macroafricaintel | Renewable power in Nigeria: Progress report

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

Renewable power sources are ascendant. China is leading the way, with a quarter of global solar capacity and a third of wind power output. Until recently, the cost of solar panels fell as economies of scale made each unit cheaper for the dominant Chinese manufacturers. But the unfolding trade war with America, which resulted in tariffs being imposed on Chinese-made solar panels, has added to costs. That is not stopping the rise of renewables. “In 2016, cumulative solar PV capacity reached almost 300 GW and generated over 310 TWh, 26% higher than in 2015 and representing just over 1% of global power output”, says the International Energy Agency (IEA). In 2016, “cumulative grid-connected wind capacity reached 466 GW (451 GW onshore wind and 15 GW offshore wind) and wind power accounted for almost 4% of global electricity generation.”

Given the prevailing trends, what are the prospects for renewable power in Nigeria, one of Africa’s most voracious energy consumers? “The prospect for renewable energy in Nigeria is quite enormous and there are opportunities for the development of grid-connected solar, wind, and geothermal power projects,” says Kayode Omosebi, energy analyst and head of research at ARM Investment Managers, a leading Nigerian investment banking firm. “Nigeria is endowed with abundant energy resources, both conventional and renewable, which provide her with immense capacity to develop an effective national energy plan,” Mr Omosebi adds.

More solar
In line with the government’s desire to have 25 percent of Nigeria’s power mix be via renewables by 2019 and about 40 percent by 2030, more than $20 billion of solar power projects are either planned or under construction. There is the $479 million 300MW Shiroro Solar Power project on the grounds of the Shiroro hydroelectric dam in northcentral Nigeria, and the $5 billion 3,000MW utility-scale solar photovoltaic (PV) projects by SkyPower and FAS Energy in Delta State in the Niger Delta region. In collaboration with Arrow Capital, an American firm, the University of Ilorin, located in the country’s middle-belt, is also constructing a 500MW solar power plant at a cost of $2.3 billion. Another is the $1 billion 1,000MW FirstGate solar power farm in Kogi State in northcentral Nigeria. There are numerous other projects on a smaller scale.

“Solar is a major renewable energy resource in Nigeria from a geographical perspective, and consensus projects that Nigeria has the potential to generate 600,000MW by deploying Solar PV panels from just 1% of Nigeria’s land mass,” says ARM’s Omosebi. “The high level of solar radiation in the northern part of Nigeria makes it easy to utilize solar power generation in the northern part of the country to steadily increase the power generation capacity in Nigeria.”

Regulation
The regulatory environment for renewable energy in Nigeria is favourable. And judging from the number of ongoing solar power projects, investors think so too. ARM’s Omosebi explains the specifics: “In terms of policies, [the] Nigerian Electricity Regulatory Commission (NERC) has recently issued a Regulation on Feed in Tariff for Renewable Energy Sourced Electricity in Nigeria (REFIT Regulations) passed in December 2015, which provides for the tariff framework for renewables…The REFIT Regulations indicate that the government has set an on-grid target for solar renewable generation of 380MW by 2018. This means that there is a deliberate drive by the government to ramp up electricity generation from solar sources.”

Hydro still main renewable focus
But for sometimes unpredictable and meagre rains, hydropower has proved reliable. Large dam projects can sometimes be unwieldy and take too long to complete, however. One such project is the longsuffering 3,050MW Mambilla hydropower project in northeastern Nigeria; besieged by corruption hitherto. Now underway with a Chinese contractor, the $5.792 billion project is expected to be ready by 2023, if all goes according to plan. Other ongoing hydropower projects include 40MW in Kashibila, 30MW in Gurara, 700MW in Zungeru, and 29MW in Dadin Kowa. Wind power has not enjoyed as much enthusiasm, however. That relative to solar power, wind power systems require greater maintenance and are not so practical for residential use, are some reasons why. In this regard, there is only one major project: the 10MW Katsina Wind Farm in Rimi Village in northwestern Nigeria.

Make cheaper
Still, “renewable, except hydro, today can’t replace other sources of energy due to [the] intermittent [nature] and the high cost of storage. Storage will become cheaper but it’s not clear when wind and solar will serve as real alternatives both in terms of the amount of power available and the cost. It is also not clear that it will be able to properly serve dense urban areas without some form of grid, since the roof space per person is small you will need the solar panels or wind farms to be away from the households that they are serving,” says an experienced investor in the power sector. Yet judging from the trends thus far, solar power is likely to increasingly gain traction. Off-grid solar power would be a challenge in urban areas, however. But as it is ideal for rural and agricultural communities, it would free up the grid to serve more power-hungry urban areas via other power sources; which although not environment-friendly, would not be as harmful as less power would be needed from them. With government regulation in place, what would really drive renewable power sources like solar in Nigeria and elsewhere is if it becomes cheaper than other sources.

An edited version was published by African Business magazine in October 2018

Also published in my BusinessDay Nigeria newspaper column (Tuesdays). See link viz. https://www.businessdayonline.com/columnist/rafiq-raji/article/renewable-power-nigeria-progress-report/

#Africa #Markets | 20 Nov

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

Global Markets

  • Stock markets tumble on tech sell-off, dollar sags
  • MSCI Asia-Pacific index down 0.9 pct, Nikkei sheds 0.85 pct
  • Tech shares fall, tracking losses by Wall St peers
  • Dollar sags after weak US housing-related data
  • Long-term US yields hover near 7-wk lows

Oil Markets

  • Oil treads water amid expected OPEC cuts, gloomy economic outlook
  • OPEC, allies to meet on Dec. 6 to discuss supply cuts
  • Cuts would counter demand slowdown, surge in US output
  • IEA warns of “negative implications” of supply cuts
  • Cautious investors have pulled large investments out of oil
  • Brent crude futures down 4 cents at $66.75 per barrel (0250GMT)
  • US WTI crude futures down 6 cents at $57.14 per barrel

Precious metals

  • Gold prices steady amid softer dollar
  • Spot gold down 0.1 pct at $1,222.71 per ounce (0117GMT)
  • US gold futures down 0.2 pct at $1,223.5 per ounce

Grains

  • Soybeans edge higher, US-China trade war anxiety curbs gains
  • Most active CBOT wheat futures down 0.3 pct at $4.97 per bushel (0137GMT)
  • Most active corn futures up 0.1 pct at $3.62-1/2 per bushel
  • Most active soy futures up 0.1 pct at $8.74-1/4 per bushel
  • Most active rice futures unchanged at $10.77 per hundredweight

Key African events or data releases today
[Posts & comments at my Twitter handle @DrRafiqRaji]

  • South Africa’s state capture inquiry continues; Gordhan to continue testimony
  • Public holiday in Nigeria

Key African events or data releases yesterday & early a.m today
[Posted & commented on some headlines below at my Twitter handle @DrRafiqRaji]

  • Africa Crude – Angolan January programme emerges; no sign of Nigerian plans
  • Soccer-Spain, Portugal propose 2030 World Cup bid with Morocco – PM
  • South African opposition wants payments to Ramaphosa campaign fund investigated
  • US Treasury places sanctions on Libyan Islamist commander Badi
  • US sanctions South African for helping North Korea acquire oil
  • Kenya bans charity Marie Stopes from providing abortion services
  • Congo spy agency informant, army colonel deny role in UN experts’ killing
  • Mali singer Salif Keita highlights plight of African albinos
  • South Africa’s Naspers sees higher first-half core headline profit
  • Portugal, Morocco to invite bids for power link after studies in 2019
  • IMF says optimism in South Africa’s economic recovery fading
  • Egypt sells $1.7 bln worth of dollar t-bills – central bank
  • Mali to produce lithium by 2020 with 694,000 T discovered
  • Nigeria’s Abubakar promises to boost oil investment, cut subsidies if elected
  • Union to strike at Sibanye-Stillwater’s South African gold operations
  • Nigeria opposition’s Abubakar says to invest $90 bln annually on infrastructure – election manifesto
  • Uganda shilling firmer, helped by remittance inflows
  • Zimbabwe to let gold, platinum mines retain higher dollar earnings
  • South Africa’s Barloworld in talks to buy a Caterpillar business
  • Kenyan shilling inches up against the dollar
  • Kenyan logistics start-up Sendy plans second fundraising
  • Zimbabwe allows gold mining firms to retain 55 pct of dollar earnings
  • South Africa’s Netcare to pay special dividend, FY earnings inch up
  • South Africa’s Astral Foods FY profit soars 88 pct
  • South Africa’s Barloworld FY profit jumps on strong Russian business

N.B. Full stories of above headlines are available on Reuters

#Global #Markets | 20 Nov

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

(GMT+1)

CALENDAR
07:30 France Unemployment Rate 
08:00 Germany PPI MoM 
08:00 Switzerland Balance of Trade 
09:20 Australia RBA Gov Lowe Speech 
11:00 UK BoE Gov Carney Speech 
11:00 UK BoE Inflation Report Hearings 
12:00 UK CBI Industrial Trends Orders 
14:00 Russia Unemployment Rate 
14:30 US Housing Starts 
14:30 US Building Permits 
14:30 US Building Permits MoM 
14:30 US Housing Starts MoM 
18:00 Canada BoC Wilkins Speech 
22:30 US API Crude Oil Stock Change
NEWS
Thailand Total Vehicle Sales Surge 26.8% YoY in October 
No Strong Case for a Near-Term Rate Adjustment: RBA 
US Stocks Plunge on Monday 
European Shares Close Lower 
Brunei Trade Surplus Widens Sharply in August 
Tunisia Industrial Output Falls the Most in 7 Months 
Mozambique Annual GDP Growth Slows to 3.2% in Q3 
Sterling Volatile Ahead of EU Summit 
Slovak Current Account Surplus Widens in September 
Israel Manufacturing Activity Growth at 3-Month High 
Chile Posts Biggest Current Account Gap in 5 Years 
Chile GDP Grows 2.8% YoY in Q3, Lowest in a Year 
Albania Trade Gap Narrows 14.1% YoY in October 
Italy Posts Smallest Current Account Surplus in 4 Months

Source: Trading Economics, Macroafricaintel Research

macroafricaintel Weekly | 19 Nov

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

Click here for PDF version

Date Data / Event Period Forecast Previous
21 Nov South Africa CPI, % yy (mm) Oct 2018 5.0 (0.4) 4.9 (0.5)
22 Nov Nigeria CPI, % yy (mm) Oct 2018 11.5 (1.0) 11.3 (0.8)
22 Nov Nigeria Policy Rate, % 14.0 14.0
23 Nov South Africa Policy Rate, % 6.5 6.5
23/26 Nov Ghana Policy Rate, % 17.0 17.0

#Africa #Markets | 19 Nov

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

Global Markets

  • Asia shares inch up, Fed caution curbs dollar
  • Nikkei up 0.4 pct, but US stock futures slip
  • Mixed signals on prospect of Sino-US trade thaw
  • Dollar subdued as Fed talks about global risks
  • Oil prices recoup some losses on chance of output cut

Oil Markets

  • Oil rises on expected OPEC cut, but markets remain wary
  • US oil drilling points to more output
  • Brent crude oil futures up 0.8 pct at $67.29 per barrel (0045GMT)
  • US WTI crude futures up 1.1 pct at $57.07 per barrel

Precious metals

  • Gold prices hold steady amid subdued dollar
  • Spot gold up about 0.1 pct at $1,222.14 per ounce (0111GMT)
  • US gold futures flat at $1,222.8 per ounce

Grains

  • Soybean prices drop as US-China trade friction mounts
  • Most active CBOT wheat futures down 0.1 pct at $5.06-1/4 per bushel (0155GMT)
  • Most active corn futures unchanged at $3.64-3/4 per bushel
  • Most active soy futures down 0.3 pct at $8.90 per bushel
  • Most active rice futures unchanged at $10.89 per hundredweight

Key African events or data releases today
[Posts & comments at my Twitter handle @DrRafiqRaji]

  • South Africa’s state capture inquiry resumes today; enterprise minister Gordhan to testify
  • Nigeria’s leading opposition presidential aspirant Abubakar to present policy document today; incumbent Buhari did same yesterday

Key African events or data releases over the weekend & early a.m today
[Posted & commented on some headlines below at my Twitter handle @DrRafiqRaji]

  • Nigeria’s Buhari launches re-election bid with corruption still in focus
  • South Africa’s Eskom cuts 1,000MW of power from grid on Sunday
  • Nigeria in talks with South Africa’s Transnet for railway concession
  • Central African war crime suspect “Rambo” handed to global court
  • Egypt and Ethiopia to discuss Nile dam dispute – PM
  • Remittances from Egyptians abroad rise 20.4 pct y/y in Sept – c.bank
  • Egypt’s Pioneers Holding makes bid for Electro Cable Egypt
  • World Bank re-engages Tanzania on scrapped education plan
  • Two ex-leaders look set for second round in Madagascar presidential poll
  • Soccer-Nigeria seal Nations Cup place with draw in South Africa
  • Over 40 killed in attack in refugee base in Central African Republic
  • Soccer-Salah scores late winner for Egypt, Morocco sink Cameroon
  • Mortar bombs fired at UN peacekeeping base in eastern Congo
  • Morocco’s Mutandis launches IPO to raise 400 mln dirhams in Casablanca
  • Twelve Congolese soldiers killed in clashes this week in ebola-hit east
  • Number of hungry children in Africa’s Sahel hits 10-yr high
  • Africa Crude – Traders await January programmes
  • At least 42 dead as flames gut bus in Zimbabwe
  • Barrick Gold aims to boost dividend in future – incoming CFO
  • Nigerian millenials fuel domestic tourism
  • Algeria shelves subsidy reforms before presidential elections
  • Uganda shilling little changed amid thin importer demand
  • Invasive trees targeted by new South Africa anti-drought fund
  • Tractor maker Deere aims to ride green revolution in Africa
  • South Africa’s Eskom revises coal contract strategy, seeks supply security
  • Kenya central bank upholds fines against lenders for suspect transactions
  • Kenya shilling weakens on energy sector demand, stays at 10-mth low

N.B. Full stories of above headlines are available on Reuters

#Global #Markets | 19 Nov

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

(GMT+1)

CALENDAR
10:00 Poland Employment Growth YoY 
11:00 Euro Area Construction Output YoY 
16:00 US NAHB Housing Market Index 
16:45 US Fed Williams Speech 
16:45 US Fed Williams Speech 
01:30 Australia RBA Meeting Minutes 
07:30 France Unemployment Rate 
08:00 Germany PPI MoM 
08:00 Switzerland Balance of Trade 
09:20 Australia RBA Gov Lowe Speech 
11:00 UK BoE Gov Carney Speech 
11:00 UK BoE Inflation Report Hearings 
12:00 UK CBI Industrial Trends Orders 
14:00 Russia Unemployment Rate
NEWS
Thailand Quarterly GDP Stagnates in Q3 
Thailand Q3 GDP Annual Growth Weakest in 7 Quarters 
Japan Trade Balance Shifts to Gap in October 
New Zealand Producer Input Prices Rise 1.4% QoQ in Q3 
New Zealand Services PMI at 5-Month High 
Israel GDP Grows 2.3% in Q3 
Panama Inflation Rate Climbs to 1.0% YoY 
Panama Economic Activity Growth Climbs to 5-Month High 
US Stocks Close Mixed on Friday 
US Foreigners Sell Treasuries in September 
Colombia Consumer Sentiment at 7-Month Low 
US Industrial Output Growth Weaker than Expected 
Canada Foreign Stock Investment Above Estimates 
Russia Industrial Output Growth Beats Forecasts

Source: Trading Economics, Macroafricaintel Research

macroafricaintel | Banks in West Africa: Struggling amid tighter regulatory grip

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

Banks in West Africa have been in the news for the wrong reasons lately. In Nigeria, four banks, of which three have foreign affiliations, namely Standard Chartered, Citibank and Stanbic IBTC Bank and Diamond Bank, were in total fined 5.65 billion naira by the Central Bank of Nigeria (CBN) for illegally facilitating the transfer abroad of $8.134 billion for MTN, a South African telecoms firm. The Nigerian central bank has also increased its scrutiny of some of the practices of banks that are clearly exploitative. In September, for instance, it instituted a fine for erring banks that fail to reverse failed electronic transfer transactions within 24 hours. In neighbouring Ghana, five banks, namely Unibank, Sovereign Bank, Construction Bank, Beige Bank, and Royal Bank, failed and had their licenses revoked by the Bank of Ghana, the central bank, in early August. The failures were largely due to weak corporate governance systems, with widespread fraud and insider dealings alleged. In Unibank, for instance, hitherto Ghana’s sixth largest bank, directors and their associates availed themselves of depositors’ funds to the tune of $1.1 billion, according to the BoG. Consolidation Bank Ghana, a resolution vehicle set up by the Bank of Ghana, to assume the assets and liabilities of the failed banks, is believed to be adequate to prevent a crisis, however. Stringent punitive measures against the directors of the failed banks are also expected. Nonetheless, poor banking supervision by the BoG is also a reason why the banks failed. That said, remedial measures by the central bank have proved to be effective. S&P Global Ratings, a rating agency, seems to think so, at least. In September, it raised Ghana’s sovereign rating to B from B- in part because it assessed the country’s banking sector to be largely stable. Regardless, there is a general lack of confidence by Ghanaians in the banking sector at the moment. It is also important to note the continued divide in the banking sectors of anglophone and francophone countries. “In West Africa generally, there continues to remain a deep divide between the banking systems in English and French West Africa,” says Andrew Nevin, chief economist at PwC, a consultancy, in Lagos. “Apart from Ecobank – a truly pan-Sub-Saharan African bank, the players are different in the 2 regions, and certainly, English-speaking banks have not had great success when they entered Francophone markets,” he adds.

De-risking, increased mobile banking, and tighter regulations
So what are the notable banking industry trends in the region over the past year, especially in Nigeria, Ghana, and Ivory Coast? “We have noted three trends,” says George Bodo, head of banking research at Ecobank, a pan-African bank, in London. First, we have generally seen a balance sheet de-risking trend in West Africa, where banks, in Ghana, Nigeria and UEMOA, increased the pace at which they purchased Central Government debt compared to lending to the real economy. In 2017, the share of Central Government debt to total banking sector assets rose sharply by 400bps y-o-y to 21%. In the same period, the share of customer loans rose by 200bps y-o-y. This is largely a risk-off trend informed by the elevation in credit risks (as gross NPL ratio rose to 16% in 2017, from 11% in 2015).”

“Second, there is an increasing adoption of mobile phone as a distribution channel-especially in Ghana and UEMOA. In Ghana, the value of mobile money transactions (primarily deposits and withdrawals) hit USD35bn in 2017, from USD18bn in 2016. In UEMOA, the value of mobile money transactions hit USD21bn in 2016, a sharp growth from the USD2.9bn transacted in 2013.”

“Finally, regulations seem to be tightening. In Ghana, commercial banks have until end of 2018 to increase their minimum fully paid-up share capital to a new regime of GH¢400mn (from GH¢120mn). In UEMOA, the regional central bank, BCEAO, has, effective January 1, 2018, rolled out a mix of Basel II and III inspired regulatory reforms. Some of the key reforms include: (i) introduction of operational and market risks in the calculation of risk-weighted assets; (ii) a capital conservation buffer surcharge – mainly 2.5% surcharge of core capital; (iii) a reduction in the single large exposure limit to 25% of core capital; and (iv) regulation and supervision of financial holding companies on a consolidated basis by the BCEAO and the Banking Commission.”

PwC’s Nevin provides additonal views on the Ghanaian banking sector: “With respect to Ghana, the number of banks was very high in a small market and it is not surprising there is a consolidation. The costs of banking technology – particularly with the Fintech challenge – and the increasing demands of regulatory compliance mean that small banks are going to be more and more uncompetitive. In the Ghana market, you have Ghana Commercial Bank as a huge player, and a number of very successful African Banks (GT, Ecobank, UBA, Absa for example). So it is not a surprise that small, poorly capitalized players cannot survive. The Bank of Ghana is doing an excellent job of resolving these banks and making sure the banking system in Ghana is robust.”

QE to the rescue?
And how does Ecobank’s Bodo see the banking industry in the region evolving over the next year or so; especially in the key countries Nigeria, Ghana, and Ivory Coast? “In Ghana and UEMOA, we are anticipating increased partnerships between traditional banks and mobile network operators (MNOs) especially in regards to liability mobilization. In Nigeria, we still anticipate increased risk-off liquidity deployment strategies.” How so? “In 2017, banks bought FGN-issued debt securities worth NGN245bn, while only lending NGN183.6bn to the real economy. This kind of asset allocation was bound to concern the CBN. However, we broadly believe that for balance sheets to grow, banks have to move up the risk curve. But this risk spectrum, which holds the right price incentives, still lacks the right ingredients that banks are looking for.” To push them along, the CBN announced a number of stimulus measures in August. It offered to release some of the funds kept by banks with it as reserves for lending to agricultural and manufacturing firms at the single-digit rate of 9 percent. Additionally, it offered to buy long-tenored bonds of corporates that demonstrate their activities would create jobs. But would these be enough to nudge the banks towards more lending to the real sector? Ecobank’s Bodo is sceptical: “CBN’s direct intervention in deposit intermediation will still not avail the ingredients.”

Innovate, innovate, innovate
“In the [Nigerian] banking sector, the environment remains very challenging. The uplift in oil prices has taken some pressure off non-performing loans in the oil & gas sector (but not the power sector). [And] there continues to be a widening gap between the major banks and the middle-tier banks in terms of return on equity and cost-to-income ratios. [Therefore,] middle-tier banks will need to find distinctive strategies to create value because if they do what other banks do, they will not earn adequate returns,” says PwC’s Nevin. Besides, banks all over the world and indeed Africa, are facing disruptions from new technologies at the behest of industry outsiders. At their current pace, financial technology companies could easily displace banks in the very near future. For the Nigerian experience, PwC’s Nevin provides some perspective: “all [Nigerian] banks (even the top tier banks) are challenged by FinTechs and they need to create new, innovative products if they want to appeal to a very young, connected population in Nigeria. FinTechs are very strong in the payment space – Interswitch, Paga, [and] Flutterwave, [for example] – and are increasingly strong in the consumer credit market. There are also new players trying to create savings vehicles for retail clients. The banks carry significant legacy costs and the FinTechs will find ways to take revenue at a much lower cost.” Clearly, short of innovation, banks in Nigeria and broader West African region, might find the times even more challenging yet.

An edited version was published in the Q4-2018 issue of African Banker magazine