2015, the exchange rates of the Naira to other major currencies were unstable, especially at the middle of the first quarter of 2015 where heightened volatility was witnessed due to negative interbank liquidity and a huge outflow of N billion (as settlement for CBN s RDAS and FX interventions, Cash Reserve Ratio debit, Open Market Operations and bond auctions). The inter-bank Naira rate averaged per cent, peaked at about per cent and bottomed out at 6.29 per cent as systemic liquidity continued to fluctuate. The direction of the rates during this period was mainly dictated by liquidity inflows (via maturing treasury bills and bonds, FAA funds, CRR credit, amongst others) and outflows (via funding for bonds and treasury bills auctions, RDAS funding, CRR debit). The CBN s monetary policy measures via its Open Market Operations (OMO) activities, CRR debit/credit and intervention in the foreign exchange (FX) market at various times helped in managing market liquidity and stabilise rates as the Naira experienced mild volatility at the inter-bank market in Q1, Furthermore, total OMO aggregate issuance for the first quarter stood at N2.06 trillion, about 39 per cent and 102 per cent higher than the volumes issued in the fourth quarter of 2014 and the corresponding period of 2014 (which stood at N1.48 trillion and N1.02 trillion) respectively. This indicated that the CBN had recourse to the use of OMO 3

4 as the appropriate monetary policy tool in regulating systemic liquidity, as the effect of CRR in performing this role seemed to have watered down. As such, at end of March 2015, Open Buy Back and O/N rates averaged per cent and per cent, peaked at per cent and per cent, and bottomed out at 6.08 per cent and 6.50 per cent respectively. The CBN Monetary Policy Committee maintained Monetary Policy Rates (MPR), Cash Reserve Ratio (CRR) on private and public sector deposits and Liquidity Ratio (LR) at 13 per cent, 20 per cent, 75 per cent, and 30 per cent respectively at its March 2015 meeting. Capital Market The Securities and Exchange Commission (SEC) approved a total of fourteen (14) new issues valued at N billion in the first quarter of 2015, with four (4) as equity issues, two (2) corporate bonds, and eight (8) sub-national bonds. In the corresponding period of 2014, the Commission had approved a total of four (4) new issues: three (3) equity issues and one (1) corporate bond jointly worth N94.90 billion. These show that the number and value of new issues approved by the Commission between January and March increased by 250% and 64.41% respectively, when 2015 was compared to Trading Activities on the Nigerian Stock Exchange (NSE) In the first quarter of 2015, a total of billion securities worth N billion were traded on the floor of the Nigerian Stock Exchange in 261,473 deals. The corresponding period in 2014 recorded a sale of billion securities worth N billion in 318,705 deals; as such, a comparison of both periods showed an increase of 1.87 per cent in the value of trades, and decreases of per cent and 8.39 per cent in the number of deals and volume of trades respectively. During the period under review, price levels of listed equities continued with the downward trend as the All-Share Index depreciated by 8.40 per cent year-to-date after the fall of per cent recorded in the last quarter of A total of thirty-two (32) gainers emerged at the end of the quarter, as against twenty (20) recorded in the last quarter of 2014, and the number of losers reduced from eighty-six (86) to sixty-four (64) in the same period. Equities with static prices increased from ninety (90) in the last quarter of 2014, to ninety-nine (99) in the period under review. Gainers: During the period under review, Total Nigeria led with a per cent gain in share price, and also had the highest gain for the quarter with an absolute value of N37.50 increase in price. However, in 2014, the general price level in the first quarter was more encouraging when compared to what was recorded in the last quarter of the same year. The least percentage gain on the top twenty (20) gainers list for the period under review was 7.27 per cent, and it was recorded by Seplat Petroleum Development Company Limited. Top Twenty (20) Percentage Price Gainers in the First Quarter of

5 S/N Equity Price on Price on Absolute Gain 30/12/14 31/03/15 Gain (%) 1. Total Nigeria NPF Microfinance Bank Ikeja Hotel National Salt Co. Nig. 5. Union Bank Nigeria 6. Unilever Nigeria 7. Okomu Oil Palm 8. Nigerian Aviation Handling Company 9. PZ Cussons Nigeria 10. FCMB Group Zenith Bank PRESCO CUTIX University Press 15. AIICO Insurance 16. Cement Co. of Northern Nigeria 17. Dangote Sugar Refinery 18. Custodian and Allied

6 S/N Equity Price on 30/12/14 Price on 31/03/15 Absolute Gain Gain (%) 19. International Energy Insurance Company Seplat Petroleum Development Ltd Source: Compiled from SEC Quarterly Report for Q1, 2015 Losers: During the review period, Julius Berger Nigeria s share value depreciated by per cent, and in absolute terms the company s share price shed N16.91 to close at N43.75, from an opening price at the beginning of the quarter of N Furthermore, the top twenty losers list for the quarter under review had mainly new entrants as only three (3) companies which had featured in the last quarter of 2014, made the list during the period under review. Moreover, the percentage loss in the value of company share prices in the quarter under review was lower when compared to the last quarter of Top Twenty (20) Percentage Price Losers in the First Quarter of 2015 S/N Equity Price on 30/12/14 Price on 31/03/15 Absolute Loss Loss (%) 1. Julius Berger Nig Diamond Bank Vono Products Wapic Insurance Guinness Nig Dangote Cement 7. International Breweries Beta Glass Co Costain (WA) Learn Africa Nestle Nigeria 1,

7 S/N Equity Price on 30/12/14 Price on 31/03/15 Absolute Loss Loss (%) 12. Portland Paints and Products Nigeria UBA Capital Dangote Flour Mills Sterling Bank Caverton Offshore Support Group 17. Honeywell Flour Mill 18. Nigerian Breweries 19. Africa Prudential Registrars 20. GlaxoSmithKline Consumer Nigeria Source: Compiled from SEC Quarterly Report for Q1, 2015 All-Share Index During the quarter under review, the NSE All-Share index closed at 31, points, which indicated a depreciation of 8.40 per cent in relation to its value of 34, at the end of Market Capitalisation The total market capitalisation of the listed securities (equities, fixed income securities and exchange traded funds) at the end of the review period was N16.25 trillion. During the period, capitalisation of equities and Exchange traded funds depreciated by 6.62 per cent and 7.12 per cent respectively, while corporate bonds, FGN bonds, and sub-national bonds appreciated by per cent, 1.65 per cent and 3.11 per cent respectively, except for the capitalisation of supranational bonds that did not change. Market Capitalisation by Type of Security 7

8 Type First Quarter 2015 Fourth Quarter 2014 Percentage (%) Change Equities 10,726,113,280, ,486,234,168, Corporate Bonds 188,391,500, ,957,900, FGN Bonds 4,780,112,923, ,702,719,451, Sub-national Bonds Supra-national Bonds Exchange Traded Funds 540,993,942, ,670,822, ,000,000, ,000,000, ,198,654, ,520,358, Total 16,251,810,300, ,875,102,701, Source: Compiled from SEC s Quarterly Report for Q1, 2015 Energy The sector recorded nominal growth of per cent during the first quarter of 2015, as reported by the Nigerian National Bureau of Statistics. This was percentage points lower than the 8.71 per cent growth rate recorded in the corresponding quarter of 2014, and percentage points lower than the rate recorded in the fourth quarter of Quarter-onquarter, the sector slowed down by per cent: thus, the contribution of electricity, gas, steam and air conditioning supply to the nominal GDP was 0.54 per cent in the first quarter of 2015, as against 0.61 per cent in the first quarter of In real terms, the sector decelerated by per cent in the first quarter of 2015, percentage points less than the corresponding period in 2014, and also less than the fourth quarter of 2014 s value, which was 2.81 per cent. Quarter-on-quarter, the sector reduced by per cent. The contribution of electricity, gas, steam and air conditioning supply to real GDP was 0.36 per cent in the first quarter of 2015, which was marginally lower than the 0.52 percent recorded in the first quarter of 2014, as well as 0.51 per cent value for the fourth quarter of Oil and Gas Output in the crude petroleum and natural gas sector in the first quarter came in weaker than expected on the back of depressed oil prices, as well as supply challenges experienced during the period under review. The National Bureau of Statistics reported that oil production remained unchanged at 2.18 million barrels per day (mbpd) relative to the preceding quarter; but it was 0.06 mbpd lower than the 2.24 mbpd recorded in the first quarter of In the same vein, output in other areas of the manufacturing sector contracted significantly to per cent year-on-year, from the per cent year-on-year recorded in Q It was, therefore, not surprising that overall the industrial sector contracted by -2.23% year-on-year. Agriculture 8

9 The nation s agricultural sector is made up of four sub-sectoral activities, namely: crop production, livestock, forestry and fishery. In nominal terms, the agricultural sector s GDP grew by 7.44 per cent (year-on-year) during the first quarter of 2015, following an increase of 1.54 percentage points from 5.90 per cent recorded in the first quarter of Within the sector, major output were noticed in the crop production, livestock and fishery sub-sectors. The agricultural sector s output growth in the first quarter of 2015 stood at 4.70 per cent year-onyear, a decrease of 0.83 per cent from the corresponding period of 2014, but above the 3.64 per cent reported in the fourth quarter of Crop production was the main driver of growth in this sector with a growth share of per cent. Surprisingly, the services sector endured the exchange rate pressure to post a growth rate of 7.04 per cent year-on-year, above the 6.15 per cent year-on-year reported in the preceding quarter. Information and Communication The nation s information and communication sector is composed of the four activities of telecommunications and information services: publishing, motion picture, sound recording and music production, and broadcasting. In nominal terms, the sector grew by per cent (year-on-year) in Q1 of 2015, which was 4.61 per cent points above the rate recorded in the corresponding quarter of 2014, but still 1.36 per cent points less than what was recorded in the preceding quarter. Broadcasting exhibited the highest nominal growth rate in the period under review, at per cent. On a quarterly basis, the sector grew by 3.61 per cent from Q4 of 2014; the information and communications sector contributed per cent to the nation s total nominal GDP, higher than the per cent recorded in Q1 of 2014, and the per cent it contributed in Q4 of The sector experienced growth of 9.49 per cent in real terms, yearon-year. From the rate recorded in the corresponding period of 2014, this was 2.72 per cent points higher and 4.28 per cent points greater than that recorded in Q4 of The main driver of this growth was telecommunications and information services, followed by broadcasting. Quarter on-quarter, the sector exhibited negative growth of 8.12 per cent in real terms. Of the total real GDP, the sector contributed per cent in Q1 of 2015, higher than both Q1 and Q4 of 2014, in which it contributed per cent and per cent respectively to the total real GDP. Appendix Macroeconomic Indicators, (1st Quarter, January March, 2015) S/N Indicators Rates 1 MPR (%) 13 2 CRR (%) 20 3 Inflation Rate (%) External Reserve ($ million) 29, GDP (%) Crude Oil (mbpd) Exchange Rate (N/$) N196.5/US $1 9

10 8 Currency in Circulation (N billion) N1,818.4 Sources: CBN s Economic Report for April 2015; Nigerian Gross Domestic Product Report Q1 2015; and MPC Communique March References 1. Developments in the first quarter of 2015 (Quarterly Bulletin First Quarter 2015) a. The New Normal Monetary Policy speech by Janet Yellen at the Research Conference on 27 March 2015, b. Report on PR China s Economic, Social Development Plan (2015) The National People s Congress of PR China official website 2. (Author: Akin-Olusoji Akinyele) 3. Central Bank of Nigeria (CBN) Communiqué No. 100 of the Monetary Policy Committee Meeting of Monday 23rd and Tuesday 24th March, Financial-Headlines-Proshare 5. Stanbic-IBTC Asset Management Limited Quarterly Economic Review Q1: Global Economy in the First Quarter of 2015 ( 39a30bedc5b52d0743a/en/News_ B_en.pdf?ts= ) 7. PwC Global Watch External Sector Development Report Volume 7, Issue 1 quarter Financial Market Analysis 1Q 2015 review and Q2-H Outlook May SEC Quarterly Report Q CardinalStone Research Macroeconomic Note Q1 15 GDP Review 14. Nigerian GDP Report Q

11 11

12 Economic & Financial Update Second Quarter 2015 in Review 12

13 Sectoral Updates The Economy in General Global growth regained momentum in the second quarter of 2015, but at a moderate pace. After a sluggish growth in the first quarter, the United States economy improved in the second quarter: the economy grew at a seasonally adjusted annual rate of 2.3% in the (April June) quarter. The Commerce Department reported that first quarter GDP was revised upward to a growth rate of 0.6%, as Americans boosted their spending in May at the fastest rate in nearly six years. Consumer spending rose to 0.9% in May, the biggest jump since August The United Kingdom s economy grew by 0.7%, compared to 0.4% growth in the previous quarter. The Office for National Statistics (ONS) reported that economic output in the second quarter was 2.6% higher than it was in the same period a year earlier, and a surge in the North Sea oil and gas production lifted overall industrial output by 1%, the biggest increase since late Also, the mining and quarrying component of the industrial output figures, which included oil and gas extraction, rose by 7.8% in the quarter despite falling oil prices, the biggest increase since The ONS attributed the increase to tax cuts in March which were designed to support the sector. In the Asian region economic activities slowed as a result of the slowdown in the Chinese economy which reverberated around the world. China s GDP slowed to 7% in the second quarter; the Japanese economy contracted by an annualised 1.2%; India s economy lost steam and slowed to 7.0% over the same period of the previous year, albeit it (India s economy) outperformed majority of its regional peers. The Euro-zone s economy grew by 0.4% between the first and the second quarters. In addition, economic growth was supported by favorable developments in the external sector; however, sluggish private consumption and deterioration in fixed investment dragged on economic growth. Also, the uncertainties surrounding Greece s disorderly exit from the Euro area declined, following European leaders decision to rescue Greece. The Nigerian Economy The economic growth the country recorded in the second quarter of 2015 was majorly supported by the non-oil sector. The non-oil sector contributed 90.20% to the nation s overall GDP, marginally higher than the 89.55% contribution recorded in the first quarter of 2015, and the 89.24% recorded in the corresponding period of The key growth drivers in the nonoil sector were trade, crop production, construction and telecommunications. Furthermore, the oil sector shrank by 6.79%, compared to 8.2% contraction in the previous quarter. Oil 13

14 production stood at 2.05 million barrels per day (mbpd), which was 5.9% lower than the production level in the first quarter of The Nigerian Stock Exchange (NSE) reported that investors in the Nigerian stock market lost N1.6 trillion in the first 100 days of President Muhammadu Buhari s government. Market analysts described the development as a summation of local and foreign investors characterisation of the economic policy environment as hazy and uncertain in the period. The National Bureau of Statistics (NBS) reported that the gross domestic product (GDP) was 2.35% on an annual basis, compared to 3.96% recorded in the first quarter: these showed that the country s GDP in Q was lower by 161 basis points from its GDP in Q The Central Bank of Nigeria (CBN) made efforts to stabilise the inflow of foreign exchange currencies and defend the Naira, to wit easing the pressure on the foreign exchange market. These efforts inadvertently led to a depletion of the external reserve by the end of the second quarter, and was exacerbated by the renewed pressure on the Naira. The official reserves rose from US $29.34 billion in March, to US $30.5 billion in April, but decreased to US $28.34 billion at the end of the second quarter. The average Naira exchange rate was N The ratings by Standard and Poor s (S&P) and Fitch Ratings scored the Nigerian economy as underperformed. S&P affirmed its B+ rating for the country in the second quarter on the basis of Nigeria s external vulnerabilities, and stressed how the non-oil sector withstood the economic downturn and aided the Nigerian economy in the period. S&P pointed out the debilitating effects of the delay in federal ministerial appointments on the economy. Fitch Ratings followed in the same suit, pointing out that the Nigerian banking industry operated in difficult economic conditions, thus making the sector s outlook low. The company assigned the country a B rating based on the volatile nature of the economy. Fitch Ratings also expressed the view that the increasingly difficult condition in which Nigerian banks were operating could result in a sharp deterioration of their profitability, asset quality, liquidity and capital. Other Development within the Financial Services Sector Money Market During the second quarter money market rates were relatively lower than they were in the preceding quarter, as Federation Account injections and payments of matured bills and bonds buoyed liquidity in the market. The CBN intervened in the foreign exchange market through the provision of liquidity to sustain the stability of rates. In addition, the CBN introduced measures to reduce demand pressure on the foreign exchange market, including imposition of restriction on foreign exchange allocation to goods that could possibly be produced in the country. At the May Monetary Policy Committee meeting, the CBN maintained the Monetary Policy Rates (MPR), Cash Reserve Ratio (CRR) on private and public sector deposits, and Liquidity Ratio (LR) at 13%, 20%, 75% and 30% respectively, and informed that additional tightening measures may not be appropriate in order to avoid overheating the economy. 14

15 Capital Market The Securities and Exchange Commission (SEC) approved a total of four new issues valued at N22.22 billion in the second quarter of Two of these were rights issues, one was a corporate bond, and the other was a sub-national bond. This contrasts with the previous quarter when the SEC approved a total of fourteen issues, thus indicating a decreased by 71.43% over the periods. Trading Activities on the Nigerian Stock Exchange (NSE) In the second quarter of 2015, a total of billion securities worth N billion was traded on the floor of the exchange in 273,920 deals. However, in the corresponding period of 2014, a sale of billion securities was recorded worth N billion in 261,473 deals. Comparing the periods showed decreases of 0.38% and 5.20% in the value and volume of securities traded respectively, but an increase of 4.76% in the number of deals. During the period under review, fifty-three (53) gainers emerged at the end of the Q2 of 2015 as against thirty-two (32) in the previous quarter while a total of forty-eight (48) losers were captured in the same period compared to sixty-four (64) in the Q1 of Equities with static prices reduced from ninety-nine (99) in the previous period to ninety two (92) in the period under review. Gainers: During the period under review, the share price of Union Homes Savings and Loans recorded a 1,056% gain. In absolute terms, the highest gain for the quarter was recorded by Guinness Nigeria with an absolute increase in price of N The general price level in the second quarter was more favorable in comparison to what was recorded in the second quarter of The least percentage increase recorded on the top twenty (20) gainers list during the period was 18.55% by A.G. Leventis Nigeria. Top Twenty (20) Percentage Price Gainers in the Second Quarter of 2015 S/N Company Price on 31/03/15 Price on 30/06/15 Absolute Gain (%) Gain 21. Union Homes Savings and Loans , Unity Bank Neimeth International Pharmaceuticals Beta Glass Co Vitafoam Nigeria Berger Paints Red Star Express

16 S/N Company Price on 31/03/15 Price on 30/06/15 Absolute Gain (%) Gain 28. Portland Paints and Products Nigeria 29. UACN Costain (WA) Vono Products Presco University Press Ecobank Transnational Incorporated Guinness Nigeria United Bank for Africa 37. Airline Services and Logistics Lafarge Africa CAP A.G. Leventis Nigeria Source: Compiled from SEC Quarterly Report for Q2, 2015 Losers: Except for Sterling Bank, the list of top twenty price losers (in percentage terms) in the second quarter featured a different set of companies from those listed in Q Ikeja Hotel, Seplat Petroleum Development Company Ltd, NAHCO, Total Nigeria, and Zenith Bank moved from being amongst the top twenty percentage price gainers in Q1 2015, to being amongst the top twenty percentage price losers in the second quarter. Top Twenty (20) Percentage Price Losers in the Second Quarter of 2015 S/N Company Price on 30/03/15 Price on 30/06/15 Absolute Loss (%) Loss 21. Evans Medical Eterna Ikeja Hotel

17 S/N Company Price on 30/03/15 Price on 30/06/15 Absolute Loss (%) Loss 24. Jos International Breweries Seplat Petroleum Development Company Ltd Academy Press Nigerian Aviation Handling Company 28. Transnational Corporation of Nigeria Forte Oil Champion Breweries Premier Breweries Transcorp Hotels NCR (Nigeria) Cadbury Nigeria FBN Holdings DN Meyer Total Nigeria Zenith Bank Thomas Wyatt Nigeria Sterling Bank Source: Compiled from SEC Quarterly Report for Q2,

18 All-Share Index In the quarter under review, the All-Share Index closed at 33, points, which revealed an appreciation of 5.39% in relation to its previous value of 31, as at the end of the first quarter, Market Capitalisation Total market capitalisation of listed securities (equities, fixed income securities and Exchange traded funds) appreciated by 4.74% to N17.02 trillion compared with its position as at the end of the first quarter of 2015, which was N16.25 trillion. Also, the capitalisation of equities, corporate bonds, FGN bonds, sub-national bonds, supranational bonds, and Exchange traded funds all appreciated by 6.56%, 16.99%, 0.28%, 0.64%, %, and 7.77% respectively. This favorable development might be attributable to the listing of the African Development Bank s bond on the Exchange in April, thus bringing the number of listed supranational bonds on the Nigerian Exchange to two. Market Capitalisation by Type of Security Type Second Quarter 2015 First Quarter 2015 Percentage (%) Change Equities 11,429,698,692, ,726,113,280, Corporate Bonds 220,390,000, ,391,500, FGN Bonds 4,793,379,526, ,780,112,923, Sub-national Bonds Supra-national Bonds Exchange Traded Funds 544,431,062, ,993,942, ,950,000, ,000,000, ,524,929, ,198,654, Total 17,017,374,210, ,251,810,300, Source: Compiled from SEC Quarterly Report for Q2, 2015 Energy The sector recorded nominal growth of 4.22% in the second quarter of 2015, as reported by the National Bureau of Statistics. The contribution of electricity, gas, steam and air conditioning supply to nominal GDP was 0.51% in the second quarter of 2015, as against 0.54% in the first quarter of In real terms, the sector slowed by 11.61% in the second quarter of 2015, 8.96% less than the corresponding period in 2014, and but higher than the first quarter 2015 s rate which stood at 27.92%. Quarter-on-Quarter, the sector grew by 2.43%. The contribution of electricity, gas, steam and air conditioning supply to real GDP was 0.36% in the second quarter 18

19 of 2015, which is marginally lower than the 0.42% recorded in the second quarter of 2014, but roughly the same contribution as recorded in the first quarter of Oil and Gas Output in the crude petroleum and natural gas sector in the second quarter further slowed further than it did in the first quarter. Data provided by the National Bureau of Statistics showed that oil production declined by 5.96% from 2.18 million barrels per day (mbpd) in Q1, to 2.05 mbpd in Q2. Oil production was also lower relative to the corresponding quarter in 2014 by 7.24%, when output was recorded at 2.21 mbpd. This represents 6.79% decline in the real growth of the oil sector during the second quarter. It also represents a relative decline of 5.14% to growth in Q2 of 2014; however, it was relatively better by 1.35% to the growth in Q1 of Quarter-on-quarter, growth also slowed by 3.82%. Overall, the oil sector represented 9.80% of total real GDP, down from its shares in the corresponding period of 2014 and Q1 of 2015 by 0.96% and 0.65% respectively. Agriculture In nominal terms, the agricultural sector s GDP grew by 9.17 percent (year-on-year) in the second quarter of 2015, following an increase of 2.50 percentage points from 1.73 percentage points recorded in the first quarter of 2015 and last quarter of Within the sector, major output were noticed in the crop production, livestock and fishery sub-sectors. Agricultural sector output growth in the second quarter of 2015 stood at percent. Crop production was the main driver of growth in this sector with a growth share of percent despite late arrival of rains during the quarter. Information and Communication The information and communication sector consisted of the four activities of telecommunications and information services, viz publishing, motion picture, sound recording and music production, and broadcasting. In nominal terms, the sector grew by percent (year-on-year) in Q2 2015, which was an increase of 0.53 percent from Q2 of 2014, yet 5.52 percent less than Q During the period, broadcasting exhibited the highest nominal growth rate at percent. The information and communications sector contributed percent to total nominal GDP, higher than the percent recorded in Q2 2014, and more than the percent it contributed in Q Year-on-year, the sector grew by 6.26 percent in real terms: from the rate recorded in the corresponding period of 2014, this was 1.69 percent points lower; it was also 3.23 percent points lower than that recorded in Q1 of The main driver of this growth was telecommunications and information services, followed by broadcasting. Quarter-on-quarter, the sector exhibited a growth of 9.58 percent in real terms. Of the total real GDP, the sector contributed percent in Q2 of 2015, higher than both Q2 of 2014 and Q1 of 2015, in which it represented percent and percent of the total real GDP respectively. Appendix Macroeconomic Indicators, (2nd Quarter, April June, 2015) 19

20 S/N Indicators Rates 1 MPR (%) 13 2 CRR (%) 31 3 Inflation Rate (%) External Reserve ($ million) 28, GDP (%) Crude Oil ( mbpd) Exchange Rate (N/$) N196.97/US $ 8 Currency in Circulation (N billion) N1,562.3 Sources: CBN Economic Report for June 2015; Nigerian Gross Domestic Product Report Q References 1. ASIA Central Bank of Nigeria. Economic report second quarter EURO - file:///c:/users/christopher/downloads/euro-area.htmf 4. Financial Market Monthly Review April, May and June by Dunn Loren Merrifield. uct=dlm%20financial%20market%20highlights&&thecategory= 5. UK Proshare/ Nigerian GDP Report Q SEC Quarterly Report Q Stanbic-IBTC Asset Management Limited Quarterly Economic Review Q2:

21 Economic & Financial Update Third Quarter 2015 in Review 21

22 Sectoral Updates The Economy in General In the third quarter of 2015, global economic growth decelerated as major regions failed to meet up to expectations. The United States economy slowed to 1.5% during the period: the economy had been supported by a robust consumer spending in the second quarter; however, this was disrupted by a drop in private domestic investments, downfall in housing, a slowdown in consumer spending, and decelerating export duties. Similarly, and despite repeated interest rate cuts and other stimulus measures, China slowed further down to a 6.9% increase in GDP after a 7% increase in growth in the previous quarter. Growth in the region was also basically supported by a robust consumer spending and a well-structured infrastructure. Nevertheless, growth slowed as a result of a cool-off in the manufacturing industry and continued downward pressures from real estate and exports. Growth in the East and South Asia (ESA) region stabilised with GDP expanding by 6.2% quarter-to-quarter. The United Kingdom s economic growth also slowed to a 0.5% increase in GDP, from 0.7% in the previous quarter. Part of this slowdown was due to a 2.2% fall in the construction sector - the biggest in three years - and a 0.3% decline in output in the manufacturing sector. In a similar vein, growth in the Eurozone slowed to a 0.3% increase, compared to a 0.4% increase in the previous quarter. Overall, the global economy expanded by 2.5% annually in Q3, which was below the 2.7% expansion tallied in Q2, the weakest rate since Q The Nigerian Economy Nigeria s economic growth during the third quarter was majorly achieved by both the oil and non-oil sectors. The Non-oil sector contributed 89.73% to the nation s GDP in Q3, a figure that was lower than the 90.20% it contributed in the second quarter of 2015, but higher than the 84.55% it contributed in the third quarter of According to the National Bureau of Statistics (NBS), the key drivers of the non-oil sector s growth were the activities in agriculture (crop production in particular), the financial services, telecommunications, and trade amongst others. The NBS reported that crude oil production rose to 2.17 million barrels per day (mbpd) in the third quarter of the year, higher than the 2.05 mbpd produced in the second quarter. The latest (Q3) figure was also higher than the 2.15 mbpd produced in the third quarter The oil sector represented 10.27% of the total real GDP, which was higher by 0.18% than the growth recorded in the corresponding period of 2014, but lower by 0.46% than the growth recorded in the second quarter of Going by available economic indices, there seemed to be indications that the economy was on a recovery path: the NBS indicated that the country s GDP increased by 2.84% in the third quarter, which was higher by 49 basis points than the growth recorded in the preceding quarter, yet lower by 338 basis points than the growth recorded in the corresponding quarter of However, key stakeholders in the Nigerian economy warned that the economy could be heading for a recession if no clear and definite policies or actions were taken. In addition, the Central Bank of Nigeria s Monetary Policy Committee (MPC) recognised that the country could slip into a recession in 2016 if proactive steps were not taken to revive growth in key 22

23 sectors of the economy, having already seen two consecutive quarters of slow growth in the year. Analyst predicted that there could be a strain on liquidity in the banking sector amidst mixed reactions to the Central Bank s measures to stabilise the foreign exchange market, and JP Morgan s decision to delist Nigeria from the bank s Government Bond Index for Emerging Markets (GBI-EM) over concerns about lack of liquidity for transactions, lack of transparency in determining the exchange rate, and lack of a fully functional two-way FX market. These were also compounded by the Federal Government s directive to ministries, departments and agencies (MDAs) to comply with the Treasury Single Account (TSA) policy to curb corruption and aid transparency, which analysts predicted would lead to further strain on liquidity in the banking sector. The CBN s measures to stabilise the FX market in order to meet predetermined exchange rate and declining oil revenue resulted in a decline in the nation s foreign reserves. In the month of September, the reserves had fallen to $ billion, which was about $1.139 billion reduction from the year s peak of $ billion recorded in August In view of all these, international investors might have factored out of the Nigerian economy, judging by JP Morgan s delisting of Nigeria from its GBI-EM. Furthermore, Fitch Ratings affirmed Nigeria s long-term foreign and local currency Issuer Default System Rating (IDRs) at BB- and BB respectively. The firm s outlook in the long term for the country s IDRs were negative. The firm s ratings of Nigeria s senior unsecured foreign-currency bonds were also affirmed at BB-. However, another rating agency, Standard & Poor s (S&P) upgraded its previous ratings on the Nigeria economy, endorsing the President Muhammad Buhari-led administration and its economic policies by affirming Nigeria s rating at B+ with a stable outlook. S&P indicated that its reaffirmation of Nigeria s credit rating was because the non-oil sector would continue to support GDP expansion in Africa s largest economy. In addition, the agency acknowledged that the TSA policy directive by President Muhammad Buhari was in a bid to curtail corruption and enhance government revenues. Other Development within the Financial Services Sector Money Market During the third quarter, the financial market was generally stable with the exception of a few volatile days following JP Morgan s de-listing of Nigeria from its GBI-EM and the complete execution of the TSA policy. Thus to reduce the effect of these events, some interventions were put in place by the Central Bank and the Financial Market Dealers Quotation (FMDQ) to reduce the instability being experienced. Capital Market (Trading activities on the Nigerian Stock Exchange) The events in the wider economy impacted on the Nigerian Stock Exchange (NSE) during the second quarter of 2015: total volume and value of traded securities fell by 5.8 and 20.9 per cent to billion shares and N billion respectively, in 229,633 deals during the period, compared with 24.7 billion shares and N277.9 billion, respectively, in 273,502 deals in the previous quarter. Measuring by volume, the financial services sector headed the activity chart with billion shares valued at N billion, and traded in 130,087 deals, thus contributing 77.8 and 60.7 per cent to the total equity turnover volume and value respectively, 23

24 compared to 19.3 billion shares valued at N billion, traded in 153,842 deals in the preceding quarter. A review of the performance of the different segments of the market benchmarked showed generally poor market performance across the market segments. However, the banking sub-sector of the financial services sector was the most active during the quarter. Gainers: Top Ten (10) Percentage Price Gainers in the Third Quarter of 2015 S/N Company Open Close Absolute Gain Gain (%) 41. Honeywell Flour Mill Vono Products University Press E-Tranzact International Forte Oil Vitafoam Nigeria UAC of Nigeria Berger Paints Nigeria Eterna UACN Source: The Nigerian Stock Market Weekly Report as at 2nd October, 2015 Losers: The Top Ten (10) Percentage Price Losers in the Third Quarter of 2015 S/N Company Open Close Absolute Loss Loss (%) 1. Evans Medical Portland Paints and Products Nigeria 3. Julius Berger Nigeria

25 4. Zenith International Bank 5. Costain (West Africa) 6. Trans Nationwide Express Dangote Flour Mills Pfizer Products SCOA Nigeria Caverton Offshore Support Grp The Nigerian Stock Market Weekly Report as at 2nd October, 2015 All Share Index The All-Share Index opened at 33, at the start of the quarter, and closed at 31, , thus signifying a reduction of 6.7 per cent below the level at the end of the previous quarter. As at end-september 2015, with the exemption of the NSE Industrial Index which was flat at 2,228.96, all the other sectoral indices fell below their respective levels in the preceding quarter. The NSE s Banking, NSE s Insurance, NSE s Consumer Goods, NSE s Oil/Gas, NSE s Lotus Islamic, and NSE s ASeM indices dropped by 13.8, 4.5, 4.5, 7.6, 6.0, and 0.4 per cent below their respective levels as at the end of the previous quarter, to close at , , , , 2, and 1, as at the end of the review period. The NSE s Pension index introduced during the review period closed at at the end of the quarter. Market Capitalisation As at the end of the period under review, total market capitalisation of all the listed securities (equities and bonds) stood at N17.01 trillion, indicating a reduction of 0.1 per cent below the level in the previous quarter. Similarly, market capitalisation for the listed equities dropped by 0.6 per cent below the level in the previous quarter to close at N10.74 trillion. As such, the listed equities accounted for 63.1 per cent of the combined market capitalisation, compared with 67.2 percent as at the end of the previous quarter. Energy According to the National Bureau of Statistics, the sector recorded a nominal growth of 3.46% (year-on-year) in the third quarter of This was 3.48% points higher than the negative growth (i.e. 0.02%) rate recorded in the corresponding quarter of 2014; and 0.77% points lower than the growth rate of 4.22% recorded in the second quarter of Quarter on-quarter, the 25

26 sector grew by 4.55%. The contribution of electricity, gas, steam and air conditioning supply to the nominal GDP was 0.50% in the third quarter of In real terms, the sector grew by 2.14% in third quarter of Growth was 23.71% points higher than the corresponding period in 2014, and higher than the second quarter of 2015 s growth rate, which stood at 11.61%. Quarter -on-quarter, the sector grew by 4.24%; thus the contribution of the sector to real GDP was 0.34% in the third quarter of 2015, which was marginally lower than the 0.35% recorded in the third quarter of Oil and Gas Production output in the crude petroleum and natural gas sector came in weaker than expected on the back of depressed oil prices, as well as supply challenges in the period under review. Data reported by the National Bureau of Statistics showed that oil production remained unchanged at 2.18 million barrels per day (mbpd) relative to the preceding quarter, but was 0.06 mbpd lower than the 2.24 mbpd recorded in first quarter of In the same vein, output in other areas of the manufacturing sector contracted significantly to -0.07% year-on-year from the 15.41% year-on-year recorded in Q It was, therefore, not surprising that overall the sector contracted by -2.23% year-on-year. Agriculture The agricultural sector comprises four sub-activities, namely: crop production, livestock, forestry and fishing. In nominal terms, the agricultural sector grew by 9.33% in the third quarter, higher than the growth rates recorded in the equivalent quarter of 2014, and the second quarter of 2015 when growth was recorded at 9.19% and 9.17% respectively. Furthermore, growth in the sector was driven by output in crop production which accounted for 83.83% of overall growth of the sector as a result of the harvest season. Agriculture contributed 24.51% to nominal GDP during the quarter under review, higher than the equivalent quarter in 2014 and the second quarter of 2015 by 0.74% points and 6.62% points respectively. Information and Communication The information and communication sector is composed of the following activities: telecommunications and information services, publishing, motion picture, sound recording and music production, and broadcasting. In nominal terms, the sector grew by 10.41% (year-on-year) in Q3 of This was 7.25% points below the rate recorded in Q3 of 2014, and 1.23% points lower than that recorded in the preceding quarter. Broadcasting exhibited the highest nominal growth rate in the period at 25.64%. Quarter-on-quarter, the sector slowed by 24.20% from Q2 of The information and communications sector contributed 9.90% to the total nominal GDP, higher than the 9.51% recorded in Q3 of 2014 and lower than the 13.89% it contributed in Q2 of