More signs emerged yesterday that the Nigerian economy has overcome its first recession in three decades.
Prices of stocks listed on the Nigerian Stock Exchange (NSE) hit a three-month high yesterday, boosted by positive financial results from listed companies many of which beat the expectation of analysts.
Also boosting stock prices is the Central Bank of Nigeria’s (CBN’s) new investors and exporters window, which has raised hopes that foreign investors that had earlier fled the stock market will return.
The All Share Index (ASI), which measure the average change in prices of listed equities rose 0.77 percent to 25,965 points yesterday, led higher by banking and oil stocks. This has cut the year to date loss on the exchange to -4.0%.
In a client briefing note, Vetiva Capital noted corporate results were better than expected and said it anticipated increased demand for Nigerian stocks this week.
Dangote Cement, owned by Africa’s richest man Aliko Dangote, which accounts for a third of the market capitalisation, reported a 34 percent rise in post-tax profit, beating the market consensus. The company’s revenues were also up 48.1 percent in the first quarter of 2017.
Nestle Nigeria Plc also reported that first quarter earnings was up 69.3 percent while profit after tax of 25.1 percent. Mobil oil Nigeria Plc also announced first quarter revenue growth of 11 percent and profit after tax growth of 23.5 percent.
Also BusinessDay analysis of 13 banks that have released their first quarter results showed that the 13 banks recorded an average net income growth of 28.6 percent to N196 billion from N152.3 billion in the comparable period of 2016, while revenues rose by 33 percent to N1.05 trillion from N787.1 billion on a cumulative basis.
A breakdown of the numbers show that 8 out of 13 banks grew profits in Q1, 2017 from a year earlier, while profits for 5 banks fell from the Q1, 2016 levels.
“After a subdued Q4 2016 (once one-off gains are stripped out), the Q1 2017 results are very encouraging, especially with both revenue lines contributing,” said analysts at FBNQuest.
Adding to the optimism in the stock are signs that production activities are also picking up in the manufacturing sector. The latest PMI reading from both FBNQuest and CBN indicates that the sector is possibly in the last few months of 16 quarters of consecutive contraction in production activity.
A Purchasing Managers Index or PMI is a simple exercise in which a selection of companies is asked their view each month on core variables in their business. The respondent, who is characteristically the purchasing manager in a larger firm, has three possible replies: better, unchanged or worse than the previous month. According to the standard methodology, 50 marks a neutral reading and anything higher suggests that the manufacturing economy is expanding. Readings are released at the very beginning of the new month.
The latest PMI reading from FBNQuest, the fourth reading for this year, shows a PMI reading of 58.9, which is positive and indicates an increasing confidence level in the manufacturing sector. The current PMI is an improvement on the 52.8 reading recorded for March.
“The surge in the headline reading from 52.8 posted in March is the third consecutive increase this year and has placed the index well above water to its highest level since December 2016. We see an improvement in business confidence, which we have to attribute to the increased foreign exchange liquidity resulting from the CBN’s many interventions over the past two months. If manufacturers have greater access to imported inputs, it is no surprise that they report higher output, new orders and stocks of purchases” said analysts at FBNQuest.
What was even more significant in the April PMI reading is the fact that all the five variables used in measuring the PMI namely; output, employment, new orders, delivery times from suppliers and stocks of purchases were in positive territory, which indicates the strength of the confidence level in the manufacturing sector.
“The reading of 55 for employment was the highest for 18 months and appears to reflect recruitment of seasonal labour. If repeated, we may have to conclude that respondents have confidence in the foreign exchange interventions beyond the short term. Another factor to explain the surge in April could also be a boost to consumption for the Easter holidays,” analysts at FBNQuest noted.
Similarly, the alternative PMI measure released by the CBN also showed a positive rise from 47.7 in March to 51.1 points in April, an indication that the manufacturing sector has recovered from three months of contraction.
The CBN manufacturing PMI showed production level growing faster; new orders and raw materials inventories growing from contraction; employment level is declining at a slower rate; while supplier delivery time is struggling to catch up.
A breakdown of the index show that ten of the sixteen sub-sectors reported growth in April. These include appliances and components; food, beverage and tobacco products; textile, apparel, leather and footwear; chemical and pharmaceutical products; cement; nonmetallic mineral products; printing and related support activities; furniture and related products; electrical equipment and plastics and rubber products.
But the paper products; primary metal; computer and electronic products; fabricated metal products; petroleum and coal products and transportation equipment subsectors reported decline in the review period.
However, the production level index for manufacturing sector expanded for the second consecutive month in April 2017. The index at 58.5 points indicated an increase in production at a faster rate when compared to the 50.8 points in the previous month.
Thirteen manufacturing sub-sectors recorded increase in production level during the review month in the following order: chemical and pharmaceutical products; electrical equipment; transportation equipment; food, beverage and tobacco products; appliances and components; textile, apparel, leather and footwear; cement; nonmetallic mineral products; printing and related support activities; furniture and related products; plastics and rubber products; computer and electronic products and fabricated metal products.
The petroleum and coal products sub-sector remained unchanged, while the primary metal and paper products sub-sectors recorded declines in production in April 2017
Speaking in an exclusive interview with BusinessDay, Adesola Adeduntan, Managing Director, First Bank of Nigeria Limited and subsidiaries confirmed that from speaking to the bank’s customers that there is a high level of optimism reigning in the Nigerian economy currently.
“There is a general sense of positivity in the economy. It is almost like a self-fulfilling prophecy. When people expect negative thing, it tends to happen. When people are positive about the outcome, it tends to happen. What we have seen is that there is a general sense of positive optimism. If as a nation, we survived when the crude oil dropped as low as $27 per barrel, we can indeed survive now that the price of crude oil is hovering between $50 and $55 per barrel. There has also been a recovery in terms of the volume of crude oil production. From the price and production perspective, things have recovered.
“There is also a bit more of dollar liquidity in the market. We have also seen that the CBN has injected a significant amount of dollar liquidity into the economy in the last four months. The governor has successfully created several windows through which dollars are made available to eligible buyers. We have successfully achieved a convergence in the exchange rate. There is also an optimism that when the budget is passed, the level of government spending will also help boost the general economic activities in the country.”
