Investors optimistic on Nigeria’s economic outlook despite FX challenges

The Federal Government’s monetary reforms through the Central Bank of Nigeria (CBN) have been described as positive steps. Investors are optimistic about the country’s economic outlook, and they hold that the economy will regain its balance given adequate time, says SBG Securities, a member of Standard Bank Group.

In it’s recent investor note, made available to BusinessDay, SBG Securities cooled the fears of the investing public when it said that it had met with key stakeholders in the Nigerian economy and explained that it’s interactions with corporates pointed to positive believe of the private sector on government reforms.

“Overall our interactions corporates pointed to positive direction in government reforms in terms of addressing the currency liquidity concerns and clearing the FX backlog, touting recent CBN disbursement of outstanding forwards to some banks and regularisation of Open Market Operations (OMO),” it said.

The asset management company, which has a presence in more than four countries on the African continent, explained that investors’ belief not only comes from the CBN’s aggressive attempts to arrest the slump in the Nigerian naira but also from the federal government’s drive to “consolidate taxes at state and federal levels.”

SBG Securities added that the private sector was encouraged by the government’s deliberate and dedicated effort to stop the leakages in the oil sector. They maintained that this action could help buffer much-needed FX inflow into the system.

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“The committee on tax reforms aims to consolidate taxes at state and federal levels, and overall oil production is expected to improve as the government addresses the issue of theft at the terminals,” the company noted.

The asset management company continued, noting that companies have strategically implemented cost-cutting measures in response to heightened production costs due to FX scarcity and shifts in diesel prices. Simultaneously, these companies also found themselves needing to support their staff during this challenging period.

A few of these companies had to offer perks, such as providing transportation or increasing their employees’ salaries—a commendable action, SBG said.

“Companies indicated that they expect inflationary pressure to also impact consumption next year and for the currency to depreciate further, which creates margin pressure.”