Welcome to the July edition of the Duplo Economic Digest.
We’ve compiled some of the most exciting events of July and what they mean for you and your business. Let’s dive in!

Nigerian Macroeconomic Recap

The Nigerian government wrestles with Dangote while surrendering to workers by increasing their rates and searching for money to fund the new minimum wage. 

Dangote vs. Nigeria:
A significant conflict arose between Aliko Dangote and the Nigerian National Petroleum Corporation Limited (NNPCL). Dangote faced accusations of attempting to monopolize the petroleum market by seeking a ban on diesel and aviation fuel imports, a move aimed at supporting his $20 billion refinery amid local crude oil sourcing challenges due to theft and corruption. The Nigerian downstream regulator also questioned the quality of Dangote’s diesel, though he has presented lab results showing lower sulfur content than imports.

Additionally, NNPCL reduced its stake in Dangote’s refinery from 20% to 7.2% due to unmet financial commitments, complicating the dispute further. Dangote defended his actions, stating that his refinery received no government incentives and had purchased $100 million in land. In response to monopoly allegations, he canceled plans for a new steel plant in Nigeria, citing frustration with the government’s stance. This dispute, closely watched by foreign investors, could deter investment and underscore significant challenges in Nigeria’s oil sector, including regulatory issues and market control concerns.

Will more money bring happiness?
President Bola Tinubu has requested a ₦6.2 trillion increase in the 2024 budget from the National Assembly to address Nigeria’s fiscal challenges. This move fulfills his May 29, 2024, promise to present a supplementary budget, primarily to finance a new minimum wage for workers, necessitated by high inflation eroding purchasing power. The supplementary budget aims to cover the gap between the 2024 budget and the additional costs from the wage increase, addressing rising debt levels, capital expenditure challenges, and escalating overhead costs. This proactive step reflects the government’s commitment to improving workers’ welfare, fostering prosperity, and ensuring development.

Budget adjustments also follow consultations with labor unions, including meetings between President Tinubu and the Nigeria Labour Congress to establish a fair wage structure. The ₦6.2 trillion request highlights the government’s dedication to fiscal responsibility while responding to social and economic needs.

You get a raise, everybody gets a raise:
On July 23, the National Assembly passed a significant new minimum wage bill, raising the monthly minimum wage from ₦30,000 ($18.9) to ₦70,000 ($44.2). The bill also reduces the interval for wage reviews from five years to three. This legislation follows extensive negotiations between the government and labor unions. Initially, the government proposed an increase to ₦60,000 ($37.9), later revising it to ₦62,000 ($39.1), while labor unions lowered their demands from ₦494,000 ($311.7) to ₦250,000 ($158). This adjustment addresses Nigeria’s rising cost of living but raises the cost of doing business for companies required to implement the policy immediately.

Finance Flashback

Despite the government’s interest in the banks’ pie, performance remained strong, almost as high as the rapidly rising interest rates.

The third time’s the charm:
To tame Nigeria’s stubbornly high inflation, the Central Bank of Nigeria (CBN) raised the Monetary Policy Rate (MPR) by 50 basis points, from 26.25% to 26.75%. This marks the third rate hike of the year, following increases in February and May. The move aims to tackle the country’s high inflation –which hit 34.19% year-on-year in June–stabilize the volatile foreign exchange market, and attract foreign portfolio investments by offering higher yields on government securities. Despite previous rate hikes, inflation remains high, with food inflation reaching 40.01% in March 2024. The CBN’s continued tightening reflects its commitment to controlling inflation and achieving price stability in Nigeria’s economy.

The government wants a piece of that banking pie:
 In July 2024, the Nigerian government, in the same breath proposing a supplementary budget, proposed a 50% windfall tax on foreign exchange gains realized by banks. This tax would apply to the realized profits from foreign exchange (FX) transactions in the 2023 financial year, raising concerns due to its retrospective application on profits already filed and paid by June 2024. The retrospective nature of the tax creates potential legal and financial challenges for banks, significantly affecting their profitability and capital adequacy. Nigerian banks had planned to use these FX gains as buffers against currency fluctuations.

In 2023, Nigerian banks collectively reported N3.722 trillion in pre-tax profits, a 197% increase from N1.255 trillion in 2022. Most of these profits came from FX revaluation gains driven by the naira’s devaluation. Eleven major banks incurred N575.168 billion in taxes in 2023, a 175% increase from the previous year, including N440.305 billion specifically for the 2023 tax year. The banking sector index has already shown signs of strain, losing 0.77% due to the tax proposal. Banks must carefully manage their FX exposure and tax planning to mitigate the impact on their financial performance.

All roads lead to CBN:
The Central Bank of Nigeria (CBN) has issued new guidelines for managing dormant accounts and unclaimed balances. According to these guidelines, accounts dormant for 10 years or more will be transferred to the CBN’s custody. Banks must pool all unclaimed funds outstanding for over six months into a suspense account. The CBN has standardized the management of these accounts, outlining specific procedures for banks and other financial institutions. Banks must hold these funds until the beneficiary claims them or the corresponding bank debits its account. These guidelines operationalize Section 72 of the Banks and Other Financial Institutions Act (BOFIA) 2020 and require banks to submit quarterly reports on dormant accounts and unclaimed balances to the CBN’s Banking Supervision Department. Superseding the 2015 guidelines, these new directives aim to curb abuses, set operational standards, and protect depositor rights, ensuring owners can reclaim their funds when needed.

NGX Performance

In July 2024, the Nigerian stock market continued its impressive run, building on the strong performance seen earlier in the year. By July 22, the market had recorded a return of 34.46% year-to-date; the All Share Index (ASI) reached 100,539.4 points, while the market capitalization climbed to N56.929 trillion, reflecting robust investor confidence and increased market activity. The week ending July 22 saw a 0.87% growth, indicating sustained momentum. July was particularly significant as a key month for Q2 earnings releases, with early reports from companies like Geregu, Champion Brewery, and United Capital showing promising results, further boosting investor sentiment. While specific sector performances for July weren’t detailed, the banking and oil/gas sectors had been strong performers earlier in the year, likely contributing to the overall market strength. The positive investor sentiment was palpable, with many anticipating continued good news from Q2 earnings reports of listed companies.

This strong performance of the Nigerian stock market in July 2024 came against the backdrop of broader economic developments, including the government’s proposed windfall tax on banks’ foreign exchange gains. Despite potential challenges posed by such policy changes, the market demonstrated resilience, suggesting that investors remained optimistic about the long-term prospects of Nigerian equities. As the month progressed, all eyes were on the continuing stream of earnings reports and any potential policy announcements that could influence market dynamics. The performance of the Nigerian stock market in July 2024 reflected the country’s economic potential and highlighted its growing attractiveness to domestic and international investors.

FX Performance

In July 2024, the Nigerian naira experienced significant depreciation against the US dollar across various exchange platforms. Parallel market operators quote prices above N1,600/$1, with rates on platforms like Remitly at N1,648.03/$1, Trove at N1,632.01/$1, Bamboo at N1,627/$1 and PiggyVest’s Flex Dollar at N1,660/$1. The naira closed at N1,610.69/$1 on the official market, 6% higher than June. These movements highlight the naira’s weakening against the dollar, with the CBN’s interventions and rising reserves yet to stabilize the currency amid ongoing economic challenges and high foreign exchange demand.

Despite CBN’s efforts to stabilize the currency, including selling FX to BDCs at N1,450/$1, the naira remains under pressure due to high dollar demand and ongoing economic challenges. CBN Governor Yemi Cardoso claimed the worst volatility is over, but the naira’s depreciation suggests more robust measures are needed. Nigeria’s external reserves rose to $35.05 billion as of July 8, the highest since May 2023, bolstered by CBN policies. The reserves reportedly crossed $35 billion, reflecting recent financial infusions.

Investment Opportunities

Fidelity Bank PLC has launched a rights issue to raise capital, offering 3.2 billion ordinary shares at ₦9.25 per share. This initiative aims to bolster the bank’s capital base to support its strategic objectives, including investments in IT infrastructure, business expansion, and the development of product distribution channels. The rights issue is available to existing shareholders based on one new share for every ten shares held as of January 5, 2024. The offer opened on June 20, 2024, and will close on July 29, 2024. In addition to the rights issue, Fidelity Bank is concurrently offering an Initial Public Offer (IPO) of 10 billion shares at ₦9.75 per share. The combined efforts are expected to raise gross proceeds of ₦127.1 billion, enhancing the bank’s market position.

Company Focus – United Capital

United Capital Plc is a prominent financial services institution in Nigeria that specializes in investment banking and asset management, among other things. Recently recognized by the Financial Times and Statista as one of Africa’s Fastest Growing Companies for two consecutive years, their investment banking services encompass project finance, capital markets, mergers and acquisitions, and structured finance, while their asset management division focuses on portfolio management and wealth advisory services. 

In July 2024, United Capital’s stock performance has been noteworthy. The share price has seen significant movement, currently trading at ₦ 38.00, reflecting a remarkable increase of 77.98% over the past year. In just one day, the stock surged by 9.79%, with a trading volume of 9.4 million shares, indicating robust investor interest and market confidence. Adding to the excitement, United Capital recently announced its first-ever interim dividend of ₦ 0.90 per share, set to be paid on August 1, to shareholders recorded as of July 31. This decision marks a significant milestone for the company and reflects its strong financial performance and commitment to rewarding its shareholders.

Africa Focus

Kenya’s executive arm gets a facelift:
Following the widespread anti-government protests in June, Kenya experienced significant political and economic disruption. President Ruto dissolved most of his cabinet and formed a new government, including opposition figures, in an apparent bid for unity. The Finance Bill 2024 was part of a broader economic reform program agreed upon with the International Monetary Fund (IMF). The IMF had conditioned its $3.9 billion loan to Kenya on implementing austerity measures, including tax increases and spending cuts. With the withdrawal, the IMF plans to meet to discuss the fate of Kenya’s reform program, given the current situation.

Ghana’s post-debt restructuring era is showing promise:
The finance minister has upgraded the 2024 growth forecast to 3.1%, a bump from the earlier 2.8%, attributed to the positive effects of recent debt restructuring and economic reforms. Minister Mohammed Amin Adam highlighted that Ghana is returning from its economic turmoil quicker than anticipated, with key indicators improving and inflation expected to fall to 15% by year-end. The first half of the year saw a budget deficit of 3.4% of GDP, further indicating the strides being made.

South Africa’s inflation eases amid optimism:
June brought good news for South Africa as inflation dipped to a six-month low. Consumer prices rose by 5.1% year-on-year, down slightly from May’s 5.2%. This aligns with the central bank’s optimistic outlook, forecasting inflation to drop below the 4.5% target by the fourth quarter, potentially opening the door to rate cuts – which hints at lower business borrowing costs. In the meantime, the central bank maintained the interest rate at 8.25%; a split vote suggests a possible easing stance. Investor confidence has been buoyed since the elections, with President Ramaphosa’s commitment to infrastructure development, market-friendly reforms, and job creation hinting at a rise in capital inflows.

Cameroon taps into international markets:
Cameroon sold $ 550 million in seven-year dollar bonds at 10.75%. This follows a trend among African nations like Ivory Coast, Kenya, Benin, and Senegal, who have returned to international debt markets after a two-year hiatus due to rising US interest rates. Cameroon’s decision to issue high-yield debt indicates urgent financing needs, evidenced by calls from President Paul Biya, directing the finance ministry to raise an additional $ 1 billion through domestic and international markets to finance the country’s reconstruction in conflict-affected regions. The country’s credit ratings are B (negative outlook) by Fitch and B- (stable outlook) by S&P. 

Upcoming events in July

• Connected Banking Summit (August 14, 2024) in Addis Ababa, Ethiopia 
• 4th Annual Banking Transformation Africa (August 15-16, 2024) in Johannesburg, South Africa

Our Recent Product Release

• In July, we introduced our Team-based Expense feature which benefits mid-sized and enterprise-level businesses with complex payment needs and the necessity for robust financial controls. Our solution centralizes payment management, helping businesses minimize the risk of errors, fraud, and unauthorized transactions.

Download our latest resource on:

• 7 Key Financial Metrics Every Enterprise Should Track: A How-To Guide for Nigerian Finance Professionals and Accountants
• Managing and Preventing Expense Fraud: A Guide for Nigerian CEOs and CFOs

We hope you found this month’s newsletter exciting. See you next month!