Monday, December 30, 2013 / Proshare Editorial
Proshare sought the views of analysts, market operators, economists and financial experts on the key issues that would shape/influence the Nigerian financial economy in 2014. We present below the key issues Nigeria and operators in the economy will have to contend with /appreciate in year 2014.
2014 Financial Economy Triggers
1. Changes in/from the Central Bank of Nigeria
a. Appointment of five (5) members of the Monetary Policy Committee (MPC) ahead of its first meeting of the year;
b. Appointment of a replacement for Tunde LEMO, Deputy Governor, Operations Directorate;
c. Appointment of new CBN Governor further to the exit notice by the incumbent;
d. Policy stance/direction of new CBN Governor i.e. Direction of Interest rates / govt yields AND potential tightening of monetary policy to stem liquidity etc.
2. Impact of Financial Model challenges of DISCO’s become more apparent leading to delays in actualization of anticipated gains in the power sector privatization
a. The ability of the new private sector operators to source adequate funds for their CAPEX requirements;
b. Reality of impact fo sacked PHCN workers dawns on operators seeking margins; and
c. Time lag between idea and execution becomes stretched due to a myriad of issues; and
d. Cost of inefficiency to continue to be borne by individual and private entities (including public concerns/MDA’s as evidenced in the budget provisions for fuel and generator expenses in the 2014 budget).
3. Possible decline in oil revenues due to a drop in crude oil production levels occasioned by
a. The twin effect of unaddressed/sustained oil theft and financial reconciliation;
b. low accretion to the federation account due to declining share of oil receipts; and
c. Movement(s)/swings in international crude oil prices especially the impact of a (any) potential oil price decrease from the middle east or an increased supply into the market thereon.
4. The impact on inflation based on the increased spending by political players/operators in a critical pre-election year
a. Exchange rate volatility in an election year with possible consequential currency devaluation;
b. Politics of negativity is rife and unproductive as it leaves a more permanent impact on the perception index/value of the Nigerian economy;
c. Impact of 100 years centenary celebrations will have minimal effect on economy and job creation; and
d. General enthusiasm levels and confidence in the political leadership is at its lowest ebb which may act as a dampener to renewed confidence in economy.
5. New capital Base for operators in the Capital Market
a. Initial resistance lost in translation and reality;
b. Imminent mergers and realignment of brands; and
c. Investments in technology and route/channels for service delivery.
6. National Debt Stock, especially the growing foreign debt portfolio (discounting the Debt-GDP ratio that has allowed for an un-reconciled growth in consumption debt over capital debt as a component of the overall budget as reflected in the cost of servicing such debts at the detriment of capital investments)
a. Role and place of the Sovereign Wealth Fund now becomes an issue for open debate;
b. Urgency and necessity for a legislative backing for the PIB and the swf
7. The Nigerian Banking sector performance(s) in the year and its consequential impact on credit to the productive sectors and the capital market;
8. The Nigerian Capital Market faces a headwind in meeting its $1 trillion target:
a. Effect of US Fed tapering on the Nigerian bond market, and the equity market to an extent (owing in part to the profile of key market participants);
b. An uptick may come if proposals to convert over N6 trillion unclaimed dividends is finally placed in a trust fund and re-invested in the equities market;
c. The OTC market is able to ramp up services and address concerns of retail investors in such a way as to re-energise them to re-enter the market.
9. Economic Indices going hay wire due to unattended / unintentional consequence of shift in governance focus to politics:
a. Containing inflation rate at its current single digit levels
b. Reducing the exchange rate spike to its stable levels
c. Potential for spending squeeze and increased borrowing in view of revenue shortfalls
10. Dealing with the “Big Elephant in the Room” – Rising population on the back of relative stagnation/growth in revenue in the midst of deteriorating or declining infrastructural/social enabling capacity:
a. Unaddressed gap in income/wealth inequality;
b. Increasing levels of unemployment and low level of job openings/creation in both the public and private sector; and
c. Growing incidence of poverty as revealed by the NBS with consequential impact and strain on social services/cost such as security, medical, education, prison services, roads, agricultural movements etc.