25th January 2021: A new study from Juniper Research has found that total spend via digital wallets will exceed $10 trillion in 2025, up from $5.5 trillion in 2020. The research found this dramatic 83% growth in spending will be fuelled by the heightened adoption of digital payments during the pandemic.
Digital wallets, where payment details are stored and accessed via a single application, have proven themselves as being both convenient and secure during this difficult period; acting as a platform for future growth.
The report identified that wallets are becoming increasingly capable of both contactless and remote payments. The research forecasts that in 2025, contactless and eCommerce payments will account for 50% of total wallet spend, from just under 36% in 2020; making these the high-priority areas where wallet providers need to maximise their merchant networks.
Acceptance – The Challenge for Merchants
The new research, Digital Wallets: Key Opportunities, Vendor Analysis and Market Forecasts 2021-2025, found that the rapid growth in digital wallets’ availability, coupled with rising adoption, has left merchants with difficult decisions around acceptance. The report identified integration costs for multiple wallets as challenging for merchants; meaning that picking the right wallets to focus on is highly important.
Research co-author Alexandria Sadler explains:
‘Merchants must base their payment strategies around wallet acceptance in order to support a digitally-engaged addressable market, but must also judge the right wallets to target, or they will be lumbered with increased costs and limited benefits.’
Contactless Payments Seeding Greater Wallet Use
The research also found that the increased use of contactless mobile payments during the pandemic, prompted by concerns around cash, has seeded greater wallet use across the payments’ ecosystem.
The report forecasts that contactless adoption will rise, with over 34% of mobile handsets set to use contactless payments in 2025, up from 11% in 2020. This growth means integrating contactless-enabled wallets within checkout processes will be critical to meet changing user expectations.
Juniper Research provides research and analytical services to the global hi-tech communications sector; providing consultancy, analyst reports and industry commentary.
The World Economic Forum has today launched a coalition of organizations committed to improving racial and ethnic justice in the workplace
48 organizations representing 13 industries, with more than 5.5 million employees worldwide and with headquarters in three continents have committed to building more equitable and just workplaces
Companies must put racial and ethnic justice on their board’s agendas, take at least one firm action and set a long-term strategy to become an anti-racist organization
Geneva, Switzerland, 25 January 2021 — The World Economic Forum has today launched the Partnering for Racial Justice in Business initiative, which will see a coalition of organizations committed to building equitable and just workplaces for professionals with under-represented racial and ethnic identities.
Photo by Headway
The Partnering for Racial Justice in the Business initiative has been designed to operationalize and coordinate commitments to eradicate racism in the workplace and set new global standards for racial equity in the business. It also provides a platform for businesses to collectively advocate for inclusive policy change.
What action looks like
Three steps are required to join the initiative:
Racial and ethnic equity must be placed on the board’s agenda
Companies must make at least one commitment towards racial and ethnic justice in their organizations
Companies must put a long-term strategy in place towards becoming an anti-racist organization
Examples of business commitments towards racial and ethnic justice range from allocating financial and human resources to racial justice work, setting representation goals for all seniority levels, and establishing mentorship programmes for racially and ethnically diverse employees.
One of the initiative’s starting points will be Black inclusion and addressing anti-Blackness. A broad-brush approach to racism fails to grasp its effects on different under-represented groups. Anti-Black racism is historically one of the most pervasive forms of racism.
As such, a targeted and specific approach to tackle it in the workplace is required. As the initiative evolves, it will seek to increase the visibility of racially and ethnically diverse leaders throughout industries, and expand its focus to include additional racial and ethnic groups.
“With just 1% of Fortune 500 companies led by Black chief executives, the need to tackle racial under-representation in business is urgent and obvious. To design racially and ethnically just workplaces, companies must confront racism at a systemic level, addressing not just the structural and social mechanics of their own organizations, but also the role they play in their communities and the economy at large.
The Partnering for Racial Justice in Business initiative provides an effective platform for businesses to take individual and collective action towards racially and ethnically just workplaces,” said Saadia Zahidi, Managing Director at the World Economic Forum.
The founding members of the initiative are: A.P. Møller-Maersk, AlixPartners, AstraZeneca, Bank of America, BlackRock, Bloomberg, Boston Consulting Group, Bridgewater Associates, Centene, Cisco Systems, Cognizant, Dentsu International, Deutsche Bank, EY, Facebook, Google, H&M Group, Henry Schein, HP, Infosys, Ingka Group (IKEA), Jacobs Engineering Group, Jefferson Health, Johnson & Johnson, Kaiser Permanente, Kearney, LinkedIn, ManpowerGroup, Mastercard, Mayo Clinic, McKinsey & Company, Microsoft, Nestlé, PayPal, PepsiCo, Procter & Gamble, PwC, Salesforce, SAP, Standard Chartered Bank, Tata Consultancy Services, The Coca-Cola Company, Depository Trust & Clearing (DTCC), Thermo Fisher Scientific, Uber Technologies, Unilever, UPS and Willis Towers Watson.
“This initiative is an important step in helping accountable business leaders do more to change the foundational systems that interfere with achieving equity. Kaiser Permanente is taking bold actions within our organization to evolve and advance our equity, diversity and inclusion strategy, and we look forward to being part of this coalition, both to help its work and learn from others.” — Greg A. Adams, Chairman and Chief Executive Officer, Kaiser Permanente
“At IKEA, we side with the many, and we believe that a better every day is also equal every day. We are committed to creating a fair and equal workplace for everyone, no matter their ethnicity, race or nationality. We see three main reasons: It is about fairness, it’s about reflecting the diversity of our customer base to meet the dreams and needs of our customers in better ways.
And finally, it opens up more and new opportunities to attract and recruit the best talents. By working together with the Forum and other businesses we hope to accelerate the pace and scale of change to create more fair and just workplaces and society.” — Jesper Brodin, Chief Executive Officer, Ingka Group (IKEA)
“The new global standards established by Partnering for Racial Justice in Business come at a time of heightened global focus on racial injustice, underscored by a pandemic that has disproportionately affected Black and Latino communities in the United States, along with other marginalized communities worldwide.
We believe companies – critical enablers of wealth creation and professional mobility – must play a leading role in building a more equitable future for all. And as an organization that exists to create economic opportunity for the entire global workforce, we are honoured to join this initiative.” — Rosanna Durruthy, Global Head of Diversity, Inclusion, and Belonging, LinkedIn
“At P&G, we aspire to create a company and a world where equality and inclusion are achievable for all people. For us, this starts with ensuring equitable and inclusive workplaces and drives the actions we take with our brands and business partners and throughout communities around the world.
The Forum’s Partnering for Racial Justice in the Business initiative will help foster cross-sector collaboration towards this aspiration and enable P&G and many companies to accelerate progress faster than any of us could do alone, and we’re proud to lend our support.” — Shelly McNamara, Chief Equality and Inclusion Officer, Procter & Gamble
“In order to have an economy that works for everyone, we all have an obligation to address the inequalities that have existed for too long; that includes systemic racism. At Mastercard, we believe that our success comes by ensuring decency, well-being and inclusion are part of everything we do. Bringing together groups like this creates the potential for greater impact, accelerating our ability to learn from one another and deliver action at scale.” — Michael Miebach, Chief Executive Officer, Mastercard
“As a global organization that runs with a purpose, we will only have done our jobs if we create opportunities for every employee to flourish and for social justice to prevail. We must understand the role we play, the things we can do better, and the actions we can take to ensure equality for all. Let our work together be a shining example of the change we are advocating.” — Judith Williams, Head of People Sustainability and Chief Diversity and Inclusion Officer, SAP
The COVID-19 pandemic continues to widen inequalities, with disproportionate repercussions for disadvantaged groups and minorities. What policies, practices and partnerships are needed to embed equity and inclusion into our economic systems?
The Davos Agenda is a pioneering mobilization of global leaders aimed at rebuilding trust to shape the principles, policies and partnerships needed in 2021.
It features a full week (25-29 January) of global programming dedicated to helping leaders choose innovative and bold solutions to stem the effects of the pandemic and drive a robust recovery over the next year. Heads of state, chief executives, civil society leaders and the global media will actively participate in almost 100 sessions covering five themes.
Lomé, January 25, 2021 – Ecobank Transnational Incorporated (“ETI”), the parent of the Ecobank Group, announces that one of its significant subsidiaries, Ecobank Nigeria, secured N50 billion, 10-Year bilateral subordinated loan.
The bilateral funding provides stable medium-term liquidity to the balance sheet of Ecobank Nigeria and positively improved its balance sheet ratios, especially the capital adequacy ratio by circa 300 basis points. The transaction proceeds would be deployed to support Micro, Small and Medium Scale Enterprises (“MSMEs”) and Small Corporates.
Ecobank Transnational Incorporated (‘ETI’) is the parent company of the Ecobank Group, the leading independent pan-African banking group. The Ecobank Group employs over 14,000 people and serves over 24 million customers in the consumer, commercial and corporate banking sectors across 33 African countries.
The Group has a banking license in France and representative offices in Addis Ababa, Ethiopia; Johannesburg, South Africa; Beijing, China; London, the UK and Dubai, the United Arab Emirates.
The Group offers a full suite of banking products, services and solutions including bank and deposit accounts, loans, cash management, advisory, trade, securities, wealth and asset management. ETI is listed on the Nigerian Stock Exchanges in Lagos, the Ghana Stock Exchange in Accra, and the Bourse Régionale des Valeurs Mobilières in Abidjan.
Global foreign direct investment collapsed in 2020, falling by 42% to an estimated $859 billion from $1.5 trillion in 2019. FDI finished 2020 more than 30% below the trough after the global financial crisis in 2009 and back at a level last seen in the 1990s.
The decline was concentrated in developed countries, where FDI flows fell by 69% to an estimated $229 billion. Flows to Europe dried up completely to -4 billion, including large negative flows in several countries. A sharp decrease was also recorded in the United States (-49%) to $134 billion.
The decline in developing economies was relatively measured at -12% to an estimated $616 billion. The share of developing economies in global FDI reached 72% – the highest share on record. China topped the ranking of the largest FDI recipients.
The fall in FDI flows across developing regions was uneven, with -37% in Latin America and the Caribbean, -18% in Africa and -4% in developing countries in Asia. East Asia was the largest host region, accounting for one-third of global FDI in 2020. FDI to transition economies declined by 77% to $13 billion.
Trends in selected economies
FDI in China, where the early phase of the pandemic caused steep drops in capital expenditures, ended the year with a small increase (+4%).
FDI in India rose by 13%, boosted by investments in the digital sector.
FDI in ASEAN – an engine of FDI growth throughout the last decade – was down 31%.
The halving of FDI inflows to the United States was due to sharp drops in both greenfield investment and cross-border mergers and acquisitions (M&As).
FDI in the EU fell by two thirds, with major declines in all the largest recipients; flows to the United Kingdom fell to zero.
FDI trend expected to remain weak in 2021
Looking ahead, the FDI trend is expected to remain weak in 2021. Data on an announcement basis, an indicator of forwarding trends, provides a mixed picture and point at continued downward pressure:
Sharply lower greenfield project announcements (-35% in 2020) suggest a turnaround in industrial sectors is not yet in sight.
Upticks in the fourth quarter of 2020 dampened earlier declines in newly announced international project finance deals (-2% for the full year). International investment in infrastructure sectors could thus prove stronger, also buoyed by economic support packages in developed countries.
Similarly, the 2020 decline in cross-border M&As (-10%) was cushioned by higher values in the last part of the year. Looking at M&A announcements, strong deal activity in technology and pharmaceutical industries is expected to push M&A-driven FDI flows higher.
For developing countries, the trends in greenfield and project finance announcements are a major concern.
Although overall FDI flows in developing economies appear relatively resilient, greenfield announcements fell by 46% (-63% in Africa; -51% in Latin America and the Caribbean, and -38% in Asia) and international project finance by 7% (-40% in Africa).
These investment types are crucial for the productive capacity and infrastructure development and thus for sustainable recovery prospects.
Risks related to the latest wave of the pandemic, the pace of the roll-out of vaccination programmes and economic support packages, fragile macroeconomic situations in major emerging markets, and uncertainty about the global policy environment for investment will all continue to affect FDI in 2021.
In the just concluded week, the NSE ASI retraced into negative territory amid sell-offs witnessed on the mid and large-cap stocks. We saw investors book profit on tickers such as WAPCO, DANGCEM and ZENITH given their recent share price increases.
Hence, the benchmark index waned by 42bps week-on-week to close at 41,001.99 points.
Also, Performance across subsector indices closed southwards as all the indices tracked closed in red; the NSE Banking, NSE Insurance, NSE Consumer Goods, NSE Oil/Gas and the NSE Industrial indices moderated by 1.33%, 0.80%, 0.09%, 0.13% and 0.51% to 410.39 points, 241.80 points, 605.92 points, 274.18 points and 2,051.69 points respectively.
Meanwhile, market activity was mixed as total deals and volume of stocks traded rose by 8.30% and 5.22% respectively to 32,823 deals and 3.62 billion shares respectively. However, the value of stocks traded fell by 21.80% to N25.59 billion.
In the new week, we expect the local equities market to trade northwards as investors rebalance their portfolios in favour of shares of companies with good dividend payment history and which present relatively higher yields.
In the just concluded week, Naira strengthened against the USD at the Investors and Exporters window as the exchange rate fell (Naira appreciated) by 0.13% to close at N394.17/USD.
However, Naira depreciated against the greenback at the Bureau De Change by 0.43% to close at N472.00/USD. Meanwhile, Naira remained unchanged at the parallel (‘black’) market at N475.00/USD.
Afolabi Sotunde Illustration Naira
Also, the exchange rate closed flat at N380.69/USD at the Interbank Foreign Exchange market amid weekly injections of USD210 million by CBN into the forex market: USD100 million was allocated to Wholesale Secondary Market Intervention Sales (SMIS), USD55 million was allocated to Small and Medium Scale Enterprises and USD55 million was sold for Invisibles.
Elsewhere, the Naira/USD exchange rate depreciated for most of the foreign exchange forward contracts: 1 month, 2 months, 3 months and 12 months rates rose (Naira depreciated) by 0.06%, 0.02%, 0.04%, and 0.04% respectively to close at N398.27/USD, N401.71/USD, N405.61/USD and N435.28/USD respectively.
However, the 6 months rate fell by 0.09% to close at N416.23/USD while the spot rate was flat at N379.00/USD.
In the new week, we expect sustained pressure on the external reserves as FGN redeems USD500 million Eurobond maturing this week; hence we expect Naira/USD to depreciate at most market segments.
In the just concluded week, data released from the Central Bank of Nigeria (CBN) depository corporations survey showed a 5.21% year to date (YTD) significant rise in Broad Money Supply (M3 money) to N36.59 trillion in November 2020.
This resulted from a 34.78% increase in Net Foreign Assets (NFA) to N7.82 trillion and a 0.72% increase in Net Domestic Asset (NDA) to N28.76 trillion. We witnessed a 10.90% y-t-d rise in Net Domestic Credit (NDC) to N40.12 trillion in November 2020 despite the marginal decline in Net Domestic Asset.
Further breakdown of the NDC showed a 13.73% y-t-d increase in Credit to the Government to N10.79 trillion; also, Credit to the Private sector rose by 9.89% to N29.31 trillion.
Afolabi Sotunde Illustration Naira
On the liabilities side, the significant 5.21% y-t-d increase in M3 Money was chiefly driven by a 26.83% rise in M2 Money to N36.50 trillion but was partly offset by the 98.62% y-t-d decline in treasury bills held by money holding sector to N82.59 billion in November 2020.
The increase in M2 was propelled by a 40.70% rise in Narrow Money (M1) to N14.82 trillion (of which Demand Deposits increased by 47.63% to N12.56 trillion, and currency outside banks rose by 11.54% to N2.26 trillion), as well as a 18.82% increase in Quasi Money (near maturing short term financial instruments) to N21.68 trillion in November 2020.
Reserve Money (Base Money) rose sharply y-t-d by 76.58% to N15.31 trillion as Bank reserves increased y-t-d by 98.06% to N12.33 trillion, even as currency in circulation increased by 8.87% to N2.66 trillion in November 2020.
In another development, the Monetary Policy Committee (MPC) would be concluding its 277th meeting on Tuesday, January 26, 2021, as it decides on the direction of the Monetary Policy Rate (MPR) which was reduced by 100 basis points (bps) to 11.50% in September (from 12.50% printed in August after the previous cut of 100 bps from 13.50% in May) while also adjusting the asymmetric corridor to +100 bps from -700 bps (from +200 bps and -500 bps) around the MPR.
Also, in November 2020, MPC left the MPR unchanged at 11.50%. Other parameters such as Cash Reserve Ratio (CRR) and Liquidity Ratio were also retained at 27.50% and 30% respectively.
The Committee’s decision to hold rate in November 2020 was amid its efforts, in collaboration with the fiscal authority, to lift Nigerian economy out of recession; hence, prioritising economic growth over the rising prices of goods and services.
Meanwhile, the West Texas Intermediate (WTI) crude price fell marginally by 0.82% w-o-w to USD53.13 a barrel even as Brent crude decreased by 0.57% to USD56.10 a barrel as at Thursday, January 21, 2021. This may be against the backdrop of the news on Thursday that compliance amongst OPEC+ producers fell to 99% in December 2020, from 101% compliance level in November.
However, we saw Nigeria’s crude grade (Bonny Light) price increase by 0.24% to USD55.27 a barrel as at Thursday, January 21, 2020.
The 9.89% increase in credit to the private sector over the 11 months period 2020 further reflects the push by CBN to drive increased production output in a joint effort with the fiscal authority.
However, we are beginning to see a backlash of the expansionary policy stance amid rising inflation rate and weakening Naira against other currencies, especially the greenback.
As the monetary authority convenes in the new week for the first MPC meeting in 2021, we expect the Committee to further maintain status quo despite pressure on the exchange rate and general price level given the need to further stimulate Nigeria’s fragile economy out of recession.
However, we note that the direction of interest rates may generally trend northwards at some point further afield in 2021 amid an expected increase in borrowings by the fiscal authority to fund its budget deficit.
The demand is fueled by the COVID-19 pandemic which has seen more schools and students embracing online learning. Also, with more companies and corporate organisations the world over still asking their employees to work remotely, the demand for personal computers (PCs) has soared in recent months.
Preliminary data by research firm Gartner reveals that worldwide PC shipments totalled 71.4 million units in Q3 2020, a 3.6% increase from the third quarter of 2019. According to Gartner, the huge leap in demand can be attributed to a rise in consumer demand for PCs due to home entertainment and distance learning needs during the coronavirus pandemic, aided by arguably the strongest growth in the US PC market in over 10 years.
China-based Lenovo continues to dominate the PC market, with its quarterly shipments rising to over 18 million units for the first time ever, according to data from Gartner. Lenovo is closely followed by HP and Dell. Also ranked among the top sellers are Apple, Acer Group, and ASUS.
Although Lenovo experienced a slight decline in desktop shipments, Gartner explains that demand for Lenovo desktops still fared better than those of HP and Dell, aided by solid growth in China.
Also, research shows that HP experienced a significant decline as desktop shipments declined 30% year over year, resulting in a growth of just 0.7% in the third quarter of 2020. In addition, Dell’s streak of 17 consecutive quarters of year over year growth ended in Q3 2020 with a 4.6% decline. Gartner notes that this development reflects its emphasis on business over consumer PCs.
Equally important, Lenovo witnessed a 90% year-on-year increase in Chromebooks shipment in Q3 2020. However, the firm does not include the device in its traditional PC results. However, if it includes Chromebooks in its calculations, the total worldwide PC market can be said to have grown around 9% year over year, with Chromebooks representing about 11% of the combined PC/Chromebook market.
“The quarter (Q3’20) had the strongest consumer PC demand that Gartner has seen in five years,” Mikako Kitagawa, research director at Gartner, said. “The market is no longer being measured in the number of PCs per household; rather, the dynamics have shifted to account for one PC per person.
While PC supply chain disruptions tied to the COVID-19 pandemic have been largely resolved, this quarter saw shortages of key components, such as panels, as a result of this high consumer demand.
“The business PC market had a more cautious dynamic… Businesses have continued to buy PCs for remote work, but the focus has shifted from urgent device procurement towards cost optimization. However, enterprise spending remained strong where government funding for distance learning and remote work has fueled device purchases, such as in the U.S. and Japan.”
Meanwhile, data shows that Europe, Middle East and Africa (EMEA) PC market remained relatively flat in the third quarter of 2020, with just 0.4% year over year growth to 19.5 million units. Also, the EMEA market witnessed strong consumer demand for PC. In Africa, for instance, this manifested in aggressive sales of notebooks for children and students and high-end gaming machines to support the entertainment needs of families.
Josh Yang-Ki, a global research analyst based in South Africa says Lenovo is doing extremely well, even with all the difficulties in the global capacity to meet demands. He noted that the brand is doing well in SA as well as in other African countries in the last five years, even as he described Lenovo as a leading source of PCs and other digital devices.
‘‘Lenovo has sustained leadership among other global brands in Africa. This can be attributed to their uncompromising stance on quality and cutting-edge technology. It may be difficult to beat Lenovo in the global PC supply chain as they are spending a lot of money to sustain the tempo. Other OEMs are trailing behind and may need to step up their strategy in attacking the marketplace,’’ he stated.
However, compared to other regional markets, Africa has suffered more in the supply chain disruption caused by the COVID-19 pandemic. This can be traced to the lack of foresight in envisaging the demand glut occasioned by the onset of the pandemic, with the region taken unawares and left reeling from the fact that it had traditionally worked with lower orders when compared to other regions, owing to lean budgets.
With schools shut in dire need of e-learning options and businesses having to keep their staff working from home, Africa had belatedly woken up in the third quarter of 2020 and witnessed a rise in demand for PCs. By then, the world was already in the grip of a global scarcity – a worrisome situation in which those who could pay were unable to find options.
Prices had also skyrocketed, with many major dealers cashing in on the situation to take a pound of flesh for the few available units.
‘‘A number of greedy distributors and marketers had capitalized on the situation to extort consumers,’’ says Yang-Ki. ‘‘Thus, African consumers had been more harshly affected by the supply chain disruptions.’’
In Nigeria, Africa’s biggest market, the situation was hardly different.
With the shutdown, the nation’s education sector was virtually grounded. The majority of tertiary institutions had limited resources to move their classes online, teachers in primary and secondary schools were mainly analogue and required re-training, while about 90 per cent of students also lacked access.
Worse still, the Federal Government was also handicapped, with dwindling resources from oil – the mainstay of the Nigerian economy – hampering its ability to intervene as prices of PCs rose sharply in the marketplace.
As Nigeria adjusted to the reality that the coronavirus pandemic would be around for a while, educational institutions, businesses and other users made an effort to rise to the occasion but had to contend with the existing global scarcity and crazy prices.
Giving an insight into the actual data of PCs and laptops which Konga is selling by virtue of its position as the market leader, Vice President, Konga Bulk, Mr. K. Johnson, disclosed that the figure, which had always been huge, has recently taken a bashing. Specifically, he lamented the supply chain disruption which had made it harder to meet surging demands.
‘‘Now, when we place an order for 100,000 units, we barely receive about 15,000 in two or three months. But due to our commitment to major OEMs, we have enjoyed their support to fill the gap and assuage the needs of those embracing online learning and many in the corporate market who are working from home. At Konga, there is an internal resolution by Executive Management and it is part of our CSR – not to profiteer in this period of scarcity
‘‘But we hope things will improve soon, as the scarcity of components and other hardware reduces.’’
Further, he hailed the partner OEMs, even as he singled out Lenovo for special praise.
‘‘We have enjoyed huge support from Lenovo, more than any other. This has gone a long way in helping us aid students who are relying on e-learning and employees working from home, despite the harsh scarcity. Other OEMs such as HP who are our long-term partners, Dell and others have also been very supportive but the components issue remains a challenge.’’
On when Africa can expect the current scarcity to abate, Johnson says it is hard to tell.
‘‘Orders placed since August 2020 are yet to be serviced and OEMs are giving delivery dates of March to July 2021. It’s that bad but we are hopeful that things may look up soon,’’ he disclosed.
The additional shares listed on The Exchange arose from the Company’s Rights Issue of 2,659,574,468 ordinary shares of 50 kobo each at N3.76 Kobo per share on the basis of seven (7) new ordinary shares for every twenty (20) ordinary shares held as at Monday, 13 July 2020. The Rights Issue was 99.34% subscribed.
With this listing of the additional 2,642,124,511 ordinary shares, the total issued and fully paid-up shares of Transcorp Hotel Plc has now increased from 7,600,403,900 to 10,242,528,411 ordinary shares of 50 kobo each.
Cordros Capital – The Monetary Policy Committee (MPC) is expected to hold its first meetings of the year on the 25th and 26th of January 2021. We expect the Committee to assess the developments in the domestic and external macroeconomic and financial markets since its last meeting in November and provide guidance on the path of monetary policy in 2021.
Our view is that the Committee will keep policy rates unchanged and affirm the use of unorthodox measures such as CRR debits, Loan-to-Deposit Ratio (LDR), and direct intervention in employment-stimulating sectors to influence macroeconomic outcomes and ultimately attain macroeconomic stability.
Economic Recovery Likely to be Prolonged
On the domestic front, we believe the recent rise in new COVID-19 cases will be on the front burner given the potential to unwind gains from fiscal and monetary stimulus since the reopening of the economy in May 2020.
However, we think the steps taken by the government to purchase vaccines will provide comfort to the committee. Elsewhere, factory activities slipped back into contractionary territory in December as the manufacturing PMI printed 49.6 points (November: 50.2 points) – the seventh contraction in the last eight months.
In our view, the fact that festive induced demand failed to spur activities in the manufacturing sector suggests the
lingering FX challenges,
supply chain disruptions, and
rising inflationary pressure amid pre-existing infrastructural challenges has continued to drag activities in the real sector.
Asides from the lull in factory and business activity, we note that the oil sector is yet to recover to pre-pandemic levels given Nigeria’s continued compliance with the OPEC+ production cuts.
Based on the foregoing, we believe domestic GDP is likely to record another decline in Q4-20 which negates the Committee’s optimism about a rebound in output growth. Our baseline expectation is that the Committee will shift its belief of a return to positive growth further out into Q1-21.
Mounting Inflationary Pressures
Inflationary pressure has also intensified since the last MPC meeting in November (October 2020 Inflation: 14.23%).
Consumer prices have since risen to 15.75% y/y as of December largely due to
underwhelming harvest season,
persistent security challenges, and
poor distribution network.
We expect the committee to reiterate its earlier view that inflationary pressures are driven by these supply-side factors which are outside the control of monetary policy. Hence, tightening may not be an appropriate policy response given the need to support economic recovery.
We, however, expect the Committee to cite the decision made by the federal government to reopen the land borders as a fiscal action that will ease pressure on consumer prices. Over the medium term,
we expect headline inflation to continue to rise albeit at a slower pace due to
the low-base effect,
lingering security challenges,
higher transportation costs linked to an upward adjustment in PMS prices, and
hike in electricity tariff.
Preference to Keep Yields at Low Levels
We also expect the committee to reiterate its resolve to keep yields at low levels in the near term to compel deposit money banks to boost private sector credit while also easing deficit financing pressures at a time when revenue from oil and non-oil sources are pressured.
With NGN2.55 trillion worth of OMO bills maturing in Q1-21 (Q4-20: NGN3.92 trillion), we believe system liquidity will remain elevated in the near term. In our 2021 outlook, we stated that the Committee’s tolerance for excess liquidity is consistent with its forward guidance that monetary policy will remain accommodative until economic recovery gains a foothold.
In light of this, we believe the committee members will leave the MPR at current levels, thereby reinforcing the expansionary stance of the apex bank.
World Bank Support and Higher Oil Prices Provide Succour to the FX Reserves
On the external front, conditions in the oil market and prospects for continued recovery in the global economy have brightened on the back of concerted efforts by policymakers towards vaccination and additional stimulus from the U.S.
In the last policy meeting in November 2020, the committee expressed concerns about the second wave of the COVID-19 pandemic given its attendant impact on global oil demand as economies begin to re-introduce lockdown measures.
Supported by the combined impact of
the OPEC+ decision to only reduce oil production cuts by 0.5 mb/d,
Saudi Arabia’s decision to unilaterally cut output by 1.0 mb/d,
a gradual decline in U.S. shale production, and
positive news on the efficacy of COVID-19 vaccines, Brent price has risen by 27.2% to an average of USD54.29/bbl so far in January 2021 (November average: USD42.69/bbl).
At current levels, we believe the committee will be somewhat optimistic about improved dollar inflows that will buoy the nation’s reserves and enable the apex bank to step up its interventions across the various segments of the FX market.
We note that the FX reserves have increased by USD1.02 billion (+2.9%) since the last policy meeting to USD36.48 billion as of 20th January 2021. We understand that the accretion has been largely due to the USD1.50 billion World Bank support to state governments.
However, we believe the reserves will remain under pressure in the near term given (1) the nation’s compliance with OPEC+ production cuts which will limit export earnings, (2) increased demand for FX as economic activities normalise, and (3) subdued foreign portfolio Inflows.
Covering all Bases
Although rising inflationary pressures alongside fragilities in the balance of payments present a strong case for monetary tightening, we believe it is rather too early for such a stance given the need to support economic recovery.
More importantly, it would contradict previous heterodox policies targeted towards improving the flow of credit to the real sector of the economy and prolong the recovery phase.Monetary policy tightening will also create severe financial market turbulence and amplify deficit financing pressures for the government.
On a balance of factors, we believe the Committee will keep policy rates unchanged and affirm the use of unorthodox measures such as CRR debits, Loan-to-Deposit Ratio (LDR), and direct intervention in employment-stimulating sectors to influence macroeconomic outcomes and ultimately attain macroeconomic stability.
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