The CEO of Financial Derivatives Company Limited, Bismarck Rewane, revealed that the Bola Tinubu administration’s goal of creating a $1 trillion economy in the next eight years was starting to seem like a pipe dream during a breakfast session hosted by Parthians Partners in Lagos on Tuesday. He cited the undervaluation of the naira and uncertainties in the oil market.
The analyst maintained that, in spite of the naira’s decline, market research indicated that the value of the national currency was 31.43% undervalued on the black market, indicating a true value of N800.19/$. He also predicted that, given the correct policies, the value of the naira would stabilise and strengthen in 2024.
Speaking on the 2024 appropriation bill and the federal government’s target of $1 trillion economy in eight years, Rewane said, “Oil price is about $76 per barrel today, the price per barrel is at $74 per barrel.
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“Normally, your benchmark price should be around 20 per cent below the spot price and now we are already under. Not only that, the production the president announced was a target of 1.7 million to 1.8 million barrels per day and, then, 24 hours later OPEC cuts your quota to 1.5 million per day and revenue is price and quantity.
“So, on the price side, you are under, as well as the quantity. So the goal of achieving a $1 trillion economy in eight years is becoming more of a pipe dream.”
Commenting on the currency, Rewane stated, “When you divide the price of goods in Nigeria and the price of goods in New York, you will get about N800 to a dollar. The official market is N806.73 and the parallel is now N1200/$1, so something is happening as the currency is undervalued at 31.43 per cent. How do we correct this undervaluation?
“You have to correct it by changing the market structure and allowing the wholesale option to take place where the central bank can participate. When that happens, the market would begin to stabilise.
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“We believe that the currency will begin to appreciate sometime going into 2024. The currency will stabilise.”
Rewane projected an increase in inflation in the early months of 2024 as a result of continuing market reforms and currency volatility in the parallel market.
He did, however, anticipate a softening trend by the middle of the year, with average inflation expected to drop to 23.6% in 2024 from 24.4% in 2023.
According to observers, this fall is what sets off the currency rate’s natural rise, which is consistent with Tinubu’s objective of bringing inflation down to 21.7%.
Rewane disclosed that, “Inflation will continue to rise in early 2024 due to market reforms and persistent currency volatility on the black market. However, base effects are expected to kick in by mid-year with inflation moderating to an average of 23.6 per cent in 2024 from an average of 24.4 percent in 2023, and once inflation begins to decline, the exchange rate would appreciate naturally.
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“Tinubu said he is going to get it down to 21.7 per cent, we would look and see how, but we think that would happen.”
He also said, “The number of foreign participation in the Nigerian investment scene is quite low at 11 per cent. But in 2024, we expect it to be 20-25 per cent.”
Rewane revealed that Nigeria’s economic problems were deeply rooted in structural imbalances and overbearing and bloated government size.
He said, “Nigeria’s economic problems are structural as well as current. Fiscal pressures are there because the normal size of government activities compared to the direct and indirect impact of government activities is a different story.
“The federal government has an overbearing fiscal dominance. The external imbalances are growing because we have leakages in the system.”
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In addition, Oluwaseun Dosunmu, Head of Investment Research at Financial Derivatives Company Limited, forecast that the recent announcement of bank recapitalization would lead to possible mergers amongst businesses, especially those listed on the Nigerian Exchange Group (NGX).
According to Dosunmu, these consolidations might lead to fewer banks than there are at the moment.
Finally, Rewane emphasised that in order to overcome Nigeria’s economic woes, structural issues must be addressed and effective policies must be put in place.
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