7 Macro-Economic Data Every Nigerian Investor Must Track In 2017
As we look forward to another 365 days of the Nigerian economy it is important for most small businesses and retail investors to keep an eye on the numbers that matter. These numbers which we will like to call Macro-Economic data affects every single Nigerian doing business or investing in Nigeria.
Inflation Rate – The inflation rate is perhaps one of the most important data to watch in Nigeria. Whilst it is a number that is a culmination of other economic indicators in the economy, it is also a bellwether for how policy makers will react on issues affect you. Of course how they react to inflation rate could affect your finances positively or negatively. For example, higher inflation rates could trigger an increase in lending rates, which means your loans suddenly gets more expensive. It also affects the price of utilities such as electricity bills, phone bills etc.
The inflation rate is announced in the second week of every month by the National Bureau of Statistics and is also tracked by Nairametrics. Check here for historical inflation rates in Nigeria
External Reserves – The external reserves is the balance of forex held by the Central Bank of Nigeria on behalf of the government. Currently at about $25 billion, the external reserves is one of the most watched data from Nigeria. This is because the external reserves is what the CBN uses to defend the value of the naira. Being the largest supplier of forex in the market, exchange rate prices are mostly influenced by the level of the reserves. The higher the reserves, the more likely it is that the naira will strengthen, scarcity will abate and foreign investors may return. On the contrary, the lower the level of reserves, can result in scarcity, weaker naira and currency speculation. The current figure of $25 billion is not seen by most foreign investors as realistic as they believe that it does not reflect the true supply and demand situation in the country. They believe that the CBN has been able to maintain this level of reserves because it has refused to meet most of the demand out there. External reserves are thought to be slightly under $20 billion if you discount for the unmet demand.
You can track the external reserves from the website of the CBN
Exchange Rate – This is obviously a no brainer. In case you wonder why, being an import dependent country, the exchange rate plays a crucial factor in determining the prices of goods and services. More importantly, the handling of the foreign exchange market by the CBN will also determine how the trajectory of the CBN. If it continues with its capital controls, exchange rate disparity between the official and parallel market rate will widen and volatility will persist. If it allows it to float freely, the official rate will depreciate, reserves will reduce further but volatility will disappear. This is one data we will track very much this year.
You can follow our exchange rate tracker here
Oil Prices/Output – Being a major export earner for the country, Nigeria relies a lot on oil to survive. According to data from the National Bureau of Statistics, of the N5.5 trillion in export revenue earned in the first 3 quarters of 2016, N4.5 trillion was from crude oil. This data is particularly important because it is relied heavily by the government to fund its budget. Towards the end of 2016, OPEC countries agreed an output freeze that helped push the price of Brent Crude (this is the version of crude oil to track) to above $50 per barrel (currently $56). It is important to add that apart from crude oil prices, Nigeria’s production level will also be a significant factor. If we do not produce above 2million barrels per day then a higher crude oil price might not have any effect for Nigerians. This makes oil prices and crude oil output, two important data to watch this year.
Fuel Prices – While not a major macro indicator, fuel prices are a major cost input for a lot of businesses in Nigeria. The National Bureau of Statistics on a monthly basis publishes average fuel prices across states in the country. Why is this important? The higher the fuel price in any state the likely the higher the cost of doing business there. Higher fuel prices more that anything else is reflected in the inflation rate. Once you see that fuel prices are rising in some states other than Lagos, Abuja then it is an indicator that fuel prices might be increased to maintain an acceptable natural average.
Purchasing Managers Index – The PMI is a monthly survey of purchasing and supply executives of manufacturing and non-manufacturing organizations in 13 locations in Nigeria The survey results are used to compute the monthly Purchasing Managers’ Index (PMI). It is conducted by staffs of the CBN and published monthly. A composite PMI above 50 points indicates that the manufacturing/non-manufacturing economy is generally expanding, 50 points indicates no change and below 50 points indicates that it is generally declining.
This data is important because it reveals the sales and purchase expectations of manufacturers, service providers and purchasers respectively. It is a sign of how businesses are coping with a challenging economy. This data can also be viewed as a bellwether for an impending recession.
GDP – The gross domestic product growth rate of Nigeria is perhaps the most important data for a number of reasons. More importantly, this is the data that takes into account the performance of all facets of the economy. A higher quarterly GDP growth rate is indicative of an economy on the up and excites foreign investors. However an economy contracting, like Nigeria currently is, is indicative of an economy that is struggling to survive. Investors avoid economies in recession like a plague as they consider it a potential erosion of their investment. Nigeria is expected to post a modest GDP growth rate of about 1% according comments made by several rating agencies and analysts as complied by Nairametrics. This is by no means encouraging despite it being seen as ambitious by some analysts. If the GDP contrast in the first quarter of this year, then we are on the hook for the longest recession on record. If it grows again and then contracts again, then we are in a double dip recession. The GDP numbers are released quarterly by the National Bureau of Statistics and should be tracked by all. We expect the next GDP numbers to be released by the mid February.
Is there any data we may have missed? Let us know