Research and Analytics
Research and Analytics
Following the recent wave of reform-led sentiment upgrades and positive outlook revisions on Nigeria’s economy by leading global institutions and credit rating agencies, Nigerian Eurobonds have seen a notable rebound in investor interest. This renewed momentum is particularly visible on the short end of the curve, where market participants are finding favorable entry points supported […]
The rapid growth and innovation within the Nigerian Fintech industry have transformed the financial landscape and presented unique and complex tax challenges. As Fintech companies continue to disrupt traditional financial services and expand their operations, navigating the evolving taxation landscape has become critical. The growth and competition within the payment gateway industry, as exemplified by companies like Flutterwave, Paystack, Remita, Interswitch, and others, are truly remarkable to witness. As reported by the Central Bank of Nigeria (CBN), E-payment transactions in 2022 reached an impressive volume of 22 billion. At the same time, data from the Nigeria Inter-Bank Settlement Systems (NIBSS) shows that electronic transactions amounting to ₦38.9 trillion were conducted through the NIBSS Instant Payment platform (NIP) as of November 2022 (+50.2% vs November 2021: ₦25.9 trillion). This is a testament to the robust expansion of the Fintech sector in Nigeria, attracting policymakers in terms of supporting their growth and boosting tax collections from the sector. We will delve into the problems and obstacles at hand, while also exploring potential solutions for the way forward.
In Q4-2022, Nigeria’s external position improved, as the current account returned to a surplus position, primarily propelled by a higher trade balance surplus and reduced shortfalls in the services and primary income accounts. Specifically, the current account balance attained a surplus of $2.3 billion, a significant turnaround from the $2.1 billion deficit recorded in Q3-2022.
In the second part of two articles, Abdulmajid discusses the global effects of aggressive monetary policy, in Africa, the EU, and the United States. In addition, He highlights a few analyst recommendations and the potential repercussions of those recommendations.
The Federal Reserve Bank of the United States of America, also referred to as “The Federal Reserve” or “The Fed” or “The U.S. Fed,” has an almost monopolistic influence on the functioning and operation of global economies. Due to the U.S. dollar’s status as the World Reserve Currency (WRC) and the currency of choice (or circumstance) for international trade and commerce. The Federal Reserve, which is the apex bank of the world’s largest economy, serves almost as the de facto central bank for the rest of the world, and as such, decisions made within its walls ripple through the halls of other central banks and international/continental financial institutions.
In the first of two pieces on this subject, I will make an effort to present a clear and short explanation of what monetary policy is, how the Federal Reserve has worked to rein in inflation in a manner that is consistent with the objectives that it has articulated, and how inflation is proving to be structural in the economies of the United States and the rest of the world.
Prior to its failure, FRB was a California-based lender that served wealthy Americans with low-rate mortgages in exchange for cash, much as SVB, which catered to technology firms. However, things changed when the Federal Reserve (the Fed), started raising the benchmark interest rate in 2022 in response to escalating inflationary pressures in the world’s largest economy. Notably, the Fed increased the key policy rate by a cumulative 425bps in 2022, with rates now at their highest level since 2008. FRB’s assets suffered losses as a result, as did customer deposits, and the bank’s reputation was damaged.
According to the National Bureau of Statistics (NBS), Nigeria’s Gross Domestic Product (GDP) rose by 3.54% y/y in real terms in the second quarter of 2022 (Q2-2022). This shows that the economy expanded in Q2-2022 by 0.44% when compared to the 3.11% y/y recorded in the preceding quarter (Q1-2022) as the non-oil sector remains the key driver of growth. Similarly, this outturn represents an economic expansion on a year-on-year basis, albeit at a slower rate when compared to Q1-2021 (5.01% y/y) as the growth rate declined by 1.47%.
An examination of the NBS inflation data shows that this is the highest since September 2005 when the inflation rate hit 24.32% year-on-year. On a month-on-month basis, the headline inflation rose by 1.82% in July 2022. This is the same as the rate recorded in June 2022 (1.82% m/m). In our view, higher energy prices and continued depreciation of the local currency against the US Dollar were the key drivers behind this uptick.
Nigeria’s population exploded from 60 million at independence – 1960, to 150m in 2010. Currently, Nigeria has a population of 206 million, growing at a 2.67% annual CAGR. Meanwhile, Nigeria’s food production index (normalized to 100), currently at 107, is a 2.10% annual CAGR between 2007 and 2020.
We expect headline inflation to continue its upward trend in the coming months due to the supply disruptions that have ensued from the conflict in Eastern Europe which has left a mark on the local economy, given Nigeria’s dependency on imported energy and food. These factors will consequently lead to an uptick in the prices of goods and services. Also, FX pressures in the FX market will further fuel inflation expectations.
On the policy end, there is the possibility of an upward adjustment in the Monetary Policy Rate (MPR), in an attempt to keep the net foreign flows positive and also signal the monetary authority’s concern regarding inflation. However, the CBN could continue its current stance by judging that Nigeria’s inflation has a different set of drivers and as such may not respond to monetary policy decisions. Hence, we think the CBN would call on the fiscal authorities to address the structural impediments to food supply to contain higher prices. Therefore, we expect that at the next monetary policy committee meeting, the committee will hold the benchmark interest rate constant at 11.50% in order to continue to maintain post-covid economic recovery.
