Nigeria: Analysts see foreign investors’ return as central banks cut rates
Analysts say the year 2024 may not be rosy as expected, stressing that it may be fraught with further naira depreciation and widening fiscal deficit.
The only succour, it appears, is that foreign investors may flock back to the Nigeria capital market as central banks all over the world are set to cut down on rates.
Analysts from United Capital Research said in its latest publication made available to Blueprint Thursday stated that “naira’s depreciation may increase the prices of imported goods.
“Thus, inflation will persist averaging 23.6 per cent in 2024. Therefore, we anticipate an upward adjustment of 125 basis points (bps) in the Monetary Policy Rate (MPR), reaching 20.0 per cent by early 2024”, said United Capital.
The researchers said fiscal deficit may exceed budget owing to costly Ways and Means financing due to naira depreciation, foreign currency debt may increase, and domestic debt may rise as reliance on domestic borrowing surges.
They however said current account surplus may increase from estimated 2.1 per cent in 2023 to 2.9 per cent in 2024, due to expected oil production from Port Harcourt and Dangote refineries.
According to the report, the premium status of the Nigerian equities market will persist as PFAs contribute to the growth of the equities market. “We see a bullish run in the fixed income space as yields adjust lower in advanced economies,” they said.
They further noted that “foreign investors will find Nigerian markets attractive as central banks cut rates in 2024, leading to a shift in global capital flow. Corporate issuers may raise debts at the short end of the curve, capitalising on FG’s indication to reduce reliance on the domestic debt market.
“The return to orthodox methods will drive yields based on supply and demand fundamentals. System liquidity will play a key role in determining money market rates, particularly at the short end of the curve. CBN’s SDF window activities, and OMO maturities of N718.0bn will support system liquidity in 2024.
“Perennial debt sustainability and forex volatility concerns will pose downside risk. As global debt becomes cheaper, Nigeria may opt for Eurobond issuances.
“We expect a total of $1.3 billion worth of Eurobond maturities in 2024, this will provide exit points for investors at different intervals” the publication said.
In 2023, Nigeria’s average growth was 1.3bper cent due to excess fuel subsidies, high debt, weak currency, and insecurity. Fuel subsidies were removed, and the Naira was floated. Nevertheless, the third quarter of 2023 recorded impressive non-oil output. Also, crude oil production grew by 4. per cent, but remained historically low.
