2023 Elections ‘ll Increase Foreign Portfolio Outflows​

BY CHINYERE OBIORA, LAGOS – An Economic analyst and Managing Director, Morgan Capital Securities Limited, Mr Rotimi Olubi, says electioneering campaigns for 2023 general elections will further increase foreign portfolio outflows and cause Foreign Portfolio Investors (FPIs) to remain on the sidelines.

Olubi spoke at a forum organised by the Capital Market Correspondents Association of Nigeria (CAMCAN) in Lagos on Wednesday on the theme: “A review of 2021 Market Performance and Factors that will shape it in 2022”,

He listed other factors expected to cause further outflow including rate hikes and capital controls by the monetary authorities.

Maintaining that the foreign exchange (FX) would likely come under strong pressure as interest rate hikes in advanced economies would result in portfolio outflows from emerging markets, Olubi said domestic investors would be the key players responsible for the movement of the market and liquidity.

The financial expert further said; “Electioneering, rate hikes, and capital controls by the monetary authorities are expected to cause further foreign portfolio outflows and cause FPIs to remain on the sidelines.

“Even as the economy continues its recovery, corporate earnings of companies in the consumer goods and industrial goods sector are expected to be impacted by high input costs caused by high inflation and higher cost of capital due to interest rate hikes.”

According to him; “Interest income of financial services institutions such as banks are expected to rise in Nigeria if interest rates rise as expected. This is because the U.S could decide to raise interest rates.

“This act by the U.S could lead to downward pressure on commodity prices, drop in global liquidity, increase in the cost of funds from the international debt market and due to the fact that Ukraine and Russia are still having conflicts, oil prices might go up and production could decrease.

“Companies in the oil and gas sector are expected to have a solid year driven by strong oil prices, increasing global oil demand and OPEC+ cuts.”

Olubi said with relatively low infection rates and fatalities from the pandemic, the likelihood of an economic shutdown was non-existent, adding; “The GDP growth is expected to grow by 3.86 per cent in 2022 supported by further improvements in​ agriculture, manufacturing, services, and the oil sector and increased government spending in areas such​ as advertising, printing, media, among other campaign-related sectors.

“Major downside risk to this outlook is the security situation in several parts of the country, capital controls in the FX market, and any unexpected severe mutation in COVID-19”, Olubi said.

He said being an election year, government spending is expected to be at its highest complemented by​ improved oil revenues and this would lead to a wider fiscal deficit and a further increase in an already elevated debt-servicing cost.