Nigeria Needs A More Diversified Export Basket — Gbemisola Popoola

[00:00:05]So, we've gone through our big stories and you know what to discuss. I'm joined now by Wim Solabomiwa, who's the head of public policy and government relations at ACIOE Associates to review some of our top stories in Mojisola. Wim, good to see you. Welcome to the show.

[00:00:18]>> Thanks for having me.

[00:00:19]>> Um I guess look, let's start with the Yesterday was Democracy Day in Nigeria, but we also called it um SpaceX Day.

[00:00:26]Um we've been It It's stock was up 19% in 2 trillion now. Um but you know, I this head of Razer, the gaming company in Asia, was saying it's just the beginning. Some are afraid that this this could be part of a bubble. Where where do you stand? What do you think of that? What what's going on right now?

[00:00:42]This IPO lullapalooza, if you will.

[00:00:45]>> I think um AI and the IPOs that I was saying you had announced earlier, Anthropic and OpenAI are, you know, also going to um issue IPOs soon.

[00:00:58]These are I guess evidence to the fact that AI is still developing. We haven't gotten to It hasn't gotten to its maturity yet as all. I mean, for the most part, it's still in its ideation like research phase. There's still a lot to come.

[00:01:15]However, there's been a lot There've been big bets, right? Some of those big bets have failed. Some companies have started to sort of shade off and shave off some of the weights that they've gained, you know, trying to invest in AI. And I think it's the same It's almost like a market correction that's happening, right? A lot of investors are becoming more critical of the investments, of the capital investments that are going into AI. But I don't think that the bubble is about to burst yet. We haven't gotten to the point where, you know, we have exhausted or at least gotten to a mature version of what AI could do in the world. So, we're still going to I don't think the bubble is about to burst, but there'll certainly be a market correction, which we're already seeing. The >> What you think about the product? We we you you the company utilizes quite a bit and we've seen this what it can do with productivity. If it's just at the research stage and what what do you think does it scare you as to how advanced it could get? Could we get to I, Robot with Will Smith where they take over? How much you know, what do you think about when you think of how advanced it could get? And then are you using it? So you know, what's how do you think how far do you think this thing could go? It's >> Who isn't using AI?

[00:02:27]>> [laughter] >> Um but I think So I think the biggest concern largely would be for countries like Nigeria, emerging economies where labor is still we're still quite labor intensive and we still have a we have a huge population.

[00:02:43]What do we do with our young people like me who you know, in near in the near future would need jobs and especially because while AI improves productivity, there's the inevitable loss of jobs that it basically would cause, right? So there's that big concern. Um however, I think that AI just like the internet, right?

[00:03:06]While the internet brought us brought commerce right at our doorsteps and everything, there's still a huge part of in-person interactions that still have to happen. So there'll be that initial extreme where everyone thinks that oh my god, all companies would want to switch to AI and everything but then they'll start to see a recalibration and re-correction.

[00:03:29]Doesn't scare me. I think it there's a bit of concern with regards to how company countries emerging economies, countries in Africa, countries like Nigeria would respond to what this means. I think there's a lot of education and um enlightenment that needs to happen for the young population so that they can take advantage of it and be more relevant in this new world. Um but I'm not scared that, you know, we're going to a point where robots will be >> [laughter] >> attacking us. I don't think that that's happening, at least anytime soon.

[00:04:00]Hopefully not in my lifetime.

[00:04:02]>> All right. So, going to commodities, you guys, gold, silver, Bitcoin. Bitcoin actually fell below 60,000 at one point.

[00:04:10]Um, I guess with the whole worries around the Fed raising rates, how do you think you know, investors are reassessing risk?

[00:04:20]>> I think right now what we're seeing is, um, because of the war and I don't think anyone expected the war to last this long. Um, but because of how long it's lasted, a lot of investors are now, um, basically reaching for more yield-bearing assets now because, I mean, gold, Bitcoin, these are more speculative. Gold is safe and everything, but it's still meant to be a safe haven when, you know, you're not able to get yields. So, I think investors would always pick assets that are able to yield actual yields today. Like, give me money in my account today, um, versus, um, those that will just be like for speculative, um, um, savings. And that's what we're starting to see. However, because again, the um, inflation in the US is not driven by structural issues. It's more transitory, right? It's the war. If the war ends today, I mean, if you look at the core inflation, core inflation is still around 2%. So, if we if the war ends today, the impact of the on the price, I mean, it won't happen immediately. It won't happen maybe even in a month, but eventually we'll start to see a reduction in, um, oil prices, which would start translate into, um, the inflation the headline inflation rates and, you know, people will start to step back. But for now, we're seeing that, um, investors are basically assessing trying to switch to, I guess, more yield-bearing assets versus, um, stores of value.

[00:05:55]>> All right, so you mentioned US inflation. I'll just pivot pivot there for a moment. Um, I guess how could the the markets seem to be pricing a rate hike already for Mr. Kevin Warsh in his meeting, uh, his next week, his first one. Uh, you saw inflation, you know, 4.2 as you mentioned year-on-year, three, four-year high.

[00:06:15]Um, I guess how a more hawkish Fed, how could that affect, you know, global capital flows and so on?

[00:06:21]>> I mean, for, I guess I'll speak as a Nigerian, for, um, you know, countries like Nigeria where in the last quarter we saw a $10 billion um, inflow into our our portfolio investments, that spells some fear, obviously, um, because this reduces the, um, carry trade premium that, you know, investors would enjoy. Ideally, they would you'd love to obviously borrow from, you know, safer, um, climes like the US and even Europe. I mean, the ECB has already increased rates as well. And then bring it to take advantage of, you know, high interests in emerging economies. However, because these emerging economies have almost sort of reached their peak with how much they can, you know, contract, um, um, um, monetary policy, there is going to be I mean, there's only so much they can do. For most, um, I mean, most, um, central banks, what we've seen more recently is basically holding, right?

[00:07:25]There are very little rate hikes because there's no not much there's there isn't much leeway for that, especially considering the fact that the economies are also feeling the impact of the, um, war, right? So, the transitory inflation is also affecting them. So, there isn't really much to do.

[00:07:41]Um, so by the time, if the Fed increased rates, even if they hold the rates, right? That reduces how much, um, you know, it reduces the currency premium, reduces how much investors stand to gain with the dollar likely to, um, strengthen, that also reduces increases, um, exchange rate risks that investors have to bear. So, all of these factors together mean that investing in emerging economies would not be as attractive >> Right.

[00:08:11]>> as it used to be or as it is now if the, um, inflation continues and if the Fed actually increases rates like that the ECB did.

[00:08:20]>> Okay. All right, let's bring things at home now. Everything is interlinked. So, when I say bring things home, it's all it's always a global village.

[00:08:28]You mentioned that 10 billion that foreign, you know, capital importation that came into Nigeria. I don't want to get into the debate of FPI versus foreign direct investment. [laughter] Cuz money is money, right? But the trade surplus, 7.5 trillion, 340% jump.

[00:08:48]I guess how are you assessing that figure and what that means for, reserves and, you know, Nigeria and Nigeria in general?

[00:08:58]>> First thing is good news. It's it's good news, obviously. Every known Everybody wants Nigeria's trade surplus to continue to increase and improve.

[00:09:07]However, what we're seeing is the composition of our trade is starting to change, right? We're seeing an increase in Oh, while we're even enjoying a trade surplus at the moment is because, um, imports, right, have reduced. So, we're seeing, um, petrol imports basically shrink, right? From an average of 2 trillion, 2.5 trillion in, um, quarters preceding now in 2024 and 2025 to 87 billion in Q1, right? So, that's a severe That means we're depending a lot more on locally sourced petrol, right? Um what we're also seeing And so, that's the good side, right? So, that puts less pressure on the foreign exchange reserves. It puts less pressure on the exchange rate. However, we started importing a lot more crude oil.

[00:10:01]>> Right.

[00:10:01]>> Right? And that's exposure by the time you compare that with Nigeria's um I mean, our our trade is still quite homogeneous. Not as diversified as we would like, right? So, there's a lot of exposure to crude oil in Nigeria, right?

[00:10:19]So, a lot of our exports, I mean, thankfully, crude oil production has improved, which is so fantastic. You know, we're earning more from that.

[00:10:27]However, that's all It's almost like that's been a bit canceled out by the importation that's happening of crude oil, as well. So, um I think what would what we want to see more of now And I mean, even the improvements we've seen in the trade hasn't necessarily translated into our foreign exchange reserves. Because what's holding our foreign exchange reserves up now? Are the FBI >> Right.

[00:10:51]>> investments that we've seen in recent time, which is very risky, right? Very prone to capital flights, like >> Hot money, as they say.

[00:10:57]>> Hot money, exactly. So, um what we would love to see more of is a more diversified diversified exports basket. And even imports, right? We want to see, you know, more compressed imports, locally sourced crude oil, hopefully, that doesn't put pressure on on foreign reserves. So, but then, good news all the same, we're seeing a lot of improvements, especially in crude oil production.

[00:11:24]Um and so, we want to see more of that, but less imports, so that when you know, all the hot money, impact and sort of reduce our fiscal dollars. We still have strong enough buffer.

[00:11:38]>> Great stuff.

[00:11:40]Okay, I'm going to go with I touched on Bitcoin gold earlier on, but I want to come back to the IMF and the article four and consultations.

[00:11:49]Saying [snorts] that Nigeria should, you know, essentially regulate stable coins.

[00:11:53]So, what do you make of that? I know the SEC is already looking at that and so on. This you know, CBN too. But, what's what are your thoughts on their their recommendations there with and we actually, you know, we're using a lot of crypto in this country amongst young people. Yeah. So, what do you make of what what their stance?

[00:12:10]>> Yeah, so I mean, I agree with them. Like you said, we're using a lot of crypto.

[00:12:14]The transactions are happening. What needs to then happen or what and and what needs to happen now is that it needs to be under regulatory supervision. Not to control it, right?

[00:12:25]And and I feel like the federal government is already thinking about this with by setting up VAST, Virtual Assets Regulatory Authority, which is co-chaired by the CBN and and NRS.

[00:12:36]And they're already working on the regulation, right? However, the reason for the regulation and this might be and this is probably perceived as all control and everything that goes against the whole idea of cryptocurrency.

[00:12:49]However, it is for protection more than anything else, right? So, consumer protection to ensure that the um cryptocurrency that's been invested in, there's some there's reserve adequacy for people who are investing in it.

[00:13:03]There's also I mean, they're able to monitor AML and CFT issues around it. And also to ensure that it is not undermining the monetary policy transmission, right? So, ensuring that at least the federal the the central bank and monetary policy monetary policy committee are able to factor in have a true picture of what's going on with regards to crypto and factor that into the monetary policy that's being implemented by them. So that it's not undermined, right? But then again, these transactions are happening. Crypto is becoming more and more um um I useful for cross-border payments and just transactions. I mean, you can't you can't stop the transactions from happening. What you want is to ensure that at least you're creating an enabling environment to to protect consumers and to also factor it into monetary policy um decisions when they're being made. But again, like I said, SEC has a regulation at least for the assets and the security side of crypto, but also the Central Bank and NRS through VARA are already working on on regulation. So I guess now that the IMF has even brought it back to four, we might see a lot more momentum, but it's already happening.

[00:14:21]>> All right, A. Remi Sola, I I thank you so much for joining us on the weekend to go over all these big stories.

[00:14:27]Come back, please. A. Remi Sola Bola, head of government policy public relations over at SIA Associates.

[00:14:32]Appreciate your time.

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