How many more negative hashtags are we going to have this year? It appears the year 2020 keeps birthing
negative news. The term, Nigeria is a “youthful population” is ironic, because it just seems like it has not meant
much for several years. For a country that the youths make up about 65 per cent of its population, yet gravely
underrepresented in every area of the government. They say we are the leaders of tomorrow, but it almost feels
like there is little to no plans being made for us to become the leaders of tomorrow. Despite all the challenges
of unemployment, discrimination, insecurity and many more faced by Nigerian youths, we still manage to see
a good number of us defeating the odds. Last week re-established the power of the future leaders and what
could be achieved if we all come together to fight for a common cause.
However, we would rather not get political on this, but would like to express how proud we are of the brave
young men and women who are relentlessly and peacefully fighting for justice and an end to police brutality in
Nigeria. Just as we stood against police brutality in America, we at Comercio Partners also stand against police
brutality here in Nigeria. Afterall, how are we meant to make wealth if we are not alive?
“The only real prison is fear, and the only real freedom is freedom from fear.” Aung San Suu Kyi
The 2021 Budget Proposal – Practicable or Hopeful?
Last week, the Federal Government presented the 2021 budget to the National Assembly, providing a fiscal
plan that has a disturbing semblance to the unrealistic theme of your favorite science fiction movies. But
distressingly, this proposal was not made for the cinemas. So, let us start by looking at the assumptions:
Oil Price Benchmark – $40/bl
Oil Production Estimate – 1.86 mbpd
Exchange Rate – N379/$
2021 GDP Growth Projection – 3.00%
2021 Inflation Target – 11.95%
The 2021 budget assumptions simply follow the same pattern as previous years, providing a buttered-up
economic expectation of the upcoming fiscal year. Delving into the realism of the assumptions, the oil price and
production targets of $40/bl and 1.86 mbpd, respectively, are the closest attainable figures in the assumption
lineup. However, let us also bear in mind that the initially proposed and approved benchmarks for crude oil
price and production estimate for 2020, which stood at $57/bl and 2.18 mbpd, respectively, both seemed
realistic when presented but became far-fetched once the Covid-19 pandemic hit the global economy.
More interestingly, the proposal sees the economy growing by 3 percent in 2021, with inflation printing at 11.95
percent. This growth target comes in against the reality of a looming recession following the 6.10 percent
contraction seen in the second quarter and a N2.3 trillion economic stimulus plan that we are struggling to pay
for. Also, with inflation at 13.22 percent in August, one can only wonder what will happen once the electricity
tariff and petrol pump price increase fully join the party. The exchange rate target is also not a true reflection,
as most individuals and companies cannot get FX at the official rate.
Looking at the revenue – expenditure dynamics, the budget proposes an aggregate expenditure of N13.08
trillion, which compares to a projected revenue of N7.89 trillion built on shaky assumptions. In an unlikely
scenario where we generated the total sum of expected revenue, we are still left with a deficit of N5.20 trillion,
to be financed majorly by new borrowings totaling N4.28 trillion. However, this implies that the government
will embark on more borrowings in 2021, which would provide slight support for the depressed rates in the
fixed income space and mop up some of the excess liquidity in the system. Nevertheless, the fiscal plan appears
to be unrealistic given the current and expected macroeconomic atmosphere.
Looking at the entire budget assumptions, it raises questions. For a country that has been battling with FX supply,
inflation rate and interest rates, one cannot help but ask, ‘what would have to give going forward into next
year?’ The CBN has consistently reiterated that its major focus is on developing the real sector and has been
trying to do this by implementing policies to keep interest rates low to encourage lending, whilst also using one
of the asymmetric corridors such as the CRR debits to try to curb excess liquidity and reduce pressure on FX.
However, revenue has been a major challenge in Nigeria and has been further threatened by the wake of the
covid-19 pandemic which begets the question, ‘how sustainable can the low-interest rates be when projecting
a huge budget deficit and reduced liquidity next year?’
Please feel free to join in the conversation we would love to hear your thoughts on this.
Where is the money?
The equities market sustained its bullish momentum last week as the Nigerian Stock Exchange All Share Index
(NSEASI) advanced by 5.30% WoW to close at 28,415.31 points. The market breadth closed at +5.86x (vs.
+0.54x recorded last week) as the market recorded fifty-three (53) advancers in contrast to fourteen (14)
decliners in the week. We expect the anticipated profit-taking activity this week to create good entry points for
investors still looking to take advantage of the fundamentally sound stocks with good dividend yield.