By Chinwendu Obienyi
Nigeria’s oil sector is expected to exit recession in 2022 as its crude production rebounds from the 1.6mbpd low base in 2021 towards a range of 1.8-1.85mbpd which will, in turn, upturn Nigeria’s external balance through 2022.
According to a recent report by Sigma Pensions, entitled: “Nigeria 2022 Outlook: Consolidating on recovery but persisting large imbalances present headwinds”, the nation’s external imbalance is expected to improve as oil export receipts will normalise to trend levels amid persisting import demand suppression on account of the Central Bank of Nigeria (CBN)’s currency policy.
The report also notes that it expects the investment landscape in 2022 to be shaped by normalisation in global economic growth and tighter global monetary policy, adding that OPEC+ would complete crude oil market rebalancing as oil prices stay range bound.
It forecasts that Nigeria’s growth will stabilise, but twin deficits will persist as well as wider FX market premiums due to limited dollar supply, import demand suppression and higher fuel prices to reignite inflationary pressures.
On the economic front, it sys, “We expect Nigeria’s economic growth to stabilise around 3.4 per cent in 2022, reflecting improvements across telecoms, trade, manufacturing, and oil.
It adds that a large fiscal borrowing plan and higher political risk premiums is expected ahead of the 2023 general elections.
“In 2022, the large fiscal borrowing requirements amid less liquid financial system conditions relative to the last two years, suggests ample scope for heightened market expectations about higher interest rates. Furthermore, likely stronger dollar demand will convince the CBN of the need to tighten monetary conditions as with the trend across global central banks to manage FX reserve depletion. Against this backdrop, we think the current bearish trends in fixed income will likely persist over 2022. “For equity markets, we see bearish trends dominating market sentiments as the fixed income optionality becomes available to investors after a two-year hiatus and as political risk premiums on Naira risk assets heighten ahead of the 2023 general elections.”
The report further noted that their expectations are that the domestic institutional investor support in bellwether names to continue to curtail downside to the overall market.