Nigeria’s 2022 Economic Outlook: A Mix of Boom and Gloom (Webinar highlights)
On Wednesday 26th January 2022, Afrinvest released the Nigeria Economic and Financial Market 2021 Review and 2022 Outlook report titled, “A Mix of Boom and Gloom.”
During the presentation webinar, our economic experts addressed a lot of questions, ranging from cryptocurrencies, Dangote Refinery, Eurobonds to Central Bank Digital Currency (CBDCs).
Below are answers to some of the pertinent questions that were raised.
What do you think about Cryptocurrencies?
We believe blockchain and cryptocurrencies will be here for longer and perhaps, may significantly alter the future of finance. It has its benefits which include speed, lower transaction cost and security. However, the use of cryptocurrencies for illicit transactions remains a key concern for governments globally. One could argue that fiat currencies have always been used for similar purposes historically. We think the fast adoption of cryptocurrencies across the world would be aided by how smooth regulations can be put around its use and we expect regulation for cryptocurrency to pick momentum.
What is the expected capacity utilisation of the Dangote Refinery?
The 650,000 barrel per day Dangote refinery is expected to commence operation in Q3:2022 with about 83.0% capacity utilization. At its full capacity, the refinery can produce 50.0 million litres of PMS daily. Even at an 83.0% capacity utilization level, estimated PMS output per day (41.5 million litres) should be sufficient to meet the legitimate domestic demand put at 35 million litres per day in 2019 by the Ibe-Kachukwu led NNPC
Given higher interest rate expectations, what is your outlook for Eurobond?
The risk of a capital flow reversal in Emerging and Frontier Markets (EMs/FMs) in events of interest rate lift-off stems from;
1. Relative attractiveness of holding US debts for offshore investors
2. The impact of a stronger dollar on EMs/FMs currencies, and;
3. Greater risk of EMs/FMs default, higher cost of EMs/FMs rolling over their maturing dollar debt and heightened fiscal crisis in some EMs/FMs.
These factors could lead to bearish pressure on EMs/FMs Eurobond yields. We, however, believe that EMs/FMs would respond to higher interest rates by raising their policy rates. Albeit the success of this response in preventing capital flight would depend on country fundamentals and specific policy responses (like in the case of Nigeria, the need for better FX policies).
How would CBDC affect FX?
In the context of Nigeria, we believe the extent to which the e-Naira would affect the exchange rate is going to depend on its level of adoption for cross-border payments, most especially remittances. As we all know, access to FX can be challenging and transactions cost typically average around 3%. Since CBDCs and the e-Naira have lower transaction costs, a greater adoption by people for cross-border payments could potentially help stimulate remittances and FX inflows for the CBN to meet other FX obligations and manage the Naira.
In case you missed the presentation, you can read the watch the key highlights on YouTube.