#1MTN Nigeria's Macroeconomic & Policy Environment In The New Dispensation Presented by Bismarck Rewane May 31, 2023#2ALUGRATIO 22 STROF AND ON D Baton change! Policy changes! Institutional reforms! "It is during war that generals are made"#3OUTLINE 03 04 05 01 Snapshot Analysis & Key Takeaways 02 Challenges & Major Policy Changes Outlook & Opportunities Risk Footprints Summary & Conclusion#4SNAPSHOT ANALYSIS & KEY TAKEAWAYS Transition from Partial to General Dynamic Equilibrium#5SNAPSHOT ANALYSIS Indicators 5-yr Avg. 2022 2023* % change Real GDP growth (%) 1.22 3.1 2.31 (Q1'23) -0.79 GDP per capita 2,157.4 2,200 2,280 3.64 Total factor productivity growth (%) -1.02 0.9 2.0 1.10 Inflation rate (End period; %) 14.04 21.34 22.22 3.32 Oil Production (End period; mbpd) 1.63 1.27 1.18 -7.09 Oil Price ($'pb) 63.91 100.9 81.03 -19.69 Oil Revenue, Gross($'bn) 15.7 25 21 (2022) -16.00 External Reserves ($'bn, end period) 38.94 37.08 35.18 -5.02 External Debt ($'bn, end period) 27.68 38.39 (2021) 41.69 (2022) 8.60 Exchange rate (N/$, end period) 363 740 765 3.38 Stock Market Cap (N'trn) - end period 22.63 19.98 30.35 51.90 Sensitivity: MTN Internal 5#6KEY TAKEAWAYS 1 2 Sub-optimal growth due to bottlenecks, low labour productivity & underutilization of capital stock Spiraling inflation - currently at a 17-year high of 22.22% • Defying the CBN's policy response (monetary policy tightening) • Ways and means provision now 15% of preceding year's actual revenue, up from 5% 3 Monetary policy transmission mechanism is weak • 364-day t/bill rate down to 7.99%p.a. - widening the negative real rate of return to -14.23% Sensitivity: MTN Internal 6#7KEY TAKEAWAYS CBN's forex restrictions and rationing increasing currency pressures 4 • NAFEX rate traded as low as N632/$ 5 • Sensitivity: MTN Internal Dwindling revenue and skyrocketing expenditure mounting fiscal pressure 11.58 Fiscal deficit widened by 433% to N8.33trn in 2022 from N1.56trn in 2015 Revenue-to-debt service cost climbed to 112% in 2022 7#8NIGERIA'S STRUCTURAL PROBLEMS ARE ENTRENCHED • Nigeria's structural problems are entrenched • Bottlenecks everywhere Vast farm land 70.8mn hectares Abundant Water Large oil Reserves Large Population Resources High volume of fertilizer Very little refined Low productivity Low irrigation Poor electricity Low agricultural Output Food Insecurity • Due to weak institutions & mismanagement Sensitivity: MTN Internal#9THE NEW ADMINISTRATION & MAJOR POLICY CHANGES 9#10NEW PRESIDENT | STRENGTHS Has worked in the private sector Knows how to pick the right team Has big dreams • Eko atlantic, e.t.c • Dream come true or Nightmare? Dreams can become a nightmare if not well nourished Vision/Dreams Goals Outcomes When outcomes are missed, unintended consequences become a nightmare 10#11THE NEW ADMINISTRATION & POLICY OBJECTIVES 1 Petrol subsidy removal 5 Thorough house cleaning at the CBN 2 Unified exchange rate 6 Low interest rates on business loans 3 Repatriation of profits. 4 Anti-investment & multiple tax policies . 7 Infrastructure development 80 Talk is cheap The President must be resolute about policy implementation Policy reforms must be accompanied with institutional reforms Sensitivity: MTN Internal Double electricity generation, transmission & distribution capacity 11#12POLICY PRONOUNCEMENTS & IMMEDIATE REACTIONS Policy pronouncements Immediate reaction Petrol subsidy removal Sensitivity: MTN Internal Resurgence in fuel queues due to hoarding Differentiated pricing across the country Petrol sold at an average price of N350/litre 12#13RISKS | POLICY BACKLASH 01 02 py 0.3 The negative effect of policy reforms could result in policy backlash Especially given that the President has little political capital could lead to disruption of economic activities Sensitivity: MTN Internal 13#14HOW REFORMS WILL LOOK LIKE? The implementation of the key reforms may have short-term economic pain But long-term gains are enormous Sensitivity: MTN Internal Pre-reform Post- reform Official exchange rate (N/$) 462 600 Petrol price 185 630 14#15800 PATH TOWARDS EXCHANGE RATE UNIFICATION Parallel vs Official Rate 700 600 500 400 300 200 D 100 0 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Parallel -Official Sensitivity: MTN Internal Long-run goal is to have a unified exchange rate 15#16POLICY PRONOUNCEMENTS | IMPACT ANALYSIS Y = C +| + G + X - M $508bn $350bn $132.1bn $39.6bn ($13.2bn) Petrol subsidy removal -$3bn $26.5bn $9.5bn $1 $10bn $4bn Currency adjustment $12.14bn $4.14bn 2.1bn $2.4bn $3.5bn Sensitivity: MTN Internal 16#17POLICY PRONOUNCEMENTS | IMPACT ON TELCOS, FINTECHS & PSBS Policy pronouncements Petrol subsidy removal Immediate unification of exchange rates Repatriation of profits. Impact Analysis Squeezed consumer disposable income Resulting in lower demand for telco/PSBS services Reduction in arbitrage activities Ease in telcos forex sourcing problems. 3 proble Easy repatriation of profits to boost investor confidence Increasing invisible flows into the country. Anti-investment & multiple tax policies Encourage investment Possible increase in profitability Sensitivity: MTN Internal 17#18LONG TERM GAINS | IMPACT ON TELCOS, FINTECHS & PSBS Government revenue Foreign investment Diesel price Impact analysis Create fiscal space for the provision of key infrastructural and improvement of general welfare of the citizens – Telco providers to benefit from high level of subscription as consumer standard of living improves Increased foreign investment into Telecom industry as foreign investor confidence improves Reduction in operating cost and business profitability Sensitivity: MTN Internal 18#19OUTLOOK & OPPORTUNITIES 19#20SHORT TERM OUTLOOK • Nigeria's GDP to slow to 2.9% in 2023 • Down from an average of 3.10% in 2022 Inflation to climb to an average of 20.3% in 2023 From the average of 18.8% in 2022 CBN to keep policy rate elevated as inflation remains high • MPR likely to peak at 19.50% • Official exchange rate likely to be adjusted to N600/$ Will lead to appreciation of the parallel exchange rate towards N680/$ • Given that monetary conditions are tight • ● Clear policy direction as new administration takes over • Petrol subsidy eliminated Announcement of supplementary budget in August Sensitivity: MTN Internal 20 20#21LONG-TERM OUTLOOK | GAME CHANGERS African Continental Free Trade Agreement AfCFTA Lekki Deep Sea Port Dangote Refinery & Petrochemicals Elimination of 97% of tariff over the next five to ten years Trade facilitation & service To boost intra-African trade by 60% by 2034 Equipped with 13 quay cranes for a capacity of 2.5 million TEUS (Twenty-Foot Equivalent Units) on a 1.2 kilometre quay with a depth of 16 meters One of the largest in West Africa The world's largest single-train refinery Has the capacity to process 650,000 barrels of crude oil per day Can meet 100% of Nigerian demand and have surplus for exports Sensitivity: MTN Internal 21#22IMPLICATION OF DANGOTE REFINERY ON THE NIGERIAN ECONOMY Dangote refinery not a silver bullet A necessary but not sufficient condition for macroeconomic stability Impact on the economy will reflect much more in 2024 Reduction in downtime and increase in productivity & output growth • Will positively impact sectors that rely on the industry for production both directly & indirectly Expected to increase employment levels directly & indirectly • Increased sector productivity to boost employment levels Will increase government revenue through higher tax payment • Federal government to benefit from increase in production & employment levels in form of higher tax collection Sensitivity: MTN Internal 22 22#23FINANCIAL INCLUSION | OPPORTUNITIES • Nigeria's economy is mainly consumer-driven Consumption accounts for about 70% of GDP Increased need for investment in 5g networks due to growing demand • Video streaming, tele-education & medicine, virtual meetings & classes and games for children Segregation of supervision of banks, telcos and PSBS • Less regulations and interventions from the CBN • NCC will become more powerful CBN to shift to orthodox monetary policy • More efficient payment system to push up the velocity of money in circulation. High income from fees charged on online transactions & transfers Telcos/PSBs to also benefit from high yields on pool of funds as interest rates remain elevated Sensitivity: MTN Internal 23 23#24LONG-TERM OUTLOOK | TELECOMS (EIU) Mobile penetration 2022 2023 2024 2025 2026 2027 Mobile voice 222,572 237,090 260,500 289,512 312,780 327,828 subscriptions Further expansion in mobile subscriber growth over the forecast period (2023-27) Mobile voice subscriptions 102 106 114 123 130 Number of users to grow 133 (per 100 people) at an annual average rate of 8.1% Mobile 88 100 112 125 138 152 broadband subscriptions (m) Mobile broadband 40 45 49 53 58 62 subscriptions (per 100 people Sensitivity: MTN Internal Will result in a penetration rate of 133% at end-2027, up from 102% in 2022 24#25SUMMARY & OUTLOOK 25 25#26WILL THE NIGERIAN ECONOMY SLIP INTO A RECESSION? GDP Growth (%) 3.8 3.54 3.52 3.6 3.4 3.2 3.11 3 2.8 2.6 2.4 2.2 2.31 2.25 2 Q1'22 Q2'22 Q3'22 Q4'22 Q1'23 Sensitivity: MTN Internal . Will the Nigerian economy slip into a recession? - NO But real GDP growth is likely to slow again in Q2 Partly due to the spill over effects of the Naira cash crunch and political uncertainties 26 26#27SUMMARY & CONCLUSION Nigeria's macroeconomic problems are well documented • Slow growth, high inflation, weak public finance and high debt burden • The new government will take the bold step in implementing major policies • • Petrol subsidy removal • Exchange rate unification Policy reforms come with short-term pains Telco providers will benefit in the long-run • • Improvement in employment levels and consumer disposable income. Ease in forex sourcing challenges Dangote refinery to boost supply of petroleum products and boost productivity Sensitivity: MTN Internal 27#28SUMMARY & CONCLUSION GDP growth to slow further to an average of 2.9% in 2023 Long-term growth will be export, investment and consumption-led Inflation to average 20.34% from 18.8% in 2022 Disposable income will remain low as inflation remains high MPR to peak at 19.50% Official exchange rate to be adjusted to N600/$ Parallel market rate is expected to appreciate towards N680/$ given that monetary conditions are tight • Adjustment of official rate unlikely to lead to high inflation. Sensitivity: MTN Internal 28 28#29THANK YOU