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COVID 19, Debt Intensifies Uncertainty As World Bank Projects Slow Global Growth Till 2023



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Amid fresh threats from COVID-19 variants and a rise in inflation, debt, and income inequality, the global economy is entering a pronounced slowdown that could endanger the recovery in emerging and developing economies.

According to the World Bank’s latest Global Economic Prospects report, global growth is expected to decelerate markedly from 5.5 percent in 2021 to 4.1 percent in 2022 and 3.2 percent in 2023 as pent-up demand dissipates and as fiscal and monetary support is unwound across the world.

The rapid spread of the Omicron variant indicates that the pandemic will likely continue to disrupt economic activity in the near term. In addition, a notable deceleration in major economies, including the United States and China will weigh on external demand in emerging and developing economies.

World Bank Group’s President, David Malpass said: “The world economy is simultaneously facing COVID-19, inflation, and policy uncertainty, with government spending and monetary policies in uncharted territory. Rising inequality and security challenges are particularly harmful for developing countries.

“Putting more countries on a favorable growth path requires concerted international action and a comprehensive set of national policy responses.”

The slowdown, according to the World Bank, will coincide with a widening divergence in growth rates between advanced economies and emerging and developing economies. Growth in advanced economies is expected to decline from 5 percent in 2021 to 3.8 percent in 2022 and 2.3 percent in 2023.

However, in emerging and developing economies, growth is expected to drop from 6.3 percent in 2021 to 4.6 percent in 2022 and 4.4 percent in 2023.

According to the World Bank’s Managing Director for Development Policy and Partnerships, Mari Pangestu, the choices policymakers make in the next few years will decide the course of the next decade.

“The immediate priority should be to ensure that vaccines are deployed more widely and equitably so the pandemic can be brought under control. But tackling reversals in development progress such as rising inequality will require sustained support. In a time of high debt, global cooperation will be essential to help expand the financial resources of developing economies so they can achieve green, resilient, and inclusive development”, she said in the report.

Meanwhile, the World Bank projects that growth will decelerate to 5.1% in 2022 before increasing slightly to 5.2% in 2023 in the East Asia and Pacific regions. For the Middle East and North African regions, growth is forecast to accelerate to 4.4% in 2022 before slowing to 3.4% in 2023.

Also, for Sub-Saharan Africa, growth is forecast to accelerate slightly to 3.6% in 2022 and rise further to 3.8% in 2023.

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Forward Steps Required for Affordable Housing – Coronation Merchant Bank

Housing supply remains inadequate in Nigeria. Official records place the country’s housing deficit at 28 million units.



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Housing supply remains inadequate in Nigeria. Official records place the country’s housing deficit at 28 million units. According to the latest national accounts, the real estate sector grew by 5.3% y/y in Q1 ‘22 and has averaged a growth rate of 5.6% over the past eight quarters.

Housing finance remains in its infancy. Nigeria’s mortgage/GDP ratio of 0.6% compares with South Africa’s 23%, Tunisia’s 10.6% Kenya’s 2.1%, and Ghana’s 0.8%.

According to the FGN’s national development plan (2021-2025), the FGN intends to improve access to affordable housing by constructing between 500,000 – 1 million houses per year. The goal is to boost the real estate to GDP ratio to 8.4% y/y by 2025. It is currently 4.4%.

Coronation Merchant Bank noted that there are several priority sectors and so the FGN has competing claims for its limited budgetary funds. In the 2022 budget, the FGN allocated N12bn to the national housing program, compared with N11.9bn allocated last year.

Additionally, N10bn was allocated to social housing scheme (family homes fund), N2.1bn for new social housing in Iponri Lagos State and N1bn for new prototype housing scheme in Niger and Lagos states.

In July ’22, the MPC/CBN raised the policy rate to 14% in an attempt to combat rising inflation. The headline inflation is currently 18.60% y/y. As at June ‘22, prime and maximum lending rates were 12.9% and 27.6% respectively vs 11.96% and 27.37% in the previous month. According to the CBN, mortgage loans to the private sector by primary mortgage banks (PMBs) stood at N198.3bn in June ’22 vs N187.8bn in the corresponding period of 2021.

The Federal Mortgage Bank of Nigeria (FMBN) is the principal public financing institution, tasked with addressing housing challenges in the country. The bank provides national housing fund (NHF) loans at 4% interest to accredited PMBs for on-lending at 6% to NHF contributors over a maximum tenor of 30 years.

This is in addition to providing estate development loans to private developers, state housing corporations and housing cooperatives.

Furthermore, the bank provides a rent-to own mortgage scheme whereby the period for rental payment is 30 years with an interest rate of 7% of the property price. Other mortage products offered by FMBN include; home renovation loans, construction loans and diaspora mortgage loans.

Since 2017, the FMBN has issued c.4,985 mortgages and disbursed home renovation loans valued at N49.3bn to 60,500 beneficiaries. We understand that the construction of at least 9,500 affordable housing units across the country were financed by FMBN.

Similarly, the Nigeria Mortgage Refinance Company (NMRC) is expected to deepen the primary and secondary mortgage markets by providing liquidity to the mortgage market and enhancing the maturity structure of the industry’s loans. As at December ‘21, NMRC disclosed that it had refinanced mortgage loans totaling N21.1bn compared with N17.4bn in 2020.

Public-private partnerships (PPPs) targeted at mass housing schemes should be encouraged. Although there are commendable steps with regards to this collaborative effort, there is still vast room for improvement. The Federal Housing Authority (FHA) recently completed 1,016 affordable housing units in select locations across the FCT, Bayelsa and Cross River. To expand this project to other states such as Imo, Rivers and Lagos, the FHA has considered leveraging PPPs.

On a separate note, it is worth highlighting that the Nigerian Exchange Group (NGX) recently raised c.N72bn (USD167.9m) for real estate companies quoted on its platform. Furthermore, NGX intends to launch an “impact board” to support the listing of social bonds that would raise capital to meet housing sector needs.

Funds held by pension fund administrators (PFAs) can be channeled towards providing affordable housing. As at June ’22, assets under management (AUM) totalled N14.2trn. However, funds allocated to the real estate and real estate investment trust (REIT) asset classes account for less than 2% of total AUM.

PFAs could consider increasing their exposure to funds or companies in the housing value chain, pursuant to PENCOM investment guidelines. Bespoke instruments such as mortgage-backed securities would also assist in capital formation and reduce the housing deficit.

Another challenge faced by the housing sector, is the lack of a robust housing database. There is a silo-working approach regarding data gathering within the sector. Developers, real estate agents and financers tend to build their respective in-house database but seem reluctant to share publicly due to concerns around market share expansion.

Meanwhile, data collected by regulators with oversight on investment, urban development, and participation in property markets is not readily available in the public domain. The dearth of data contributes to the sluggish pace in homeownership and affordable housing initiatives.

The rising cost of building materials poses as another challenge impacting housing supply and affordability. The heavy reliance on imported inputs (such as, building materials) used for construction exposes the sector to passthrough effects that emerge from exchange rate depreciations. Industry sources suggest that c.55% of building materials are imported.

Given its importance in driving socio-economic development, affordable housing remains at the front burner not just in Nigeria but across other African countries. Prior to the coronavirus outbreak, housing shortage in Ghana was recorded at c.2 million housing units.

The government proposed several affordable housing interventions, including resuscitating initiatives that were stalled at various stages of development. However, given the current macroeconomic environment – rising inflation, a depreciating local currency and high public debt, fiscal prudence is required, and this could affect projects geared towards affordable housing initiatives. Ghana plans to trim its 2022 national budget by c.30%.

We note that the housing deficit in Kenya is also estimated at 2 million units. However, given the steady pace of urbanization, the housing deficit is expected to widen. Based on local newswires, at least 500,000 affordable housing units are expected to be delivered in 2022 (i.e. c.1% of Kenya’s total population).

The construction sector posted growth of 6.4% y/y in Q2 ’22 and is regarded as one of the country’s green shoots. Meanwhile, South Africa continues to struggle with adequate and affordable housing. The housing deficit is estimated at 3.7 million units, and this can be partly attributed to relatively high poverty and unemployment levels. South Africa’s unemployment rate has hit 34.4%, rural-urban migration has contributed to rising unemployment rate.

In Nigeria, there is no shortage of policies with regards to tackling challenges across economic sectors, the housing sector inclusive. Affordable housing targets remain unmet partly due to security challenges in select locations, structural issues contributing to supply-side constraints and the current hazy macroeconomic environment which is also affecting demand dynamics. According to the Bank of Industry, N21trn (USD48.9bn) is required to close the current housing gap in Nigeria.

Forward steps with significant progress require partnerships with the private sector. We hope to see increased activity across the property market (both demand and supply) as the economy continues on an upward growth trajectory.

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Cost of Servicing Nigeria’s Debt to Hit N10.43 Trillion by 2025

Nigeria’s debt servicing was estimated to hit N10.43 trillion by 2025



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Nigeria’s debt servicing was estimated to hit N10.43 trillion by 2025, according to the 2023-2035 Medium Term Expenditure Framework & Fiscal Strategy Paper.

In 2021, Nigeria budgeted N3.32 trillion for debt servicing but spent N4.2 trillion in the first 11 months of the year, representing an increase of 37.9%, or N1.15 trillion.

While between January and April 2022, the country has already spent N1.94 trillion on debt servicing, against a retained revenue of N1.63 trillion. Meaning, Africa’s largest economy is presently spending more than its generating on debt.

Rising interest payments on debts might wipe out Nigeria’s entire earnings, said Ari Aisen, an IMF representative in Nigeria.

Aisen said, “The biggest critical aspect for Nigeria is that we have done a macro-fiscal stress test, and what you observe is the interest payments as a share of revenue, and as you see us in terms of the baseline from the federal government of Nigeria, the revenue of almost 100 per cent is projected by 2026 to be taken by debt service.

“So, the fiscal space or the amount of revenues that will be needed and this, without considering any shock, is that most of the revenues of the Federal Government are now, in fact, 89 per cent and it will continue if nothing is done to be taken by debt service.”

Similarly, Patience Oniha, the Director General of the Debt Management Office, said the country’s high debt servicing cost is affecting investment in the real economy.

According to the DMO DG, “High debt levels lead to heavy debt service which reduces resources available for investment in infrastructure and key sectors of the economy.”

Nigeria’s Minister of Finance Ahmed Zainab said the country is presently struggling with the rising cost of servicing debt despite the increase in revenue.

She said, “Already, we are struggling with being able to service debt because even though revenue is increasing, the expenditure has been increasing at a much higher rate, so it is a very difficult situation.”

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U.S Senate Passes $749 Billion Inflation Reduction Act

The United States Senate has voted in support of President Joe Biden’s $749 billion Inflation Reduction Act expected to rein in America’s over 40-year high inflation rate, support American families by reducing everyday energy costs and compel the richest corporations in America to pay their taxes.



The United States Senate has voted in support of President Joe Biden’s $749 billion Inflation Reduction Act expected to rein in America’s over 40-year high inflation rate, support American families by reducing everyday energy costs and compel the richest corporations in America to pay their taxes.

Explaining the significance of the bill, the President said it will reduce the federal deficit by over $300 billion and cap seniors’ out-of-pocket spending on prescription drugs at $2000 a year, no matter what their drug bills would otherwise be, seniors citizens will not pay more than $2000.

Also, 13 million Americans presently under the Affordable Care Act, will save $800 on their health insurance premium a year.

“This bill tackles inflation by lowering the deficit and lowering costs for regular families,” President Biden declared.

Americans earning below $400,000 a year will not pay any new taxes while the wealthiest corporations will now be paying 15% on income, estimated at $40 billion in 2020. The bill will ensure America invests $369 billion in clean energy and addresses the climate crisis.

“It also gives consumers a tax credit to buy any electric vehicle or fuel cell vehicle, new or used, and a tax credit for up to $7,500 if those vehicles were made in America.

“This investment in environmental justice is real. It also provides tax credits that will create thousands of good-paying jobs — manufacturing jobs on clean energy construction projects, solar projects, wind projects, clean hydrogen projects, carbon capture projects, and more — by giving tax credits for those who build these projects here in America,” President Biden stated.

Speaking on the milestone, President Joe Biden said “I ran for President promising to make government work for working families again, and that is what this bill does — period.”

President Biden would be expected to sign the Act into law once the House of Representatives passed it.

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