cement-bags

Growing real estate investment, input cost increase cement price

by with No Comment Businessfinance

Growing investment in real estate as an alternative asset for Nigerians looking for where to hedge their funds against inflation is a major reason for the rising price of cement, BusinessDay findings have shown.

READ ALSO: MSMEs Contribute Over 50% Of Nigeria’s GDP, 80% Employment ― FG

High input cost, product scarcity or limited supply arising from shocks in the economy and disruptions in production activities is another reason for the current hike in cement price.

Nigeria is experiencing what is clearly a galloping inflation. Its March inflation figure at 18.17 percent is an embarrassment to economic analysts. Apart from eroding the value of the local currency, this has also affected food prices and crimped household/consumer purchasing power significantly.

By its nature, real estate, unlike other investment asset classes, appreciates in value over time, virtually unaffected negatively by inflation. Rather than depreciate and lose value in inflationary periods, real estate, in the worst case scenario, remains static in value.

This explains why the rising price of cement is not deterring or stopping investment in the sector.

“The knowledge of real estate as a means of financial security has attracted more players and investors into it, thereby affecting the demand and supply of cement in the country; real estate is one sector that can flow with inflation per time, hence a lot of Nigerians are currently investing in it,” Osazee Edigin, an estate developer, confirms to BusinessDay in Benin City.

Construction activities have been upbeat in the sector since the beginning of the last quarter. Ayo Ibaru, COO, Northcourt Real Estate, also confirms to BusinessDay that increased investment in real estate contributes to the rising price of cement, citing mid-income residential buildings springing up in Lagos on both Island and Mainland.

He also cites institutional investors that are doing both residential and commercial developments such as Purple Capital, which is doing mixed use developments in Lekki and Maryland in Lagos. All these push up demand for cement and, by extension, the price of the product.

But there are other reasons for the significant increase in price that cement buyers have seen. “Yes, we have seen increased demand arising from increased construction activities in real estate sector, but that is not the real cause of the price hike.

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Inflation MPC

Inflation widens negative real return on investment

by with No Comment Businessfinance

Nigeria’s March inflation widens negative real return on investment

Fixed-income investors seeking high-yielding securities in the light of the prevailing developments in the markets were not disappointed in the last auction on Wednesday, as rates on the 364-day Federal Government short-term Treasury bills (T-bills) rose to 9 percent from 1.5 percent at the beginning of the year.

READ ALSO: Inflation rate hits 18.17%

But with Nigeria’s 18.17 percent inflation rate in March, the highest in four years, the real return on the Federal Government less risky short-term debt instrument depreciated further when compared with March 2020, when the inflation rate stood at 12.26 percent.

While inflation-adjusted return on the shorter 91-day and 182-day bills were -9.77 percent and -8.48 percent, respectively, in April last year, the real return on the bills dropped further to -16.17 percent and -14.67 percent in the comparable month of 2021, thanks to Nigeria record-high 18.17 percent inflation rate.

The trend was the same for the longer 364-day bill. From a -6.96 percent real return on investment last year, the bill gave investors -9.17 percent in the same period of this year.

As the interest rate is trying to play catch up, inflation is moving upward too, Yinka Ademuwagun, research analyst, FMCGs, United Capital plc, said.

“The real return is still clearly negative because inflation is rising faster. If inflation was still at, say, the 11 percent that reported before the border closure last year, then we would have been fine,” Ademuwagun said.

However, the recent uptick in the yields on the short-term government instrument is helping to comfort investors against the rate at which the high inflation rate is impacting their returns.

“While the rising inflation has broadened negative real return, it is comforting to know that yield on fixed income instruments is also on the rise, which will bridge this gap,” Ayodeji Ebo, head, retail investment, Chapel Hill Denham, said.

After hitting a four-year low of near-zero percent in 2020, yields on the Federal Government risk-free treasury bills climbed to more than 16 month-high, as compiled from Nigerian Treasury bills primary market auction Results for April 14, 2021.

While investors bid at a rate as high as 8 percent for the 91-day bill, 9 percent and 13 percent for the 182-day and 364-day bills, respectively, the Central Bank of Nigeria (CBN) settled at 2 percent, 3.5 percent and 9 percent, respectively. The stop rates for the 91-day and 182-day bills remained sticky for the fourth consecutive auction, but the 364-day bill increased by 100 basis points compared to the 8 percent reported in the previous auction.

Market analysts link the increase in the stop rates to the hike in CBN’s Open Market Operation (OMO) rates some weeks ago. Investors are bidding at higher rates and the Debt Management Office (DMO) also needs to raise the cut-off rate to fill some of the orders, an analyst noted.

Weeks after the CBN shocked the market with a 10.10 percent stop rate for the 362-day OMO bill, the highest levels seen in almost a year, fixed-income investors demanded higher rates for T-bills.

Analysis of the T-bills auction result for April 14, 2021, shows that the CBN raised a total of N153.38 billion from the 91-day, 184-day and 384-day bills, N83.82 billion more than the initial N69.56 billion the apex bank offered to raise in this week’s auction.

Investors were less interested in the shorter 91-day and 182-day bills as they attracted a lower interest rate but were willing to subscribe to the longer 364-day bill, which rose by 100bps to 9 percent interest rate.

While the 364-day with a much higher interest rate was oversubscribed by N168.45 billion, the shorter 182-day was oversubscribed by N9.44 billion but the 92-day bill was undersubscribed by N50 million.

The CBN planned to raise N15.92 billion for the shorter 91-day bill, investors were willing to subscribe with N15.87 million. The apex bank was eventually able to allot N12.46 billion, N3.46 billion more than its initial offer.

Investors were willing to bid with N13.94 billion for the CBN N4.50 billion offered for the 182-day bill. The apex bank was able to raise N8.80 billion, N4.3 billion more than its initial offer.

While the CBN offered to raise N49.14 billion through the longer 364-day Treasury bill, investors said they were willing to invest N217.59 billion. The apex bank later raised N132.12 billion, N83 billion more than its initial offer.

Though the recent uptick in T-bills rate to more than one year-high is good news for fixed income investors whose real return appreciated to -9.17 percent in April from -9.33 percent in March, the expected high inflation rate remains a challenge.

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Food inflation

Inflation rate hits 18.17%

by with No Comment BusinessfinanceNews

Nigeria’s consumer price index, which measures the rate of increase in the price of goods and services, increased to 18.17 percent in March from 17.33 in February, according to an inflation report released by the National Bureau of Statistics on Thursday.

Food prices are surging on the back of lingering security challenges, festive induced demand and an acute dollar squeeze

READ ALSO: FG begins full commercialization of Federal Mortgage Bank

This implies that Nigerians spent more on purchasing goods and services in the month of March, compared to February.

The March figure is the highest since January 2017 when it climbed 18.72 percent.

“Nineteen straight months of rising inflation rate and momentum is not even slowing. Looks like we are going to break the 2017 record in Q2,” Omotola Abimbola, assistant vice president at Chapel Hill Nigeria tweeted on Thursday.

The NBS data also showed Nigeria’s food inflation is now at the highest in over 12 years. Food inflation increased by 1.16 percent, year on year, from 21.79 percent in February to 22.95 percent in March.

The rise in the food index was caused by increases in prices of bread and cereals, potatoes, yam and other tubers, meat, vegetable, fish, oils and fats and fruits.

The “All items less farm produce” or Core inflation, which excludes the prices of volatile agricultural produce rose to 12.67percent in March 2021, up by 0.29percent when compared with 12.38percent recorded in February 2021.

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CBN

CBN holds benchmark interest rate at 11.5%

by with No Comment financeNews

The Central Bank of Nigeria (CBN) on Tuesday retained its benchmark interest rate, known as the Monetary Policy Rate (MPR), at 11.5 percent after the two-day Monetary Policy Committee (MPC) meeting in Abuja, citing inflation concerns.

READ ALSO: How to invest when inflation bites

This comes not as a surprise as analysts in the financial services sector had expected a hold following persistent uptick in inflation rate and weak growth.

Nigeria’s inflation rose to 17.33 percent in February 2021 from 16.47 percent in January 2021, according to data from the National Bureau of Statistics (NBS).

In the fourth quarter of 2020, Nigeria’s economy sluggishly recovered from a recession it slipped into in the second quarter (Q2) of 2020 – after output contracted for two consecutive quarters.

Real GDP grew by 0.11 percent in the fourth quarter of 2020, from -3.62 percent in Q3 2020, according to NBS data.

The CBN also retained the Cash Reserve Ratio (CRR) at 27.5 percent, Liquidity Ratio at 30 percent as well as the Asymmetric Corridor around the MPR at +100/-700 basis points.

Given the fact that the rise in inflation has been due to cost-push factors rather than demand pull factors, Godwin Emefiele, governor of the CBN, said the Monetary Policy Committee has placed greater weight on utilising tools that would strengthen the nation’s productive base as a nation.

Taiwo Oyedele, head of Tax and Corporate Advisory Services at PwC, had said the rising inflation would be of concern to the MPC as it does not support any expansionary policy changes. He said a contractionary policy adjustment would hurt the fragile economic growth and recovery.

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Inflation Rate

How to invest when inflation bites

by with No Comment BusinessOpinions

Inflation is the general rise in the prices of goods and services over time. The “inflation rate” is the rate at which the change in prices happens; this is usually expressed in percentages over time.

Alice Abegunde, a mother of three teenagers, does not understand the reason behind the constant increase in the price of rice, her children’s favourite food.

READ ALSO: Afreximbank, NEXIM sign $50m deal to boost Nigeria’s trade sector

“Every time I go to the market, they have added to the price of rice,” Abegunde, 44, a resident of Lagos State, says.

While Abegunde might not be able to connect the dot and blame the rice sellers for the rise in price, Emeka Johnson could, he knew times were going to be hard as inflations numbers kept rising and resolved to save more and spend less.

What Johnson does not know is that he is constantly losing money because the value of his money drops as inflation rises.

What is inflation?

It is the general rise in the prices of goods and services over time. The “inflation rate” is the rate at which the change in prices happens; this is usually expressed in percentages over time. For instance, if inflation goes up 10 percent than last year, it means purchases will cost 10 percent more than they did last year.

Basically, inflation reduces the value or usefulness of money; the higher inflation rises, the less your money is worth, in real terms as time goes by. Therefore, it is about your purchasing power, that is, how much your money can buy.

What causes inflation?

There are reasons why prices rise. First, when everyone suddenly develops a taste for beef, the price of beef will rise. This follows a basic law in economics that, higher demand for a product will push up its price. This is also called demand-pull inflation.

What this means is that when the demand for goods and services in the economy exceeds the economy’s ability to produce them, their short supply places upward pressure on prices and gives rise to inflation.

Another reason prices rise is that the cost of producing goods and services increases. Companies would usually respond to higher cost of production by increasing the price they sell their products; they do this to cover the extra cost they incurred while producing. This is known as cost-push inflation.

How is inflation measured in Nigeria?

Every month we hear news about new inflation rate or data but have you ever wondered how it is calculated? Nigeria uses a well-known indicator called the Consumer Price Index (CPI), which measures the average change over time in prices of goods and services consumed by people every day.

In Nigeria, the CPI is calculated by the National Bureau of Statistics (NBS) and published every month. To calculate CPI, the NBS gets people to collect prices for thousands of items that an average Nigerian consumer buys such as food, prescription drugs, rent, petrol and many others. These items are grouped into categories called baskets. Every month, the NBS calculates the price changes of each item from the previous month and aggregates them to work out the rate for the CPI basket.

Who controls inflation?

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Inflation

Inflation: Relief as inflation to moderate around May

by with No Comment financeNews

Nigeria’s economy may likely heave a sigh of relief should the inflation rate moderate in May as optimistically stated by Godwin Emefiele, Governor, Central Bank of Nigeria (CBN), after announcing a hold on its benchmark interest rate and other parameters on Tuesday.

READ ALSO: Fuel Marketers Raise Diesel Price To N265 Per litre

The Monetary Policy Committee (MPC), which concluded its two-day meeting on Tuesday, has been confronted with a policy dilemma, with inflation rising for 18 consecutive months to 17.33 percent in February 2021.

The dilemma that confronted the MPC relates to whether to focus on efforts to stimulate output growth or focus on the raging inflation, which at 17.33 percent is almost attaining the January 2017 inflation rate of 18.72 percent.

“The country just crawled out of recession in Q4 2020, if the MPC tightens, it would constrain liquidity, the interest rate would be high and it would make it difficult to access credit needed that investment need to drive growth and the economy could slip back into recession,” Emefiele said.

Nigeria’s Gross Domestic Product (GDP) grew by 0.11 percent (year-on-year) in real terms in the Q4 2020, representing the first positive quarterly growth in the last three quarters.

Though weak, the positive growth reflects the gradual return of economic activities following the easing of restricted movements and limited local and international commercial activities in the preceding quarters, the National Bureau of Statistics (NBS) said.

“We would not lose sight on inflation. Inflation may move up in April, but we expect inflation to begin to moderate from May. By that time we should have our Q1 GDP numbers and we hope it shows significant growth and then we begin to attack inflation,” Emefiele said.

But analysts in the financial services sector disagree with the CBN governor’s optimism, citing a high level of insecurity, which has obstructed productivity in the agriculture sector.

Uche Uwaleke, professor of capital market and president, Capital Market Academics of Nigeria, said that would be too optimistic since inflationary pressure was more on food.

“I don’t see inflation rate moderating significantly till the end of the third quarter that is by September, about the time harvest season sets in. Besides, insecurity and likely flooding between now and May remain downside risks,” Uwaleke noted.

However, the committee decided by a vote of three members to increase the Monetary Policy Rate (MPR) by 50, 75 and 50 basis points, respectively, and six members voted to hold all parameters constant.

The MPC noted the overarching need of taming the rising inflation and sustaining growth recovery in the economy while focusing on downside risks associated with the injections.

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Inflation MPC

Inflation tops discussion as MPC meets today

by with No Comment Businessfinance

Nigeria’s Monetary Policy Committee (MPC) commences its second meeting for the year 2021 today, and will tomorrow announce policy decision on interest rate direction for an economy that sluggishly exited recession in the fourth quarter of 2020.

READ ALSO: Nigerian startups raise more money in a single month than whole of 2020

Maintaining the status quo may likely play out after the meeting, as most analysts polled by BusinessDay expect a ‘Hold’ on the benchmark interest rate due to rising inflation.

Nigeria’s inflation rate increased to 17.33 percent in February 2021, from 16.47 percent recorded in the previous month, according to the National Bureau of Statistics (NBS).

While the Central Bank of Nigeria (CBN) does not formally targets inflation, confining itself to a reference range of between 6 percent year-on-year (y/y) and 9 percent for the headline measure, the trajectory of inflation is such that it would be a challenge to argue for further monetary easing, analysts at FBNQuest said.

“Nigeria’s MPC meets next (this) week, and we struggle to see any decision other than an unchanged stance,” the analysts said.

At the last MPC meeting in January, the committee retained the Monetary Policy Rate (MPR) at 11.50 percent, with the asymmetric corridor remained at +100/-700bps around the MPR.

Also, the Cash Reserve Ratio (CRR) and Liquidity ratio were left unchanged at 27.5 percent and 30 percent, respectively.

“I expect the MPC to hold the rates in March. Yes, inflation rate is rising but economic recovery is still weak at 0.11 percent in previous quarter,”Uche Uwaleke, professor of capital market and president, Capital Market Academics of Nigeria, said.

He noted that, inflationary pressure was more from cost push factors, saying, “I expect that the MPC will advise the CBN to continue to use development finance initiatives through increased interventions to support economic recovery, especially via stimulation of agricultural output to stem rising inflation.”

Nigeria’s Gross Domestic Product (GDP) grew by 0.11 percent y/y in real terms in the fourth quarter of 2020, representing the first positive quarterly growth in the last three quarters.

Though weak, the positive growth reflects the gradual return of economic activities following the easing of restricted movements and limited local and international commercial activities in the preceding quarters, the NBS report noted.

Taiwo Oyedele, head of tax and corporate advisory services at PwC, is of the view that the rising inflation will be of concern to the MPC and certainly does not support any expansionary policy changes, while on the other hand a contractionary policy adjustment will hurt the fragile economic growth and recovery. “So, I expect the MPC to maintain status quo,” he said.

Given the fact that the rise in inflation has been due to cost-push factors rather than demand pull factors, Godwin Emefiele, governor of the CBN, said MPC had placed greater weight on utilising tools that would strengthen the nation’s productive base as a nation.

These measures, such as the intervention programmes being implemented by the bank, will help to improve output by enabling improved production of staple food items. This would ultimately help to support lower food prices and a more favourable outlook for food inflation, Emefiele said at the last MPC meeting.

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Nigerias Inflation Rate

More pain for Nigerians as inflation hits 4-yr high

by with No Comment BusinessfinanceNews

Headline inflation rate jumped to a four-year high at 17.33 percent in February, from 16.47 percent in January 2021, according to a report released by the National Bureau of Statistics.

Nigerians cannot afford to buy as much as they used to as food costs continue to surge, aggravating the pains already inflicted by the pandemic and economic slowdown.

READ ALSO: DMO lists N162.5bn 7-year Sovereign Sukuk on Nigerian Exchange Limited

Headline inflation rate jumped to a four-year high at 17.33 percent in February, from 16.47 percent in January 2021, according to a report released by the National Bureau of Statistics. On year-on-year basis, this is the highest since February 2017.

This signals a decline in purchasing power of Nigerians as prices of goods and services are skyrocketing without a corresponding increase in income, making life miserable for the country’s population.

“The increase is obviously as a result of a surge in food cost which mainly comprises of imported food,” Ayodeji Ebo, Head Retail Investment, Chapel Hill Denham, points out.

Food inflation rose by 21.8 percent month-on-month in February compared to 20.57 percent in January 2021.

Data from NBS shows Nigeria’s import of food and beverages jumped 70.7 percent to N2.8 billion in 2020 from N1.64 billion in 2019.

“This means we still import a lot indicating that there are opportunities to produce more, generate employment and reduce demand for foreign goods which keeps prices increasing,” Ebo said.

The increased importation is also pointer to Nigeria’s failed border closure policy which kicked off as a strategy to boost local production.

The situation of Nigerians is worsened by the 23 million without jobs and another 15.9 million worked less than 40 hours a week, making them underemployed, according to the NBS.

To put in perspective, Nigeria’s total number of jobless people is equal to the entire population of Niger.

Nigeria’s Per Capita GDP which has been contracting for six straight years also gives a dim picture of untold hardship facing many businesses and household.

By Businessday’s analysis, Nigeria recorded Per Capita GDP growth of -4.57 percent in 2020, its worst contraction in more than six years.

In basic interpretation, this means an average Nigeria has a lower standard of living in 2020 than in the past six years.

A 2018 report by the Brookings Institution situated the country as the poverty capital of the world with 87 million people or roughly 40 percent of Nigeria’s 200 million populations living below $1.9 a day.

As a result of the pandemic, another 15 to 20 million Nigerians will be dragged into poverty by 2022, the World Bank estimates.

Analysts say Nigeria will continue to see an upward trend in the inflation rate in the coming months if certain factors persist.

Temitope Omosuyi an Investment Strategy Analyst at Afrinvest Limited said Nigeria’s headline inflation rate would hit 18.15 percent in March driven by foreign exchange illiquidity and heightened insecurity in the North.

There have been a number violent farm attacks, and clashes between herders and farmers in recent times and this would continue to weigh on food supply.

Also, inflationary pressures will also mount if the price of petrol rises higher.

The Petroleum Products Pricing Regulatory Agency (PPPRA) announced a new price template that put the retail price for the product at between N209.61 and N212.61. However, the agency has since retracted the statement while the NNPC has reiterated that there would no price increase in March.

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