Analysts at CardinalStone Partners Limited have stated that the build-up to the 2023 election will keep foreign investors at bay and throw up more financial account-related concerns.
The analysts, while commenting on the state of the nation in their 2022 Mid-Year Outlook themed: ‘Same Challenges, New Shocks’ argued that pre-election year concerns and fears of negative pass-through to inflation will likely limit the magnitude of currency adjustment made at the official market in the current year.
According to them, akin to the trend witnessed in emerging and frontier markets, Nigeria was also mostly unappealing to foreign capital providers in H1’22.
They attributed the sentiment to geopolitical uncertainties and hawkish rendition from global central banks.
“Even though it is yet to have any noticeable impact on the market, the recent MSCI proposal to reclassify Nigeria to a stand-alone status was inspired by similar FX concerns.
On the modest currency adjustment expected in H2 2022, the analysts said that pre-election year concerns and fears of negative pass-through to inflation will likely limit the magnitude of currency adjustment made at the official market in the current year as currency pressures exist
“Elsewhere, parallel market premium (at 35-45 per cent) will likely remain elevated, weighed by the election-induced dollar demands and reduced FX supply by the CBN. However, we strongly believe that a resumption of FX sales to the BDCs may materially shrink the premium relative to the official market, akin to the pattern observed in 2016.
“According to the IMF, Nigeria’s FX reserve is likely to close 2022 at $38.0 billion, aided by reduced CBN intervention, dollar demand restrictions and higher oil prices.
“We retain our growth forecast for 2022 at 3.0 per cent, primarily to reflect sustained stimulatory support from the monetary authority, which has left its intervention rates at Covid levels.
Furthermore, the analysts argued that Nigeria was also relatively insulated from the pass-through of the Russia-Ukraine war and benefitted from steady private sector recovery in the first half of 2022.
They also stated that investors appear to have commenced ferreting the potential impact of what is likely to be one of Nigeria’s most keenly contested elections in decades ahead of the February 2023 presidential elections.
