• Global GDP is expected to increase by 5.9% in 2021. This is a significant recovery from the recession recorded in 2020, owing to the COVID-19 impact.
• A major risk to growth in late 2021 and 2022 is the rapid spread of the COVID-19 Omicron variant which will trigger another round of restrictions across countries.
• In 2022, the global economy is expected to expand by 4.9%.

• Sub-Saharan Africa is projected to grow by 3.8% in 2022.
• While growth is expected to improve in oil exporting countries, the Omicron variant poses a threat to higher oil prices in 2022.

• The Omicron variant, vaccines coverage and government stimulus are factors that will influence the trajectory of the global economy in 2022.
• With the Omicron variant and the reactions of countries, particularly the advanced countries, global growth for 2022 will fall short of the IMF’s projection of 4.9%.
• Disruption in supply chain will continue as the level of uncertainty rises. This, along government stimulus and high oil prices, will increase inflation in advanced countries. Already in 2021, inflation trended upwards in the United States, Germany and several emerging economies.
• Developing and emerging countries are expected to drive global growth in 2022. Improved conditions for commodity exporters, pick-up in local demand and increase in government interventions raise the growth prospects for these countries.
• The discovery of COVID-19 Omicron Variant will influence the direction of African countries in 2022.
• Following the announcement of the variant, several countries placed travel ban and restrictions on many African countries to limit the spread of the variant. Countries such as Nigeria, South Africa, Namibia and Botswana were among the affected.
• Such bans, if they persist, will limit the movement of people and goods and affect key sectors like transportation, tourism and hospitality going into 2022.
• Slower vaccination of Africans in Africa will also be a major concern in 2022. Vaccination rates are, however, expected to improve following increase pressure on countries in the global south to make vaccines available for African countries. The spread of the Omicron variant will also trigger individuals to get vaccinated in 2022.
• Relatively lower commodity prices in 2022, following the Omicron variant, will be pose a major challenge for commodity reliant countries like Nigeria and Angola.

• In the last five years, Nigeria experienced two economic recessions, exhibiting a W-shaped recession-recovery cycle.
• Economic fluctuations in the past few years have been linked with movements in crude oil price.
• The two periods of recession (2016 & 2020) have reversed the gains recorded in their respective preceding periods.
• In full year 2021, the Nigerian economy will return to positive growth, driven by the higher consumer spending relative to 2020, government interventions and the base effect.

• For the eight consecutive month, headline inflation rate declined to 15.4% in November 2021 from 18.2% in March 2021, driven by reduced pressure on food inflation rate.
• However, on an annual basis, average inflation rate remains high at 17.1% in 2021 (Jan to Nov) relative to 13.2% recorded in full year 2020.
• High prices remain a major concern for businesses and households, especially given the challenges associated with insecurity, infrastructure deficit and foreign exchange, all of which are factors that trigger inflation in Nigeria.

• Nigeria’s external reserves will close 2021 on a higher note relative to the start of the year.
• Reserves, which opened the year at US$35.6 billion, rose to US$40.7bn on December 17, 2021.
• Key factors that led to the increase in external reserves include:
  • Approval of the US$3.35 billion Special Drawing Rights (SDRs) by the International Monetary Fund (IMF) in August 2021.
  • The US$4 billion raised from the issuance of Eurobond in September.
• Despite a much higher reserves, challenges of low crude oil production, limited investment inflows and high demand for foreign exchange are persistent.
• These factors will continue to add pressure on external reserves in 2022.

• The Naira depreciated on the Investors and Exporters (I&E) Window by 4.1% to N410/US$ in 2021Q1 from N394/US$ in the previous quarter.
• In May, the CBN adopted the I&E Window rate as the official exchange rate. As a result, the performance of the Naira on the I&E Window showed some stability. However, reserves continued to decline.
• As at December 20, exchange rate on the I&E Window stood at N414.80/US$. This represents a 5.32% depreciation in 2021 (ytd).
• Improving reserves condition following the huge external inflows from borrowings will stabilize rates in the short term. However, higher importation of goods and foreign exchange demand to finance services will continue to add pressure on reserves.
• In addition, lower investment inflows following a challenged business environment could trigger a depreciation in exchange rate in 2022.

• Nigeria’s trade situation remains unfavourable, recording a deficit for eight consecutive quarters. Trade deficit widened to N3 trillion in the third quarter of 2021, despite the recovery in the economy and sustained increase in oil prices.
• The persistent increase in import and a stagnant export drove the widened trade deficit in the quarter. Mineral fuel, chemicals & related products drove imports, reflecting the increase oil prices.
• Exports on the other hand increased to N5.1 trillion in Q3 driven mainly by higher value of non-oil exports, although oil and oil related products accounted for 89% of total exports in Q3.
• Cumulatively in 2021, trade deficit stood at N8.84 trillion, much higher than the N7.4 trillion recorded in full year 2020.

• The Nigerian economy recovered from the COVID-19-induced recession with a positive growth of 0.5%, 5% and 4% in the first, second and third quarters of 2021, respectively.
• This implies that growth in full year 2021 will be higher than the pre-COVID-19 era (2019: 2.3%), suggesting a strong recovery in the year.
• In 2022, we anticipate that GDP growth will be marginally lower than that of 2021 following the high level of uncertainty as the general election approaches, coupled with insecurity challenges.
• In addition, the base effect will influence GDP growth, particularly in 2022Q2 and Q3. Year-on-year growth for both quarters will be lower and this will influence overall growth for the year. For 2022, we expect a GDP growth of 2.6% in our moderate case scenario.
• The Services sector will continue to drive GDP growth in 2022 following improved demand as the economy continues to recover. While crude oil output is expected to improve marginally as OPEC relaxes production cuts, agriculture will face challenges, perhaps, until insecurity is addressed.
• In general, factors that will influence growth in 2022 include the potential oil subsidy removal, implementation of the Petroleum Industry Act, government spending and the trajectory of the Omicron variant.
• Nigeria’s inflation rate has maintained a downward trend since March 2021, and it is expected to continue this trend going into 2022. This will be supported by improved economic growth and exchange rate stability in the first half of the year. Inflation rate would remain elevated in 2022, above the CBN’s upper band of 9%. In our moderate case scenario, we expect inflation rate to average 14.7% in 2022.
• To address the problem of rising prices, the government will need to address key structural issues of infrastructure deficit, insecurity, transport costs and exchange rate depreciation.
• For Investment and Trade, the state of doing business, foreign exchange policies as well as implementing structural reforms will influence key outcomes in 2022.
• Implementing reforms to improve competitiveness, fixing the insecurity challenges and making foreign exchange available to businesses will boost output, enhance investment into key sectors and improve trade.
• Unless these reforms are implemented, investment inflows will remain subdued in 2022, while trade will continue to be in deficit, with a much wider gap between the value of imports and exports.

• Challenges with oil production resulted in an underperformance of oil revenue in 2021. As at August 2021, oil revenue was 38.5% short of its pro-rata figure.
• During the same period, debt servicing, however, exceeded its pro rata figure by 32%. Debt servicing to aggregate federal government revenue ratio was 73.7% as at August. This share is expected to increase in the remaining months of the year, following revenue challenges.
• As at August 2021, N1.8 trillion (instead of N3.3 trillion) had been spent on capital projects.

• Jan to Sept 2021, Nigeria has added a net of N5.1 trillion to its public debt stock.
• Poor revenue means a larger fiscal deficit, which are being financed by borrowing. Public debt will continue to rise in 2022 following a fiscal deficit of N6.3 trillion in the 2022 proposed budget.

The CBN Monetary Policy Committee (MPC) held six meetings in 2021 and the Committee maintained its policy stance for seven consecutive meetings. In all the meetings, the MPC decided to:

• retain the MPR at 11.5%;
• retain the Asymmetric Corridor at +100/-700 basis points around the MPR;
• retain the Cash Reserve Ratio (CRR) at 27.5 percent; and
• retain the Liquidity Ratio at 30 percent all through the year.

Outlook and expectations:

• The Nigerian economy is on the recovery path, especially following the improved GDP numbers. Inflation rate has also trended downwards since April 2021.
• The Monetary Policy Committee (MPC), earlier in 2021, noted that the drivers of inflation in Nigeria are non-monetary factors and thus, the fiscal authorities need to intensify efforts to address the structural issues such as infrastructural deficit, security challenges, high transport cost among others.
• With this in mind, we believe that the MPC, in a bid to sustain economic recovery, will continue to favour economic growth over inflation targeting by further expanding credit to the private sector.
• The emergence of the Omicron variant and its discovery in Nigeria will adversely impact investors’ confidence following the implementation of travel bans by other countries.  This will affect foreign investment inflows and could motivate the MPC to maintain a higher MPR in 2022 in order to attract investment into Nigeria.
• In view of the fact that higher MPR could hurt growth, we anticipate the retention of key parameters in the first half of 2022.

• Nigeria’s Naira/US$ exchange rate was relatively stable in the second half of 2021. The issuance of the Eurobond and drawings from the SDR in late 2021 improved external reserves position in late Q3, thereby resulting in stable rates in the I&E window. But external reserves have since been under pressure following limited investment inflows and high dollar demand to finance goods import and services.
• For instance, external reserves which peaked at US$41.8 billion on October 29, 2021 have fallen consistently to US$40.7 billion on December 17. This represents a decline of 2.8% during the period. Going into 2022, this trend of declining reserves is expected to continue.
• Pre-election periods in Nigeria are often associated with heightened uncertainty. In view of this, as well as the insecurity situation, we believe that investors will be cautious and Nigeria could experience limited foreign exchange inflows during this period.
• On the demand side, imports will continue to trend upwards, likewise the demand for foreign exchange to finance services – school fees, medical tourism, etc. A combination of these factors will exert pressures on external reserves and exchange rate in the second half of 2022, causing a depreciation.
• The extent of depreciation, will however, be determined by inflow from the sale of crude oil, which is influenced by crude oil price and output. In our moderate case scenario where we assumed an average oil price of US$55 pb and a production of 1.6 million barrels per day for Nigeria, we estimate that the Naira will settle at 430 per US$ towards the end of 2022.

• Yields in Nigeria’s fixed income market accelerated in 2021 as the impact of the CBN’s OMO regulation restricting non-bank corporates from OMO deals and COVID-19 induced shocks faded. However, there was a douse in momentum in 2021Q4.
• The average yield in the FGN Bond market almost doubled in 2021. The average yield increased from 6.29% on the first trading day of the year to 11.55% on December 20, 2021.
• Also, in the Treasury Bill market, yields expanded following the fading out of the CBN’s OMO policy. However, it inched downward in 2021Q4.
• The average yield in the Treasury Bill market stood at 4.48% as at December 20, a 402 basis point expansion from 0.46% that ended 2020.
• However, the average yield in the Treasury Bill market dipped by 81 basis points to 4.48% as at December 20 from 5.29% at the end of the third quarter of 2021.

• The equity and fixed income markets exhibited divergent trajectories over the two halves of the year as they both switched grounds in 2021. Hence, the two markets continue to exhibit trade-offs in performance.
• In the first half of the year, yields on 10 Year FGN Bond and 364 Day NT-Bill increased from 7% and 0.6% in January to 13.2% and 8.8% in June, respectively.  This is associated with 5.87% loss on the NGX-ASI over the same period.
• The yields on the 10 Year FGN Bond and 364 Day NT-Bill fell to 12.1% and 5.6%, respectively as at December 20. This is associated with an 11.24% upside in the equity market.
• The two markets continue to be driven by liquidity movements – as liquidity expands on the back of maturities from NT-Bills, OMO and FGN Bond, demand for government securities increase. This leads to higher prices and declining yields, thus diverting investors to the equity market (and vice versa).

• System liquidity continues to be a major driver of the fixed income market. Besides, maturities from the fixed income market constitute a major component that drive up liquidity.
• Going into 2022Q1, the system expects N2.24 trillion in maturities of FGN Bond, Treasury Bills and OMO, which will bolster the liquidity level. This would continue to pressure the yields in the various markets downwards.
• In the 2022 appropriation bill, the government is positioned to borrow N2.51 trillion (50% of the total market-related borrowing in the budget) from the domestic capital market. In a bid to incentivize investors, the government could hold yields across markets higher.
• The election year comes with lots of market uncertainty. In addition, there will be a new administration as the tenure of President Buhari comes to an end. This means that investors would be cautious of long term assets and would therefore take more short position. This would drive downward pressure in the Treasury Bills market.
• The equity market continues to ride on the boost in liquidity in the system and associated decline in yields. This sufficiently placed the equity market on a gaining side in 2021.
• Going into 2022, we anticipate a further liquidity boost in 2022Q1 due to more maturities coming in from segments of the fixed income market. Hence, the equity market will continue on its positive glide.
• The equity market in 2021 rode on the appreciation of the Oil & Gas Index on the back of the sustained increase in oil prices. The short-term outlook for the global oil market is challenged with the spread of the COVID-19 Omicron variant. This is expected to negatively impact the performance of Oil & Gas segment of the NGX.
• At the firm level, many large-cap companies listed on the exchange are reporting record performance in their 2021-9M reports, which will spill into their full-year performance and eventual dividend payment. Hence, it will drive positive sentiment towards the equity market in 2022.

• GDP Growth at 2.6%
• Inflation Rate at 14.7%
• External Reserves at US$37 billion
• Average Exchange Rate at N430/US$