2022 started off with hopes of further economic recoveries from the ravages of the coronavirus pandemic. However, barely two months into the year, the global economy took an unexpected turn after Russia invaded Ukraine, fuelling a surge in general price levels, as global food and fuel supplies were dealt a severe blow. As tensions continue to brew in Eastern Europe, it remains unclear the amount and the severity of fresh sanctions that would be imposed on Russia in the coming months, leaving global economic outlook somewhat hazy. 

Although Russia and Ukraine only account for 2.5% of Nigeria’s imports, the implications of the war in the oil market have culminated in harsh cost pressures across the country, with headline inflation racing to a 10-month high in May. While we hold the expectation that inflationary pressures would persist in the second half, we see the possibility of margins remaining stable across the FMCG space, as food manufacturers may continue to pass on rising costs to consumers. 

As supply distruptions are expected to keep oil prices elevated through the year, we see upstream players well positioned for sharp revenue growth, although frequent production downtime and incessant crude theft may limit the gains from high oil prices. On the flipside, higher landing costs of fuel commodities may drag margins for downstream players. As per industrials, increased construction activities by the government, as well as rising cement consumption in the real estate sector, will continue to drive topline growth, while cost pressures are a major downside risk to profitability margins. 

In addition, continual interventions from the CBN should drive output growth across the agriculture sector, while geopolitics-induced price rally in agro-commodities could leave margins in a healthy position through the second half. Similarly, we see further expansion in telecommunications, as increasing internet needs and rising smartphone penetration propel data income. We also see the launch of payment service banks (PSBs) as a significant boost to revenue in the coming years. Lastly, the recent rate hike by the CBN, alongside loan book expansion, should deliver a positive outcome for interest income among Nigerian banks through the H2 period. 

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