Stakeholders in Nigeria telecommunication sector are pushing for a tariff hike with signals the Nigerian Communications Commission may have begun consultations with relevant players on the proposed tariff increase in the telecoms sector. Could these deliberations yield an outcome that will be acceptable to both the operators and subscribers once and for all? Tajudeen Ibrahim, Director of Research and Strategy at Chapel Hill Denham joins CNBC Africa for more on this.
Zedcrest Research forecasts Nigeria′s GDP will grow by 3.4% while inflation slows down to 25.26% come next year. The investment company hinges its predictions on expected robust growth driven primarily by significant advancement in key sectors. Biminiye Shukpeju, Investment Research Analyst at Zedcrest Wealth joins me now to unpack the report. Biminiye, thanks a lot for joining us on the show today. Your report is quite the optimist here and I was laughing through some of the details we have here. But let′s start off with inflation because that′s where we also have the deliberations centre around. We have the Nigerian Monetary Policy Committee meeting starting today and then deliberations continue till tomorrow. Ghana is also expected to announce its decision the last fall this year. But if we go by this sort of inflation print where you see it say slowing down to about settling to about 25.2% come next year, questions around the growth of money supply, the sort of budget we have for 2025, the implications on inflation and a whole lot more. How come are you here at those numbers? Because this is a far cry from what other analysts have projected. Biminiye Shukpeju, Investment Research Analyst at Zedcrest First of all, thank you for having me. Looking at our inflation forecast, we forecast about 25.26% at the end of 2025 and the reasons for this forecast are not really very far fetched. So first of all, the major driver of inflation in the past 15 months has been obviously FX devaluation as well as PMS price increase that we have seen domestically. So given the fact that the FX thing has kind of depreciated less than what we saw last year, we are expecting that to print into inflation and also on the PMS side of things, we believe that PMS price increases have actually filtered into inflation enough and we don't expect any significant shifts currently. PMS price is about 1,100. We don't really expect any significant hike. We saw inflation begin to decelerate like two months back, but obviously we've seen like two consecutive hikes of inflation majorly driven by the increases in this PMS prices that we have seen going from 900 to about 1,100 levels, but we're not really seeing that come into play anymore. So I mean, all of that together is driving our inflation target to reach 25.26%. Also as well, we are moving for a period of high inflation that is the base effect of inflation is going to come in. So all of that should drive inflation to moderate. I mean, given at the end of Q1 next year, we should be getting about 30% based off of our forecast and at the end of the whole year, we should be getting about 25.26% and an average like 28%. If you were to give me a range where you also see things from now the possible moves that we'll see the MPC also take in the announcement for tomorrow. Now, there are some who are expecting a much more moderate rate hike, say 25 basis points, some 50 basis points, but given a bull bear case scenario now at the end of the day, where do you see the range at most? Okay, so I mean, for the MPC, during the last MPC meeting, we had the MPC reiterates a lot of the time that they are looking to move into a positive real interest rates regime system where interest rate is at par or close to inflation rates. And inflation is currently at 33.88%. The MPC is currently at 27.25%. So given that we are still far off from where they want the target to be. So bull case, or our case, we expect about a 50 basis points hike or inflation to about a 100 basis point hike. That's if the MPC really wants to be, that's if the MPC wants to be very aggressive to like, curb, really curb inflation, because I mean, what we what they are trying to achieve is, is getting foreign exchange into the country. And the only way that foreign investors will come into the country is if interest rates are par with inflation, which we have been seeing. And I like the fact that you've also introduced foreign exchange. Now, once again, your forecast here is also quite interesting. 1,700 to the greenback. Some have said by the first quarter of next year, we should see that inching towards the 2,000 naira range. Walk us through the idea here. Okay, so on the foreign exchange bit, we are, like I said, with the MPC, we see the MPC increasing the NPR rates, right, and all of that's conjoined with, conjoined with the bulls that foreign exchange reserves and as well as the, you know, Dangote refinery coming on to help us reduce the demand for the pressure for FX. And also, if you look at real sector companies, we are seeing real sector companies begin to adapt to the new situation in Nigeria. So they are now using more domestic products to produce whatever they are producing. And it is all about reducing the pressure on the FX. So we expect this reduced pressure on the FX to bring the naira to about 1,750 levels. Okay, now shift and focus now towards the fixed income market as well. Now, it's also important to put into perspective the sort of sentiments we'll see over there. And we've talked about whether or not Nigeria can sustain this season of hot money. But now let's talk about what sort of interest we might see, especially for long-term bonds, and in terms of the appetite around Nigeria-Europe bonds. How positive is the outlook? Okay, so in terms of domestic bonds in Nigeria, right, we expect, given the fact that, you know, we are currently at 27.25 in MPC, and we have even seen the DMO increase the yield on the discount rate on bonds, even at primary auction, even at primary market auction. So we will be seeing more investments into the bonds, given the fact that, you know, we expect that due to moderating inflation, rates should start to come down later H2 next year. So because of that, we expect like investors to lock in the bonds at these high interest rates, because obviously it wouldn't last forever. And then moving on to the Eurobond front, given the fact that, you know, we're expecting moderating inflation, and also rates in the global markets are already kind of declining. We have the US NPR rate has already been taken down, like taken downwards. The premium between the US rate and the Nigerian bond rates, the Nigerian-Euro bond rate is still very far off. So investors that are looking to make a good alpha on their money would be sticking towards the Nigerian-Euro bond or SSA-Euro bonds. Well, wrapping up with our forecast now, we've had a whole lot of recommendations from the IMF and the World Bank talking about how should we sustain the reform momentum and the sort of growth we'll see going forward. But if you're speaking to sector specific movements now, let's take into consideration the telecom and information services sector. Conversations are around rate hike, how do we sustain the quality of services here. When we also look at trade as well, trade surplus, what are some of the numbers, how optimistic are you around these sectors? And also they are a great sector, we've had quite the reforms. However, the cost of input and a whole lot of strategies still remain a mismatch. Okay, so I mean, starting off with the sectoral reforms, so our outlook is basically based on the fact that we expect some positive, we are seeing some positive reforms in this sector, and we expect them to print into GDP as of next year. So if you look at the telecom side of things, we are seeing talks on them bringing in more infrastructure into the economy, more investors are actually looking into investing more in the economy, and we are seeing companies starting to inch closer to the positive profit at a tax level, so that is kind of bolstering investment in that particular sector. Then if you look at the agric side of things, we are seeing obviously the foreign exchange is making these exports more expensive, it's adding more GDP for us, given the fact that it is not because of the FX thing, it is now more expensive. So we still expect all of that to print into GDP coming into next year. Well, we'll have to leave the conversation here for now. Thanks a lot for your time. The next conversation is also going to focus on the oil production. Your volume is about 1.6 million barrels per day level. Well, I'll definitely have that in the next conversation. But Bimini, thanks for sharing your thoughts with us today. That was Bimini Shupidu, Investment Research Analyst at ZEPRES World.
Theme: Nigeria's Economic Forecast for 2025
Nigeria's economy is set for a potential upturn in 2025, as Zedcrest Research predicts a growth of 3.4% in GDP and a dip in inflation to 25.26% next year. The investment company attributes this optimism to advancements in key sectors that are expected to drive robust growth. In a recent interview, Biminiye Shukpeju, Investment Research Analyst at Zedcrest Wealth, delved into the details of their forecast and shed light on the factors underpinning their projections. Shukpeju highlighted that inflation in Nigeria has been largely influenced by FX devaluation and price increases, particularly in the PMS sector. However, with the FX depreciation stabilizing and PMS prices reaching a plateau, Zedcrest expects inflation to moderate. They anticipate a gradual decline in inflation, with projections of around 30% by the end of Q1 and 25.26% by the end of 2025, averaging at 28%. The ongoing Nigerian Monetary Policy Committee meeting has stirred discussions on the possibility of a rate hike. Zedcrest envisions a potential 50 basis points increase to align interest rates more closely with inflation rates. Shukpeju emphasized the importance of reaching a positive real interest rates regime to attract foreign investors and stabilize the economy. In terms of foreign exchange, Zedcrest foresees the Naira strengthening to around 1,750 against the US dollar. Factors contributing to this outlook include potential NPR rate hikes, increased foreign exchange reserves, the operationalization of the Dangote refinery, and the shift towards using more domestic products by real sector companies to alleviate pressure on FX. Shifting focus to the fixed income market, Zedcrest anticipates heightened interest in domestic bonds due to the current MPC rate and the expectation of declining rates in the latter half of 2025. For Eurobonds, the prospect of moderating inflation and declining global rates positions Nigerian-Euro bonds as an attractive investment option for investors seeking higher returns. Regarding sector-specific movements, Zedcrest remains upbeat about the telecom and information services sector's potential for growth in 2025. Positive reforms and increased investment in infrastructure are expected to bolster the sector's performance. Additionally, the agricultural sector, despite facing challenges from foreign exchange dynamics, is projected to contribute to GDP growth. As Nigeria navigates its economic landscape in 2025, Zedcrest's forecast provides a glimpse of optimism amidst evolving challenges and opportunities. The convergence of prudent monetary policies, sectoral reforms, and strategic investments sets the stage for a potentially brighter economic outlook for the country.
"Inflation is currently at 33.88%. The MPC is currently at 27.25%. So given that we are still far off from where they want the target to be."
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