Adekunle: Naira Will Gain Traction in Int’l Market as Nigeria’s Exports Increases

In this interview with Ugo Aliogo, the Chief Operating Officer of Prosperis Holdings, Mr. Samson Adekunle, examines the growth of the economy in 2021 around some key issues, and makes projection for economic growth in 2022. Excerpts.

Nigeria Green Bond Market
Nigerian Exchange Limited (NGX) recently announced that the value of Nigeria’s green bonds market has grown to N55.52 billion within 2017 and 2021. In 2017, Nigeria became first among African countries to issue a green bond – a loan instrument only for the purpose of financing sustainable environmental initiatives). Since then, the market, which started with an issuance worth N10.69 billion has grown to N55.52bilion.

Analysts and industry watchers are the view that this development has a positive sign for the growth of the market. The Chief Operating Officer of Prosperis Holdings, Mr. Samson Adekunle, believe green bonds are becoming more common in emerging market investment portfolios as investors continue to place a premium on issuer quality and environmental, social, and governance (ESG) factors.

He hinted that investors are equally interested in issuers’ environmental, social, and governance credentials, including their human rights records.
He explained that at the same time, investors are interested in learning how proceeds from green bonds are linked to NDCs, such as energy-related initiatives and policies at the quasi-sovereign level. They’re looking for a big impact.

He remarked that there is expectation that green bonds would attract foreign investments to spur economic development premised on recent impact investment appetite, “more investment would be attracted to these markets also ifco-investment with Development Finance Institutions (DFIs) are implemented.”

GDP Growth in Fourth Quarter
Nigeria’s Gross Domestic Product (GDP) expanded favourably unexpectedly in Q3 2021, despite the economy slowing in comparison to the previous quarter. Thus far in 2021, the GDP growth rate has averaged 3.18 percent, above the IMF and World Bank forecasts of 2.6 percent and 2.4 percent, respectively.

Adekunle explained that the positive performance of the GDP as at the period under review was largely contributed by the sustained recovery in the non-oil sectors, especially rail transport (59.93 percent), air transport (33.31 percent), financial institutions (25.50 percent), and telecommunications (10.87 percent).

He argued that the poor performance of oil and agriculture, Nigeria’s two most vital sectors, alarmed policymakers, and stakeholders, given that oil is the country’s primary source of foreign currency and agriculture is the largest contributor to GDP (29.94 percent) and largest employer of labour (54.7 percent).

According to him, “The oil sector fell because of production restrictions and pipeline vandalism Agriculture’s slower development rate can be directly attributable to the persistent threat of insecurity in food-producing states, which has increased the need of rail transport for the conveyance of available food products.

“According to a sectorial analysis, seven sectors advanced in Q3 2021, compared to five slowing or shrinking sectors, while seven sectors expanded in the previous quarter, while three slowed. This indicates that, due to the country’s economic realities, the various sectors did comparatively better in the previous quarter. The government’s and its agencies’ progressive initiatives are likely to boost the economy’s performance in Q4 2021 and beyond.”

Finance Bill
The Prosperis Holdings, COO, further explained that upon presentation of the 2022 budget to both houses of the National Assembly, the President unveiled a 12% larger budgeted expenditure for the coming year – N16.39 trillion compared to N14.57 trillion in 2021, “and as with the passage, President Muhammadu Buhari intends to fund the N6.26trillion budget deficit by taking on additional borrowings, because, according to the President, Nigeria has a revenue generation problem, and not a debt sustainability problem.

He espoused that the debt assertion of the president is the major driving force behind the introduction of the new finance bill, which intends to further sweat the Nigerian fiscal environment with the aim of increasing the total available revenue needed to finance the behemoth-level expenditure, of which nearly 70 per cent is recurrent.

In his words, “Though it can be argued that the bill has the potential to increase the tax net of the FIRS, as was partially seen from 2020 Finance Act, more attention should be placed on the wholesome revenue-generating capacity of the nation.

“Up till now, Nigeria’s revenue generation capacity has had a direct correlation with the performance of the oil sector, as a deep cut in budgeted revenue was observed when oil prices crashed to historical lows in 2020. It therefore suggests that more emphasis must be placed rather on how to diversify the economy’s revenue sources, taking into cognizance the drive to promote the development of local industries in Nigeria, as well as the implementation of capital projects that will function as buffers to hold up the nation’s foray into becoming developed in all ramifications.”

Oil and Gas Industry
With waning investments in the oil and gas industry, the International Energy Forum (IEF) and IHS Market, global market research experts have in a joint report said that global annual upstream spending needs to increase by as much as 54 percent to $525 billion if the oil market is to avert the next supply shortage shock. There are fears from analysts and market watchers that this might have serious implications for Nigeria considering how the economy has suffered severely from the fall in oil prices.

Adekunle’s view is that a supply shortage shock does not always imply a drop in oil prices; yet, with a decrease in supply, oil prices are predicted to rise, ceteris paribus.
He argued that considering that Nigeria is currently operating at below optimal capacity and thus failing to reach its oil production quota, this may not result in higher revenue.
He hinted that economic instability, typified by unpredictable oil prices and a drop in revenues, would be an obvious result of the supply shortage shock to the economy.

Continuing, he stated: “Given Nigeria’s substantial reliance on oil revenue and its weak currency, this has had a significant influence on the country’s economy, causing expenses of living to rise and standards of living to deteriorate. The country’s current hope is for Dangote’s refinery to be completed and for the Petroleum Industry Bill to live up to its potential.

“On the other hand, this underscores the need for the country to look within and focus more on other areas, such as the service industry, which has been responsible for recent GDP development in Nigeria. Another sleeping giant in Nigeria’s economy is the country’s agriculture industry, which is underutilized and in desperate need of reform. Nigeria can survive the oil supply crisis shock and any other related problems if these other industries are revived and dependency on the oil sector is reduced.”

Economic Projections for 2022
Adekunle noted that Nigeria experienced a negative annual GDP growth of -1.92% in 2020, a trend not similar to what was obtained across majority of the nations of the world due to the outbreak of the coronavirus pandemic early in the year.

He also disclosed that there was also a rebound in economic activities across various sectors and industries, owing to the full reopening of the economy, adding that as at Q3 2021, the average GDP growth rate stood at 3.18%, indicating that the country is on track to end the year on a good note.
Adekunle further remarked that the 2022 budget anticipates a GDP growth of 4.2%, the International Monetary Fund (IMF) begs to differ, pegging its forecast to 2.7% on the back of a growing oil sector coupled with higher productivity and recovery in the non-oil sectors.

He said: The growth and recovery of the economy is expected to continue in 2022, albeit at a decreasing rate as the curve gets flatter and flatter. This is on the back of the economy’s restoration to normalcy whilst the Consumer Price Index continues to slow down on the back of improved economic activities and governance systems.

“Furthermore, we expect that the numerous agricultural initiatives and economic stimulants currently deployed in the country will begin to bear fruit, while the naira will gain traction in the international market as Nigeria’s exports increase. The sectors that have shown strong growth in year 2021 are expected to continue the trend, including transport (Air, Rail, and Road), financial institutions, telecoms, construction, and cement, while the poorly performing sectors are pruned to enhance their contribution to the GDP.

“The direction of inflation in Nigeria is determined by a variety of factors. Nigeria’s inflation rate fell to 15.40 percent in November, down from 15.99 percent in October 2021, according to the National Bureau of Statistics.

“With the resurgence of COVID-19 cases and the impending lockdown and international movement restrictions, the cost of imports will rise, resulting in a drop in global supply, causing cost-push inflation, particularly in Sub-Saharan African countries such as Nigeria, which are overly reliant on imported materials.

“Hopefully, the impact of the resurfacing threat of COVID-19 cases will be mitigated in time, and an impending oil supply shock that will hurt Nigeria’s foreign reserves will be avoided, and the economy’s inflation rate will continue to reduce, given its current high level.”