In its latest World Economic Outlook (WEO), the IMF has trimmed its global forecast for 2022 to 3.6% y/y from 4.4% y/y. For 2023, the growth projection was revised downwards from 3.8% y/y to 3.6% y/y.
Since the last WEO released in January, risks to economic prospects have risen sharply and policy trade-offs have become more challenging largely because of the Russia-Ukraine crisis which has had visible trickledown effects. Furthermore, frequent, and wider-ranging lockdowns in China have slowed manufacturing activities and are creating additional supply-chain bottlenecks.
Both Russia and Ukraine are projected to experience GDP contractions of -8.5% y/y and – 35% y/y respectively in 2022. The severe downturn in Ukraine is a direct result of the invasion. In Russia, the sharp decline reflects the impact of the sanctions with a severing of trade ties and greatly impaired domestic financial intermediation.
The 2022 forecasts for two of the largest economies, US, and China were reduced. The US global growth was revised downwards from 4.0% y/y to 3.7% y/y in 2022, driven by assumptions such as faster withdrawal of monetary support than in the previous projection given expected policy tightening in an attempt to rein in inflation and the impact of trade disruptions due to the ongoing Russia-Ukraine crisis.
China’s global growth was revised downwards from 4.8% to 4.4% in 2022. The combination of more transmissible coronavirus variants and the strict zero-COVID strategy in China has led to repeated mobility restrictions and localized lockdowns (including in key manufacturing and trading hubs). In addition to slow recovery in employment, these are causing strain on private consumption.
Crude oil prices increased sinceAugust 2021, driven by a strong recovery in oil demand, and then followed by geopolitical tensions (Russia-Ukraine crisis). The oil supply gap was wide before the ongoing crisis, as OPEC+ continued to ease supply curbs at a measured pace.
Global demand for oil is projected to increase to 99.7 million barrels a day (mb/d) in 2022. Meanwhile, oil price assumptions based on the futures markets for the Fund’s basket of three crude blends (UK Brent, Dubai Fateh, and West Texas Intermediate crude oil), shows an increase of 54.7% this year to USD106.8/b and a decline of -13.3% in 2023 to USD92.6/b.
Prior to the Russia-Ukraine crisis, headline inflation had surged across economies due to pandemic-induced supply-demand imbalances. Elevated inflation will affect trade-offs central banks face between combating price pressures and safeguarding growth. Inflation is expected to remain elevated across economies, driven by the war-induced commodity price increases. For 2022, the IMF projects average inflation at 5.7% in advanced economies and
8.7% in emerging and developing economies.
Regarding monetary policy, prior to the ongoing Russia-Ukraine crisis some central banks were tilting towards monetary policy tightening. This contributed to increases in nominal interest rates across advanced economy sovereign borrowers.
The general expectation is that policy rates are set to rise further in coming months. Furthermore, balance sheets for select central banks are also expected to begin to unwind, especially in advanced economies. Although some central banks across emerging and developing economies have raised their policy rate, China seems to be an outlier. China’s headline inflation remains low and its central bank trimmed policy rates in January ‘22 to support economic recovery.
On a broader note, expectations of tighter policy and concerns around the residual effects from the Russia-Ukraine crisis have contributed to financial market volatility and risk repricing. Interestingly, the Fund revised its forecast for sub-Saharan Africa to 3.8% (from 3.7%) for 2022. Higher food prices would adversely affect consumer pockets. In our view, given that wheat is an essential ingredient in the production of bread, pastries, pasta, biscuits, noodles among others, reduced supplier access and higher prices will weigh heavy on wheat-based producers within the region.
For Nigeria, the IMF raised its GDP growth projection for 2022 from 2.7% y/y to 3.4% y/y. This was largely due to the increase in oil prices. Bonny Light has increased from USD80.1/b at the start of the year and has remained above USD100/b. We have a relatively cautious view. Indeed, higher oil prices bode well for Nigeria.
However, the presence of the fuel subsidy regime undermine expected benefits. Furthermore, production volumes have been relatively low. Based on the latest OPEC data, Nigeria’s production volume stood at 1.35mb/d compared to its OPEC approved quota of 1.74mb/d.
There are other downside risks to consider such as the trickledown effect from the Russia-Ukraine crisis which has an impact on supply-chain dynamics and by extension, affects inflation and consumption patterns. On a brighter note, we expect a small fiscal boost with increased capital expenditure which should support GDP growth. We currently see GDP growth for Nigeria at 2.8% y/y in 2022.
Focus More on Port Rehabilitation, Nigerian Ports Authority Tells FG
The Nigerian Ports Authority (NPA) has said the quay walls of the Tin Can Island port require a complete rehabilitation, saying the port is on the verge of collapse.
Managing Director of NPA, Mr. Mohammed Bello-Koko, while speaking over the weekend stated that the agency had taken a holistic review of the decaying parts of the ports.
“Tin-Can Island Port is practically collapsing. We need to focus our budget on the rehabilitation of those quay walls at the Tin-Can port. We have taken a holistic review of decaying infrastructures at our ports and have decided that it is very important that we rehabilitate Tin-Can and Apapa port,” Bello-Koko stated.
He said the agency had resorted to borrowing in order to sustain the port. It had begun discussions with some lending agencies to lure them into investing in the rehabilitation of ports.
“What we have done is to start talking to lending agencies, even though we don’t intend to lend. We are asking how much money they will invest in the port terminals,” said Bello-Koko, saying the introduction of the Infrastructure Concession Regulatory Commission Act meant that the renewal of concession agreements for terminal operators was no longer done the way it used to be done.
He said the agency had requested for investment companies to invest in the ports.
Bello-Koko also stated that before the agency would also renew the concession agreement of some terminal operators, an agreement must be reached on how to develop the port.
“For us to renew these concession agreements that have expired, about five of them, we need to have categorical commitment from the affected terminal operators on the development of these port terminals. If the terminal operators cannot give us such commitment, then we either give the terminals to someone else or go and borrow money to rehabilitate those ports.”
“However, if we go and borrow money to rehabilitate those ports, then what the terminal operators are paying will have to change. The rates will have to go up. If we don’t do that, these terminal operators will keep managing those places, and the ports will keep collapsing. Because of their financial interest, these terminal operators don’t want us to re-construct the affected port terminals because that will mean stopping them from operating.
“We have had interest from the World Bank, amongst others. Surprisingly, it was the World Bank that actually gave money to the NPA to construct part of Apapa port so many years ago. The World Bank has come again to tell us that if we need funding, they will give it to us.”
He also stated that the agency is watching five terminals to make sure that they are committed to their responsibilities as provided by the port concession agreement.
“Affected terminal operators had been given temporary six-month renewal with conditions to meet before they would have their concession agreement renewed permanently,” Bello-Koko revealed.
“At the point of expiration of any concession agreement, the then Legal Agreement says that the terminal operators can apply for renewal and we will renew. It was after the concession agreement that the ICRC Act came onboard. The ICRC Act requires that there should be a new owner, a new bid and so on and so forth,” he added.
EFCC Grills Suspended Accountant-General of The Federation, Discovers 17 Properties
The Economic and Financial Crimes Commission (EFCC) said it has traced not less than properties to the Accountant-General of the Federation, Ahmed Idris.
On Wednesday, the Minister of Finance, Budget and National Planning, Zainab Ahmed, announced the suspension of Idris who is currently being grilled by the EFCC for fraud amounting to N80bn.
The letter titled: ‘Letter of Suspension’, read in part: “Following your recent arrest by EFCC on allegations of diversion of funds and money laundering, I write to convey your suspension from work without pay effective May 18, 2022.”
Investors King can confirm that an anonymous EFCC official revealed that the 17 properties linked to the former AG of the Federation are located in the UK, Dubai, Abuja, Lagos, and Kano.
However, he said preliminary investigations showed that the nation’s chief accountant allegedly used proxies to buy some of these properties. The commission would therefore need to invite some of the proxies of the accountant-general.
The official added that from all indications, these properties were purchased while Idris was in office and did not declare them before the Code of Conduct Bureau as stipulated by law.
“About 17 houses in London, Lagos, Kano, Abuja and Dubai have been traced to him. In Abuja, some of the houses are located in serviced estates,” he added.
Investors King reported earlier in the week that EFCC had arrested the suspended Accountant-General, saying “the AGF raked off the funds through bogus consultancies and other illegal activities using proxies, family members and close associates.”
“The funds were laundered through real estate investments in Kano and Abuja.
“Mr. Idris was arrested after failing to honour invitations by the EFCC to respond to issues connected to the fraudulent acts.
“It further alleged that the funds were laundered through real estate investments in Kano and Abuja,” EFCC added.
REcall that Ahmed Idris had been under surveillance since last year following allegations that he offered huge sums of money to a family in order to secure the marriage of their 16-year-old daughter.
Nigeria’s Trade Deficit Rises to $765m in Q1 2022 – CBN
The Central Bank of Nigeria (CBN) has said the value of Nigeria’s international trade deficit rose by 175.13 percent from $152.94m recorded in January 2022 to $420.79m in March 2022.
The International Trade Summary on the CBN’s website reports that the total value of international trade as of the first quarter (Q1) of 2022 was $28.77bn. Imports stood at $14.77bn while exports accounted for $14.01bn, reflecting a total trade deficit of N764.69m.
In January 2022, export was $4.74bn and import was $4.89, with a trade deficit of $152.94m.
The value of the trade deficit increases further in February 2022 to hit $190.96m, with exports at $4.70bn and imports at $4.89bn.
There was a massive increase recorded in March 2022 as the trade deficit jumped to $420.79m, with exports at $4.57bn and imports at $4.99bn.
In June 2021, Godwin Emfiele, the CBN Governor has said Nigeria would reduce its imports bill by the first quarter of 2022, especially with the Dangote refinery projected to resume operations. This, he said would help reduce the importation of finished petroleum products.
“Of course for petroleum products, by the time the refinery goes into production by the first quarter of next year and the petrochemical plants we would have reduced our importation by about at least close to 35 per cent,” he said.
However, Nigeria has failed to cut down on its import bill and the Dangote refinery is yet to be completed and operational. In fact, a recent Fitch report estimated that the refinery won’t be operational until 2024, and that is if Aliko Dangote raises the needed $1.1 billion (N900 billion) necessary for its completion.
In its recent report titled ‘Reforms Towards Resolving Foreign Exchange Challenges in Nigeria’, the Nigerian Economic Summit Group (NESG) explained how a rising trade deficit caning impact the nation’s economy.
According to the NESG, Nigeria will continue to rely on foreign loans via Eurobonds and multilateral financial institutions to bolster its foreign reserves as long as the nation’s trade balance continues to decline.
In part, the report stated: “Owing to the deteriorating trade balance position, the country is increasingly exposed to external borrowing through Eurobonds and multilateral loans to shore up its external reserves. In 2021, the trade deficit widened to N1.9tn from N178.3bn in 2020.
“The country had persistently recorded a trade deficit since the fourth quarter of 2019 when the land borders were shut. However, maintaining a trade surplus consistently coupled with adequate inflows of foreign investments will contribute significantly to improving the net flows of forex through the economy – which crashed from $100.8bn in the first three quarters of 2014 to $44.5bn in the corresponding period of 2021.”
“Huge dependence on imports has limited the CBN’s ability to effectively manage the demand for foreign exchange,” it stated.
NESG further said, “Meanwhile, the massive dependence on imports has constrained the CBN’s ability to manage forex demand by prohibiting certain commodities that could otherwise be produced locally from accessing forex at the official market since 2015.
“The result of this policy action has heightened demand pressures in the parallel market, leading to a wide gap between the official exchange rate (now the I&E Window exchange rate) and the parallel market exchange rate. The parallel market premium averaged N104.7/US$ in 2021, 64.9 per cent higher than the average premium of N63.5/US$ in 2020.”
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