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Ejugwu: We Anticipate Growth in Oil & Gas, Banking, Agriculture in 2025

Head, Equities Research, Vetiva Capital Management Limited, Victoria Ejugwu in this interview, speaks on the Nigerian markets outlook for 2025,forecasting real GDP growth of 3.57 per cent, growth in oil & gas, banking, and agriculture, the role of foreign investors and factors that will shape the economy. Excerpts
The equities market returned about 30% in 2024, should we be expecting same or an even better performance in 2025?
Thank you for the question. The market outlook for the new year is mixed, presenting both opportunities and persistent challenges that will significantly shape market sentiment. Macroeconomic factors, particularly their impact on corporate earnings, will be crucial.
We anticipate weak results from the real sector in the first quarter, reflecting the currency depreciation and inflationary pressures experienced in 2024. This will likely lead to cautious trading early in the year as market participants react to these results. However, we believe that companies have been actively re-strategizing to adapt to the challenging environment. Therefore, we expect a recovery for these companies, particularly in the real sector, throughout the 2025 fiscal year. This suggests a potential shift towards renewed market optimism beyond the first quarter.
Fixed income rates will also play a significant role in shaping market sentiment. These rates will be heavily influenced by inflation figures. Our view is that fixed income rates will remain elevated for the majority of 2025, which could temper market enthusiasm. While the possibility of rates tapering down isn’t entirely off the table, this is contingent on substantial improvements in macroeconomic fundamentals. Consequently, we foresee the potential for the equities market to deliver another positive return in 2025. However, a substantial rally will depend on significant improvements in the broader macroeconomic environment.
What has foreign investors participation in the market been like and what is the outlook for 2025?
Foreign investor participation is a key metric that is being tracked by analysts. Data shows that foreign investor participation in the Nigerian equities market rebounded significantly in 2024, with total foreign transactions reaching N744.34 billion by October, a substantial 155.5 per cent increase compared to the same period in 2023. This surge in activity suggests an easing of previous deterrents to foreign investment, such as foreign exchange illiquidity. This improvement can be attributed to enhanced foreign exchange liquidity resulting from market reforms, which has facilitated easier capital movement, coupled with renewed investor confidence stemming from the NGX’s positive performance and broader economic reforms. Looking ahead to 2025, the outlook for foreign participation depends on several key factors. The sustainability of foreign exchange reforms and further improvements in liquidity will be crucial for attracting and retaining foreign capital. Foreign investors are expected to maintain a cautious stance, closely monitoring fiscal policy and its effectiveness in addressing macroeconomic challenges. A sustained commitment to economic turnaround will be crucial for attracting foreign capital. Global economic conditions and broader investor appetite for emerging markets will further shape investment flows.
What sectors should investors be betting on in 2025?
That’s a good question. Despite prevailing macroeconomic headwinds, certain sectors are poised for expansion. We anticipate growth in Oil & Gas, Banking, and Agriculture. The Oil & Gas and Agriculture sectors are expected to benefit from persistently high global commodity prices. Meanwhile, the Banking sector is likely to see positive impacts from the elevated interest rate environment. Consequently, we project healthy corporate earnings and strong dividend payouts from companies within these sectors.
What are the key economic drivers and risks for the Nigerian economy in 2025?
Vetiva Research is forecasting real GDP growth of 3.57 per cent in 2025. It’s a decent improvement from the estimated 3.45 per cent in 2024. The services sector, especially financial services and ICT (Information and Communications Technology) is expected to lead the charge. We’re also anticipating a boost from the oil and gas sector, thanks to increased production and the Dangote Refinery coming online. The industrial sector as a whole should also see some improvement. However, several risks could impede growth, including persistent inflation, fiscal sustainability concerns, and potential external shocks. The government’s ability to implement effective policies and address these challenges will be crucial for achieving sustainable economic growth.
Everyone’s worried about inflation. What’s the outlook for 2025? Are prices going to keep rising?
The sentiments you refer to are understandable. Even though we might see some brief periods of relief, inflation is expected to remain a challenge in 2025. Vetiva Research forecasts a slight increase to 33.95 per cent, up from 33.19 per cent in 2024. This indicates that prices will continue to rise, although at a potentially slower rate than observed in recent periods. Several factors underpin this projection. Notably, robust external demand for Nigerian agricultural products is putting upward pressure on domestic food prices. The weakened Naira further exacerbates this issue by making Nigerian exports more attractive, allowing farmers to command higher prices, particularly given the expectation of sustained high global food prices. Consequently, we anticipate continued increases in food inflation during the year.
The government’s budget is based on an oil price of around $75 a barrel. What do you think about that?
Our view is that we might see oil prices ease a bit next year. This thinking is based on a couple of key factors. First, we anticipate that global economic activity will remain somewhat subdued, which naturally means less demand for oil. Second, on the supply side, we’re expecting to see more oil coming onto the market. Even though OPEC+ hasn’t officially decided to increase production, it’s likely that some member countries who previously made voluntary cuts will start to increase their output again from around April. This would mean more OPEC+ oil overall compared to this year. Plus, with continued support for the US oil industry (particularly if Trump-era policies persist), we could also see stronger production growth from the US and other non-OPEC nations. So, all in all, it looks like supply could outpace demand, which would generally push prices downwards. This is worth noting in relation to the government’s budget, which is currently based on an oil price of around $75 a barrel. If prices do come in lower, it could present some fiscal challenges in terms of revenue projections and budget implementation.
Should we still be expecting elevated interest rates in 2025?
We expect elevated interest rates to persist in Nigeria throughout 2025. The Central Bank’s aggressive 2024 tightening, driven by high inflation, signals this continued trend. While some inflation moderation is possible, the gap between core and food inflation suggests it won’t be enough to prompt lower rates. As we had earlier stated, we don’t foresee inflation hitting the 20 per cent target.
The CBN will likely continue basing rate decisions on its inflation target, meaning further increases are probable. This mirrors 2024’s approach of raising rates despite temporary moderation. Structural issues in agriculture and external demand are likely to keep inflation sticky, supporting this view. Additionally, considering the interplay between exchange rates and interest rates, lower rates may hinder portfolio inflows, as hot money hunts for yields across emerging and frontier markets. In 2024, Nigeria recorded a net foreign portfolio inflow of $3.1 billion (2023: $0.5 billion), lured by the carry trade appeal of local currency fixed-income assets. With yields on Open Market Operations (OMO) instruments averaging 30 per cent since the end of Q3 ’24, we have observed increased foreign portfolio inflows, taking advantage of these high yields. Should the apex bank continue to offer juicy yields, Nigeria could see more foreign portfolio activity, especially as global central banks cut interest rates. Thus, we foresee a cumulative 200 basis point benchmark rate hike to 29.5 per cent in 2025 should inflation remain stubborn, and as the CBN strife’s to keep exchange rates in check.
Even though the CBN has taken an aggressive tightening approach, money supply growth remains significant, with M2 surging by 51.4 per cent y/y in November 2024. Does this suggest that the tightening measures aren’t working?
That’s a very pertinent question, and it highlights a complex dynamic. While the CBN has indeed implemented tightening measures, the substantial growth in broad money supply (M2) suggests that these measures are facing significant countervailing forces. It’s not necessarily that tightening isn’t “working” , but rather that its impact is being offset by other factors, primarily the substantial increase in domestic borrowing by the Federal Government which injects significant liquidity into the economy to fund growth projects.
Let’s come to the exchange rate, should we be expecting an appreciation?
our analysis indicates that the currency remains undervalued. This suggests that there is scope for appreciation. We observed instances of short-term Naira strengthening in both Q1 and Q4 of 2024, driven by factors such as attractive money market rates and, in Q4, the support of Eurobond issuance and improved FX market transparency via the EFEMS. However, as expected, we maintain some degree of caution. Sustained appreciation will require specific catalysts. These include the continuation of a tight monetary policy by the apex bank, which could attract foreign investment, and, importantly, a tangible increase in net oil export revenues to bolster external reserves. While the undervaluation suggests potential upside, the actual trajectory of the Naira will depend on the interplay of these and other macroeconomic factors.
Given the expectation of elevated interest rates, what investment strategy should one consider in 2025? Should we overweight equities?
Thats a great question. Given the mixed outlook and the expectation of persistently high fixed income rates, a balanced and selective approach is likely the most prudent strategy for 2025. With high interest rates expected to persist, fixed income instruments offer attractive yields and a relatively lower risk profile. Allocating a significant portion of a portfolio to fixed income can provide stable returns and act as a buffer against potential volatility in the equities market. On the flipside, a selective approach to equities, focusing on specific sectors and companies that are well-positioned to navigate the challenging macroeconomic environment, is key. Sectors that are less sensitive to currency fluctuations and inflation, or those that benefit from higher interest rates (like the banking sector as highlighted earlier), could be attractive. Additionally, the anticipated recovery in the real sector throughout 2025 could create compelling investment opportunities. Current valuations in certain segments of this sector may offer attractive entry points for investors seeking long-term growth.