Dear Subscriber,
Equities sizzle likely to fizzle
2024 started with a stellar performance at the Nigerian Equities market. It has gained more than 24% in 19 days. However, the sizzle is likely to fizzle, as most investors believe that this is an asset bubble that is waiting to be deflated in no time. On the policy front, the 2024 budget was approved by the president on December 31, 2023. The fiscal discipline of budget punctuality is commendable.
Numerous black eyes
Inspite of this fiscal discipline, there are numerous challenges and black eyes. The most potent being the incessant insecurity risks currently ravaging the country. 19 days into the year 2024, and over 5 cases of kidnappings have happened in Abuja alone, with a catastrophic explosion in Ibadan. While Nigerians squeeze their already slim wallets to support their fellow “man” by either contributing to ransom requests or aid, the government, state and federal, seems lukewarm to the events.
Inflation risks mount
Still, insecurity cannot be overlooked for a country already dealing with spiralling inflation at 28.92%, painfully above the CBN’s target of 6-9% and growth retarding. More worrisome is the increase in food insecurity lurking for households and a tough operating environment deepening for businesses. Food inflation is up 33.99% as of December 2023, with at least 71 million people living in extreme poverty as the recent reforms bite.
Sadly, inflationary pressures are unlikely to abate soon as the recent global upheaval with Houthi rebels at the Red Sea—a major shipping route—worsens. The Red Sea and Suez Canal handle around 12% of global trade, which the IMF expects to rebound by 3.5% in 2024. Nigeria is heavily reliant on the Red Sea route for crude oil exports to Asia and Europe, which account for 81% of trade volumes. Essentially, the tensions heighten the risk of lower dollar inflows and oil earnings.
Although inflation has continued the upward trend despite previous MPC meetings, the CBN has yet to schedule a date for the January meeting, raising additional concerns about monetary policy direction. Thus, the naira has remained under pressure, crashing to an all-time low of N1,365/$, despite the CBN’s effort to clear the forex backlog.
A few bright spots
The Dangote refinery has started production, improving prospects for the supply of refined petroleum. Moreso, global oil prices are expected to maintain a bullish run, likely supporting government revenue in the near term as domestic oil production gradually rebounds. Nigeria’s oil production increased by 7.58% to 1.42 mbpd in December 2023.
In this latest edition of FDC Whispers, the Think Tank analyses these recent economic shifts, shedding light on what lies ahead for Nigeria in the coming weeks.
Enjoy your read!
