By Obinna Chima
The attainment of improved power supply to both households and firms in the country can add at least two per cent to the growth of Nigeriaâ€™s annual Gross Domestic Product (GDP), a report by Lagos-based FBNQuest has stated.
The investment bank noted that the shortageÂ of power supply in the country hadÂ continued to make efficient business operations in the country extremely difficult, therebyÂ stiflingÂ economic growth.
Although power generation capacity from the grid has peaked atÂ aboutÂ 7,000 megawatts (MW), distribution capacity is stillÂ at about 5,000MW.
The FGN currently estimates national energy demand at 22,230Â MW.
Â Based on industry sources, theÂ federal governmentÂ has securedÂ aÂ US$486Â million from the World Bank as funding for the expansion of the Transmission Company of Nigeria (TCN).
Initially, the TCN had secured US$1.55billion in funding from multilateral donor agencies for the same purpose.Â But analysts at FBNQuest stated that it wasstill unclear if the recently secured US$486Â millionÂ was part of the previous funding received from donor agencies or an additional credit line.
â€œIf the latter is the case, we see it as a positive, given that the FGN targets a wheeling capacity of 20,000MW from the transmission grid over the next four years,â€ they added.
According to the most recent data from the federal ministry of power, works and housing, peak generation was 4,780MWlastÂ Monday.Â Its lowest generation on the same day was 3,945MW.
â€œWe understand that at least 40Â per centof most business operating costs is allocated to self-generation of energy. A survey carried out by the Manufacturers Association of Nigeria revealed that N130billion was spent on self-generated energy in 2016.
â€œThere is growing interest around off-grid solutions. Official thinking on power now includes developing alternative energy sources. The 700MW Zungeru hydro power plant project in Niger state is now 45Â per centÂ complete.
â€œBesides increased energy generation, the completion of this project will boost economic activity via job creation for the host communities.
â€œBased on our estimates, ifÂ â€˜full powerâ€™Â is attained and made routinely available to businesses and households, it could add at least two percentage points to annual GDP growth,â€ they added.
Meanwhile, in line with trend, the CBN continued its weekly interventionsÂ last week as it pumped in a total ofÂ $549.89 million into the market during the week.
A breakdown of this showed that while the banking sector regulator earlier in the week,Â injectedÂ US$210Â millionÂ viaits wholesaleÂ specialÂ interventionsauctions with the aim of maintaining stability across the different segments of the market, it sold another $339.89 million in theÂ Retail Secondary Market Intervention Sales (SMIS).
Â Against this backdrop, rates traded flattish within tight bands all week. The CBN spot rate opened the week at N305.70/US$1 and remained unchanged throughout the week.
At the parallel market, theÂ naira appreciated N1 at the start of the week to close at N362/US$1 and traded at similar level all week.
At the Investorsâ€™ and Exportersâ€™ (I & E) window, the NAFEX rate opened at preceding Fridayâ€™s close (N360.16/US$1) and traded flat till mid-week before appreciatingÂ to N360/US$1Â on Friday.Â Activity level in the I & E windowÂ stood at $835.97 million as of Friday.
In the FMDQ OTC futures market, the total value of open contracts of the Naira settled OTC futures strengthened by US$198.9Â million, indicative of a 2.8Â per cent week-on-weekÂ expansion to US$3.6Â billion. The most subscribedÂ was theÂ APR-2018 instrument with total market value of US$659.9m (contract price: N360.59) while the JAN-2019 instrument was the least subscribed with a total market value of US$47.5Â million (contract price: N361.94).
MAR-2018 instrument will be maturing next week and in line with the trend, we expect the instrument to be replaced with a new contract.
TheÂ acting Director in charge of Corporate Communications,Â CBN,Â Mr. Isaac OkoraforÂ Â stated thatÂ feedback from the wholesale and retail segments of theÂ forex market showed that customers were satisfied with their level of access to forex.
He also assured Nigerians that the recent confirmation of Deputy Governors and Monetary Policy Committee (MPC) nominees by the Senate will further spur the Bank towards taking sound decisions needed for economic development.
Meanwhile, the naira exchanged at N362/$1 in the BDC segment of the marketÂ yesterday.
Nigeriaâ€™s external reservesÂ recentlyÂ hit a five-year high of $46 billion,Â representing an increase of 18 per cent or $7 billion over the countryâ€™s reserves figure of $38.912 billion as of January 2, 2018. It has also significantly surpassed the $40 billion target for 2018 announced by the Central Bank of Nigeria (CBN) Governor, Mr. Godwin Emefiele, last November, and is expected to inch up to $50 billion in the next few months.
OkoraforÂ saidÂ the accretion of the countryâ€™s reserves was a result of the central bankâ€™s continuous effort at vigorously discouraging unnecessary imports and reducing the nationâ€™s import bill, inflows from oil and non-oil exports, as well as the huge inflows through the investorsâ€™ and exportersâ€™ window of the foreign exchange market, which, he said, had attracted over $33 billion since April 2017, when it was created.
According to him, the CBNâ€™s interventions in the forex window also helped to moderate the pressure on the forex reserves by sustaining liquidity in the market and boosting production and trade.
Okorafor also noted that the CBN policy restricting access to forex from Nigeriaâ€™s forexÂ market to importers of some 41 items had made a huge impact on the status of Nigeriaâ€™s reserves and boosted the supply of local substitutes for imported goods, created jobs at home, and enhanced the incomes of farmers and local manufacturers.
Also, analysts at Afrinvest Securities Limited stated: â€œIn the near term, we expect rates to continue trading within tight bands as we remain confident of theÂ central bankâ€™sÂ ability to sustainforexÂ interventions, considering sustained increase in external reserves and strong autonomous capital inflows.â€
However, in the money marketÂ lastweek,Â the openÂ buyÂ back (OBB) andovernight (OVN) rates fellÂ week-on-week as system liquidity improved towards theÂ end of the week followingopen market operations (OMO)treasuryÂ bills maturities which hit the system.
At the start of the week, OBB and OVN rates rose 10.7Â percentage pointsÂ and 12.1Â percentage pointsÂ to settle at 22.5Â per centÂ and 25Â per centrespectively (from 11.8Â per centÂ and 12.9Â per centÂ recorded the prior week) as the impact of CBN OMO auction and weeklyÂ foreign exchange (forex)intervention offset N87Â billionÂ bond coupon payment.
According to a report by Afrinvest Securities Limited, atÂ the OMO auction, the CBN issued 101-day and 227-day instruments at 12.6Â per centand 14.4Â per centÂ respectively.
But on Tuesday, the OBB and OVN rates increased 7.5Â percentage pointsand 7.3Â percentage pointsÂ to 30Â per centÂ and 32.3Â per centÂ respectively, attributable to a further squeeze in system liquidity which opened at N45.1Â billion.
The trend reversed mid-week as the OBB and OVN rates moderated 10percentage pointsÂ and 10.2percentage pointsÂ to close at 20Â per centÂ and 22.1Â per cent.
Â This was sustained till Thursday as rates further eased to at 6.8Â per cent (OBB) and 8.1Â per centÂ (OVN), attributable to improvement in system liquidityÂ due toÂ N151.1Â billionÂ OMO auctionÂ andÂ N107.9 billion treasurybills maturities which hit the system.
OBB and OVN rates closed the week at 6.8Â per centÂ and 8.1Â per cent,Â five per centÂ and 4.8Â per centÂ lowerÂ week-on-weekÂ respectively.
However, performance in theÂ treasury bills market was largely bullish as average rate across tenors traded lower onÂ threeÂ ofÂ the fiveÂ trading days.
The week started on a relatively flat note although average rate across benchmark tenors declinedÂ two basis pointsÂ to 13.9Â per cent.
Rates remained flat midweek even as the CBN carried out a Primary Market Auction (PMA)Â during the week.Â The 182-day instrument was the only undersubscribed and under allotted instrumentÂ in the auction. Average T-bills rate closed the week at 13.6Â per cent, downÂ one basis point week-on-week.
â€œIn the coming week, N140Â billionÂ of OMO bills will be maturing. Our short-term outlook for T-bills remains bullish against the backdrop of relatively lowerÂ federal governmentÂ domestic borrowings and CBN policy easing bias,â€ they predicted.
Bond Market Review
The performance of the domestic bond market was largely flattishÂ lastweek as average yield across tenors closed at a similar level to prior week.Â Yields fell by a marginalÂ two basis pointsÂ week-on-weekÂ to close at 13.5per cent.
On Wednesday, the DMO held its monthly Bond Primary Market Auction (PMA).
At the auction, the 5-year 14.5% JUL 2021 and 10-year 13.98% FEB 2028 bonds were reopened while a near 10-year 13.53% MAR 2025 bond was offered.
In line with expectation, demand for the longer dated 10-year instrument was stronger in anticipation of further moderation in the interest rate environment.
The 10-year 13.98% FEB 2028 instrument received the highest subscription, 3.3Â timesÂ the amount offered (amount offered: N30Â billion, subscription: N98.8Â billion, allotment: N10Â billionÂ and marginal rate: 13.6%).
Investor sentiment towards the 5-year 14.5% JUL 2021 instrument was also positive with a subscription of 1.9x (amount offered: N10Â billion, subscription: N18.9Â billion, allotment: N10.1Â billion and marginal rate: 13.4%).
However, the 7-year new issue which was allotted at a marginal rate of 13.5% was undersubscribed as the total subscription of N25.2billion was below N30Â billionÂ offered.
Marginal rates of the 5-Year and 10-Year bonds were 30Â basis pointsÂ and 38Â basis pointsÂ lower than February auction.