Q1: A Promising Quarter Eclipsed by Election Fear

What ordinarily would have been a reviving year was marred with so much uncertainty concerning the future of the country. The major dislocations in the Nigeria were mostly inflicted by foreign investors who could not stand the heat the electioneering campaign was generating. They fled with their monies and left the country’s foreign reserves limping and the Nigerian capital market gasping for breath as foreign portfolio investment developed wings.
What appears to be global conspiracy against Nigeria by the United States of America and the Saudi Arabia, among others ensured that Nigeria became broke. This also led to an illiquid situation that shot interest rates very high.
On external reserves movement, analysts say the Central bank of Nigeria (CBN)’s efforts to stem the incessant increased demand for foreign exchange by both the local and foreign end-users was insufficient, as the high demand level persisted in March 2015. This led to a continuous drop in the external reserves in March 2015.
Analysts from FSDH believe that the recent recovery in the price of crude oil in the international market also had little impact on the external reserves level; which was been overshadowed by the seemingly tense political environment to the build-up to the just concluded Presidential Elections.
The political environment further fuelled the high demand recorded in the foreign exchange market. The external reserves decreased by 13.58 per cent to stand at $29.79 billion as at end-March 2015 from $34.47 billion at the end-December 2014.
Month-on-month, the external reserves decreased by 5.01 per cent in March 2015, from $31.36 billion as at end February 2015. The average external reserve for the month of March 2015 stood at $30.29 billion, compared with the $32.81 billion in the month of February 2015. The current level of external reserves is enough to cover about six months’ worth of imports.

The crude oil production decreased by 3.06 per cent from 1.96 million barrel per day (mbpd) in January 2015 to 1.90mbpd in February 2015 based on the secondary data available from the Organization of the Petroleum Exporting Countries (OPEC) report for the month of March 2015. The total OPEC crude oil production from direct sources is 30.25mbpd in February 2015, a decrease of 1.11 per cent from 30.59mbpd over the previous month. Angola, Venezuela and the
United Arab Emirates were the largest contributor to the OPEC oil production. Iraq, Algeria,
Ecuador, Libya, and Nigeria recorded the highest decreases.
The OPEC Reference Basket (ORB) rebounded in February by its largest percentage rise of 21.8 per cent since December 2008, reflecting gains in the major benchmarks as prompt demand improved in European and Asian markets amid healthy refining economics, although oversupply worries continued to overwhelm oil markets.
The Bonny Light Oil price came under downward pressure in March 2015 as the weak global economic prospect and the supply overhang weighed down on the bounce recorded in oil prices in February. According to the data from Reuters, the Bonny Light oil price recorded a decrease of 12.68 per cent to $55.10/b as at end-March 2015, from end-April 2015.
The average price of Bonny Light was $57.43/b in March 2015, 2.96 per cent lower than the average price of $59.18/b recorded in February 2015.

The CBN’s intention to harmonise the different segments of the foreign exchange market via the administrative measures and the de facto devaluation of the Naira has been achieving relative success, as there is increasing convergence of the foreign exchange rates between the official and the inter-bank market. The CBN was worried about the wide divergence between the parallel market and the inter-bank market, which it said could continue to fuel arbitrage and speculative demand for foreign exchange.
However, the wide disparity between the inter-bank and parallel market rate has disappeared after the conclusion of the Presidential Election on March 28, 2015.
The average exchange rate in the official market depreciated by 10.18 per cent to stand at
N197.07/$ for the month of March 2015. The average exchange rate in the inter-bank market depreciated marginally by 0.35 per cent to N199.20/$ in March 2015 from
N198.51/$ in February 2015. The average value of the Naira also depreciated in the parallel market by 4.73 per cent to N225.47/$ in March from N214.80/$ in February 2015.
Analysis of the liquidity situation in the money market and the fixed income securities market in the month of March 2015 shows that there was a net outflow of about N748.70 billion from various sources, compared with a net outflow of about N300.62 billion in the month of
February 2015. The major outflows in the month of March 2015 were the Open Market
Operations (OMO) of about N832.80 billion, the Primary NTB of about N520 billion, the Cash
Reserve Requirement (CRR) debit of about N245.20 billion, and the bond auction of about
N91 billion. Meanwhile, in the month of February 2015, the market recorded a net outflow of about N300.62 billion. The major outflow from the market was from the Primary NTBs of about
N334.83 billion, the CRR debit of about N240.89 billion, The Retail Dutch Auction System (RDAS) of about N201.12bn, the OMO of about N115.80 billion, and the bond auction of about N72 billion.
The major inflows into the market in March were the NTBs maturity of N520 billion, the Federal
Accounts Allocation Committee (FAAC) injection of about N254 billion, and the matured OMO and REPO Bills of N166.30 billion. In February, the Primary NTBs of about N334.83bn, the
FAAC of N285 billion, and the matured OMO and REPO of N44.19bn were the major inflows into the market.
The average yields on the Nigerian Government Treasury Bills (NTBs) auction at the short-end
(91-day) decreased in March 2015 compared with February 2015, while there was an increase in the yields on the 182-day and 364-day NTB. The average 91-day NTB yield decreased to 11.09 per cent in March 2015 from 11.17 per cent in February 2015. The average 182-day
NTB yield closed at 15.95 per cent in March, up from 14.82 per cent in February; the average 364-day NTB yield also increased to 18.51 per cent, from 17.33 per cent in February. The average 30-day NIBOR increased to close at 15.90 per cent from 15.19 per cent in February, and the average 90-day NIBOR also increased to 16.99 per cent from 16.05 per cent in the preceding month.

The equity market continued to rebound in March 2015, as bargain hunters continued to drive activities in the bourse. The Nigerian Stock Exchange All Share Index (NSE ASI) appreciated by 5.45 per cent (a gain of 5.96 per cent in $) on a month-on-month basis to close at 31,744.82 points. The market capitalisation also grew by 6.70 per cent (a gain of 7.21 per cent in $) to close at N10.72 tilliorn ($54.40 billion). Year-To-Date as at end-March the Index has shed
8.40 per cent of its value.
There has been a renewed interest by select foreign and local investors in the market, who look to capitalise on the low prices of stocks that have prospects for growth in the medium to long-term. This renewed interest resulted in the improvement in the NSE ASI in the month of March 2015. However, the market is still struggling with the apathy of most foreign investors, who are still averse to the risk of post-election violence, a further devaluation/depreciation of the value of the Naira due to a further decline in oil prices and security challenges in the Northern part of the country.
A cursory look at the movements in the individual sectoral indices shows that most of the sectoral indices appreciated in value to end the month of March. The highest month-on-month gain was recorded in the NSE Banking Index with a gain of 11.12 per cent, primarily because of the significant over-sold positions that had rendered some fundamentally sound banking stocks attractive for bargain hunters. This was followed by the NSE Consumer Good Index with a gain of 4.57 per cent. The NSE Oil and Gas Index declined by 1.56 per cent, as investors apathy set in following the appreciation in the Oil and Gas Index last month, due to the further decline in crude oil prices in March 2015.

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