Breakfast Report - 19 December 2016
​The President presented the 2017 budget tagged “Budget of Recovery and Growth†to the National Assembly last Wednesday. The Federal Government (FG) plans a total expenditure of ₦7.3 trillion (2016: ₦6.1 trillion) in the next fiscal year aimed at driving the nation out of recession and placing it on the path of steady growth with about 31% (2016: 29%) earmarked for capital expenditure. Aggregate budgeted revenue stands at ₦4.94 trillion with oil revenues expected to contribute about 40% based on a benchmark crude oil price of $42.5 per barrel, oil production estimate of 2.2 million bpd and an average exchange rate of NGN305/USD. Also, 46% of the ₦2.4 trillion deficit will be financed by external borrowing (proposed 50% in 2016) as the FG continues to rebalance its debt portfolio with increased external borrowing. Whilst we commend the early submission and vision inherent in the framework, we note that speedy passage and implementation is pivotal.
Meanwhile, Nigeria’s stagflation intensified in the third quarter of 2016 as the unemployment rate rose to 13.9% (Q2’16: 13.3%) even as inflation reached 17.9% at the end of the quarter. Similarly, underemployment rate rose further to 19.7% (Q2’16: 19.3%), amidst a faster pace of q/q growth in underemployment (3.3% in Q3’16 compared to 2.6% in Q2’16). Meanwhile, the data revealed that the number of Nigerians in full-time employment shrunk for a fourth straight month, this time by 72,000 workers. There looks to be no soft landing for the labour market as the population and labour force are projected to expand further. With a weak private sector, onus lies on fiscal authorities to drive job creation.
The Nigerian bourse traded firmly in the green in a four-session trading week that saw the ASI post its best week on week return (+344bps) since June. Coming off the public holiday on Monday, the ASI rallied on the back of bullish runs across bellwether stocks with energy stocks pacing gainers. On Thursday, the Oil & Gas sector pulled back slightly with FO snapping a nine session rally as investors locked in recent gains across a handful of energy stocks. The ASI remained in positive territory at week close thanks to gains in the Banking and Industrials sector as the Energy and Consumer goods sector dipped further in the red.
We believe Friday’s mixed trading pattern will be sustained at week open as investors continue to cherry pick across sectors.
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