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00:00 It's now time to take a look at the overall state of the Nigerian economy as we take a
00:04 look at the inflation data we've had so far coming for the year 2023 as well as Nigeria's
00:11 GDP trajectory.
00:12 Household consumption accounted for the largest share of real gross domestic product at market
00:18 prices in the first and second quarter of this year.
00:21 Well, that's according to data from the National Bureau of Statistics.
00:25 Femi Olade, partner at Agenteel Capital Partners, now joins me virtually to unpack the numbers
00:30 and drivers of Nigeria's inflation.
00:32 Mr. Olade, thank you so much for joining us on the show today.
00:36 Really, let's start off with inflation now.
00:38 We'll start in January with the numbers 21.8% and as at October, we hit the peak of 27.3%.
00:47 So many are forecasting we'll likely see inflation hit 30% by the end of this year.
00:53 Now for you, let's just take a look at the trajectory, the drivers of inflation and the
00:58 policy response because this presents a unique opportunity.
01:03 First and foremost, this was a transitional year.
01:06 We have to take that into consideration.
01:08 And the next up, transition under the Apex Bank as well.
01:11 We had three central bank governors feature in some shape, form or manner.
01:18 Let's start with the inflation drivers for you and what has panned out so far.
01:22 So thanks and good to be on the show again.
01:25 One of the biggest drivers that we've seen for inflation obviously has been, well, a
01:30 few drivers.
01:32 One of the biggest ones, however, has been the food price, the implication that food
01:37 prices have had on underlying inflation.
01:40 Now what we generally try to focus on when it comes to core inflation is obviously the
01:46 things that are critical to the survival of the people.
01:51 So food prices have gone up, transport costs have gone up.
01:54 So there's certain elements that have become effective key drivers to the direction of
02:02 that inflation trend.
02:03 Now also remember that Nigeria uses a moving average as its inflation estimate.
02:10 So that in itself also brings, it smoothens out the volatility of that inflation number.
02:18 So the truth here is that look, prices have started to go up probably since the end of
02:23 COVID.
02:24 A lot of things have driven that, the recovery of crude oil prices and the attendant implication
02:31 on transport costs.
02:35 What has also happened is, as you know, the flooding from 2021 and 2022 significantly
02:41 impacted food yields.
02:43 And all of those obviously drove food prices higher.
02:46 Now of course there are headwinds that have come into 2023.
02:50 We had the cash crunch at the beginning of the year, which in itself was inflationary
02:56 eventually.
02:58 And we've also had the elections, which meant increased liquidity, again, continue to put
03:03 pressure on the direction for inflation.
03:06 It's been a double whammy for the economy dealing with inflation and slowing growth.
03:13 And we're starting to see that bite on consumers.
03:17 Some would even say we are facing a triple whammy, not just a double whammy at this point
03:21 in time.
03:22 But let's talk about what's panning out between Nigeria and Ghana, for example.
03:26 Now according to estimates for 2024, now looking at the medium term expenditure framework and
03:32 fiscal strategy paper, we are pegging inflation at 21%.
03:37 Do you think Nigeria can achieve the sort of slowdown we had in Ghana?
03:41 Like for example, between the January to April window, we had Ghana successfully sustain
03:48 consecutive slowdown and we are seeing that also repeat itself since August.
03:53 Now the MPC over there are meeting.
03:55 Nigeria's MPC has not met since the postponement of September meeting.
03:59 Do you think we can achieve that forecast of 21% going by the current uncertainty that
04:05 we have within the markets?
04:07 Look, I think that it's possible and I'll tell you why I think it's possible.
04:14 Because 2023 has been a very challenging outlier.
04:21 It means that when you're doing the comparison in another 12 months, you're going to be comparing
04:26 to a very high base.
04:28 So that means that there is a possibility.
04:31 But I think that the biggest driver of that possibility would obviously be the reaction
04:35 that government takes towards taming inflation.
04:40 Now let's look at some of the things the central bank has done.
04:44 Interest rates are still at the same level that they've been probably in the last six
04:48 months.
04:49 Our base rate is still at 18.5%.
04:52 In Ghana, you saw the Ghana central bank aggressively increase interest rates, base interest rates,
05:00 and that in itself was one of the key drivers of the slowdown.
05:04 Now also, secondly, Nigeria has had a currency crisis, which you would say probably Ghana
05:10 has suffered as well.
05:11 But the difference is that because we are an extremely import-dependent economy, the
05:17 currency crisis will continue to bleed into inflationary trends.
05:21 I do not see any silver lining for the currency.
05:25 And that means that you're still going to continue to see cost push inflation as a result
05:30 of that implication.
05:32 So it's not going to be very easy, especially with a central bank that seems constrained
05:40 by its own inability to hold an NPC meeting and at least give the market a direction of
05:45 how it thinks or how it sees monetary policy going forward.
05:49 I understand why they're doing that.
05:52 Obviously the truth is, David, we must all agree that the data that the central bank
05:57 has been basing its information on is actually suspect.
06:01 We don't believe, for us at Agencil, that baseline inflation is at 27%.
06:07 The numbers are closer to 35 to 40%.
06:09 So if the central bank is also looking at the numbers suspiciously, then it means that
06:16 I would be glad if the NPC is actually trying to validate those numbers as a precursor to
06:22 then meeting and taking far-reaching decisions.
06:25 Let's also talk about curbing the impact of imported inflation as well.
06:29 The NPC, some news we're just hearing is that they hope to end fuel import by next year
06:34 and we understand the ripple effect that has.
06:37 And let's also have your take on the latest NBS data as well, looking at household consumption
06:42 also forming the largest part of our real GDP for the first and second quarter of this
06:47 year.
06:48 What sort of picture are these numbers painting to you?
06:51 So let's go back to your first element, which was around what do we see growth and how do
06:58 we see growth?
06:59 Look, we think that the bleeding of imported inflation has been a big issue for us as a
07:08 country, but you must also remember that in the last two quarters there's been a significant
07:13 FX shortage, which means that even importers have paid a steep price for that shortage.
07:20 And the numbers we're getting from even the ports shows that the number of cargoes that
07:25 are coming into Nigeria are significantly lower than they've been before.
07:28 So with the NNPC saying that they hope to stop importation within the next 12 months,
07:34 I think that's positive for cash flows, especially for the dollar bleeds that we've had.
07:38 However, I do not expect that that would impact on the price of petrol, because again, the
07:44 price should be transparent and driven by global prices.
07:47 Now, let's come back to consumption.
07:49 Look, one of the things that you're going to see when the new GDP numbers come up is
07:53 you're going to see a significant increase in consumption.
07:56 But the truth is that that significant increase in consumption is not driven by real numbers.
08:01 It's nominal growth that's driven by inflation and higher spending.
08:06 Now, what we also know is that specific sectors within the economy are seeing significantly
08:11 lower spend, and we expect that that would also reflect in inflationary numbers.
08:17 So it's a very interesting conundrum that we face going into 2024, and it would be interesting
08:25 to see what the central bank does when they eventually have the NPC meeting and the direction
08:30 that they give us as to where they're going.
08:32 Thank you so much, Mr Olade, for unpacking the numbers here with us today.
08:35 It's been a pleasure.
08:36 That was Femi Olade, partner at Agentil Capital Partners.