Central Bank of Nigeria​ ​

Key takeaways

Thank you for attending Ninety One’s second CBN Virtual Capacity Building Programme. It was a pleasure to welcome you to this virtual training and knowledge-sharing event. Please find below some key takeaways from the sessions.

Growth Mindset

This session focused on how our attitudes and beliefs influence our success, and what we can do to prepare our minds to help us achieve our goals. It explored how our brains work, and why success and growth begin with the right mindset. We are motivated to seek growth and opportunity, or to avoid threat and danger. Successful executives, leaders and investment managers have the skills and competencies to manage their mindset and direct it towards growth.

Notable quotes

• “Between stimulus and response, there is a space. In that space is our power to choose our response. In our response lies our growth and freedom” – Victor Frankl
• “Your most important strategic decision is where you place your attention.”
• “A glass half full doesn’t mean that glass is full, it means that you have the ability to fill it.” 
• “Our worlds move in the direction of the questions we ask.”
• Growth mindset – Learning, Growth, Opportunity, Possibility, Action, Agency, Authority

Examining Inflation

After many years of muted inflation, the likelihood of a sustained period of price rises is increasing, especially in the US, driven by fiscal support for lower unemployment, the rising adoption of inflation ‘make-up’ strategies by central banks, and a progressive rolling back of globalisation.

• Over the long-term, inflation is generated through a combination of monetary and real factors. Monetary aggregates (measures of the supply of money) are highly correlated with inflation, but only over long time periods (±30 years). There is also a cyclical component to inflation. For example, the inflationary effects of money-supply increase since the Global Financial Crisis (GFC) have been swamped by other factors such as deleveraging in the public and private sectors. Inflation is also global in nature, with ±60% of Consumer Price Index CPI) inflation explained by non-domestic factors.
• The five most important real or structural factors driving inflation in recent decades have been détente, disruption, debt, demography and disparities. Demographics and the end of détente are expected to contribute marginally to higher inflation, while technological disruption, higher inequality and debt continue to weigh strongly against inflation.
• The US is in a different structural position to where it was after the GFC. Demographically, it is at an inflection point, with a large millennial generation forming households and leveraging up, and the banking system is healthier with a greater ability to lend. Meanwhile, fiscal and monetary authorities are doing their best to increase the money supply. Japan and the eurozone have domestic deflationary headwinds, while Chinese inflation prospects are more balanced. If inflation becomes established, it will most likely happen in the US, given the structural dynamics and direction of policy.

Tales of Two Worlds

A very challenging decade faces the West. Exacerbated by the fall-out from COVID-19, national debt burdens are mounting. At the same time, the West’s demographic headwind is slowly but surely strengthening. Against this backdrop, the centre of gravity of global trade is swinging decisively from West to East. China, and indeed Asia at large, will become much more influential in international trade and the flow of capital.

• The forces of demography are inescapable. Dependency ratios in the West are rising fast, forcing the state to pick up the resultant financing burden. The contrast with Asian economies enjoying better demographics could not be starker – though even there, for some, demographic dark clouds are on the horizon. Much of Asia is entering the savings phase of its economic lifecycle, just as the West moves towards dissaving. The consequences for the financial markets in both East and West will be profound in the coming decade.
• Excessive money printing is altering the risk balance between the East and West. Huge amounts of state debt was being created in the West even before COVID-19, as Western governments were obliged to ratchet up the state’s subsidisation of consumer demand and social spending as a percentage of GDP. Over the past decade, Western bond markets have been progressively poisoned in the name of ‘justifiable’ financial repression. This, in turn, has led to risk being under-priced. This corrosive trend, while especially evident in the West including Japan, is largely absent in East Asia where governments generally run far smaller budget deficits, have more balanced budgets, and pursue more prudent fiscal and monetary policies. Critically, real interest rates in the East are nearly always positive.
• The changing of the global guard is speeding up as several well-established secular trends have been accelerated by the pandemic. All of them point to an imminent reordering in the global hierarchy so far as economic leadership is concerned. The net result is that COVID-19 is hastening the relative decline of the West, while giving the relative rise of new powers in the East fresh impetus.
• Finally, technology is acting not just as a creative force but a destructive one too. While tech advances are likely good for humanity as a whole, many humans – understandably – do not see it that way. Automation and artificial intelligence are destroying huge numbers of jobs. For example, Kroger’s 375,000-square-foot fulfilment centre in Cincinnati is ‘staffed’ mostly by robots that can pick and pack a 50-item grocery basket in five minutes with 99% accuracy, far faster and with fewer mistakes than any human could do.