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00:00Now, Maidra's President Bolatununbu will present the proposed $47.96 trillion Naira
00:05budget to the Joint National Assembly today, following final adjustments to the proposal.
00:10Meanwhile, the Senate has also passed for first read and a bill to ban the use of foreign
00:15currencies for payments and transactions within the country.
00:18Johnson Chukwu, the Chief Executive Officer of Kauri Asset Management, joins me now for more
00:22on these discussions.
00:24Thanks a lot for joining us on the show today, Mr Chukwu.
00:26Now, let's talk about your take on the parameters.
00:29Looking at the 2025 budget proposal, we have the last minute adjustments being made between
00:34yesterday and now for you.
00:36Looking at the parameters and the size of the budget.
00:39In dollar terms, this does not necessarily look bigger, but when we calculate in Naira
00:43terms, this is a much more voluminous size from what you saw in 2024.
00:48But let's talk about Naira's exposure to all volatility and the size of the budget
00:53not necessarily correlated to the sort of recovery we should expect next year.
00:59Yes.
01:00Once again, thank you, David, for having me.
01:02Looking at the budget assumptions, which are the basic questions we are asking,
01:06and how realistic are those assumptions?
01:08I think some of the basic assumptions underlying the budget and expenditure are quite optimistic,
01:15starting from the crude oil production averaging about 2.06 million barrels a day.
01:20We know we are not anywhere close to that.
01:22As such, budgeted crude production will amount to almost 25% increase beyond where we are
01:29today.
01:30And I do not imagine the kind of transformation we're going to have in the security architecture
01:34around the Niger Delta regions in terms of relationship with the communities.
01:40That could lead, and in terms of new investments in exploration and production, that will lead
01:45to an increase of more than 25% of current crude production.
01:49Average crude production in the third quarter of this year was 1.47 million barrels a day.
01:55An improvement, an imaginary improvement from the 1.45 million barrels we had in the same
02:01period as third quarter last year, and 1.41 million barrels we recorded in the second
02:06quarter of this year.
02:06So in any case, we are still in the 1.4, less than 1.5 million barrels a day.
02:13So if you are planning 2.06 million barrels a day, you are talking about 256,000 additional
02:20barrels daily.
02:21That for me is quite optimistic.
02:23Second aspect we have to look at is the budget, crude oil benchmark of $75 per barrel.
02:29Today, we know that Donald Trump, the new president-elect of America, was sworn in in
02:35January, and we know Donald Trump does not believe so much in climate change, ozone layer
02:42and depletion.
02:44We know clearly that Donald Trump is going to push for increased American crude production.
02:50Donald Trump is likely going to work with Saudi Arabia to disrupt the OPEC-plus alliance
02:56that had kept crude price artificially high.
02:58So if those are the expectations in the world, we should expect that crude price will trade
03:03below $75 per barrel.
03:05And this year, it had largely traded below $75 per barrel.
03:11So these key assumptions could mess up the entire revenue projections, which also flows
03:17to what follows from that is that the budgeted deficit of $10.8 trillion may be exceeded,
03:24and that could lead to some distortion in the macroeconomic environment.
03:28And talking about the sort of market distortions and the outlook now, let's look at how global
03:34dynamics continue to filter into the Nigerian market.
03:37We're definitely expecting the US Federal Reserve to combine interest rate cut with
03:42some hawkish 2025 outlook.
03:44Now, in Nigeria's fight against inflation, we still have to look at the budget size for
03:492025, the money supply growth we've had so far, and whether or not we still have that
03:54great complementarity on the back of the fiscal and monetary mix here to counter this.
03:59When you're looking at the drivers of inflation here in the country, it's not just one size
04:05fits all or one team taking an upper hand.
04:08We're yet to get that right mix.
04:10For you now, do you think Nigeria can stem the tide going forward into 2025 and your
04:15projections from that?
04:16Because the CBN was looking at about a rate of 21.4% for this year, but that's clearly
04:21way out of the pack for us right now.
04:26David, the challenge we have, the factors that are driving inflation in the country
04:29are yet to be addressed.
04:31There are two major factors driving inflationary pressure in the country.
04:36One is insecurity in the major food banks of the country that has led to a reduction
04:40in food production.
04:41If you look at agricultural GDP, agricultural GDP grew at 1.14% in Q3 2024.
04:49That's symptomatic of the problem we're having, despite all the investment of funding
04:54going into agricultural sector.
04:56Without a substantial improvement in agricultural production, you're going to see consistent
05:01high food inflation.
05:04And food inflation will flush into the all-time inflation.
05:07Look at the food inflation for the month of November.
05:09It came at a print of 39.93%.
05:13And that is what drove up overall inflation to 34.6%.
05:18And I do not see any material change in that dynamics.
05:24For us to address the issue of inflation in the country, we need to address the issue
05:27of one, food production, so that we can have reduction in food inflation.
05:31And we also need to address the issue of crude production to a much higher volume, so that
05:36we can increase our earnings from our printing activities, earnings from crude oil exports,
05:42which will help us stabilize the exchange rate and possibly see an appreciation of the
05:46exchange rate.
05:46A lot of the factors we are facing today is the path to effect of narrow devaluation or
05:51depreciation, as well as the impact of slow food production.
06:00We address them.
06:01Next year, we're going to struggle to achieve the target inflation figure that was indicated
06:07in the budget projections.
06:09And lastly now, Mr. Chukwu, talking about inflation targeting as well.
06:12Now, I'd like your take on the CBN strategy here.
06:15For so many, they've said clarity is what's missing so far in the inflation targeting
06:20strategy for Nigeria.
06:22But let's take a look at Fitch as well, which is expecting the CBN to begin monetary
06:26easing by the second meeting of the year.
06:28So that puts us at about a range of March.
06:31Do you think we might likely see the easing cycle begin from there?
06:37Well, David, if we are looking at the variables today and the outlook on the economy, I think
06:42it would be optimistic for anybody to expect easing will start in the second half of the
06:46year.
06:47Like I said, we're likely going to continue to experience inflationary pressure.
06:50I'd actually predicted that the reversals or the reduction in rate of inflation at which
06:59of the economy in July and August was going to reverse.
07:03Because once we move away from the harvest season and move to planting season, I remember
07:07we're moving to planting season.
07:09So the only time you begin to see a reversal in food inflation would be in the harvest
07:12season sometime in July next year.
07:16But it's also going to be short-lived unless we address the other factors, which is increasing
07:20food production.
07:21The people in the farming beds must go back to their farm and produce.
07:25The Central Bank is actually dealing with a very difficult situation.
07:30Central Bank and the DMO had withdrawn from the economy over 30 trillion Naira since the
07:34beginning of this year, all in the bid to fight inflation.
07:37While that was going on, the FARC had injected about 14 trillion into the economy, counterbalancing
07:42for the monetary authorities.
07:44And of that 14 trillion, about over 5 trillion, about 38 percent was what you call exchange
07:50gain or exchange differential, which you could actually say is not backed by dollar reserve.
07:56So these are factors that actually seem to be shifting the effort of the monetary authorities.
08:02So I think in the coming year, we expect that the economic management team of the government,
08:08which comprise of the fiscal and the monetary arm of government, should sit down together
08:13and ensure there's a lot more harmony in terms of liquidity injected into the economy,
08:19and as well addressing those issues that are constraining food production as well as food
08:26production.
08:26Definitely.
08:27We'll have to leave the conversation here for now.
08:28Thank you so much for your time and the show today.
08:30That was Johnson Shuka, the Chief Executive Officer of Kauri Asset Management.