Following improvements in the revenue generating capacity of the Federal Government and sustained growth of Nigeria’s Gross Domestic Product (GDP) rate, researchers at the Centre for the Study of Economies of Africa (CSEA) have projected that trading in the Nigerian Exchange this week will experience an upward momentum with the attendant positive returns for investors.
The experts, in the research firm’s ‘Weekly Stock Recommendation from Sept 17 to Sept 20’ Note circulated to our correspondent noted that the improved revenues were typified in the remittances recorded through the Company Income Tax (CIT) and Value Added Tax (VAT) sources.
Specifically, they recalled that based on the recently published reports by the National Bureau of Statistics (NBS), the CIT collection surged by 150.8% quarter-on-quarter (Q-o-Q) and 59.5% year-on-year (Y-o-Y), reaching N2.5 trillion in Q2, 2024.
Similarly, the data showed that VAT increased by 9.1% (Q-o-Q) and 99.8% (Y-o-Y), amounting to N1.6 trillion in the second quarter, while the cumulative collections for CIT and VAT in the first quarter this year stood at N3.5 trillion and N3.0 trillion, respectively.
On the impact of the improved revenue on the economy, the CSEA experts noted that the surge in tax collections reflected improvements in business margins, particularly in sectors like Financial & Insurance, Mining & Quarrying, and Public Administration, suggesting growing economic activity, improved tax compliance, and stronger tax enforcement by the government.
In addition, they maintained that the over-performance of CIT collections created a fiscal cushion, allowing the government to absorb shocks from any potential decline in oil revenue.
According to the researchers, the rise in non-oil revenue indicates that Nigeria’s efforts to diversify its revenue base beyond oil are yielding results while the improved CIT collections from foreign sources enhanced investor confidence in Nigeria’s economic recovery, potentially attracting further foreign direct investment (FDI) into the country.
On the trade surplus which showed that Nigeria recorded N6.9 trillion trade surplus in Q2, 2024, up 33.6% (Q-o-Q) and 52.2% Y-o-Y, the analysts forecasted that the positive trade balance if sustained would strengthen Nigeria’s external sector, contributing to forex stability and improving the balance of payments.
Reflecting on the implications of the positive fiscal and output of the country for the broad economy, and particularly on the capital market this week, the CSEA experts predicted: “Nigeria’s strong non-oil revenue growth, driven by record tax collections and a sustained trade surplus, is set to bolster economic stability in H2:2024. Increased FX inflows, supported by the Dangote Oil Refinery and reduced import bills, will enhance fiscal strength and investment in infrastructure.
“Meanwhile, moderate upward momentum is expected on the domestic bourse, fuelled by anticipated interest rate cuts and declining inflation, with investors advised to focus on stocks with solid fundamentals for long-term value”, they added.
