How investors perceive Nigeria's rebased GDP, CPI

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00:00Emmanuel Odiaka, CEO of Aircorp Capital, believes the rebasing of Nigeria's Gross Domestic Product

00:05and updating the Consumer Price Index will reshape investors' perception and economic

00:11policies. In his note, he expects yields in the bonds and treasure bills market to adjust

00:17depending on inflation trends post-rebasing. Well, he joins me now to unpack the outcomes

00:22from a rebased economy. Thank you so much, Emmanuel. Pleasure to have you on the show

00:26with us. Whilst so many expect, so much expectations when it comes to the rebased GDP and CPI,

00:33for you, starting with the bonds market, you say that with a rebased larger GDP, Nigeria

00:39may be perceived as having a better capacity to repay its debts and that may make Nigerian

00:45bonds more attractive to investors. Talk to us about that from a debt point of view.

00:52Yes, certainly, Esther. With the oncoming rebased GDP, we are likely going to see a

00:59reflection of a bigger market, economy, covering social capital activities, covering the modular

01:09refineries and a whole lot of other activities and expansion that we are going to see. Typically,

01:18let me just bring you back to the closing of the year where market was printing possibly

01:22at about 23.84% on OMO issuance and at about 23% on the NTB space. With those news filtering

01:34into market, what we have seen already is market capturing and pricing in those activities

01:39because we are beginning to see more activities from foreign portfolio investors. We have

01:44also seen them shift from the OMO space to the NTB space and there are rumours already

01:49that there are lots of interest coming into the bond space. We are seeing yield decline

01:54as a result of these aspects because of the possible import of the GDP and CPI issuance

02:02rebasement. We're expecting to, especially for the CPI side, to give us a better picture

02:08of inflation trend, if it's trending higher, if it's trending lower, and of course we know

02:12more items will be captured in that space. But isn't that where the issue is? If we see

02:20that when the new CPI comes out, if we see that there is still pressure, especially maybe

02:26on the food component, what does that mean, for instance, for the monetary authorities?

02:33Yes, Asa, you know that what we have previously, the food basket captures a whole lot chunk

02:39of the inflation competition. But what we are going to see now is that additional items

02:46have been added. So we are moving from 740 items to about 960 items. That will decelerate

02:54the influence of the food basket on CPI competition. And from the rumours we are hearing, from

03:01numbers that are already filtering in, we are likely going to see a 200 basis point

03:05decline in CPI figures. While government is targeting about 15% per annum at some point

03:13towards year-end, we are certainly going to start seeing those decelerations. So in terms

03:19of how the monetary policy authorities will see it, yes, we cannot run from the truth

03:27that commodities and pricing in the market might not change immediately to affect the

03:32average Nigerian. But working with data at this point will reflect that the tightening

03:39monetary regime we have experienced in the last 9 to 12 calendar months will start taking

03:46impact and that might give them the impetus to want to hold instead of the continuous

03:51tightening we have been seeing. So basically it will give them more comfort and make the

03:56MPC relax a little bit. Yes. And hoping that the fiscal authorities with the new information

04:02can, you know, will be better informed from a policy decision point of view. Yes, certainly

04:08that's what it's going to be. It affects both the fiscal and monetary authorities because

04:13with the larger economies, foreign direct investors are going to be nosing around and

04:19having that much more confidence to come in, which will affect our fiscal balances. Right.

04:23And that will also give the monetary authorities some, you know, some ease at this point in

04:28time to look inwards and take a pause on monetary tightening. Already we have seen

04:34the impact on the foreign exchange market where you just mentioned that, I mean, the

04:40Naira appreciated to about 1,472 in the B-matching space or, you know, the Niger Interbank foreign

04:50exchange market. So the effect we are seeing right now are the effects of both foreign

04:55direct investors and more especially at this point, the foreign portfolio investors having

05:00that confidence to inflow hard currency into the economy. Right. And what about bank rates?

05:05I mean, what impact can we expect? What changes? Yes, what changes in this aspect is that with

05:10a bigger economic space, the banks might start seeing that there are possibilities to jump

05:15into the space and assist in growing the real economy, the real sector economy. What we

05:22are likely going to see is that as soon as NPR starts decelerating, we might start seeing

05:30interest in the capital space to lending again. At this point, with prime lending rates as

05:36much as 37 percent, I don't know which businesses are taking such funds. But after now, we are

05:43likely going to see the banks start easing once monetary policy rates start easing and

05:49the bankers feel safer to lend at this point. And this is what? What are we talking? Weeks?

05:54Months? Oh, no. We are some months way off about it. Of course, we are going to wait

06:03for the monetary policy authorities to come up with their monetary policy decisions by

06:10this month. And we'll see what the policy outcomes are. Banks and the markets will be

06:16taking a closer look at all this. We have just one minute left. Back to the bonds markets.

06:21I mean, the yield curve. Talk to us about, we've seen, I mean, subscriptions for, we've

06:25seen a Q1 calendar, Albo. Talk to us about this, the rally that we're seeing right now.

06:29Do you think that, do you see it being sustained? Well, there were a whole lot of concerns concerning

06:37deficit financing in the budget, which was in a seven point something trillion, Naira.

06:44We have also seen market go into uncharted waters because, Esther, at some point the

06:50OMO rates was printing about 33.4% in effective yield. We've not had such figures, such numbers

06:57before. The bond space also did print about 22.6, so we're having a coupon in 2025 January

07:05that is printing at 23.6. These are uncharted waters. We have not seen that before. Initially

07:10market took it with a pinch of salt. When you move into unknown territories, you know,

07:17you need to be careful at such space. But what we have seen, it's a market confidence

07:22that is reboosting itself and looking at those figures, looking at those cash flows and feeling

07:27like, you know what, these are investment stocks. At Acob Capital, we are buying at

07:34this level. There's no analysis at this point, especially considering the fact that at some

07:39point we may have some positive carry. Well, that is definitely interesting and we're really

07:44looking forward to see how this plays out. But thank you so much for sharing that perspective

07:48with us. We appreciate your time on the show today. Emmanuel Odiaka, CEO of Acob Capital.

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