CFG Advisory: Nigeria needs urgent capital structure & balance sheet rework

CFG Advisory, a prominent financial consulting firm, has pointed out the urgent need for Nigeria to restructure its capital structure and balance sheet by selling down its JV oil assets to raise 30-50 billion dollars. This move is crucial to help restructure the balance sheet, provide FX for naira appreciation, improve the credit rating to investment grade, and increase the Net Reserves. According to Tilewa Adebajo, the CEO of CFG Advisory, these actions are essential to provide the stimulus for sustainable growth, productivity, and employment, but must be supported by coordinated Monetary, Fiscal, Trade, and Investment Policies. The reform program in Nigeria over the past 18 months has faced challenges, with the removal of the fuel subsidy now shifting focus to the rising debt service in the budget. The debt service portion has doubled to 16.3 trillion naira, eroding gains made from subsidy removal. Adebajo emphasized that the escalating debt profile, exceeding 100 billion US dollars, is unsustainable for the country's economy. Selling down the JV assets could inject vital funds to restructure the balance sheet and reduce debts. This move could lead to a lower foreign exchange rate, improved credit rating, lower inflation, sustainable growth between 8.5 to 10 percent, and increased productivity. Adebajo highlighted the importance of revamping the oil and gas sector, considering challenges such as gas availability affecting projects like the LNG. Addressing the need for further reforms in 2025, he emphasized the significance of restoring economic balance and sustainability to mitigate the impacts of debt burden on households and firms. Harmonizing policies, especially in monetary, fiscal, trade, and investment sectors, is crucial for navigating the current economic challenges. The ongoing exercise of rebasing GDP in Nigeria, aiming to foster trust in data and reporting, comes at a crucial time. With Nigeria now ranking fourth in Africa in GDP size, the depreciation in currency value has significantly impacted the economy. Adebajo warned about potential distortions that rebasing could create, especially in reflecting the true unemployment rate, which he estimated to be around 45-55%, contrasting with the official 4% rate. Productivity and growth challenges in Nigeria stem from factors like devaluation, inflation, and high-interest rates hampering companies' capacity to import and expand. Adebajo stressed the need for stronger policy actions to address these issues and rejuvenate industry productivity. Concerns over purchasing power erosion and under-capacity utilization necessitate urgent restructuring efforts. Comparing Ghana's economic challenges to Nigeria's, Adebajo noted similar issues of stagflation, high inflation, and currency depreciation affecting both countries. Ghana, having faced IMF program challenges due to a past debt default, presents lessons for Nigeria to avoid similar pitfalls amid mounting debt. Suggestions for the new Ghanaian administration include adherence to IMF program guidelines, confidence-building measures, and leveraging tourism for foreign exchange inflows. In conclusion, the critical economic priorities for West Africa remain anchored in restructuring capital, addressing debt burdens, fostering sustainable growth, and restoring investor confidence. Both Nigeria and Ghana face complex challenges that demand comprehensive policy reforms and prudent fiscal management to navigate the turbulent economic landscape in the region.