Dear Subscriber,
The quadrangular impact of the Trump win on Nigeria
In the month of April 1968 in the city of Birmingham, England, the angry, eloquent, demagogue politician (Enoch Powell) made his historical speech titled The RIVERS OF BLOOD. In a nutshell, he said to an extremely intolerant British populace that the cause of their problems was immigrants from the commonwealth nations.
“AS I LOOK AHEAD, I AM FILLED WITH FOREBODING; LIKE THE ROMAN, I SEEM TO SEE THE RIVER TIBER FOAMING WITH MUCH BLOOD”.
This speech set the tone for the sweeping away of the Labour Party from power in the next election and brought the right-wing Tory Party led by Ted Heath to Downing Street.
Donald Trump seized the opportunity to exploit the vulnerability of the public. The lesson here is that those in power must never underestimate the importance of time lags between policy measures and impact. The politicians can only bridge this gap with credibility and building of public trust.
An election like no other
This is the most consequential election for the World’s largest economy and the rest of the World. We expect a massive impact across markets people and societies.
For Nigeria and other developing economies, the impact is four-dimensional immigration, climate change, trade, and geopolitical. Nigeria has been non-aligned in geopolitical terms, it has not benefited immensely from trade flows but has gained from international banking credit. On immigration, Nigeria’s diaspora has been a source of workers’ remittances which peaked at approximately $24bn a few years back.
Time lags can be deadly
Therefore, the big lesson here is that the emphasis should be on a resilient domestic economy. Failure to do so will reinforce the stereotypes of a sh*tthole country where young people are emigrating in droves and remitting cashback. The Japa syndrome will become a reverse migration. For Nigerian leaders, this is a wake-up call for economic reinvigoration.
The Naira may strengthen in January
The key issues that need urgent attention, most notably, is the exchange rate determination mechanism. There is no economic justification for the naira to be trading at less than 30% of its fair value in less than twelve months. We strongly believe that the naira will recover some of its losses in January 2025 for four simple reasons:
- The differential between the parallel market and the official market rate has virtually disappeared. This was responsible for a minimum of 30% of the value erosion due to speculative roundtripping
- The supply of dollars into the market, which is a function of oil production and prices.
- The CBN should and we believe will announce a programme of dollar sales to the market similar to the T/Bill auction. This will help reduce market uncertainty.
- The forex market structure to be more transparent
The exchange rate is the major cause of inflation in Nigeria, a partial recovery of the naira will not only help reduce inflation but will curb money supply saturation in the money market.
November outlook & the Xmas fear
In the coming weeks leading up to Christmas, we expect that Brent will trade at $70pb as Chinese demand concerns worsen, threatening government revenue. Nigeria’s inflation could increase to 34% on lingering exchange rate depreciation and higher food and energy costs. As a result, the Q3’24 GDP numbers will be 3%, softer than the 3.2% recorded in the previous quarter.
The MPC is likely to maintain the status quo to allow policy effects to manifest, but the October inflation data, to be released on November 15, will solidify or alter this position. We expect the FG to issue a Eurobond ($2bn) to meet its financial obligations and support the naira. Considering the uncertain economic climate, the stock market will likely lose 10% of its value heading into Q1’25, especially as more corporates, including commercial banks, strive to recapitalise.
In this edition of the LBS Breakfast Session, Bismarck Rewane and the FDC Think Tank analyse these issues and more, spotlighting their implications for households, businesses, and investors.
Enjoy your read!
