Analysts feast on Tinubu’s inaugural, positive in outlook

After at least eight years of the Nigerian economy drifting and feeling shortchanged by inept management, markets and economic analysts, both local and foreign, who trained their eyes and ears in expectation as Nigeria inaugurated Bola Ahmed Tinubu as its 16th president, have turned in a largely positive reception to the soundbites contained in the president’s inaugural address.

Analysts at FBNQuest Capital, Chapel Hill Denham, Cordros, CardinalStone and Cowry Assets, in separate research notes to clients which were examined by Business A.M. for this story, appear to express general positive sentiments with the policy directions contained in the president’s speech.

Indeed, analysts in what looks like a very enthusiastic investment house, described the speech thus: “We believe President Tinubu’s inaugural speech is one of the best, if not the best, speech [es] delivered by a president during inauguration.”

The enthusiasm to hear what President Tinubu had to say for himself at inauguration appears to have been driven by the fact that Nigeria has a troubled economy which has not been properly managed in at least eight years. Not a few were looking to see the back of the now former president, Muhammadu Buhari, whose reign was signposted by his lack of depth on economic issues and management and his inability to bring on board the right quality of personnel to help him balance these shortcomings.

Analysts at FBNQuest Capital Research in their notes to clients, following the inauguration, said the speech was likely to be well received by investors, and they identified key aspects of the speech for further examination and praise.

The analysts noted that the president emphasised his administration’s commitment to addressing the burden of multiple taxes and barriers to investment and that  measures will be implemented to facilitate the smooth repatriation of dividends and profits for investors and businesses.

They pointed out the fact that President Tinubu acknowledged the shortcomings of the existing monetary policy and emphasised the importance of the Central Bank to work towards establishing a unified exchange rate system.

“The harmonisation of multiple exchange rates will lead to favourable outcomes for the country’s fiscal purse. A downward adjustment to the naira exchange rate will result in higher naira revenue derived from the conversion of dollar earnings,” they wrote, adding that the policy will help close the arbitrage gap between the official and parallel market exchange rates.

“Considering his track record of accomplishments in Lagos State, we maintain a cautiously optimistic outlook regarding his ability to deliver on his promises,” the FBNQuest analysts wrote.

Putting forward a cautious note, the analysts wrote: “Risks to this projection are a bullish global crude oil market and delays in the processing of crude oil at the Dangote refinery. We fear that if these risks crystallise, this administration, like its predecessor, might buckle and change course. We also note that some of the president’s policy announcements, like a push for lower interest rates to boost investments and the curtailment of inflation, are at variance to the immediate removal of subsidies (at least in the short term).”

For analysts at Chapel Hill Denham, implementing the majority of the policies contained in the president’s speech will make a significant positive difference on the country’s economy and financial markets.

“In our view, the removal of premium motor spirit (PMS) subsidy, unification of fx rates, and interest rate reduction are major cheering points of the speech.

The analysts stated that “while we note that there will be [a] short term increase in inflation rate, due to subsidy removal, we recognise that the long term benefit of subsidy removal is enormous. We also find the assurance of foreign investors around FX repatriation a major positive point in the speech,” the analyst explained. 

For analysts at CardinalStone, the priorities set out by the president bode well for the near-to-medium term growth outlook.  

“Specifically, the drive to leverage Nigeria’s youthful population via planned campaigns to improve the digital economy and promotion of labour-intensive infrastructure projects suggest the likelihood of more inclusive growth and greater employment. 

“We see latitude for Nigeria’s long-run trend growth to improve to 6.2% (vs 2.2% currently) within the next 5 years, aided by plans to increase budgetary allocation to education, which could support human capital development and labour productivity, and the resolution of long-dragging security setbacks, which could unlock an additional 5ppts growth in the agricultural sector. 

“The tilt to a more market-driven economy is likely to force a re-evaluation of the long-term investment case of Nigeria by providers of patient capital. Hence, we see legroom for improvement in FDI to GDP ratio from an average of 0.8% in the last 10 years to over 2.0% in 5 years,” the wrote.

On the promise to investors, CardinalStone analysts noted thus: “The commitment to ensuring that foreign investors and companies can repatriate profits and dividends suggest the likelihood of more liberal FX policies. Consequently, we see scope for a downward repricing of the naira to a more manageable level at the I&E window to compensate for inadequate supply as the CBN works on a potential unification of exchange rates, in line with the President’s disposition.”

With regards to its impact on equities, the analysts said they expect the early communication of the mostly pro-market policy direction of the new administration to bring some cheer to equity investors. Notably, potential improvement in FX market liquidity and removal of fuel subsidies could reignite foreign participation in the equities market from its current lows.

We scope for a positive re-rating of the Nigerian equities market, which is currently trading at a 19.1% discount to its 10-year average level despite boasting higher ROE (19.2% vs a 10-year mean of 15.2%) and adjusted dividend yield (6.5% vs a 10-year mean of 5.2%). 

Outlining their thoughts following President Tinubu’s speech, analysts at Cowry Assets offered the following assessment of the policy directions that emerged from the president’s  speech.

“The inaugural speech by the president sounds positive on the surface as we opine that it will improve both local and foreign investors’ sentiments in the short run. But, it is no doubt, that the expected policy plan and framework look progressive with strategies aimed at strengthening the real sector. However, this is hinged on the current government’s drive to execute to the letters, the roadmap to tackle the burgeoning political and socioeconomic impasse. 

“The commitment by the new administration to ensure that international investors and multinationals can repatriate profits and dividends to their home country is a pointer to a more coherent foreign exchange policy in the country. To this, there could be a scope to reprice the local currency at the various FX windows especially the I&E window as the apex bank finds ground for the expected convergence or unification of the exchange rates,” they further wrote.

On their part, analysts at Cordros in their assessment of President Tinubu inaugural speech wrote in a note to clients, “We believe exchange rate unification is a very good initiative to pursue. 

“In the near term we expect to see some panic selling at the unofficial market leading to some appreciation of the local currency at the parallel market. However, if the official exchange rate is eventually realigned, we would probably see the exchange rate depreciate again at the unofficial market, if there are no immediate plans to drive forex inflows,” they stated.

They noted that on the surface, the speech is positive and contains bold reform pronouncements, which would improve both local and foreign sentiments in the near term. 

However, how long sentiments will persist will depend on actually acting on those reforms, given the lessons learnt from the previous administration, Cordros analysts wrote. 

The analysts also noted areas of concern and stated that, “we think proper linkage of some of the reforms is lacking, serving as a source of concern when the administration eventually embarks on acting on them.”

Specifically, they stated that they are unclear on how exchange rate unification will be efficiently done alongside interest rates caps, annual expansionary fiscal policies, and the likely continued usage of CBN’s monetary financing.