Q and A from the Proshare 2020 Review and 2021 Outlook Reports Launch

February 4, 2021/Proshare

by Proshare Research  

Image Credit: Proshare

On January 28, 2021, the Proshare 2020 Review Report titled “The Nigerian Capital Market Report 2020: Leveraging a Crisis” and the 2021 Economic Outlook Report titled “Goodbye 2020, Hello 2021, Understanding the Mega Trends of a Crucial Year for an Economy” were launched to give policy makers, companies, households and the investing public insights into the happenings in the Nigerian Capital Market, performance of key sectors and the trends likely to shape events in 2021.

Below are answers to some of the questions asked ahead of the launch, which we chose to make available for collective learning.

Q1: Is Crypto an asset to invest in considering the low-interest environment and for someone who wants to diversify from USD, funds placement, and stocks? 

Ans: First, in classifying investment classes, it should be noted that cryptocurrencies fall under collectibles and are not classified as assets.

Understandably, an individual would want to diversify his/her portfolio given the low yield environment in 2020 and 2021. However, when making such investment choices, an investor must understand his/her risk appetite. Having said that, cryptocurrencies are very volatile instruments which should be the target of spare cash the investor can afford to lose.

More on Blockchain & Cryptos HERE

 Q2: Diversification of the Economy was one of the major electoral promises of the current administration in 2015, particularly in Agriculture and the same campaign was made in the bid for reelection in 2019.

Given the above statement, coupled with the fact that Nigeria was a consuming nation before both election years and even to date, can we conclude that the Nigerian government has failed in that aspect? And is there a remedy whatsoever to redirect Nigeria from being a consumer to being a producer going into 2023 and even beyond and ultimately cease to be dependent on crude oil? 

Ans: There is no silver bullet solution to Nigeria’s productivity challenges. Some of the reforms necessary to revitalize Nigeria’s manufacturing sector have been implemented while others are underway.

Making Nigeria a productive economy requires a rejigging of the power sector, implementation of policies to attract the inflow of FDI, business-friendly environment, security, infrastructures, etc. Appropriate actions tailored toward these policies will bolster Nigeria’s productive base.

Q3: How can the naira’s weakness and its impact on inflation be handled in 2021 to protect the purchasing power of citizens? 

Ans: The twin problems of rising inflation and recession has limited the flexibility of the use of MPR in effecting changes to the economy. Furthermore, Nigeria’s weak fiscal structure has limited its finance of conditional cash transfers.

With that said, a peculiar way which the government has tried to help low-income earners is the exemption of low-income earners earning minimum wage or less from personal income tax. Furthermore, the government could help reduce the inflation rate by ensuring the security of farmer’s lives, improved farm produce storage and logistics and implementation of policies that could help expand production.

Q4: Is Nigeria ready for AfCFTA? If negative, how well are we prepared to catch-up with other African countries that have a competitive edge in their cost of production? This may be instructive to mitigate a situation whereby the country becomes another dumping ground for all kinds of products. 

Ans: Preparation is still underway to ensure that infrastructural, administrative, and logistic bottlenecks are properly addressed. To ensure Nigeria does not become a dumping ground, Nigeria products must become competitive i.e., favourable business climate, a revitalized power sector, functional infrastructure, and elimination of administrative clogs would help locally made goods become competitive.

Q5: What’s the implication of the Joe Biden presidency for oil price and the energy market in general 

Ans: Joe Biden’s presidency has both long-term and short-term implications on global demand and supply of oil. Biden is an advocate of a clean-energy agenda.

The United States is the world’s leading consumer of oil, its shift towards cleaner energy and electric vehicles will adversely hurt global oil demand in the long and short-run therefore reducing its price.

Furthermore, it is expected that President Biden will negotiate a new deal with Iran paving way for the lifting of some sanctions on the Iranian economy. The lift in the sanctions will cause a rise in Iran’s oil output which might lead to a decline in oil prices.

Q6: What changes do you think are necessary to improve the experience of foreign portfolio investors with regards to funds repatriation 

Ans: A major challenge as regards the hindrance in funds repatriation is Nigeria’s FX challenge. Policies aimed at encouraging FX inflow will help solve these crises e.g., the unification of the exchange rate will bolster investors’ confidence.

Read: FX Unification in Nigeria: Simple Thoughts, Tougher Mission

Q7: Given the sustained effects of the pandemic on the global commodity and financial markets as well as global aggregate demand and production, how do the National government fiscal focus and CBN monetary policy stance contribute to both national economic recovery and its resilience? 

Ans: The unprecedented economic turmoil caused by the pandemic has led to unorthodox policies by policymakers in different economies in addressing economic challenges. In response to the COVID pandemic, the Nigeria government approved some funds distributed to low-income earners unable to fend during the lockdown, a similar moratorium was given to all Federal Government funded loans issued by the Bank of Industry, Bank of Agriculture, and the Nigeria Export-Import Bank, etc.

On the other hand, some monetary policies implemented to help the economy stay afloat include CBN’s extension of a 1-year moratorium on principal repayments for CBN intervention facilities, the reduction of the interest rate on intervention loans from 9 percent to 5 percent, strengthening of the Loan to Deposit ratio policy (i.e., stepped up enforcement of directive to extend more credit to the private sector), creation of NGN50bn target credit facility for affected households and small and medium enterprises, granting regulatory forbearance to banks to restructure terms of facilities in affected sectors, improving FX supply to the CBN by directing oil companies and oil service companies to sell FX to the CBN rather than the Nigerian National Petroleum Corporation, additional NGN100bn intervention fund in healthcare loans to pharmaceutical companies and healthcare practitioners intending to expand/build capacity, etc.

It is argued that if some of these interventions had not been embarked on by the CBN, Nigeria’s contraction could have been worse.

Q8: What’s is the likely MPR forecast for this year? 

Ans: The MPR for 2021 will be shaped by numerous factors. The continuous rise in the inflation rate above the 6-9% target policy band could raise concerns and trigger the CBN to increase the MPR rate.  On the other hand, if the slowdown in economic activities worsens, the CBN might cut the MPR rate further to jumpstart growth.

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Q9: What is the resultant effect of the 2021 budget on the economy since more than half of the budget this year goes to infrastructure development? 

Ans: A breakdown of Nigeria’s 2021 approved budget shows that recurrent expenditure was put at N5.6trn with capital expenditure at N4.1trn and fiscal deficit at N5.2trn. Less than half of the budget was allocated for infrastructure development, a proper implementation of the budget would help reposition the Nigerian economy for improved growth in 2022. 

Q10: When will SEC resolve Oando Plc issues and other capital market issues out of court now that they have constituted their board?

Ans: To the best of our knowledge, the regulatory authorities are tackling the issue and will inform the investing public of the latest developments in due course. 

Q11: When is it likely that Nigeria comes out of recession? is there an established cycle for countries sliding into recession? 

Ans: Nigeria’s recovery from recession is predicated on numerous factors prominent of which is the quick dispensation of the coronavirus vaccine, oil price recovery, etc. A slow rate of vaccine distribution and a quick spread of the virus could cause a re-imposition of lockdowns which would hurt the economy. On the other hand, a quick dispensation of the vaccines and a slower rate of spread of the virus would pose no threat to the Nigerian economy. Also, fast recovery in oil prices imply that Nigeria could exit recession by Q2 2021. 

Q12: When is the AGM of  Zenith Bank PLC coming up? 

Ans: It is unknown for now when Zenith Bank Plc AGM would hold. However, it is expected that once their annual financials for 2020 is released, an AGM date would be set some time in Q2 2021. 

Q13: What is the latest news as regards Skye bank shares?
Any hope for the small investor shareholders whose share were affected. Can they recover part or all the share back?
 

Ans: Skye Bank was officially delisted on 21 August 2019 and no further clarification was made by the regulators (SEC, NSE and CBN). Nevertheless, standard practice suggests that all old shareholders may have lost their shares in the bank.   

Q14: Can we encourage public sector agencies or entities to get listed on the Nigerian Stock Exchange, as part of initiatives to lessen outright borrowing by the Government? 

Ans: Listing of public sector agencies or entities on the NSE helps in determining the value of a government-owned enterprise. Furthermore, it fosters accountability and transparency. The listing of government-owned companies quoted on the NSE would ensure that those companies comply with standards applicable to other companies listed on the stock exchange. Also, government-owned companies balance sheet is devoid of equities, therefore, listing on the stock market would be a good alternative to outright borrowing. 

Q15: How do we measure the impact of fintech in business and economic development? 

Ans: Fintech companies in Nigeria have been of utmost benefit to the ease of business transactions and economic development. Fintechs like Paystack, Pagatech provide payment solutions that help facilitate the ease of transactions. Their impact can be further be ascertained based on their contribution of the Finance & Insurance sector relative to GDP. 

Q16: What are the strategies required for Nigeria to be out of recession? 

Ans: Some of the policies include but are not limited to the following: strengthening its productive base, providing security, building a business-friendly climate to attract FDI, unifying its exchange rate, aggressive reforms on its infrastructures, etc. 

Q17: Despite the effort of the present government on diversification especially to agri-sector, the sectors are still rudimentary and inefficient what do you think is the way? 

Ans: Most Nigerian farmers are yet to fully optimize the use of technology in agriculture. Advanced devices and precision agriculture and robotic systems allow agriculture businesses to be more profitable, efficient, safer, and environmentally friendly. Therefore, there should be an aggressive investment in the use of technologies in agriculture and farmers should be taught the application of technology to bolster productivity. 

Q18: What do you suggest that the govt should do to ensure that the rising debt profile is curtailed? 

Ans: Nigeria can develop other sources of revenues e.g., partnering with the private sector to unlock and harness dead capital for wealth creation and economic growth, commercialize idle or under-utilized government-owned lands, and built structures by leasing (not selling) them, relocating uneconomic activities from prime locations and repurposing such locations for leasing to open new streams of lease/rental income into government coffers. 

Q19: What sectors would be critical to trigger positive growth in 2021? 

Ans: Sectors such as the ICT, Banking and the Agriculture sector. 

Q20: Why is the stock market on the upward swing in a country in recession with almost all the enterprises, both public and private, performing badly? What is driving this performance? 

Nigeria’s stock market does not necessarily mirror the overall performance of the economy. There was excess liquidity in the economy in 2020 which forced fixed income yields down. Due to the low-yield environment in the fixed income market, Nigeria investors found solace in the equities market, therefore increasing domestic investor’s participation. 

Reactions, Comments & Enquiries can be sent to research@proshareng.com

 

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