Investors have been urged to put a watch on inflation, interest rate and other key macroeconomic indicators, in their investment decisions in the year 2020.
“Inflation will be a key variable to watch in 2020 given recent fiscal pronouncements and relationship with interest rates,” Gbenga Sholotan, head, Rand Merchant Bank Nigeria (RMBN) stockbroker’s research said.
Headline inflation is expected to average 11.4 percent in 2019e, closing the year at about 12 percent, he said. On a wage adjusted basis, 2020e headline inflation could average 13 percent (Year end:14%), to be driven by food inflation at 16 percent (vs 13% base case).
Following the border closure, Nigeria’s inflation rate, a measure of composite changes in the prices of consumer goods and services, increased by 11.24 percent in September from a year earlier compared with 11.02 percent in August, according to the National Bureau of Statistics (NBS).
In August, President Muhammadu Buhari ordered the partial closure of Nigeria’s border with the Republic of Benin to curb smuggling of rice and other commodities, and also directed the Central Bank of Nigeria (CBN) to stop providing dollars to import food items in a bid to ramp up local farm production and attain full food security.
Apart from border closure impacting on food prices, other key issues that would impact inflation rate as outlined by Sholotan included Value Added Tax (VAT) increase in electricity tariff, minimum wage and deregulation.
Making a presentation on macro review at RMB private capital markets business breakfast session in Lagos, Sholotan said diversification of the economy away from telecoms and agriculture will unlock growth and offer opportunity for investments.
He said that interest rates are likely to go up as CBN attempts to attract Foreign Portfolio Investment (FPI) flows to keep a stable Naira, and deliver real return to investors.
“The average consumers’ wallet remains squeezed. Corporates with adaptive pricing (low price-points) and retail distribution strategy will win,” he said.
Global economic recovery is on the horizon, but there are some risks. Risks to global growth forecasts include: weaker-than-expected commodity prices, global policy uncertainty; Trade wars, geo-political tensions, while Risks to Nigeria’s growth forecasts include: fiscal tightening, monetary and fiscal regulatory uncertainty, and broader security challenges.
RMB predicts Nigeria’s real GDP to grow by 2.2 in 2019 and 2.5 percent in 2020 from the current growth rate of 1.9 percent. Sub-Saharan Africa’s growth in 2019, is expected to grow by 3.2 percent, improving to 3.6 percent in 2020.
Michael Larbie, CEO, RMB Nigeria/regional head, RMB West Africa, said, “This programme is about private capital and how we can leverage private capital to drive growth in the Nigerian economy”.
Private capital includes the private equity firms, family houses, as well as venture capital.
He said with the new Federal Competition and Consumer Protection (FCCP) coming up, it is important that it is explained to the private capital participant. “We also wanted to give them economic update and share with them where things are in the economy”.
Others who spoke during the pane session on ‘Enabling the Nigerian Capital Markets’ include Babatunde Irukera, director general, Federal Competition and Consumer Protection, Tinuade Awe, executive director, regulations – Nigerian Stock Exchange, Mfon Bassey, assistant director M&A, deputy director, Securities & Exchange Commission, Nigeria and Tumi Sekoni, associate executive director, FMDQ.
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