How Nigeria can attract foreign investment to achieve forex stability- Chinwe Egwim

At the recently held Nairametrics Q2 Economic Outlook webinar, Chinwe Egwim, who is the Chief Economist and Head of Economic Research/Intelligence for Coronation merchant bank, spoke on the economic agenda of the new administration and how to attract foreign investment to achieve the forex stability being sought.

In addition, she provided some recommendations on how capital market investors can benefit from the new administration.

Economic agenda of the new administration and how to attract foreign investment

She highlighted that the new administration intends to achieve double-digit GDP growth during the tenure. She mentioned priority sectors which are vehicles that will help to achieve these targets. They include agriculture, manufacturing, oil & gas, technology, real estate, transportation, and power.

She analyzed the economic agenda for the past administration and how to attract foreign investment.

Collectively, analyzing the Q1 GDP figures, the sector accounts for about 62% of total GDP.

An expansionary fiscal policy posture was adopted in the last administration and will hopefully be seen in the current administration.
It appears there is a preference for using fiscal policy to achieve economic goals as opposed to just relying solely on monetary policy.

From a revenue perspective, revenue underperformance has been steadily observed, and this has impacted the country’s debt-to-revenue ratio.

The PMS subsidy removal should support revenue performance. About 2 trillion was spent on PMS subsidies from January to July of 2022, and that was out of a budget of 4 trillion nairas for the full year 2022. This is compared with the N1.5 trillion that was spent for the full year of 2021.

Projections
On the subsidy, 3.4 trillion was budgeted for the first half of 2022. If the move is done effectively, it will positNairaDiggy2332ively impact the country’s landscape.

This may cause inflation as it has been factored in a series of projections, analyses, and modelling which indicates that pockets and purses will be pinched.
Purchasing power will be eroded in the near term.

As for government revenue taxes, it is expected that the current administration will remain conservative in implementing broad tax increases.

There are plans to review the corporate tax system, plug loopholes and enhance effective collection by deploying technology and automation.

The President has indicated a willingness to utilize tax credit and tax holidays to boost domestic manufacturing, which will favour SMEs that contributes as high as 50% to the total national output.

The ratio of capital to recurrent expenditure is expected to be higher. The ratio preference is 30:70. There will be a slight shift given all the planned projects.

Project financing is also expected to be in high demand. Infrastructural projects in the pipeline are The National Portable Water Supply Campaign, The ventribulation of major dams, the development of small-scale irrigation and water catchment systems as well as rehabilitation of the country’s hybrid system- these all tilt towards the agriculture sector.

Spike in capital expenditure would impact deficit financing gaps.

FGX borrowing target may not reduce in the near term.

Nigeria is still expected to have limited access to the Nigerian capital market in 2023 and possibly stretching to the first half of 2024.

Rating actions are expected by credit rating agencies because it plays a critical role in external borrowing capacity.

Combating inflation

She also made recommendations on how to combat inflation:

“The factors that affect high inflation are largely supply-side driven. I expect to see increased coordination between fiscal and monetary authorities going forward”
“It is important to note that achieving sustained double-digit growth requires long-term commitment, effective implementation of policies, continuous monitoring and adaptability to changing circumstances, strong leadership, and stakeholder engagement”
Interest rates to boost FDI would require careful engagement with relevant stakeholders including CBN and other financial institutions.
Boosting FDI inflows include enhancing government transparency and accountability across all sectors, strengthening institutions, and combating corruption.

How capital markets investors can position themselves

According to her, you can maintain a well-diversified portfolio across asset classes. She also stated that the impact of a new administration on capital markets is dynamic, so there is a need to keep on monitoring market development. There should be a conscious effort by market players to access the policy direction and economic agenda.

“Pay attention to policies related to sectors relevant to your investment portfolios, such as infrastructure, energy, agriculture, manufacturing, and service-oriented sectors”

“Actively engage with stakeholders, policymakers and leaders, and local communities. Participate in investment forums, business associations, and networking events”

“Have your hands on the pulse of market dynamics because all of these would create valuable insights and opportunities for you”