LBS EXECUTIVE BREAKFAST SESSION – APRIL 2023 (Re: Global tremor but no contagion)

Dear Subscriber,

The late NBA star, Kobe Bryant, once said that if you are afraid to fail, then you are probably going to fail.

Yes, this quote is popular in motivational speeches. It is also useful when starting a business. But, when you think about the latest global financial scare, it applies.

Since the crisis of 2008/09, the world has continuously lived in the fear of another crisis happening. This is why sound financial systems were built with solid checks and balances. The ultimate goal is to have strong financial institutions with adequate shock absorbers. But in the last decade or two, no one saw or prepared for a war between Russia and Ukraine. Neither did anyone envision a pandemic with global lockdowns and trapped supply chains.

Jamie Dimon the CEO of JP Morgan Chase says the crisis is not over but will not be as bad as 2008. The difference between then and now is that, the previous crisis originated from asset quality deterioration and breakdown in corporate governance. But this time the crisis is due to liability duration gap and the fall in bond prices due to interest rate hikes. This created a solvency problem that spilled across regions.

Nigeria, today, mirrors this global macroeconomic picture, with only one difference—cash.

Cash crunch over, but effects linger

Similar to the global trend, the monetary policy committee increased rates to 18%p.a., also fueling recession fears in the country. More so, the chances of oil prices falling on a global slowdown and its attendant impact on Nigeria’s growth continues to hover around investor sentiments.

More important is that cash is trickling back into the economy as old notes remain valid till year-end. As of February 2023, currency in circulation fell by 70% to ₦982 billion from ₦3.3 trillion a year ago. More cash means rising demand as consumers are now financially equipped to purchase goods. While this could fuel inflation, the impact will be offset by an increase in output levels as businesses can also engage in transactions. The bad side, however, is that businesses are still reeling from the cash scarcity and it will take time for this to abate. In March, the Stanbic IBTC PMI fell further by 5.4% to 42.3 points, strengthening our position that growth in Q1’23 will slow to 1.25%.

It’s never over till it’s over

It seems like all is well in Nigeria. There’s cash, ATM queues are reduced, and the elections are over, somewhat. But it isn’t all too well. The lack of trust in the political system has grown even more, foreign airlines are threating to quit on trapped funds ($802mn), and flight tickets are 23% more expensive as IATA rate has been adjusted to N561/$ from N462/$. All these will tell on the economy in the near term.

We’ll keep watching and providing in-depth analysis of the global, regional and domestic economies. But, like they say “It is never over until the fat lady sings”.

For now, in the download, you can peruse the latest LBS Breakfast Session slides to see Bismarck Rewane’s view on these latest events and their likely implications on your businesses and wallets in the next four weeks.

Enjoy your read…