The current sell-offs or cryptocurrencies, US stocks, and other global financial markets could have a ripple effect on Nigeria, Nairametrics analysts opine.
Currently, the market sell-offs have largely affected the equities market in most developed markets while cryptocurrencies have shed about half their all-time high market values set around November last year.
Contrary to what is going on globally, the Nigerian economy is not impacted for now. In fact, the local stock market all share index hit a 13 year high last week as gains by trillion naira market valuation stocks dragged the market to a new crescendo. However, Nigeria may not be completely immune to the global sell-off and it’s only a matter of time before we start to feel the impact locally. Here are examples of how this could affect us locally.
Increase in borrowing cost
Low-interest rates on foreign assets have for years made Nigerian foreign debts such as Eurobonds one of the most sought after in the world. With yields as high as 7% foreign investors snap up the risk-free debts which pay a significantly higher return than they will get from bonds sold by western countries.
- Local banks and corporates in Nigeria have also taken advantage of these attractions to Nigerian debts to borrow from the international markets, some at yields are much lower than they would have had the US Fed not deliberately kept rates low.
- Now those yields are likely to climb back up making future borrowing more expensive for Nigerian businesses. This will affect those looking to refinance, new borrowings, and even those servicing existing debts.
- It could be worse for companies who have foreign-denominated loans on their balance sheets, especially if the interest rates are floating.
Companies that rely heavily on foreign imports have one more problem to contend with asides from higher inflation.
- A market turmoil in the midst of rising oil prices and increasing global demand for goods and services could make imports even more expensive to finance.
- Correspondence banks across the world will tighten their trade policies making it more difficult to source funding for the importation of goods and services.
- The world is still grappling with logistics logjams that have slowed down the movement of goods and services across the globe.
- There are also concerns that inventory pile-ups could torpedo predictions of a rising price of crude oil in the short term. Oil prices fell slightly last week, as investors sold down positions in financial assets. Already, traders are alluding that oil price rose too fast after a slew of reports from investment banks predicted a $100 oil price.
- A financial market sell-offs, if it persists, will snuff out global demand for oil sending prices down, a situation that could affect Nigeria’s oil revenues and exchange rate stability.
Cryptocurrencies have already lost a whopping 50% of their market value since they hit a high in November 2021. The recent sell-offs alone have seen Bitcoins lose over $13,000 off its price at the start of the year.
- Being an asset that is coveted all over the world, especially by Nigerians, it suffices to say that millions of dollars of investments may have been lost on these ensuing sell-offs.
- Those who may have been lucky enough to pull out their funds will have to wait for a while to get back into the market losing an important source of revenue for a lot of jobless Nigerians.
- This could have a ripple effect on the income of tens of thousands of Nigerians who have made money from the cryptocurrency market.
- There are also many more who beyond mining crypto and trading are also creating their own project-backed utility coins. These people may find it hard to fund some of their projects if the market selloffs intensify as expected.
Though currently unrelated, we envisage a contagion in the remote working jobs available online. Most of the jobs today are tied to projects funded by cheap dollars provided by fund managers some of whom are dealing with massive pullouts of funds.
- We expect some projects will be stalled this year, particularly those funded by debts which will negatively impact remote working jobs abroad. On the flip side, massive investments going into the world of the Metaverse could help stem the slide triggered by the financial market crash.
- Megacorporations, like Meta and Microsoft, will continue to spend big on investing in technology and manpower helping create more jobs globally. Nevertheless, the impact of the sell-offs will negatively impact remote working jobs in Nigeria forcing an increase in the unemployment rate albeit for the short term.
The Nigerian Startup scene has raised hundreds of millions of dollars in recent years on the back of increased attraction for the Nigerian FinTech scene. However, things could get really hard this year if our projection comes through.
- We suspect the market sell-offs could affect pending funding rounds and the capital raising efforts of local Nigerian initiatives.
- Founders who are yet to complete capital raising plans may need to ratchet up their cash mobilization efforts or find themselves caught up in the bust that is ensuing.
- Newer funding rounds could also diminish this year compared to the flurry of deals reported in 2021.
- Investors are also likely to review the sort of multiples placed on the valuation of Startups, particularly tech-based startups. This could affect valuations of future fund raising rounds.