Dear Subscriber,

There is no such thing as a free lunch! – How to eat your cake & keep some

It is clear that it was not for nothing that Prof. Milton Friedman titled his 1975 iconic essay on public policy, “There is no such thing as a free lunch.” Public policy usually involves tradeoffs between unpleasant choices, meaning “you’re damned if you do, damned if you don’t.” Restrictive monetary policy to curb inflation can put the brakes on economic expansion, while aggressive fiscal stimulants may lead to runaway inflation.

365 days after, Honeymoon or Nightmare – Naira rising, but for how long?

Nigeria has witnessed a paradigm shift under a new fiscal and monetary policy regime. Critics have often said there was no coordination between monetary and fiscal policy, but it appears that effective policy sequencing is now required. Whilst monetary policies are indeed meant to address short-term macroeconomic challenges, medium to long-term goals are usually addressed through fiscal measures. The cheery news is that this is currently being done.

Following the presidential swearing-in on May 29, two major pillars of the economic reform agenda were heralded as the peak of the political honeymoon. One year later, the question on the lips of most consumers is whether there was a honeymoon or a nightmare. The good news is that the naira has strengthened by 22% in two months, but many investors are worried about the sustainability of the trend. Some fear it may be a “up quick and down quick.” Our view is that as long as interest rates remain at current high levels, the naira will be stable in the N1300/$-N1350/$ range. The CBN is increasing supply to the BDCs at N1,250/$, but that market is quite shallow.

What next in Q2’24? – The road ahead is rough, but there is some promise

It is important to emphasize that the benefits from the global economic rebound will take time to spill over into Nigeria, though the recent policy moves may quicken the pace. Expectedly, inflation will increase, but at a slower pace to 32% in March due to base effects. The conversation around the minimum wage will continue and is estimated to be N95,000 ($73) from N30,000 ($75 in 2019). Economic growth is expected to remain constrained due to high-interest rates and uncertainty.

In its one-year anniversary speech, the administration will attempt to walk a thin line between assuaging the cost-of-living pressures and keeping a lid on the fiscal expenditure of government. This delicate balancing act at a time of keeping Nigeria’s anxious creditors happy and its impact on your business, investment & strategy are the key issues discussed at the LBS breakfast session by Bismarck Rewane. It is not a coincidence that Prof. Milton Friedman said there was no such thing as a free lunch, while others may conclude that you cannot make Omelettes without breaking eggs.

Enjoy your read!