The Managing Director, Cowry Asset Management Limited, Mr. Johnson Chukwu has said that the only solution to Nigerian exchange rate crisis is improving crude production.
Chukwu stated a webinar tagged HY 2024 Nigerian Economic and Financial Markets Review and Outlook for H2 organized by the company.
He noted that government’s borrowings and any inflows from foreign portfolio investors that we witness are all stopgap measures which are not sustainable to address the crises.
“Regarding the stabilization of the exchange rate, the only solution to our exchange rate crisis is improving crude production. The government’s borrowing and any inflows from foreign portfolio investors that we witness are all stopgap measures; they are palliatives.
It’s like when you have a fracture: the first thing they do is give you pain relief to moderate the pain, but they still need to operate on the fracture,” he said.
Chukwu emphasized the urgent need to address the issue of cash flow in the country.
He pointed out that the average crude production currently stands at 1.25 million barrels per day, a significant drop from the previous production level of 1.78 million barrels per day.
Historically, the country has produced over 2 million barrels per day.
Chukwu recalled that during Obasanjo’s administration, the target was to achieve a production rate of 3 million barrels per day.
He argued that reaching this target would greatly benefit the country by generating sufficient income to cover short-term borrowings, stabilize exchange rates, and potentially lead to an appreciation of the local currency.
“Without addressing the issue of crude production,” Chukwu warned, “all other measures being implemented are merely temporary solutions.”
Chukwu identified corporate earnings and the yield on comparable instruments as the primary drivers of equity performance in the coming months.
Regarding corporate earnings, Chukwu noted the economic challenges facing sector operators, citing low consumer demand and high borrowing costs as factors that negatively impact profitability.
He anticipates that corporate performance reports and income statements will be weak when actual results are announced.
Chukwu also expects yields on fixed income instruments to remain elevated in the half year of 2024, prompting investors and portfolio managers to continue investing in income-generating instruments.
Consequently, he foresees a market correction in the second half of the year, with fixed income yields ranging from 16% to 26%, federal government instruments will be viewed as low-risk investments.
Chukwu believes that investors will continue to favor these fixed income instruments in the current economic climate.
