BusinessDay 23 Aug 2018

2 BUSINESS DAY
C002D5556
Thursday 23 August 2018
NEWS
Nigeria lags peers with pension
contribution to GDP at 6.5%
Endurance Okafor & Oghogho Edosomwan
Nigeria is behind its Africa
peers as it accounts for one
of the lowest pension asset
contribution to Gross Domestic
Product (GDP) in the region.
BusinessDay analysis of six Africa
countries in relation to what percentage
their various pension assets contributes
to GDP saw Africa’s largest economy
ranking the third lowest in the region.
Namibia with 91.7 percent assets
of pension funds to GDP topped the
ranking, followed by South Africa,
the region’s second largest economy
with 75.1 percent and Kenya came
next with 13.1 percent, leaving Nigeria,
Ghana and Egypt to occupy
the bottom list with 6.5 percent, 3.8
percent and 1.7 percent respectively.
Chief Executive, Eguarekhide
Longe of AIICO Pensions said the
pension industry has strong potentials.
“Nigeria pension industry can do
a lot more, when you look at South
Africa’s pension industry, you can see
the intricate impact it is making on
their economy, that is where Nigeria
should be going,” Longe said.
Another industry analyst said the
Nigeria pension industry can grow
larger. “That is to say it can have more
impact on the individual lives of the
citizens, if more people are covered
for pension,” the analyst said on the
condition of anonymity.
Meanwhile, the Asset under Management
(AUM) for Nigeria’s pension
industry also lagged that of South
Africa, as compiled by BusinessDay.
South Africa’s pension industry,
lunched in 1996 has about $258 billion
of AUM while Nigeria had AUM of $24.5
billion, although it was set up in 2004, as
compiled from PENcom website.
Industry experts however attrib-
FG oil earnings to rise as EIA forecasts
$734bn revenue for OPEC in 2018
Olusola Bello
The Federal Government
may earn more revenue
from crude oil this year than
envisaged thereby having a
breathing space to executive many
critical projects that could help boost
economic activities.
This is because the Organization
of Petroleum Exporting Countries
(OPEC) net oil export revenues is being
projected to rise to about $736 billion
without any adjustment for inflation in
2018, according to a forecasts of global
oil prices and OPEC production levels
by the United States Energy Information
Administration (EIA)’s August 2018
Short Term Energy Outlook (STEO) .
The expected increase in OPEC’s
net export earnings is attributed to
higher forecast annual crude oil prices
in 2018 compared with 2017 despite
expected lower output during 2018.
This means more revenues for
OPEC member countries, especially,
Africa’s largest economy where the
government is largely dependent
on crude oil as the main source of
export earnings.
In recent times the price of Brent
which is the same thing as Bonny
Light has hovered between $65 and
$74 per a barrel.
Some industry watchers have said
for Nigeria to derive maximum benefit
from this development, it would
depend on if the current relative
stability being enjoyed in the Niger
Delta by oil companies is sustained.
The country currently produces an
average of 1 .986,583 million barrels
uted the second position occupied
by Nigeria to the fact that the pension
industry in Africa’s most populous
nation was created at a time when it
peers had long existed.
Other countries’ AUM as analysed
by BusinessDay were; Namibia with
$10.8 billion, Kenya, launched in 1965
has AUM of $10.4 billion, and Ghana
with $1.7 billion as at December 2017.
Pension funds’ assets are defined
as assets bought with the
contributions to a pension plan for
the exclusive purpose of financing
pension plan benefits. The pension
fund is a pool of assets forming an
independent legal entity.
The 14 years old National Pensions
Commission was set up by
Nigeria’s government to regulate,
supervise and ensure the effective
administration of pensions, including
the Nigeria Social Insurance
Trust Fund, and to issue guidelines
on pension fund investments.
Industry regulator, the National
Pension Commission (PenCom)
had disclosed during the third edition
of the National Association of
Insurance and Pension Correspondence
Conference in Lagos that the
number of contributors under the
Contributory Pension Scheme (CPS)
has grown by 312, 291, increasing
from 7.89 million as at December
2017 to 8.14 million as at June, 2018.
According to the commission, the
net assets value of the pension fund
was N8.23 trillion as at June, 2018,
representing an increase of N716.94
billion up from the value of N7.52
trillion as at 31st December, 2017.
Although, only about 10 percent
of the working population of Nigeria
have keyed into the contributory
pension scheme, as compiled by
BusinessDay.
per day of crude oil, condensate inclusive
but it has the capacity to produce
about 2.9 million barrels of crude per
day, according to an official source.
The 2018 federal government
budget was benchmarked on a crude
price of $51 per barrel and a production
level of 2.3 million barrels per day
and an exchange rate of N305 to $1.
The National Assembly passed
the 2018 Appropriation Bill of N9.12
trillion, raised from the N8.61 trillion
proposed by President Muhammadu
Buhari on November 7, 2017.
Brent crude oil which is equivalent
of the Nigeria’s Bonny Light spot prices
averaged $74 per barrel in July, largely
unchanged from the average in June.
The agency expects Brent spot prices
will average $72/b in 2018 and $71/b
in 2019. While it expects that West
Texas Intermediate (WTI) crude oil
prices will average about $6/b lower
than Brent prices in 2018 and in 2019.
In 2017, Nigeria earned about
$34 billion from crude oil revenue
with about 60 per cent of this revenue
coming from the government’s equity
stake in the joint venture operations.
The per capita oil income was
however about $135.
The agency forecast that OPEC
crude oil production will average 32.3
million barrels per day (b/d) in 2018,
0.3 million b/d lower than in 2017.
It however stated that the organisation’s
revenues for 2019, revenues are
expected to be $719 billion, as a result
of lower forecast crude oil prices.
•Continues online at
www.businessdayonline.com
MARKETS
Spread between 10-year FGN bonds, 12
months Treasury widest since February 2016
Emeka Ucheaga & Sobechukwu Eze
For the first time in 2 years,
the interest rate spread between
the average 10-year
FGN Bonds and average
12 months Treasury bills in
Nigeria is greater than 3 percentage
points according to data compiled
from Bloomberg.
The average 10 year FGN bond
yield rose to 14.3 percent while the
average 12 months Treasury bills
yield dropped to 11.2 percent at
market close yesterday, increasing
the gap between the two sovereign
debt yields to 3.08 percent, its highest
level since February 2016.
Treasury bill yields have been
dropping precipitously since last year
as the monthly declines in inflation
allowed the federal government to
drop short term borrowing rate.
In August 2017, Treasury bill rate
was as high as 18.5 percent but it has
L-R: Jafaru A. F. Momoh, chief medical director, National Hospital, Abuja; Severin Schwan, CEO, Roche Group, and
Markus Gemuend, general manager, sub-Saharan Africa, Roche, during a courtesy visit of the CEO, Roche Group.
Dangote Cement, TPDC sign 20-year deal on supply of natural gas
MICHEAL ANI
Tanzania Petroleum Development
Corporation
(TPDC) and Dangote Cement
yesterday signed a
20-year deal that will see the cement
maker produce electricity for the
production of cement at Dangote’s
Mtwara plant using natural gas, a
Tanzanian newspaper reported.
“The plant will convert to gas
over the next 2 months at a cost of
2 billion Tanzanian shillings ($876
million) and will increase power
output to 40 megawatts from 22
megawatts,” Jagat Rathee, Tanzanian
country manager for Dangote
Cement said.
Actual generation of electricity
from natural gas will start within
two months from now, he noted.
The development creates hope
that production at the country’s
largest cement producer will not be
affected by electricity challenges,
resulting in a number of benefits to
consumers such as reduced prices.
lost 7.3 percentage points as yield
dropped to 11.2 percent. The 10 year
bond yield only declined marginally
from 16.8 percent in August last
year to 14.3 percent yesterday which
helped to create the wide spread.
Looking at historical trend, yield
spreads between treasury bills of different
maturity dates may show how
investors are looking at the economic
conditions.
Widening spreads between the 10
year bond yield and the 12 month Treasury
bill rate typically lead to a positive
yield curve, indicating stable economic
conditions in the future. On the other
hand, when spreads contract, it could
be a signal that worsening economic
conditions may be coming, resulting in
a flattening of the yield curve.
Vivian Alozie a Research analyst
at Capital Bancorp said, “we are
finally seeing a normalization of
the yield curve. The yield curve was
inverted for the better part of the
According to Rathee, infrastructure
has already been constructed
with installation of natural gas
pipeline from block value station
one (BVS1), a 132 metre distance
to the cement factory. Again, the
company has its system from diesel
to natural gas consumption.
“We are currently doing some
test before complete consumption
kick off,” he noted.
The company which has only
increased consumption from
about 2,500 tonnes per day to
about 5,000 tonnes in response to
a lower supply that has seen price
increasing is expected to further
increase its cement making to
6,000 tonnes per day when the use
of natural gas starts.
“With natural gas, our operational
costs will go down and
ultimately, the price of cement will
also be reduced,” he said.
The factory will consume at
least eight million cubic feet of
natural gas from more than six
million litres of diesel per month
last two years as Treasury bill rate
rose rapidly to provide a real investment
return for investors. Investors
who were uninterested in buying
Treasury bill at rates lower than the
inflation had to be satisfied with
higher investment return. As inflation
continues to trend downwards,
we expect to see the yield curve normalize
in the fixed income market.”
“Although treasury bill rates have
been dropping all year long, we still
think it is very attractive for foreign
investors who are seeking high yield
returns in emerging markets”, said
Faith Ogedengbe, Research Analyst,
GDL Asset Management.
“We have still seen a lot of inflows
into treasury bills this year despite lower
returns than were available last year.
Now that the yield curve has normalized,
we should start to see more long
term investing in the country as investors
again chase higher yields at fixed
income market,” Ogedengbe added.
at a total cost of about Sh10 billion.
Dangote Cement will be the
42nd industry to be connected
to the use of natural gas in the
country, according to TPDC’s acting
manager director, Kapuulya
Musomba.
It will also bring the total
amount of natural gas consumed
by factories in the country to 23
million standard cubic feet per day.
“Our goal is to connect as many
industries as we can. With this
agreement, we are obliged to supply
natural gas to Dangote for a
period of 20 years.”
Dangote cement is investing a
total cost of $915,953.59 (about Sh2
billion at the prevailing exchange
rate) in the first phase of the gas to
electricity power generation.
Meanwhile, TPDC is also implementing
the second phase
worth $3.75 million including tax
that will see another natural gas
pipeline being installed at the cement
plant for heating and production
activities.