Connect with us
nairametrics

Columnists

Nigerian economy in 2019, outlook for 2020

What have been the major events in the economy that affected Nigeria? How are these events going to shape the 2020 outlook for the Nigerian economy?

Published

on

world bank, Events in the economy and outlook for 2020

What are the major events that affected Nigeria’s economy in 2019? How are these events going to shape the 2020 outlook for the Nigerian economy?

My approach is to identify significant economic issues that occurred in 2019 and then using scenario planning, map out the impact of these issues on the Nigerian economy in 2020. It is important to remember that the future cannot be predicted, but we can identify economic trend-lines and reach assumptions with the degree of certainty of those trend-lines occurring and to the impact of those events to the economy.

Nigeria's crude oil production, Crude Oil: Nigeria's volatile oil sector and economic progress   

The rise of US as a major crude oil exporter

Nigerian exports of crude and petroleum products to the United States plunged from 36.4 million barrels in July 2010 to 5.6 million barrels in January 2019, according to the U.S. Energy Information Administration.  The US, however, has boosted exports from her shale oil deposit in the Permian basin to Nigeria’s traditional markets in Western Europe, and India. Europe imports about 46% of Nigerian oil, and India 18% according to Reuters. This is a major event because the Nigerian budget is essentially funded by fiscal receipts from oil and gas exports.

Re-election of President Buhari with a veto-proof assembly

President Buhari’s political party was re-elected with a majority in the Senate and House of Representatives. This is significant because the President can pass through his tax, borrow and spend agenda. A key policy thrust for the Buhari govt has been the retention of subsidies on PMS. The Buhari government spent N650.2bn in subsidizing petrol from April 2018 to March 2019, a figure higher than health and education spend. The Buhari administration is seeking to borrow a massive $30b from the international debt markets.

GTBank 728 x 90

[READ MORE: NSE in 2019, events & outlook]

The increased role of the Central Bank of Nigeria (CBN)

2019 saw a very assertive Central Bank of Nigeria (CBN) play a larger role in the overall economy, not just in exchange rate and price stability policy, but also in direct lending and trade policy. The CBN emphasized strict adherence to her list of items banned from the fx window to access USD from it. The CBN also mandated commercial banks to target a minimum loan-to-deposit ratio of 60% or maintain higher cash reserves. This is targeted at “encouraging” banks to lend to real sector.

Boko Haram becomes a forgotten war

Boko Haram has left the Nigerian newspaper headlines, but the insurgency is not over. In April 2019, death by Boko Haram was measured at 1,072 per month[1] by the Nigerian Security Tracker, this is as high as February 2016.

GTBank 728 x 90

Buhari wants to upgrade presidential fleet with N1.5 billion 

The new tax economy

With oil GDP growth still anaemic, the Federation has looked to diversify earning by also focusing on non-oil and gas fiscal earnings. To this end, the VAT rate has been increased by 50%. A new Finance Bill 2019 was passed to update, amend and increase the Federation’s tax to GDP ratio. In this regard, for instance, all bank accounts maintained for business activities must have Tax Identification Numbers.

ACFTA and Border policy

Nigeria signed the African Continental Free Trade Agreement (ACFTA). The ACFTA allows goods to move between member states in Africa without tariffs. This agreement favours African nations that have lower costs of production, as they can export cheaper and gain market share. In the same vein, Nigeria has closed her land border because the Country of Origin being’s not being respected. Nigeria is seeking to enforce that imports through her land borders originated or have had value addition from African markets those imports come from.

Brexit

The UK has voted to leave the EU. Africa represents 2% of British trade activity, with Nigeria accounting for a tenth of that trade activity, according to the Nigerian trade ministry. Brexit means Nigeria can sign a bilateral agreement with the UK. The Nigerian trade ministry quoted the UK Foreign Secretary Jeremy Hunt as saying “…Britain has a big pool of funds that could be tapped for investment in infrastructure in Nigeria.”

US/China trade war

The US and China are in a battle of tariffs. The effect of this has been a slowdown of economic activity in China. Keep in mind China is a key export destination for Nigeria, which is the biggest Chinese investment destination in Africa, the second largest export market and the third largest trading partner of China in Africa.

Pension Fund Long-term saving

The Nigerian pension fund Assets under Management are estimated at N9.81trn (US$32.0bn), about 7.7% of 2018 GDP.

Fidelity ads

How then will these events form the economic outlook for 2020 in Nigeria? We will attempt to answer with an optimistic and pessimistic scenario mapping.

No surprise as MPC retains policy rates, balancing effects between rising inflation and tepid growth, Financial Inclusion: Fintech firms got $400 million investment in 2019 - Emefiele 

Godwin Emefiele

Optimistic Scenario

  • Even with increased US shale output, Nigeria’s sales to key clients in India and Europe stays unchanged, as both the US and Nigeria are marketing same kinds of light, sweet grades that are ideal for refining into gasoline. Iran out of the global market is also a plus.
  • The President can leverage on his legislative majority to gain approval to borrow $30b from international debt markets, creating thousands of infrastructural jobs and reflating the economy, boosting household spending and increasing productivity.
  • The CBN directive on loans to deposit significantly increases credit to private sector, creating jobs, and spurring tax revenues. The CBN fx ban list creates incentives and opportunities for local import substituents, boosting SMEs, diversifying federation revenue base and reducing imports, thereby boosting the naira and fighting inflation. The opening of the banking space to FINTECH increases financial inclusion and reduces cost of doing business in Nigeria. Key direct funding support by the CBN to sectors like rice increases local supply of rice, reducing smuggling and boosting the ACFTA is viewed as an opportunity, not a threat.
  • BREXIT: The FGN can reach a trade agreement with the UK to see opening of markets in the UK for agriculture. More importantly, the CBN can tap into the UK markets for long-term infrastructure funds. Nigeria is also able to secure BASA agreement to make Lagos to London hub the main air travel corridor.
  • Trade tensions ease, Chinese GDP growth and economic output rebounds, and Chinese trade with Nigeria remains strong. Naira/Yuan swap deal with China is expanded, reducing demand for US dollars for trading.
  • PFAs begin channelling pension contributions to fund home purchasing by contributors. This unlocks the mortgage sector, especially for affordable homes. More units come to market, reducing deficits and denting rent marginally.

FG closes border to protect economic interests – Customs , Nigeria Customs service records N1.002trn revenue in 9 months , Nigeria’s decision to ban petrol delivery to border petrol stations is taking its toll , Border closure retaliation: Nigerian goods get dumped by West African countries 

Pessimistic Scenario

  • Nigerian export cargos are squeezed by the US exports, especially as US makes energy purchases these parts of bilateral trade deals with INDIA and the EU. Oil prices also fall as more supply hits market, hitting Nigeria with a double blow of falling prices and quantity. This loss of revenues ultimately leads to fall in US dollar receipts, leading to a devaluation of the Naira and rising inflation.
  • The new CBN loan to deposit guidelines forces banks to lend to poor credit customers, creating a moral hazard and an uptick in bad loan provisioning. Bank profitability falls, leading to a muted stock market. Also, CBN fx restriction list simply makes goods listed expensive, driving up inflation.
  • Tax Revenues indeed rise but cannot cover new minimum wage, causing the Federal Government to borrow more locally to pay salaries, or also seek more tax increase.
  • ACFTA and border policy: FG continues to view ACFTA as a threat to local industries and jobs, reopens borders but makes land-based commerce more cumbersome. Nigerian SME exports become noncompetitive.
  • Nigeria fails to gain the initiate to sign a comprehensible trade deal with the UK, and Britain goes to Ghana as her launchpad into ECOWAS. With ACFTA, UK firms can establish factories in Benin Republic and simply drive in finished goods to Nigeria.
  • Nigeria’s trade with China improves but in China’s favor; Nigeria builds up huge trade deficits with China, needing more Yuan to repay trade obligations. Ultimately accepting a discounted barter agreement in China’s favor to pay for imports.
  • Pension Fund Industry Returns suffer as yield on Sovereign debt falls due to CBN policy. FGN attempts to “nationalize” RSA contributions to fund infrastructure, causing loss of confidence in the pension system as a whole, and private companies stop making contributions.

[READ ALSO: Crude oil and gas export hits $355.93 million, as pipeline vandalism increases]

In conclusion, 2020 will be a distillation of the optimistic and pessimistic scenarios. Will the Nigerian economy continue to grow or enter a recession? The answer will largely be which of these assumptions hold true.

If a preponderance of positive events occurs, then economy grows, and vice versa, more pessimistic scenarios and the economy stalls.

[1] Data from the Nigerian Security Tracker producer by the Africa Program at the Council of Foreign Relations

Coronation ads

Click to comment

Leave a Reply

Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Columnists

Local refining; A panacea for Nigeria’s reliance on imported refined products

The start up of refineries will attract , enhance employment opportunities and conserve the foreign exchange earnings of the country.

Published

on

Analysis: NNPC and its refining losses 

News reports earlier this week say the Vice President, Prof. Yemi Osinbajo, speaking at a virtual meeting noted that the problems associated with Nigeria’s refineries will persist if the Federal Government continues to own and run them. According to him, the government should have no business running refineries as they should be in the hands of the private sector. He further noted that the government’s focus currently is to assist the private sector develop modular refineries. He listed a few private refineries coming on stream which include a 100,000-barrel capacity refinery located near Portharcourt, the Niger Delta Petroleum refinery in Delta state and six modular refineries that should come on stream soon.

Explore the Nairametrics Research Website for Economic and Financial Data

About 90% of the refined petroleum products consumed in Nigeria are imported. The nation’s refineries located in Kaduna, Warri, and Port Harcourt with a combined nameplate capacity of 445,000 bpd have long operated at low levels due to many years of underinvestment and poor maintenance. Despite continuous talk of revamping the
refineries, in 2019, combined capacity utilization of Nigerian refineries fell to 2.5%, an all-time low annual activity level since 1998 when NNPC started providing the data. Last year, Pipelines & Product Marketing Company (PPMC) reported that it imported 9,158,528mt of refined products (PMS, HHK, AGO & ATK) while it evacuated only 963,302mt of refined products from Nigerian refineries, implying local production was just at 10.5% of total refined products available for distribution. Going by the historical performance of these refineries, it is safe to agree with the Vice President that the Nigerian government has no business running refineries.

READ: Hotels in Nigeria are on the verge of collapse

Asides the modular refineries mentioned by the Vice President expected to come on stream soon, the country is also patiently awaiting Dangote’s 650,000 barrels perday capacity refinery. The BUA group also recently announced plans to commence a 200,000 barrels per day refinery and petrochemical plant in Nigeria to be located in Akwa Ibom State. Although it is widely believed that the local refining operations will reduce the nation’s reliance on
imported refined products, the question in the minds of many Nigerians is how local refining of petrol will impact the pump price. In this regard, the Minister of Finance, Budget and National Planning, Zainab Ahmed, stated that refining petrol locally will not significantly reduce the price of petrol since the refineries will sell at the international price, noting that the only expected savings will be freight or shipping.

GTBank 728 x 90

READ: DPR reveals 4 major areas of focus for downstream operations of oil and gas sector

That said, Nigeria as a country has a lot to benefit from being a net exporter of refined petroleum products. Nigeria is the second largest producer of oil in Africa. The combination of rising shale production in the US, continued oversupply in the export market and weak demand, means the market for Nigerian crude is quite uncertain and a shift from export of crude to refined products bodes well for the country. The start up of these refineries will also
attract investment in warehousing and storage facilities, enhance employment opportunities and conserve the foreign exchange earnings of the country

READ: Six Modular Refineries billed to commence operation, FG says 

GTBank 728 x 90

CSL Stockbrokers Limited, Lagos (CSLS) is a wholly owned subsidiary of FCMB Group Plc and is regulated by the Securities and Exchange Commission, Nigeria. CSLS is a member of the Nigerian Stock Exchange.

Continue Reading

Columnists

Key ‘side-hustles’ Nigerian Bankers supplement their income with

The need to meet up with their financial obligations has forced some bankers to adopt side hustles.

Published

on

bankers, How much banks pay, Key 'side-hustles' Nigerian Bankers supplement their income with

The headline above seems a little inappropriate given the earnings of Bankers, vis-à-vis statistics on salaries and wages in the Nation.

The average Nigerian Banker earns at least four times the poorly implemented National minimum wage of N18,000; gets his pay promptly without being owed arrears, and enjoys other employment benefits, such as healthcare, without hassles.

Why then would these privileged few, whose wage bill cost the 13 NSE listed banks, a whopping N178b in the first three months of 2020, lockdown notwithstanding, need to supplement their already impressive income?

READ: 3 major ways COVID-19 will affect Banks’ 2020 profits

Simple, because they need to meet up with their financial obligations.

GTBank 728 x 90

The expectations are high for anyone with a decent job in a country where the unemployment rate is currently 27.1%, and where 28.6% of its population are underemployed.

The expectations are even higher for those whose work is in the banking sector, of whom it is erroneously believed, have access to unlimited funds, and an endless flow of credit facility, because they facilitate the consummation of volumes of such transactions daily.

(READ MORE: Naira expected to be under pressure until backlogs for FX payments are cleared )

GTBank 728 x 90

The peculiarity of HR policies in Nigerian banks does not allow for ‘helping’ of relatives into the same system, as is obtainable in the Nigerian Civil service. Hence, the basic assistance which Bankers can offer their ever-expanding network of dependants is direct financial aid, forcing them to engage in moonlighting activities to meet up the ‘hype’.

The activities below are from close observation and interactions with Nigerian Bankers.

Forex dealings

The existence of different exchange rates, coupled with the scarcity of FX for most sectors of the economy has given rise to opportunities for arbitrage and round-tripping. Most bankers, who by virtue of their jobs have become privy to their customers’ FX needs, are able to broker deals; matching the demand of FX with supply, and earning handsome margins in the process. Gratitude, loyalty, and referrals from their customers are an added bonus for flouting their Bank’s internal policies on staff participation in FX dealings.

Such dealings have in recent times expanded to include transactions in cryptocurrencies.

Personal professional practice

Nigerian Banking industry is a melting pot of various first degrees, with some using their bank jobs as a stop-gap for their employment problems, as they seek to improve on their chosen professions. Hence, it is not uncommon to see bankers start and run their startups in other fields, while still in paid employment of their banks.

Although, the Banks are likely to frown on not getting 100% commitment from their employees; they continue to provide a rich base of potential clients for these startups and have been their customers too.

Fidelity ads

Sports betting and Mobile Money agencies

Sports betting in Nigeria has opened up a new world of investment possibilities for sports enthusiasts and shrewd businessmen. Since 2009, when the first online sports betting site launched in Nigeria, over twenty more have joined to compete for the market in Africa’s most populous black nation, and they all seem to be thriving, as each sports competition sees the unveiling of another sports betting site in Nigeria.

(READ MORE: Bank like a hero with the Stanbic IBTC Super App “Voice Banking” feature)

Bankers, with their knowledge of the industry figures, have had a first mover’s advantage in being agents of these sport betting firms.

The same holds true for Mobile Money agencies, where Bankers have been known to use the influence of their office to expedite mobile money agent approvals and secure POS terminals, which have consequently become inaccessible to the common man.

READ: Analysis: UACN, is the dividend worth it?

Other activities

As with most business endeavours, Bankers generally indulge in businesses, in which they have a comparative advantage. Bankers in big cities use their cars to run shifts under popular cab-hailing services; some moonlight as real estate agents, because they can match customers with their real estate needs. A few others have become millionaires, by investing in their customers’ businesses. The possibilities are endless, as Bankers seek to make ends meet through their ingenuity, while staying relevant in their careers.

Explore the Nairametrics Research Website for Economic and Financial Data

Coronation ads

Cyprian Ekwensi in his classic novel ‘Chike and the River’, made popular the phrase of a man who lives by the bank of the Niger, washing his hands with spittle. Sadly, this has become the lot of most Nigerian Bankers, as they live from paycheck to paycheck, exploring one loan option to pay off a previous loan, even as they condescend to their customers in volunteering financial advice, that they are better off implementing in their personal finances.

No one is immune to the economic squeeze our double-digit inflation has brought on fixed income earners, especially not our beloved bankers.

app

Continue Reading

Columnists

Emerging concerns on crude oil price dents economic recovery

The economy continues to face severe dollar shortages due to lower oil receipts which continues to pressure the nation’s FX reserves.

Published

on

Crude Oil prices, oil

Yesterday, Brent crude oil price settled at US$41.44/bbl, down 10.7% from 6-month high of US$45.86/bbl. We note rising emerging concerns on the outlook for oil price in the global market. Cases of coronavirus are now rising faster in many European countries that had earlier taken gradual steps to open up their economies. For example, in the United Kingdom, Prime minister Boris Johnson stated the possibility of another lockdown to curtail the recent resurgence in new cases of infections. Furthermore, Libya (who has not been producing crude) announced the lifting of the force majeure on some oilfields & ports where fighters no longer have their presence. This implies Libya would resume production soon which may lead to a glut in the crude oil market particularly as the country is exempted from all OPEC cuts. The fear of increased supply comes amidst fragile demand for jet fuel.

The renewed concerns around crude prices is an unwelcome development for Nigeria considering the fact that hope of an economic rebound is largely hinged on sustained rebound in crude prices. Last week, the Minister of Finance highlighted that the country has suffered a 65% slump in revenue largely due to weak oil revenue. Furthermore, the
economy continues to face severe dollar shortages due to lower oil receipts which continues to pressure the nation’s FX reserves. In addition, external trade condition continues to worsen with a trade deficit of N2.2tn in H1 2020. With oil prices still down by c.30% from 2019 levels amidst the nation’s pledge to OPEC cuts, we do not expect any significant improvement in external conditions. However, we believe news of a decline in crude prices may provide succour for the Nigerian consumer given that lower crude price is expected to translate into lower petrol prices following the deregulation of the downstream sector.

That said, we reiterate our position that the diversification of the economy from oil remains the key strategy in reducing the vulnerability of the Nigerian economy to volatilities in oil market. The non-oil economy (which accounts for c.90% f GDP) remains crucial and its potentials can be best exploited by the private sector.


CSL Stockbrokers Limited, Lagos (CSLS) is a wholly owned subsidiary of FCMB Group Plc and is regulated by the Securities and Exchange Commission, Nigeria. CSLS is a member of the Nigerian Stock Exchange.

GTBank 728 x 90

Continue Reading
Advertisement
Advertisement
Advertisement
ikeja electric
Advertisement
Patricia
Advertisement
FCMB ads
Advertisement
Advertisement
IZIKJON
Advertisement
Fidelity ads
Advertisement
first bank
Advertisement
bitad
Advertisement
deals book
Advertisement
financial calculator
Advertisement
deals book
Advertisement
app
Advertisement