Category Archives: FBNQuest Research

Toward a healthier current account

Toward a healthier current account

From the balance of payments (BoP) for Q4 2017 we see that the current-account surplus widened from the equivalent of 2.1% of GDP in Q3 to 3.6%. Merchandise exports increased by 9.0% on the quarter while imports declined by -11.5%, driven almost entirely by lower imports of crude oil and gas. The 12.0% share of oil and gas exports in GDP was the highest since Q3 2014. That of other exports, which are shown as electricity and non-oil, rose marginally from 0.7% of GDP in Q3 to 0.8%. Data on a customs basis tend to tell a different story.

· The net deficit on the services account widened slightly from 4.5% to 4.6% of GDP in Q4. Debits on the account for travel soared from US$180m in Q4 2016 to US$1.71bn one year later.

· This highlights the success of one of the CBN’s several fx windows: its supply of fx to banks at N357 per US dollar for their onsale to the retail segment at N360 for the payment of invisibles such as travel. We see further evidence in the BoP of the transformation of fx availability in the increase of debits for other business services from US$570m to US$2.42bn over the same one-year period.

· In contrast, the net deficit on the income account narrowed from 3.1% of GDP in Q3 to 2.9% in Q4.

· Net current transfers, which are overwhelmingly workers’ remittances, had a strong quarter, achieving the highest level since Q4 2013 in US dollar terms.

· We are comfortable with the current-account surplus/GDP ratio at a low single-digit level because of the FGN’s proven ability in tapping the Eurobond markets and of the return of the offshore portfolio community since the CBN’s opening of new fx windows.

Investors also renewed interest in recently oversold consumers such as Intbrew(+4.78%)

The equities market struggled to close positive today requiring a last minute uptick in Dangcem to offset weakness in banking stocks. Yesterday’s laggards turned supporter  – cement majors Dangcem(+1.19%) and Wapco(+3.41%) both advanced on late bargain hunting. Investors also renewed interest in recently oversold consumers such as Intbrew(+4.78%), Dangsugar(+2.56%) and NB(+0.23%). The weakness in banking stocks continued  – similar to other tier Is- UBA(-6.75%) traded lower in its first ex-div trading; Zenith(-2.04%) fell to a 13-week low amid a glut in supply and Guaranty(-1.15%) traded close to its 200day average intraday. Tier II banks also closed lower.

Turnover was decent at N4.2bn ($11.6m) buoyed mainly by a 26mn cross in Flourmill between a domestic seller and foreign buyer and significant activities in Zenith. Today’s +0.17% gain lifted ytd return to +5.9%, we expect the market to find support in coming sessions on bargain hunting.

FBNQuest FI-FX Daily Watch 12 April 2018

FBNQuest FI-FX Daily Watch 12 April 2018

Opening market liquidity on Monday was N501bn (positive). Interbank rates closed within a range of 3%-11%. There was no OMO auction. On the secondary market for NTBs, there was a dip in yields for selected maturities.

The FGN bond market was quiet, and yields dipped at the short end of the curve. The Eurobond market was relatively active, yields picked up for the sovereigns.

The CBN’s daily fx intervention was again US$0.5m at N305.10. Turnover at the NAFEX declined from US$259m on Friday to US$217m. Indicative rates ranged from N358 to N361. The USD slipped against a basket of currencies (including the EUR) on Monday, due to continued concerns around a potential trade conflict between the US and China.

FBNQuest FI-FX Daily Watch 10th April 2018

FBNQuest FI-FX Daily Watch 10th April 2018

Opening market liquidity on Friday was N438bn (positive). Interbank rates closed within a range of 3%-9%. There was no OMO auction on Friday. On the secondary market for NTBs, there was an uptick in yields for selected maturities.

The FGN bond market was quiet, and yields were generally flat across the curve. The Eurobond market experienced healthy demand, yields narrowed for maturities under our coverage.

The CBN’s daily fx intervention was again US$0.5m at N305.10. Turnover at the NAFEX declined significantly from US$572m on Thursday to US$259m. Indicative rates ranged from N359 to N362. The US non-farm payroll report was released on Friday. Nonfarm payrolls rose 103,000 in March while the unemployment rate was unchanged at 4.1%. The general expectation was a payrolls gain of 193,000. Furthermore, the monthly reading was a huge slip from the 326,000 reported in February.

North trend for business confidence

North trend for business confidence

The latest data from the CBN in its Business Expectation Survey report for February 2018 show the business confidence index at 14.5 points (indicating respondents’ overall optimism on the macro economy). The survey had a sample size of 472 businesses covering services, industry, wholesale/retail trade and construction. A response rate of 77.5% was achieved. The business climate is largely linked to a country’s macroeconomic environment; there is now a more stable macroeconomic outlook and, by extension, an uptick in business confidence.

· The optimism in February was driven by the opinion of respondents from the services (7.7 points) and industrial (6.6 points) sectors while respondents from the construction sector represented just 0.3 points of the total confidence index.

· For the latter, this is not surprising as business confidence for the sector is primarily tied to capital releases from the national budget (particularly for projects within the ministry of power, housing and works). Historically, budget passage has been slow.

· Access to credit stuck out as one of the major issues for businesses being surveyed. Lending rates remain high (above 20%) from commercial banks, making it difficult for businesses to expand their operations. We understand that access to credit for funds within the N500m – N1bn range accounts for only 15% of total lending by Nigerian banks. SMEs fall within this category.

· The outlook for the employment sub-index showed that the wholesale / retail sector carries the highest prospects for job creation at 25.0 points while services had 22.8 points. Drawing a parallel with our manufacturing Purchasing Managers Index, the employment sub-index for March showed expansion at 56.5, therefore mirroring the same trend.

· Insufficient power supply was cited as the major constraining factor on business activities, along with soft demand. As for inflation, the general expectation is for a slowdown in the headline rate for March. This is similar to our thinking. We expect the rate to slow to 13.5% y/y, from 14.3% in February.

· The survey also captured outlook for business confidence in March. Based on data from respondents, the business confidence index is projected at 57.8 points. The positive outlook was driven largely by export-oriented businesses.

· Our view is that business confidence will maintain an upward trend. As for consumption trends, we see a positive trend but at a relatively slower pace as consumers remain cautious with their spending.

. NBA launches US$300m AfDB fund for Niger Basin: The Niger Basin Authority (NBA) has launched a US$300m fund with the African Development Bank (AfDB) for technical and environmental studies to protect the basin from the consequences of climate change. (Source: Guardian)

. Nigerian oil exports to stay largely flat in May – programmes: Nigeria’s oil exports are expected to hold at close to 1.8 million barrels per day (bpd) in May, loading plans showed on Friday. (Source: Reuters)

. States earned N4.9trn as IGR in seven years – NBS: Between January 2011 and December 2017, a total of N4.9trn (US$13.6bn) was earned as Internally Generated Revenue by the 36 states of the federation, an analysis of figures obtained from the National Bureau of Statistics (NBS) has revealed. (Source: Punch)

Cost of risk to weigh on 2018E earnings.

Cost of risk to weigh on 2018E earnings


  • Material cuts to our 2018E earnings forecasts and price target: Although FCMB Group’s (FCMB) Q4 2017 PBT surprised positively relative to our estimates, we have cut our 2018E EPS forecast by 36% and our price target by a similar margin to N1.51. Following the adoption of IFRS 9 this year, management sees cost of risk moving up to 3.0-4.0% (from c.3% in 2017) and a 100-150bp reduction in CAR. Consequently, the material reductions to our earnings forecasts are underpinned by a 67bp increase in our cost-of-risk assumption to 3.4%. Similar to other banks which have reported their 2018 results, FCMB took a charge of N2.3bn or a 50% specific impairment on its 9mobile exposure. The bank also took an impairment charge of N2.8bn for a specific name in the oil and gas services sector. Our new forecasts imply a 2018E ROAE forecast of 3.9% – broadly in line with management’s single-digit ROE guidance. Having significantly outperformed the NSE ASI year-to-date with a 59% gain (vs. 7% NSE ASI), our new price target implies a potential downside of -36% from current levels. Although the shares are trading on a 2018E P/B multiple of 0.2x or a significant discount to the 0.9x average multiple that our universe of bank stocks is trading on, its earnings profile (6.4% ROAE in 2019 vs. 15.7% ROAE for the sector) is less compelling than that of the sector. Consequently, we retain our Underperform rating on the stock.

  • Q4 PBT up 123% y/y driven by solid growth in non-interest income: FCMB’s Q4 2017 PBT showed a remarkable growth of 123% y/y to N4.6bn. The marked growth in PBT was underpinned by a 76% y/y growth in pre-provision profit. The strong double-digit growth on this line completely offset a significant spike (+877% y/y) in loan loss provisions and an 18% y/y rise in opex. Although both revenue lines contributed to the strong growth in pre-provision profits, non-interest income which grew by 356% y/y was the major driver. Funding income also advanced by 26% y/y. Moving below the P&L, the growth in PAT came in at 38% y/y because of a -40% y/y reduction in other comprehensive income (OCI). Sequentially, PBT grew by 53% q/q. Similar to the y/y trends, the strong q/q growth on both revenue lines was the key driver. Compared with our forecasts, PBT and PAT beat by 18% and 57% respectively, largely because of positive surprises in non-interest income and funding income.

Nigeria’s creative sector (arts and entertainment) 2018.

Nigeria’s film industry, gaining more ground

Today we turn our attention to Nigeria’s creative sector (arts and entertainment) 2018. The film industry is seen as a dominant player within this sector and has grown rapidly over the past two decades. Based on industry sources, an average of 50 films are released on a weekly basis and demand for Nollywood movies extends well beyond Nigeria. We understand that the film industry is one of the country’s largest non-oil exports. Furthermore, Nollywood is said to be the second largest employer in Nigeria after agriculture.

· The national accounts from the NBS show that the entertainment industry grew by 3.5% y/y in Q4 2017. However, we emphasize that this is from a very low base as the sector accounts for just 0.2% of total GDP.

· To support growth within the sector, the FGN granted most segments within the creative industries including Nollywood conditional access to pioneer status incentives. These include holidays from the payment of companies’ income taxes as well as withholding tax on dividends from pioneer profits for an initial period of three years. This duration can be extended by two additional years.

· Similar to other sectors across the economy, poor access to finance limits sustained growth across the film industry’s value chain. In H2 2017 it was widely reported that the FGN provided a N1.8bn (US$5.9m) grant to support the film industry via the “Project Act Nollywood” initiative.

· We see the sector gaining more ground in the near future. There are on-going conversations around partnerships with the Norwegian and Korean film industries. Recently, Sony Pictures signed a three-year deal with Nigeria’s leading entertainment network to produce tv projects for global distribution.

· The industry is positioned to become a huge fx earner via export earnings. However, sizeable investments will be required to realise this potential.

. TCN, NDPHC to inaugurate 190 transmission, distribution projects: The minister of power, works and housing, Babatunde Fashola, on Monday announced that the Transmission Company of Nigeria (TCN) and the Niger Delta Power Holding Company (NDPHC) were set to inaugurate over 190 electricity transmission and distribution projects across the country in a few weeks. (Source: Punch)

. FAAN installs CCTV cameras at Lagos, Abuja airports’ airside: Federal Airport Authority of Nigeria (FAAN) has commenced the installation of Closed Circuit Television (CCTV) cameras at airports’ airsides. The airports are the Murtala Muhammed Airport (MMA), Lagos and the Nnamdi Azikiwe International Airport (NAIA) in Abuja. The general manager, corporate communications of FAAN, Henrietta Yakubu, disclosed this yesterday in Lagos. (Source: Guardian)

. Shell says Nigeria payments and oil theft climb in 2017: Shell’s payments to the Nigerian government grew to US$4.32bn in 2017, up nearly 19% y/y from US$3.64bn in 2016, according to its annual sustainability report released on Monday. Crude oil theft from pipelines of Shell’s Nigerian subsidiary SPDC increased by about 50% to roughly 9,000 barrels per day (bpd) in 2017 from 6,000 bpd in 2016, the report said. (Source: Reuters)

Gross official reserves increased by US$3.76bn in March to US$46.26bn, the highest since August 2013.

Towards the US$50bn threshold, and counting

Gross official reserves increased by US$3.76bn in March to US$46.26bn, the highest since August 2013. The rapid accumulation of US$15.96bn over 12 months is due to two sizeable Eurobond launches, a small diaspora bond issue, the recovery in oil export revenues (through the NNPC’s share of production) and, more recently, the steady bid by the CBN at the investors’ and exporters’ window (also known as NAFEX). We should stress that the data are gross and mask the swap transactions the CBN has entered into with local banks.

· The steady bid by the CBN has been seen variously as a response to the softening of demand for fx by importers and other economic actors, and as a move to contain naira appreciation.

· The CBN will be pleased with the healthy signals from the NAFEX window. Turnover (both sides of trades) from its launch in April 2017 through to 04 April totals US$41.7bn. The weekly average has now settled above US$1.0bn.

· Reserves at end-March covered 17.0 months’ merchandise imports, and 10.9 months when we add services. These calculations are based on the balance of payments for 2017. The ratios are a little less impressive, but still robust, if we use the measure of current account payments (including income debits) favoured by the ratings agencies.

· The communique from this week’s meeting of the monetary policy committee urged the CBN to continue accumulating reserves as a buffer against an oil price downturn and to sustain investor confidence. It might have added as a means to underpin its exchange-rate management. We support this thinking although we did find in the communique the subtext that investors might cut and run en masse. In practice, they have different mandates, risk appetites and strategies.

NSE published UAC of Nigeria’s (UACN) Q2 2016 results which showed that while sales of N19.3bn declined -3.5% y/y, PBT was up by 11.7% y/y to N2.2bn.

This morning, the NSE published UAC of Nigeria’s (UACN) Q2 2016 results which showed that while sales of N19.3bn declined -3.5% y/y, PBT was up by 11.7% y/y to N2.2bn. PAT declined by -4.9% y/y to N708m due to a relatively higher tax rate of 39.7%. A net finance income of N198m more than offset a decline in profits from associates of around -34.3% y/y and led to the PBT growth during the quarter. Gross margin and opex were flattish y/y. The net finance income posted during the quarter suggests that realised benefits are already coming through from UACN’s property development company’s (UPDC) refinancing program. Sequentially, UACN’s sales and PBT were both up by 10.1% q/q and 22.6% q/q respectively. Yet again, the net finance income posted in Q2 more than offset a slight gross margin contraction of -42bp q/q and a double-digit rise in opex. PAT declined by -10.0% q/q on the back of a higher tax rate in Q2 of 39.7% vs. 25.3% in Q2 2015. Compared with our estimates, while sales were 9% ahead of our N17.8bn forecast, PBT was in line mainly due to opex coming in around 30% higher than our forecast and a negative surprise on the profit from associates line.

For the listed subsidiaries, CAP’s (UACN’s pioneer paints business) Q2 numbers were slightly behind our forecast. PBT of N527m, down -5.5% y/y, came in around -8.5% behind our N576m estimate. Livestock Feeds’ Q2 sales were up 16.3% y/y to N2.5bn. We had forecasted slightly softer growth of 10% y/y to N2.3bn for the quarter. Growth was likely supported by increased fish feeds sales. However, we await management’s comments on this. PBT of N58m however declined by 11% y/y on the back of higher production and operating costs. Gross margin contracted by around 680bps y/y to 9.4% while opex grew by 12% y/y. Q2 PBT came in ahead of our N52.8bn forecast by around 10%. Sales for UPDC were down 48% y/y to N1.1bn in Q2. PBT came in at N248m compared with a loss before tax of N1.8bn in the corresponding quarter of 2015. Notably, property sales were up 162% q/q to N600m. Given that Q1 sales were quite weak, we expect management to provide guidance on this line on its conference call next week. More importantly, UPDC’s finance cost is more moderate post the conclusion of the first tranche of the firm’s commercial paper program. The firm recorded a negligible net finance charge in Q2. Rising opex is however a major concern for now (up 30% y/y during the quarter). Compared with our forecast, Q2 PBT was in line with our N254m estimate.

On an annualised basis, Q2 sales and PBT are both broadly in line with consensus estimates of N74.0bn and N7.6bn respectively. Given this, we expect slight adjustments to consensus 2016 estimates and a muted reaction by the market to these numbers.

At current levels, on our published estimates, UACN shares are trading on a 2016E P/E multiple of 12.5x for 20% EPS growth in 2017E. Year to date, UACN shares have declined by around -1.2% broadly in line with the NSE ASI.

Presco Q2 2016 results: first reaction

Presco reported its Q2 2016 results this morning. Sales grew by 71% y/y to N4.3bn; PBT and PAT also grew by 233% y/y to N2.3bn and 154% y/y to N1.6bn respectively. The PBT growth was supported by a 1,301bp expansion in gross margin to 63.6%, a 2,152% y/y increase in gains on biological asset revaluation to N405m and a 613% increase in other operating income to N389m. These positives completely offset a 134% y/y increase in opex and exchange lossescombined. Although income tax expense increased significantly to N716m from N65m in the prior year, PAT still grew 154% y/y to N1.6bn. On a q/q basis, sales grew by 36% q/q while PBT and PAT grew by 30% q/q and 15% q/q respectively.

Moving on to the half year results, sales of N7.5bn grew by 61% y/y; PBT and PAT both grew by 165% y/y and 153% y/y to N4.1bn and N3.0bn respectively. The drivers were similar to the q/q trends – gross margin expansion of 711bps to 63.3% y/y and biological asset revaluation gains increased 578% y/y to N658m while other operating income grew  by 645% y/y to N626m. The PAT growth was lowered by a 339bps y/y rise in tax rate to 27.0%. The underlying results (ex-biological asset revaluation gains) show that Q2 PBT grew by 175.1% y/y while PAT grew by 90.5% y/y. Compared with our estimates, Q2 sales were ahead by 33%, while PBT and PAT ( both ex-biological assets revaluation gains) came in ahead by 78% and 60% respectively.

Aside from the fact that Presco continued to expand its plantations to increase volumes, the company also enjoyed increased demand for palm oil from local consumer goods companies which have been adversely affected by the scarcity of fx for imports in Nigeria. Its total land area increased by 18% to 16,650ha in 2015, out of which 92% is mature land. This trend is likely to be seen in the coming quarters. The stock has gained +17.7% ytd, outperforming the NSE ASI by19.6%. At current levels, Presco trades on a 2016 P/E multiple of 12.6x for EPS growth of 17.3% in 2017E. We expect a positive reaction from the market.

We rate the stock Neutral. Our estimates are under review.

In January there were 1.8 million new internet subscriptions recorded, compared with 3.6 million the previous month.

Pick-up in internet subscriptions

The latest data released by the NCC, the industry regulator, show that internet subscriptions stood at 100.2 million in January, representing y/y growth of 9.8%. The figure implies density of 54% in a population estimated at 185 million, placing Nigeria well above the African average of around 16% as indicated by McKinsey. In January there were 1.8 million new internet subscriptions recorded, compared with 3.6 million the previous month.

· MTN Nigeria accounted for the largest share (37%) of total subscriptions. It has decided to go ahead with its proposed US$500m share issue on the NSE. This listing is long overdue, and the market capitalisation of the exchange would increase significantly.

· 9mobile (formerly Etisalat) suffered subscription losses for the eighth successive month. It recorded 61,000 losses in January, compared with 68,000 the previous month. As a result of its debt issues, network disruptions have been frequent, resulting in subscription losses.

· Based on anecdotal evidence, internet usage via mobile devices is significantly higher than with wireless internet devices. The rural economy still suffers from low or no internet connectivity, partly due to the competing spending priorities of low-income households. We should also highlight the low broadband penetration level of 22%.

· There are four major telecommunications infrastructure companies (InfraCos) in Nigeria. However, the shortage of transmission infrastructure has contributed to poor service delivery as well as the high cost of data services. We understand that the NCC plans on licensing more InfraCos, which are expected to deploy fibre optic for operators at a competitive cost.

· Based on the recent GDP data released by the National Bureau of Statistics, in 2017 the telecommunications sector contracted by -2.0% y/y compared with growth of 2.0% in 2016.

The 2018-2020 Medium Term Expenditure Framework and Fiscal Strategy Paper.

The beginning of the annual tussle


President Muhammadu Buhari yesterday presented the 2018 budget to the National Assembly, and took the first step in the lengthy yearly process which weakens the ability of the government to govern. It follows the release last month by the Budget Office of the Federation of The 2018-2020 Medium Term Expenditure Framework and Fiscal Strategy Paper. We have already shared our thinking on the revenue and spending elements of the planning documents (Good Morning Nigeria, 25 and 30 October 2017).                                                                                  

  • The core assumptions are those in the framework, namely: an unchanged average exchange rate of N305 per US dollar; oil production of 2.30 mbpd; an oil price of US$45/b; and GDP growth of 3.5%, which had been revised down from 4.8% in the Economic Recovery and Growth Plan 2017-20 of February this year.

  • Cursory media accounts of the presentation yesterday indicate some changes from the framework. Total FGN spending and the capital element remain N8.6trn and N2.4trn respectively. However, the accounts put the deficit at N2.0trn rather than the N2.9trn in the framework.

  • If they are confirmed, the FGN has either pushed up its revenue projections or trimmed the recurrent expenditure, or a combination of both. The former would be more likely because governments the world over tend to reduce the salaries, allowances and pensions of their employees as a last resort.  It would also be less plausible, given the uphill struggle to lift the FGN’s non-oil revenues from a pitiful 2.9% of GDP in 2016.

  • The media accounts also report that borrowing of N1.7trn will cover the greater part of the deficit. There is no detail about the non-debt creating sources of financing for the balance. These could be asset sales, signature bonuses and recoveries, for example.

  • In line with international practice, the budget would ideally be passed in time for its implementation in the New Year. This, however, would be little short of miraculous because of the assembly’s holiday in December and the obvious tensions between the executive and the legislature. The process has sometimes dragged into mid-year.

  • This accountant’s nightmare leads to delays in capital releases, prevents the correct monthly distributions from the federation account and creates confusion over deficit financing, not least for investors. In Q1 2017 the FGN raised US$1.5bn from Eurobond sales, which were deployed to cover the deficit in the 2016 budget year (that ran through to May this year due to the annual tussle).

FBNQuest Capital Guinness Nigeria Q2 2018 (end Dec) results review: PT and Underperform rating unchanged

PT and Underperform rating unchanged


  • Increase to earnings estimates; PT unchanged: Guinness Nigeria’s (Guinness) Q2 2018 (end-Dec) results were stronger than we expected. Although sales were in line and gross margin was softer, these were offset by interest expense and operating expenses surprising positively. As such, we have increased our earnings estimates by 11% on average over the 2018-19E period. However, we have left our price target unchanged at N91.3 because our long term view of the company has not changed significantly. Having underperformed the broad index by 23% last year, the shares are up 17% this year (NSEASI: 14%). Guinness shares are trading on a 2018E P/E multiple of 31.4x for EPS growth of 57.5% y/y in 2019E. From current levels, the shares show a -17% downside potential to our price target. We have maintained our Underperform rating on the stock.

  • Positives on major key P&L items in Q2 2018: Q2 2018 sales grew by 12% y/y to N40.7bn. PBT and PAT advanced to N3.5bn and N2.1bn compared with pre-tax and after-tax losses of -N2.4bn in the corresponding period of 2017. The strong y/y growth in earnings was driven by a gross margin expansion of 601bps y/y to 33.5% and a 70% y/y reduction in interest expense. While we attribute the marked y/y expansion in gross margin to lower input costs due to the improvement in fx liquidity, we believe that the significant reduction in interest expense is likely related to the deleveraging of the firm’s balance sheet, with the proceeds of its N40bn rights issue. On a sequential basis, sales grew by 36% q/q, largely driven by seasonally stronger sales in the final quarter of the year. Thanks also to the clean-up of the firm’s balance sheet, PBT and PAT accelerated by 50-85x.

  • Outlook: Our outlook for the sector remains broadly positive. We continue to expect topline growth to be driven by the value segment. During its last conference call, management alluded to the fact that the value segment is now the largest segment and accounts for c.67% of total volumes. We also expect the company’s focus on the spirits business to bode well, even if modestly.  We see topline growing by 15% y/y in 2018E. The completion of Guinness’ rights issue has also helped to improve earnings. Net interest expense declined by -70% y/y following a -64% y/y reduction in total debt (including overdrafts). Consequently, for 2018E, we see strong PBT growth of 250% y/y.

In need of a boost to non-oil exports

In need of a boost to non-oil exports

The latest quarterly Economic Report from the CBN puts non-oil exports provisionally at US$0.62bn in Q4 2017, indicating a rise of 21% q/q and a decline of 46% y/y. The q/q increase was attributed to a significant rise in receipts from agricultural products. Based on industry sources, the value of Nigerian agricultural exports to the US under its African Growth and Opportunity Act increased by 200% y/y to US$9m last year. The pick-up is commendable but generated revenue still remains low.

In need of a boost to non-oil exports

· The sectoral breakdown shows that proceeds from agricultural products stood at US$313m in Q4, representing 50.9% of total non-oil export proceeds.

· We note that food inflation has remained stubbornly high over the past several months. One likely reason, although anecdotal at this stage, is the increasing preference of farmers to export their produce as opposed to supplying domestically. In our view, the preference can be linked to currency depreciation and the attraction of being paid in a convertible currency (the CFA franc).

· A favoured agricultural export is sesame seeds. Recent reports indicate that global demand for the product has picked up, with Japan positioned as its leading export destination. This is most likely due to the growing market for food products such as hummus as well as sushi in Japan.

· To encourage export activities, the CBN has reintroduced the N500bn export stimulation loan for non-oil producers and exporters. This was initially introduced in 2015. Additionally, the Nigerian Export-Import Bank, the country’s export credit agency, has set up a smaller N50bn intervention fund for the same purpose.

· The implementation of the re-introduced export expansion grant (EEG) has been slow; N20bn was set aside for the EEG in 2017 budget. For this year, we understand that the FGN has reduced the allocation to N9.7bn.

FBNQuest FI-FX Daily Watch 12 December 2017

Opening market liquidity on Monday was N98bn (positive). Interbank rates dipped to a range between 3% and 9% levels. In the absence of an OMO auction, yields for selected maturities maintained their downward trend on the back of system liquidity.

The FGN bond market was relatively active. Yields contracted sharply for selected maturities across the curve, that for the long bond below 14.0%. Eurobond yields showed no clear direction.