Analysts at Coronation Research have a GDP growth forecast of 2.25% y/y for the twelve months ending December 2019. The analysts made this known in their report issued following the release of Q4 2018 GDP numbers by the National Bureau of Statistics.
Here are excerpts from the report.
Q4 2018 GDP was reported today at +2.38% y/y versus the Bloomberg consensus estimate of +2.10% y/y. Non-oil growth was a respectable +2.70% y/y and has accelerated over the past four quarters. See page 2.
FY 2018 GDP was +1.93% y/y, compared with +1.76% y/y for 9M 2018 and +0.82% y/y for 2017. The World Bank’s revised estimate for 2018 was +1.90% y/y.
While below trend, growth is on a gentle upward slope. We forecast +2.25% y/y growth for 2019.
Positive implications for equities. Lack of loan growth was the bugbear for listed banks in 2018: more growth, particularly in the Telecoms and Manufacturing sectors, may point to renewed loan demand in 2019, though the large Trade sector (up by just 1.02% y/y) remains essentially weak. Segmental data for construction, +2.05% y/y, bodes well for the cement industry.
Mildly positive for market interest rates. As we argue in Coronation Research, Year Ahead 2019, A tale of two halves, 15 January, market interest rates support foreign portfolio investment, but may be cut in Q4 or even Q3 2019 if inflation moderates. We are already seeing some read-though in 10-year bond yields.
Mildly positive for inflation. The Agriculture segment (26% of GDP) showed improved growth (+2.46% y/y) and to the extent that this reflects improved production, we expect inflationary pressure to moderate towards mid-year, if momentum is sustained.
Non-oil & gas GDP
Robust performance in Non-oil GDP
Non-oil GDP accelerated throughout 2018, growing steadily from +0.76% y/y in Q1 18 to +2.70% y/y in Q4 18. We see a pattern emerging as the economy emerged from recession. Whereas GDP was reliant on its oil component to stimulate growth for much of the past, and therefore highly susceptible to volatility in the prices and production, non-oil GDP has become more resilient to such shocks. The Q3 2017 0.76% y/y decline in non-oil GDP now reads as an isolated event post-recession.
This resilience is even more impressive given that Agriculture is not growing as quickly as it did in 2016 and 2017, while Trade and Manufacturing have performed inconsistently. We expect Agriculture to post a very gradual recovery to its trend growth rate of 3%.
More recently Telecoms has been the main driver of growth in non-oil GDP. The sector grew 11.33% y/y for FY 2018. it is easily the best performing sector of the top six contributors to GDP well above Agriculture which grew by 2.12% y/y for FY 2018.
On the other hand, Oil & Gas GDP has underperformed in 2018, following one quarter of positive growth (Q1 2018, 14.77% y/y) with three consecutive quarters of year-on-year decline. The volatility of Oil and Gas itself is not surprising – in the last eight years it has recorded growth rates between +24.21% y/y and -23.04% y/y.
Breakdown among the major segments
The top six sectors accounted for 74.10% of the Nigerian economy in Q4 2018, down 406bps from their collective contribution in Q3 2018. In order of size they were Agriculture, Trade, Telecoms, Manufacturing, Oil and Gas, and Real Estate.
In Q4 2018 Agriculture (25.83% of GDP) grew by 2.46% y/y. Trade (16.29% of GDP) grew by 1.02% y/y. Telecoms (9.73% of GDP) grew by 16.67% y/y. Manufacturing (8.75% of GDP) grew by 2.35% y/y. Oil & Gas (6.97% of GDP) contracted by 1.62% y/y. And Real Estate (6.52% of GDP) fell by 3.85% y/y.
Therefore, of the six largest sectors, four grew and two contracted. Agriculture sustained its upward track towards trend growth of 3%, indicating, a slowdown in core inflation is likely in the medium term. Manufacturing performance and PMI data are now showing signs of convergence after a period of disconnect. Telecoms consolidated it status as a core stimulant for non-oil GDP growth having reported double-digit growth over the last three quarters. Oil & Gas recorded a third consecutive quarter of year-on-year decline period post-Q1 17, mirroring the global trend in oil prices. Trading was up for two consecutive quarters. Real Estate remained in a sticky decline, with no clear pattern emerging in its development.
The growth in Agriculture remains at just below its 3% long term trend. At 26% of GDP, its provides a defense against the steep volatility that characterizes the Oil & Gas component.
Trade remains weak but positive
While a small percentage of consumers assess short-term unsecured credit for current consumption, most consumers fund consumption from out of pocket appropriations. The effect is some headroom for import-elastic consumption but also more importantly, demand for cheaper substitutes where possible. Trade growth suffers in this regard.
Positive growth in Manufacturing is being sustained by stability in the foreign exchange market, a feat achieved by the CBN’s willingness to supply US dollars to the foreign exchange markets, while offering inflation-adjusted yields in excess of 500bps to foreign investors. The combined growth in both Trade and Manufacturing, two sectors highly responsive to consumers wallet sizes and expectations, point to a pass-through of election-induced spending in the short term and broader recovery in the economy.
Telecoms – conditions at their best in years
The Telecoms sector (9.73% of GDP), grew by 16.67% y/y in Q4 2018. Building on its Q3 18 performance, the sector extended gains to post an 11.33% year-on-year growth among peers with contribution to GDP above 6.00%.
Telecoms segment of GDP, y/y growth
Strong growth in Telecoms reflects new investments, growing franchises and growth in internet and mobile banking. A deeper penetration of data-reliant devices in the Nigerian market, and an increasing migration of media services to internet-driven platforms otherwise traditionally offered off-net explain the strong performance. We expect Telecoms to leverage participation as Payment Service Banks and sustain growth going forward
Oil & Gas GDP continues to exhibit volatility. Nigerian oil production was flat year-on-year and up 1.33% q/q in Q4 2018. However, actual cargo loadings from exports terminals declined by 7.29% q/q and 5.53% y/y in Q4. This, together with an average quarterly price below US$70.00bbl, partly explains the slide in Oil & Gas GDP for the quarter. A degree of volatility in production is likely to be addressed by the new Egina Oil field but Nigeria remains exposed to price volatility.
Pattern of growth and outlook for 2019
Q4 2018 GDP growth outperformed the Bloomberg consensus estimate of 2.10% y/y. While some of this growth may have been induced by election-related demand, we believe that more fundamental factors, in particular, Naira foreign exchange stability, are at work.
Monetary policy is less likely to change in response to the latest development in GDP, at least in H1 2019. Real growth of 1.93% for FY 2018 was achieved on the back of adjustments in fundamental variables, in our opinion. For instance, demand for loans was weak but we do not read this as an effect of market interest rates 300pbs above the Monetary Policy Rate (MPR). Prime lending rates data show a standard deviation of only 1.05pps since 2006, suggesting that interest rates are seldom low. We expect a positive shift in manufacturers’ and investor’ confidence, to have spurred growth, irrespective of interest rates.
Fiscal policy, in so far as it relates to government spending, is limited in contributing to real sector growth by its sheer smallness relative to the economy as a whole. Increasing debt servicing costs further squeeze government revenues and implementation of capital expenditure.
However, the trend in Agriculture is positive. Even more so is the performance of the Telecoms sector which headlined overall growth in Q4. A stable exchange rate remains the platform for Trade and Manufacturing to rebound though slack demand are likely to keep growth capped.
Downside risks to GDP growth remain from the risk of declining crude production levels and oil price volatility, as well as the performance of Real Estate. Nevertheless, we expect our base case GDP forecast of 2.25% y/y for
FAAC disburses N696.2 billion in July 2020, as Lagos State parts with N1.46 billion
The sum of N696.18 billion to the Federal, State, and Local governments in July 2020 from the FAAC account.
The Federation Account Allocation Committee (FAAC), disbursed the sum of N696.18 billion to the Federal, State, and Local governments in July 2020, from the revenue generated in the month of June 2020. This was stated in the latest FAAC report, released by the National Bureau of Statistics (NBS).
According to the report, the monthly disbursement increased by 27.2% compared to N547.3 billion shared in June, and 14.8% increase compared to N606.2 billion disbursed in May 2020.
Checks by Nairametrics research, shows that a total of N4.58 trillion has been shared to the three tiers of government, between January and July 2020. Highest disbursement was recorded in April (N780.9 billion), followed by N716.3 billion in January 2020.
Meanwhile, Lagos State – the economic hub of Nigeria, parted with N1.46 billion as external debt deductions in the month, indicating a total of N9.74 billion deductions between January and July 2020.
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- The amount disbursed in July comprised of N474.53 billion from the Statutory Account, N128.83 billion from Valued Added Tax (VAT), N42.83 billion from Exchange Gain Differences, and Distribution of N50 billion from Non-Oil Revenue for the Month.
- Federal Government received a total of N266.13 billion from the total disbursement. States received a total of N185.77 billion, and Local Governments received N138.97 billion.
- The sum of N28.50 billion was shared among the oil producing states as 13% derivation fund.
- Revenue generating agencies such as Nigeria Customs Service (NCS), Federal Inland Revenue Service (FIRS), and Department of Petroleum Resources (DPR) received N6.32 billion, N15.05 billion, and N2.68 billion respectively as cost of revenue collections.
South-South scoops highest share
The South-South region, also known as the Niger Delta region, received the highest share of the disbursement in the month of July. The region received a sum of N49.44 billion, representing 25.4% of the total net allocation for states.
This is largely because the region contributes mostly to crude oil production in Nigeria, which is a significant source of revenue for the federation. Out of the six states in the region, only Cross River State is not an oil producing state. Hence, Rivers, Edo, Akwa Ibom, Bayelsa, and Delta States received a total of N24.28 billion as part of 13% oil derivation fund.
North-West region received N36.83 billion (18.9%); followed by North-Central region, which received a net total of N30.69 billion (15.8%). Others include South-West (N29.55 billion), North-East (N26.32 billion), and South-East (N21.97 billion).
External debt deductions
A total of N4.47 billion was deducted from the state’s allocation, as external debt deductions for the month of July. Lagos State parted with the highest amount of N1.46 billion, representing 32.6% of the total debt deductions in the month. A sum of N9.74 billion has been deducted as a result of external debt obligations between January and July 2020.
It is worth noting that, the State’s external debt has declined by 9.67%, from $1.39 billion recorded as at the end of December 2019 to $1.26 billion in June 2020.
Others on the list of top 5 deductions are, Kaduna (N414.6 million), Oyo (N305.4 million), Rivers (N280.3 million), and Cross River (N222 million). On the flip side, Ogun State parted with the lowest, as N9.1 million was deducted, followed by Borno (N21.6 million), and Taraba (N24.5 million).
- With dwindling federally collected revenue, caused by volatility in global crude oil price and economic downtrend caused by COVID-19 pandemic, it is evident that federal allocations will likely face drastic decline, which is a cue for the State governments to strategize on more creative ways of generating revenue internally.
- A quick check at the states’ IGR numbers, shows that 91.9% of the states in Nigeria with the exception of Abuja, Ogun, and Lagos States rely more on federal allocation, as against internally generated revenue.
- This implies that several states in Nigeria are technically bankrupt without debt financing, and Federal Government monthly allocation.
Despite billions on agriculture, food inflation up by 108% since 2015
About N2 trillion spent in the last 5 years to achieve food self-sufficiency.
Nigeria’s food inflation has more than doubled since August 2015, exactly 5 years after the Buhari Administration took charge of the Nigerian economy.
This was determined by comparing the composite index for food inflation rate in August 2020 versus same period in 2015. The difference is a whopping 108% increase in inflation rate, in just 5 years. Within this period, Nigeria’s exchange rate has been devalued by 49%.
Whilst the Nigerian economy has been ravaged by a very low oil price environment, since it fell from over $100 per barrel in 2014, most of the reasons for the increase in cost of living are partly attributed to some of the policies of the government.
Since 2015, the government has focused on a ‘grow-what-you-can-eat’ policy, pouring billions of naira into the agricultural sector. Since its inception in 2015, the Anchor Borrowers Programme (ABP), has received about N190billion disbursement from the CBN.
Another N622billion was lent through banks under the Commercial Agriculture Credit Scheme. Add the various grants, tax incentives, and concessions, that’s almost N2 trillion spent in the last 5 years on helping Nigeria to achieve food self-sufficiency.
Whilst modest successes have been recorded, the cost of staple food items remain high – galloping in each passing month. Since the border closure was announced in August 2019, the food inflation rate has risen every month, from 13.17% in August of 2019 to 16% last month. It is projected to hit 20% by the first quarter of 2021, when the effects of the increase in petrol and electricity prices are accounted for.
Nigerians have never had it this bad. Despite the good intentions of the government, things have not particularly turned out well. A common challenge in trying to solve a problem is not being able to manage what is outside of your control. In agriculture, a lot seem to be outside of the control of this government.
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Yield per hectare for most farming is well below global standards, driving up the cost of whatever is left to be sold to Nigerians. Farmers also face insecurity, flooding, and sometimes famine affecting their ability to plant and harvest. Even after harvesting, supply chain challenges still persist, leaving farmers to contend with middlemen, transportation, and storage. The result is far less farm produce reaching the final consumer.
For items under its control, it still cannot determine the outcomes, and the causes and effects. Just last week, it announced the banning of maize, only to flip-flop after learning that poultry farmers lacked maize feeds to grow their chickens. It quickly granted licenses to four companies to import maize.
Thus, while the government attempts to manage what it can control such as banning of imports, denying access to forex, and of course border closure, it cannot solve all these problems with CBN funding and banning. They are structural, and require a better approach that is private sector driven, yet pragmatic. The government also needs to tell itself the truth; Nigeria cannot be self-sufficient by banning.
So long as we continue to avoid relying on data and objective reasoning, to balance the need for local agro-processing and imports to meet demand, food inflation will remain high and galloping. Who knows, by the time this administration’s tenure is up, we could be looking at a state of emergency driven by a full blown food crisis.
Nigeria’s inflation rate hits 13.22% in August 2020, highest in 29 months
Highest increases were recorded in prices of Passenger transport by air, Hospital services, Medical services, Pharmaceutical products and others.
Nigeria’s inflation rate rose to 13.22% in August 2020, highest recorded in 29 months, since March 2018 (13.24%). This was contained in the recent Consumer Price Index (CPI) report, released by the National Bureau of Statistics (NBS).
The latest figure is 0.40% points higher than the rate recorded in July 2020 (12.82%). while on a month-on-month basis, the Headline index increased by 1.34% in August 2020.
Food inflation: A closely watched component of the inflation index, stood at 16% in August compared to 15.48% recorded in July 2020. On month-on-month basis, the food sub-index increased by 1.67% in August 2020, up by 0.15% points from 1.52% recorded in July 2020.
This rise in the food index was attributed to increases in prices of Bread and cereals, Potatoes, Yam and other tubers, Meat, Fish, Fruits, Oils and fats, and Vegetables.
Core inflation: This excludes the prices of volatile agricultural produce, also rose to 10.52% in August 2020. It is up by 0.42% points when compared with 10.1% recorded in July 2020. On month-on-month basis, the core sub-index increased by 1.05% in August 2020. This was up by 0.30% points when compared with 0.75% recorded in July 2020.
What drove inflation: Inflation for the month of August was driven by recorded increase in prices of Passenger transport by air, Hospital services, Medical services, Pharmaceutical products, Maintenance, and Repair of personal transport equipment.
Others are Vehicle spare parts, Motor cars, Passenger transport by road, Repair of furniture, and Paramedical services.
Upshot: As Nigerians continue to grapple with the effects of the COVID-19 pandemic, and the reopening of the economy, prices of commodities such as air transport, and medical services seems to have been affected due to policies implemented, with the aim of curbing the spread of COVID-19 in the country.
It is therefore evident that Nigerians are spending more, despite fixed income, contraction of economic activities, and dwindling rate of investment returns.