US Perspective

President Joe Biden’s $1.9 trillion pandemic relief package is set to reach Americans as early as this week. Joyce Chang, chair of global research at JP Morgan has forecast that this stimulus package would contribute to the best growth in 50 years with projections of 9.5% and 8.3% in Q2 and Q3 2021 respectively.

According to data from the US census bureau; the majority of households who received the $600 stimulus cheque in February either saved, paid debt or spent a large chunk on accommodation costs (i.e. House Rent or Mortgages). Hence, initial concerns for those opposed to the 3rd stimulus was that the $1.9 trillion was too large and that would result inflation rather than growth.

The proponent of US inflation spiking argued that the $1.9 trillion stimulus would result in a huge uptick in US Consumer demand as people were seeking to unleash their pent-up demand by drawing down on the built-up savings. These inflation concerns have since abated partly because the latest US Inflation published showed the concerns were premature given that other major drivers of consumer demand such as low unemployment, wage growth and consumer credit spending are still a few years away from getting to the level of full employment.

Furthermore, the US Central bank (FED) is NOT concerned about short-term inflation exceeding their 2% target, if the overall US economy gets back on track and the US starts seeing reduced unemployment coupled with wage growth.

So, to summarize, the key objective from both US fiscal policy and monetary policymakers is to leverage this $1.9 trillion (aka. Third “3rd” COVID-19 stimulus) to manage demand in a sufficient manner that it ultimately drives US GDP growth by reducing unemployment (ie jobs, jobs and jobs).

Given the fact that we’ve seen US stimulus in action for over a decade (i.e. in 2008 and more recently in 2019 and 2020), the general expectations are that the stimulus will achieve the aim of reducing unemployment in the medium to long term, albeit, with short-term spikes in prices/inflation which policymakers need to monitor and manage.

Nigerian Perspective

Regardless of the outcome, the impact of the stimulus would affect global markets both in the short-term and medium-term. Nigeria (as Africa’s largest economy) will not be left behind.

a) From a short-term perspective, as US consumer demand is being stimulated with cash, the expectation is that the propensity to save/invest and spend on accommodation will continue. If so, three things to watch are;

I. The recent actions taken by the Central Bank of Nigeria to attract remittance inflow could become advantageous. Especially as Nigeria in the diaspora remit funds home either as payment for BLACK TAXES (i.e. support family members back home) or to fund the acquisition of landed properties or complete house buildings (i.e. continue to address accommodation concerns).

II. Furthermore, from a saving/investment perspective, the rise of the retail investors seeking to hedge against inflation will result in heightened interest in instruments that retail investors find to be accessible. We already see the MEME Stock/Reddit theatricals, activity flux into major cryptocurrencies (such as Bitcoin).

  • Notably, despite the recent crypto-currency restrictions directed by the central bank of Nigeria, Nigeria has seen a 15% increase in P2P bitcoin transactions showing its resilience to the impact of government policy.
  • As of the time of writing this article, bitcoin has surpassed its record high to hit $61,000 and still trending bullish.

III. Finally, data from the federal reserve show that total consumer credit decreased by $1.3 billion in January 2021 alone (i.e. one-month decrease), showing that individuals current preference to invest rather than consume thereby boosting liquidity in the stock market. Consequently, it will not be unreasonable to anticipate an uptick in funds allocated to EM/Frontier markets as portfolio managers search for yields.

  • The Nigeria stock exchange returned 50% in 2020 and will also be on the radar as portfolio managers rebalance and look to Frontier markets in search of higher yields in 2021.

b) From a long-term perspective, the key things to watch about the 3rd stimulus is how it impacts US unemployment recovery and how global supply chains adapt. These are key for Nigeria because;

I. In the long-term, as US unemployment numbers reduce (i.e. jobs and wage growth), Nigeria can expect higher diaspora inflows (i.e. ideally back to the $20billion+ per annum and higher).

II. Furthermore, in the long run, as supply chains stabilize (India, China, ASEAN region), commodity-exporting countries such as Nigeria will benefit. This is especially, given the outsized dependence on commodity exports for our foreign currency earnings which has a knock-on effect on the Naira exchange rate.

There is still some way to go (i.e., a few months maybe even a couple of years) before we see the anticipated medium/long term effects of the $1.9million stimulus on lower US unemployment and supply chains, however, the short-term impact is likely to be observed in the coming weeks.

Ultimately, suffice to say as the US economy goes, most of the rest of the world’s economy goes (i.e., including Nigeria). So here is hoping that the latest $1.9 trillion stimulus successful accomplishes its overall aims.

In a discussion with a distinguished Professor of Economics, Philip O. Alege, Covenant University, Ota in Ogun State on the implication of the US stimulus package on the Nigerian economy, he postulated that impact was dependent on the ability of the stimulus to propel real growth and the consumption pattern of the households in the USA. If the stimulus only leads to inflation and jobless growth, it would harm the economy and reduce consumption. However, if the stimulus has the potential for real growth, the question now lies on the driver of consumption whether of domestic goods and/or foreign goods. As real growth may increase the demand for foreign goods (crude oil) thereby leading to an increase in revenue for Nigeria.

Furthermore, Professor Alege commented on the less than successful Covid-19 palliative deployed in Nigeria to highlight the structural difference between US and Nigerian stimulus. On the issue of remittance inflow, he also said that recent projection from an International conference expects projected a decline of about 7% which may worsen the case for Nigeria. However, recent remittance incentives may revert the projections.

Another analyst Mr. Emeka Ucheaga CEO, of EUA Intelligence, an investment advisory and economic consulting firm, said that the stimulus cheque is great for America but will have a very negligible impact on Nigeria if at all any. Remittances dropped significantly last year despite the stimulus cheque paid out with good reason. The greater percentage of Nigerians in the diaspora are blue-collar workers and this category of workers were most affected by the economic turmoil due to COVID-19. They need the cheque to survive so there’s very little hope we will be getting any of it down to Nigeria through remittances.