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Here are macro trends that will shape Nigeria in 2021 – KPMG

Analysts in KPMG Nigeria have stated that there are 10 macro trends that will determine the fate of the nation’s economy next year.

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Here are macro trends that will shape Nigeria in 2021 - KPMG

Nigeria may be out of recession by the first quarter of 2021, as projected by the Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, but analysts in KPMG Nigeria have stated that there are 10 macro trends that will determine the fate of the nation’s economy next year.

The macros are Global dynamics, fiscal sustainability, uncertain forex environment, stringent policy posture, constrained productivity and accelerated credit penetration.

READ: Nigeria needs to spend $3 trillion in over 30 years to bridge infrastructural gap – Moody’s Report

Others are cautious private sector investment activities, emerging digital economy, socio-political threats, and consumer pressure points.

This was disclosed by Olusegun Zacchaeus, Associate Director, Strategy and Economics, KPMG, during the American Business Council webinar recently.

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READ: Nigeria can become an exporting nation through indigenous entrepreneurship – Pantami

Global dynamics

Zacchaeus explained that the modest recovery expected in 2021 is threatened by the second wave of COVID-19 pandemic. According to him, everyone should expect more pressure that will emanate from the global economy. For instance, the change of baton of the Democratic government in the United States is expected to impact several economies, including Nigeria. He said,

The emergence of a new democrat president will have implications on the global economy. The bigger fiscal stimulus package totaling US$2.5 trillion from 2021 to 2024 is expected to drive recovery.

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“On oil price dynamics, bilateralism with possible easing of trade tensions between the US and China. Possible catalyst for distortion in oil prices given strong advocacy for shift away from fossil fuel.

READ: Port Harcourt Refinery to get a facelift in Q1 2021 – NNPC

KPMG added that OPEC is considering deepening oil production cuts amidst rising Covid-19 cases, and fresh economic lockdown in Europe Outflows from SSA between February and March totaled $5 billion.

According to the firm, 47% of investors think emerging market economic activity will slow over the next 12 months, compared with 37% who think it will accelerate and borrowing costs are still high and financial conditions remain difficult.

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“WTO expects a significant downturn in global trade in 2020 between 13% and 32%, and some recovery in 2021 at 8%. Risks to the outlook include a second wave of COVID-19 with the results being very sensitive to the length of time that the Covid-19 threat remains in place or trade restrictions,” he added.

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READ: Nigeria @ 60: The Aviation sector and its travails

Fiscal sustainability

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It stated that the proposed 2021 budget provides indications of tight spending and worsening debt. KPMG projected that the Budget implementation will likely underperform in line with historical trends.

According to the firm, Nigeria’s fiscal flexibility is constrained by a high interest bill as a percentage of general government revenue and by inefficient non-oil tax collection.

Noting that the impact of new tax policies could be watered down by overall low economic outputs, KPMG advised that the Integrated Revenue Monitoring System (IRMS) needed to ease revenue recognition.

READ: Afreximbank’s African commodity index dips by 1% q-o-q in Q3 2020

Uncertain FX environment

It stated, “The foreign exchange environment will remain under pressure exacerbated by lower FX earnings.

“Fair value estimation at N422/$1, reflecting a 9% overvaluation of real effective exchange rate. Fair value may improve but rates will still be misaligned in 2021.

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“Liquidity is low due to the pressure on foreign reserves and sharp fall in capital importation by -78% in Q2 2020 (QoQ). Liquidity will remain challenged given oil price outlook and capital flows,” it added.

On the multiplicity of rates, KPMG stated that multiple exchange subsist, considering the spread of N80 between BDC, government intervention rate, and official rate. CBN may not likely close the multiple exchange rate window.

READ: FAAC disburses N696.2 billion in July 2020, as Lagos State parts with N1.46 billion  

Constrained productivity

KPMG stated that Volatile, Uncertain, Complex and Ambiguous (VUCA) policy environment has negative impact on the overall growth in the economy.

Following this, social wheel pressure is spinning and this has resulted in a growing flux of skilled talent to other climes like Canada, U.K, Australia, and the United States.

The nature, speed, volume, and magnitude of change is not predictable e.g. rising Inflation and low aggregate demand. Lack of clarity resulting in multiple and conflicting interpretations.

“Lack of predictability in issues and events make it difficult to see future outcomes or make decisions. Focus will be more on social vs economic growth,” it added.

Accelerating credit penetration

The tax firm stated that Nigeria has been credit starved despite increased supply to the private sector. On what is expected in 2021, it added that deepened credit penetration is expected to continue in 2021. Albeit, there may be increased concentration

While concluding on this, it noted that LDR stipulated at 60%, now increased to 65% and that the OMO restrictions increasing overall liquidity in the banking sector.

“Increase in CRR from 22.5% to 27.5% to tame excess liquidity and inflation. The Reduction in MPR by 100bps from 12:5% to 11.5%. Development Finance Initiative as a policy tool will enhance credit penetration,” it recalled.

Cautious private sector investment activities

According to KPMG, the Private sector confidence remains low as FDI is expected to dim in 2021. The firm noted that the largest component of capital importation, contributing 58.8% of total capital importation.

It attributed this to the government aggressive policies toward enhancing other strategic investments e.g. technology development in the economy.

It also attributed the Portfolio investment, which declined by 91% (YoY) at $385.32million in Q2 2020 from $4,292.893million in Q2 2019, to the impact of Covid-19 on global activities, which dampened investors’ sentiments.

Emerging digital economy

The emerging digital economy is expected to witness growth in 2021, as Nigeria boasts of an industry driven by increased investment resulting in capital to drive growth.

On the influx of start ups in the segment, KPMG stated that the total funding in Nigerian startups in 2018 up to $178 Million. Entry of new players, 15 startups raised more than $1million in the fintech segment.

“Tech start-ups have begun to attract funding from venture capital firms, however, foreign investors provide over 80% of this funding,” it added.

Socio-political threats

The social wheel of pressure is spinning, as an additional 5million Nigerians are expected to be pushed into poverty in 2021 due to crisis. This will be driven largely by contraction of remittances and growth in population (2.6% annually) above the GDP growth rate.

Consumer pressure points

Even in 2021, the tax firm is optimistic that there are several macro forces pitched against the consumer. One of them is employment, which remains a major challenge in Nigeria, as inflationary pressures on the rise are expected to be sustained in 2021, driven by rising costs.

Despite the challenging environment, consumers’ confidence is expected to be positive, as consumer spending will remain under pressure.

In conclusion, unemployment and erosion of purchasing power, due to inflation, will form additional pressure points.

What you should know

Speaking at the same forum in 2019, as reported by Nairametrics, Zaccheaus explained that the the global developments in 2020 portends significant risks for the Sub-Saharan countries. Other factors are investment for growth, productivity, technology and digital disruption, socio-economic pressure and consumer pressure points.

While providing an update on the Nigerian economy, it was stated that it currently stands on a slippery slope of recovery. According to KPMG, the Nigerian economy which recorded a growth rate of 6.21% in the first quarter of 2014, has continued to witness very slippery growth recovery since the 2016 recession.

Abiola has spent about 14 years in journalism. His career has covered some top local print media like TELL Magazine, Broad Street Journal, The Point Newspaper.The Bloomberg MEI alumni has interviewed some of the most influential figures of the IMF, G-20 Summit, Pre-G20 Central Bank Governors and Finance Ministers, Critical Communication World Conference.The multiple award winner is variously trained in business and markets journalism at Lagos Business School, and Pan-Atlantic University. You may contact him via email - [email protected]

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Macro-Economic News

Nigeria’s inflation rate hits 15.75% in December 2020, highest in 3 years

This is 0.86% points higher than the rate of 14.89% recorded in November 2020.

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Despite billions on agriculture, food inflation up by 108% since 2015.

Nigeria’s inflation rate increased by 15.75% (year-on-year) in December 2020, the highest rate recorded in 3 years.

According to the latest Consumer Price Index report, released by the National Bureau of Statistics (NBS), the latest figure is 0.86% points higher than the rate of 14.89% recorded in November 2020.

On a month-on-month basis, the index increased by 1.61% in December 2020. This is 0.01% point higher than the rate recorded in November 2020 (1.60%).

READ: Inflation rate up 207% since 2009 as bad economic policies ravages naira.

Food inflation

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The closely watched index rose sharply by 19.56% in December compared to 18.3% recorded in the previous month.

  • On a month-on-month basis, the food sub-index increased by 2.05% in December 2020, up by 0.01% point from 2.04% recorded in November 2020.
  • The rise in the food index was caused by increases recorded in prices of bread and cereals, potatoes, yam and other tubers, meat, fruits, vegetable, fish and oils and fats.

READ: Hope rises for employment in December 2020 and January 2021 – CBN survey Report 

Core inflation

The “All items less farm produce’‘ or Core inflation, which excludes the prices of volatile agricultural produce stood at 11.37% in December 2020, up by 0.32% when compared with 11.05% recorded in November 2020.

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  • Also, on a month-on-month basis, the core sub-index increased by 1.10% in December 2020. This was up by 0.39% when compared with 0.71% recorded in November 2020.
  • The highest increases were recorded in prices of passenger transport by air, medical services, hospital services, shoes and other footwear, passenger transport by road, miscellaneous services relating to dwellings, hairdressing salons and personal grooming establishments, and repair of furniture.
  • Others include vehicle spare parts, pharmaceutical products, motor cars, maintenance and repair of personal transport equipment, paramedical services, motorcycle, dental services, and bicycles.

READ: Cost of data subscription reduces by over 50% in 2020

Worst hit states

  • In the month of December 2020, Bauchi State recorded the highest inflation rate at 19.85%, closely followed by Kogi State with an inflation rate of 18.4%
  • Others include Edo (18.1%), Zamfara (17.9%), and Sokoto (17.6%)
  • In terms of food inflation, Edo State also recorded the highest rise in inflation rate with 24.1%, followed by Kogi (23.16%), Sokoto (22.2%); while Kwara and Zamfara State recorded food inflation of 22.1% and 21.7% respectively.

READ: Nigeria’s inflation expected to maintain double digit in the next one year

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Meanwhile, the urban inflation rate increased by 16.33% (year-on-year) in December 2020 from 15.47% recorded in November 2020, while the rural inflation rate increased by 15.20% compared to 14.33% recorded in November 2020.

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What this means

The rise in the consumer price index indicates that consumers spent more in the month of December compared to the previous month.

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  • This implies that the purchasing power of Nigerians is continually eroding.
  • Nigerians could be faced with new worries if the second wave of the covid-19 pandemic leads to a second round of lockdown in the country.
  • The significant increase could, however, be attributed to the Christmas and New year festivities in the month of December.

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Macro-Economic News

Nigeria’s total public debt rises to N32.2 trillion ($84.57 billion) as at September 2020.

The total public debt (External and Domestic) incurred by Nigeria stood at N32.22 trillion ($84.57 billion) as of September 2020.

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How to avoid debt despite economic challenges

Nigeria’s total public debt stock as of September 2020, increased by over N6 trillion in just one year. This is according to the Nigerian Domestic and Foreign Debt report, recently released by the National Bureau of Statistics (NBS).

The total public debt (External and Domestic) incurred by Nigeria stood at N32.22 trillion ($84.57 billion) as of September 2020, which represents an additional N6.01 trillion when compared to N26.21 trillion recorded as of the corresponding period of 2019.

READ: Nigeria total public debt hits N31 trillion as debt service gulp over N1.2 trillion in H1 2020 

The breakdown shows that external debts accounted for 37.82% (N12.19 trillion) of the total debt stock, while domestic debts at N20.04 trillion represented 62.18% of the total.

Breakdown

  • Further disaggregation of Nigeria’s foreign debt showed that $16.74bn of the debt was multilateral.
  • Also, $502.38m was bilateral (AFD) and another $3.26bn bilateral from the Exim Bank of China, JICA, India, and
    KFW while $11.17bn was commercial which are Eurobonds and Diaspora Bonds.
  • Total external debt grew by $5.04 billion (N3.9 trillion) within the period, indicating an increase of 18.72%.
  • Total domestic debt on the other hand declined by $5.86 billion. However, it represents an increase in Naira value of N2.09 trillion, largely due to multiple devaluations of the currency during the period.

READ: Growing concern for Nigeria’s ballooning debt profile

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A cursory look at the breakdown of the domestic debts show that 73.53% (N11.65 trillion) were in form of Federal Government bonds, 17.17% (N2.72 trillion) in Treasury bills, followed by Promissory Notes accounting for 6.13% (N971.9 billion) of the total federal government domestic debts.

Others include; FGN Sukuk (N362.6 billion), Treasury Bonds (N100.9 billion), Green bond (N25.7 billion), and Savings bond (N12.6 billion).

READ: Debt burden of the least developed nations rises to $744 billion – World Bank

More loans to be expected

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On the 31st of December 2020, President Buhari signed the 2021 appropriation bill of N13.59 trillion into law, which 25.7% higher than the revised 2020 budget of  N10.8 trillion. However, the budget comes with a deficit of N5.6 trillion, which is expected to be financed mainly through borrowings both externally and domestically.

READ: Global Economy to grow by 4% in 2021 – World Bank

According to the minister of Finance, Budget, and National Planning, Dr. Zainab Ahmed, in a budget presentation on Tuesday, N2.34 trillion will be sourced each from domestic and foreign sources respectively, N709.69 billion from Multilateral/bilateral loan drawdowns, and N205.15 billion from privatisation proceeds.

READ: Analysis: Nigeria needs an austerity diet

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Recall that Nairametrics reported in December that, the World Bank finally approved a $1.5 billion loan request made by Nigeria as budget support in order to cushion the impact of the covid-19 pandemic on the country’s revenue.

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It is also worth noting that the federal government will be tapping into funds in unclaimed funds and dormant accounts.

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Macro-Economic News

PMI: Nigeria’s manufacturing sector contracts in December

The manufacturing sector relapsed in December from 50.2 index points recorded in the month of November 2020.

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Manufacturing sector in Nigeria and the reality of a "new normal"

The Manufacturing Purchasing Managers’ Index (PMI), for the month of December, witnessed a contraction, as it stood at 49.6 index points. This was disclosed in the PMI report, recently released by the Central Bank of Nigeria (CBN).

According to the report, the manufacturing sector relapsed from 50.2 index points recorded in the month of November 2020. It however, gained marginally compared to 49.4 index points recorded in October 2020.

READ: CBN report projects greater employment prospects in 2021

The report also disclosed that out of the 14 surveyed subsectors, 4 subsectors reported expansion (above 50% threshold) in the review month in the following order:

  • Transportation equipment
  • Nonmetallic mineral products
  • Paper products
  • Food, beverage & tobacco products.

READ: Frantic CBN allows diaspora remittances to be withdrawn in dollars and sold anywhere including black market

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However, textile, apparel, leather, and footwear subsector remained stationary while the remaining 9 subsectors reported contractions in the following order:

  • Primary metal,
  • Petroleum & coal products
  • Cement
  • Electrical equipment
  • Fabricated metal products
  • Printing & related support activities
  • Plastics & rubber products
  • Chemical & pharmaceutical products and
  • Furniture & related products

For context read: Nigeria’s manufacturing sector contracts for 4th consecutive month – CBN

Non-manufacturing PMI

PMI for the non-manufacturing sector stood at 45.7 points in the month of December 2020, indicating contraction in Non-manufacturing PMI for the ninth consecutive months.

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Of the 17 surveyed sub-sectors, 5 subsectors reported growth in the following order:

  • Arts, Entertainment & Recreation
  • Water supply, sewage & waste management
  • Electricity, gas, steam & air conditioning supply
  • Educational services and Professional
  • Scientific & technical services

READ: These industries appear to have returned to pre-pandemic levels

While twelve subsectors reported declines in the following order: Management of companies; Utilities; Transportation & warehousing; Real estate rental & leasing; Construction; Finance & insurance; Agriculture; Wholesale/Retail trade; Information & communication; Repair, Maintenance/Washing Of Motor Vehicles; Health care & social assistance and Accommodation & food services.

What you need to know

  • In December 2020, suppliers’ delivery time was faster, new orders and production level increased while employment level and raw materials inventories contracted.
  • The business activity index for the non-manufacturing sector contracted at 46.9 points from the expansionary level recorded in the month of November 2020.
  • The employment level Index for the non-manufacturing sector in the month of December 2020 stood at 45.1 points, indicating contraction in employment level for the ninth consecutive months.

READ: COVID-19: CACOVID spent N43.27 billion to support 3 key priorities – CBN

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What this means

PMI is a survey that is conducted by the Statistics Department of the Central Bank of Nigeria and shows the changes in the level of business activities in the current month compared with the preceding month.

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  • For each of the indicators measured, this report shows the diffusion index of the responses, which is computed as the percentage of responses with positive change plus half of the percentage of those reporting no change, except for supplier delivery time, which is computed as the percentage of responses with negative change plus half of the percentage of those reporting no change.
  • A composite PMI above 50 points indicates that the manufacturing/non-manufacturing economy is generally expanding. 50 points indicate that there is no change, while a PMI below 50 points indicates that it is generally contracting.
  • A contraction in manufacturing activities means that the sector is yet to recover from the covid induced downturn which crippled the manufacturing activities for 6 consecutive months before recording slight expansion in the previous month.

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