A Nigerian Bank Just Outlined 6 key Events That Might Affect Your Businesses in 2016

The Nigerian economy is in peril, the country is broke, millions of jobs will be lost and 2016 may turn out to be a disaster. These are some of the rhetoric you hear from doomsayers, on social media, forums and in most blogs. Analysts have also been in on the predictions for 2016 with some providing a data driven and well researched based projection of what this year might just turn out to be. Nairametrics has been digging up what it could find to help our readers plan better for the year. One of such, is this instructive analysis from Diamond Bank. The bank emailed an outlook for 2016 to some of its customers and we thought to share with you a detailed summary of the report.

The year 2016 will no doubt be another challenging year for businesses, given the expectation of lower crude oil price, naira devaluation, inflationary pressures and low foreign portfolio investments. Nevertheless, there are growth boosters coming from expansionary fiscal and monetary policy, coupled with more responsible fiscal regime and a focus on key priority sectors of the economy: Infrastructure, Security, Education and the Non-oil sector. Amidst a slow global growth and the headwinds of higher rates in the US, we present six major events that will most likely shape Nigerian business environment in 2016.

The N6.08 trillion budget shows a clear deviation from the past in terms of capital spend, fiscal discipline and policy priority. Budget deficit is to double to N2.2trillion even as the government plans to revive the economy by tripling capital expenditure to N1.9trillion. If properly implemented, the 2016 budget should place the country on a sustainable growth path.

There is no end in sight for the global crude oil glut, implying that crude oil price might fall below $30pb in 2016 since both Iran, OPEC and the US appear convinced that production is still profitable at such a low price. For the Nigerian economy, this will translate to more pressure on government oil revenue and foreign reserves, weaker naira and double digit inflation.

To reverse the declining economic growth trend and achieve the 4.4% budgeted GDP growth for 2016, the economy has to experience significant policy induced liquidity injections in 2016. This will come in the form of low interest rate environment, more CBN intervention funds in support of the real sector, increased government expenditure to stimulate activities in critical sectors, and increased private finances from public private partnership initiatives. The immediate cost of this will be higher inflation and a shrink in real returns to approximately 3%.

The economy will experience higher quarterly growth rates of approximately 4% in 2016 relative to the 3% average growth in 2015. This will be driven by the Non-oil sector, particularly

Agriculture, Solid minerals and the SME sectors. A number of businesses and opportunities will be

stimulated across the value chain of these sectors.

The 2016 is intuitively a year for austerity measures. The constraints of slow economic growth and low oil prices might imply that some state governments will not be able to meet salary obligations in 2016. Aggregate disposable income will be impacted, hence consumer expenditure will head south. This will impact effective demand, private investment and employment.

Businesses will need to brace up and devise means of hedging the inevitability of a weaker naira in 2016. More worrisome is that the FX challenge confronting the country is an obvious “unavailability” of foreign exchange due to low crude prices. While this presents a rare opportunity for

few businesses that depend on locally available inputs, a larger segment of the economy where

international financial flows are indispensable will be hard hit.