Standard Chartered Bank has unveiled its 2024 Global Market Outlook with Ayodeji Adelagun, the managing director/Head, Financial Market Nigeria & Rates & Credit West-Africa at the Bank, dropping some financial and business insights.
opined that for Nigeria to have a stable economy and prevent a bankruptcy situation, it will need to borrow in the region of N21 trillion in 2024.
He said despite the low optimism in the country, the economy is going to experience a turnaround if the necessary steps are taken.
He added that the major challenge facing the country is the lack of interest in the economy by foreign investors and that with all measures currently being put in place, these investors will come naturally.
Foreign portfolio investors are likely to get interested in Nigeria and this is based on seeing that our position is good enough and we can raise money through the Euro bond.
He said, “To foreign portfolio investors, the biggest worry is the lack of ease of entry and exit. And that is because the price in the market does not necessarily tell us why the prices should be traded.
“So, recently we’ve seen the FMDQ begin to publish prices that are fairly reflective of where parallel market rates are.
“What this does is to open the doors for foreign portfolio investors to bring in their money, because they are likely to have market rate.
“It is not going to happen as quickly as we want it to happen. But this is a good development, in which case there is a likelihood that we’ll begin to see a few of them coming.
“The moment the market continues to adjust and it is perceived to be positive, it begins to open the door for us to go do a Euro bond issuance and I say this because we need to then connect the dots.
“The monetary policy at this current time is trying to make sure they’re doing everything possible in the orthodox way.
“So they want to be able to mop up liquidity the way they should. They want to ensure banks are capitalised properly.
“They want to have a transparent forex market, clear the backlog of foreign exchange and in doing what is right based on what we have spoken about, in 2024 N21 trillion, at least must be borrowed”.
He added that while the country is able to do this, it must also be aware of the prevalent high interest rate.
“So if you have to borrow that amount of money, and the inflation is at 28.9 percent, it is only logical that rates must rise. At least to make sure that your return is positive.
“There’s going to be inflation targeting. So, any rates that you see now, where the interbank rate or the OMO rate or the NIBOR rates are at about 14, or 15 percent, we are only just getting ready to get to where we are going.
“This reason is simple, for the Federal Government to borrow, they must pay up and for also contain inflation which is also partly fed from the exchange rate.
“We must pay the right kind of interest rate if we’re going to attract foreign portfolio investors. So, you have to be able to put all of that together to say we want foreign portfolio investors to come.”
On inflation, the MD of Standard Chartered Bank said the Federal Government and the CBN must mop up at the right level and these simply suggest that in 2024, rates will rise.
While explaining the roles of both fiscal and monetary agencies, Adelagun said, “The interesting part of what is happening in 2024 is that there is a clear distinction between the monetary and fiscal. Fiscal wants lower rates, monetary is saying we are just going to do what is right and that is a big development in 2024.
“Several policies have come in from the beginning of this week in particular, and I’m sure that by the time we’re all leaving here there’ll probably be a few more circulars coming in, suggesting one or two things.”
Painting a positive scenario, Adelagun said, “On the back of some policies, FMDQ has done their part. They have told banks to sell their long positions. Some will argue that we have seen this before, but the difference now is that unlike the time when we published our financials and did a few things, there seems to be a very tight sequencing.
“So they’re doing everything right in the right direction. So circulars are coming at the right pace.
“Having said to banks, you that must sell down your positions, what is likely to happen is the chance that FPIs begin to get interested, so, that brings in a bit of liquidity.
“If that begins to happen, then our pricing of Eurobond then resets and begins to give us an avenue to raise some more money.
“Also, production continues to ramp up and they then have the firepower to defend the currency a bit more. Auctions will not be the same kind of auctions we are used to. But as production continues, and NNPC and CBN begin to get their act together, they then can begin to intervene in the market in the way they should once in a while.
“N1,400 to a dollar has happened, we have fastened our seatbelts but very soon, what is likely to happen is the impact of this initial push of the liquidity that has been sitting on banks books, pushes the rates a bit lower”, the Standard Chartered Bank boss added.
Continuing, he said, “It catches on with FDI flows, catches on the Eurobond issuance. It catches up with the production ramping up and NNPC catches on also with the securitisation of the NLNG and a few more flows coming in from different sources.
“And most importantly, the CBN has now decided we are going to make sure we only sell FX to legitimate demands.
“So of the $5 billion outstanding forwards, they have been able to trim that down to a smaller number and the reason why that has happened is because most of the demands don’t follow due process. So if you are able to trim down that demand, ultimately what you’re able to achieve is to have just enough liquidity to meet legitimate demands.
“If you take out all the demand that are illegitimate, and confidence builds up, people then begin to speculate less on the currency.
“So, interest rates are going to rise and it is time for us to build up cash and wait for the right time to invest in TBs or bonds, it’s going to happen”. (Independent)
