External reserves hit 30-month high at $31.8bn
Fitch affirms sovereign ratings at B+, with negative outlook
The movements are directionally good but materially not much—Rewane

By Babajide Komolafe & Yinka Kolawole
LAGOS—Indications have emerged that Nigeria’s economy is rallying from negative to positive growth in the second half of 2017, if data from the Central Bank of Nigeria’s Purchasing Managers’ Index, PMI, and global rating agency, Fitch’s, are anything to go by.

The PMI report for August 2017, indicated further expansion in economic activities for the fifth consecutive month.

Moreover, the apex bank’s external sector data update, yesterday, showed that the nation’s external reserves maintained upward trend rising to 30 months high of $31.81 billion, this week.

Furthermore, the Fitch Ratings affirmed Nigeria’s sovereign ratings at B+, though with a negative outlook, noting that the ratings were supported by large, diversified economy, significant oil reserves, net external creditor position, low external debt service ratio and large domestic debt market.

GDP position of the economy has been on downward trend since fourth quarter of 2015 when it dropped to +2.11 per cent from + 2.84 per cent in the third quarter of 2015.

The nation’s GDP dropped into negative of -0.36 per cent in the first quarter of 2016, sliding into full scale recession at negative growth rate of -2.06 per cent in the second quarter of 2016, and further down to -2.24 per cent in the third quarter of 2016.

However, a slower negative performance which began a reversal of the negative trend was recorded in fouth quarter 2016 at – 1.30 per cent and a further recovery in the first quarter 2017 at -0.52 per cent. A streak of positive figures across several economic performance indicators since this year, especially since second quarter have fueled speculations that full return to positive growth was achievable in the second or third quarter 2017.

PMI maintains upward trend

In its PMI report for August, the CBN said the Manufacturing sector’s PMI expanded for the fifth consecutive month to 53.6 per cent, while the Non-Manufacturing sector Composite PMI expanded for the fourth consecutive month to 54.1 per cent.

The report revealed that 27 sub-sectors out of the 34 surveyed, experienced expansion in activities, while seven experienced contraction.

In the manufacturing sector, 12 of the 16 sub-sectors surveyed experienced expansion. These are computer and electronic products; appliances and components; chemical & pharmaceutical products; textile, apparel, leather and footwear; electrical equipment; printing and related support activities; paper products; non-metallic mineral products; food, beverage and tobacco products; furniture and related products; cement and plastics and rubber products.

In the non-manufacturing sector, 15 out of the 18 sub-sectors surveyed experienced expansion. These are utilities; public administration; information and communication; finance and insurance; health care and social assistance; agriculture; accommodation & food services; electricity, gas, steam and air conditioning supply; transportation and warehousing; repair, maintenance/washing of motor vehicles; wholesale trade; educational services; professional, scientific, and technical services; arts, entertainment and recreation; and water supply, sewage and waste management.

The real estate, rental and leasing; construction; and management of companies sub-sectors recorded contraction in the review period.

The report showed increase in production level in the manufacturing sector for the sixth consecutive month to 57.4 per cent, while business activity in the non-manufacturing sector also increased for the fifth consecutive month to 56.1 per cent.

Similarly, employment in the manufacturing sector rose for the fourth consecutive month to 51.5 per cent, while employment in the non-manufacturing sector also rose for the fourth consecutive month to 54.4 per cent.

External reserves hit 30- month high of $31.81bn

The nation’s external reserve maintained upward trend rising to 30 months high of $31.81 billion on Tuesday.

Data released by the CBN, yesterday, showed that the external reserve rose to $31.81 billion on August 29 from $30.84 billion on July 31, indicating increase of $970 million in 29 days.

The external reserve had been below $32 billion since February 2015, 30 months ago, from where it declined steadily to $23.89 billion on October 19, 2016.

Vanguard analysis revealed that from October 19, 2016, the reserve commenced a bumpy upward trend, rising by $7.92 billion or 33.2 per cent to $31.78 billion on August 27 this year.

The reserve has risen by $5.97 billion or 23 per cent since the beginning of 2017.

Fitch affirms  sovereign rating  at  B+, with negative  outlook

The international economic rating agency, Fitch, yesterday, affirmed Nigeria’s    sovereign ratings at B+ but with a negative outlook, noting that the ratings were supported by large, diversified economy, significant oil reserves, net external creditor position,  low external debt service ratio and large domestic debt market.

The ratings, according to Fitch, are balanced against relatively low per capita GDP, an exceptionally narrow fiscal revenue base and a weak business environment.

Fitch also stated that the negative outlook was a reflection of the downside risks from rising government indebtedness, and the possibility of a reversal of recent improvements in foreign currency (FX) liquidity and a faltering of the still fragile economic recovery.

The rating agency forecasts growth of 1.5 per cent in 2017 and 2.6 per cent in 2018, adding that inflation remained high but projected it to decline significantly by 2019.

“The recovery will be driven mainly by increased FX availability to the non-oil economy and fiscal stimulus, as higher oil revenue and various funding initiatives have raised the government’s ability to execute capital spending plans.

“However, the FX market remains far from fully transparent, domestic liquidity has also become a constraint, and the growth forecast is subject to downside risks.

“Inflation remains high at 16.1 per cent in July 2017, but Fitch projects it to decline to 11 per cent in 2019,” it stated.

Fitch further stated:  “Nigeria’s current account surplus is expected to widen slightly to 1.0 per cent of GDP in 2017, from 0.7 per cent in 2016. Fitch expects exports to increase by about 30 per cent in 2017 and an additional 10 per cent in 2018, as oil production and prices increase.

“However, imports, which fell by over 30 per cent in 2016, will also rise as dollar availability increases and the non-oil economy recovers.

“The economic contraction in 2016 and tight FX and naira liquidity weakened asset quality in the Nigerian banking sector. Non-performing loans rose to 12.8 per cent at end-2016, up from 5.3 per cent at end-2015.

“Rising impairment charges from bad loans have in turn led to capital adequacy ratios falling to 14.8 per cent in 2016, from 16.1 per cent at end-2015.

“The new FX window has aided FX liquidity for banks in 2017, but credit to the private sector (adjusted for FX valuation effects) is declining. Nigeria’s ratings are constrained by weak governance indicators, as measured by the World Bank, as well as low human development and business environment indicators and per capita income.”

Economists comment

Commenting on the improvement in external reserve and PMI for August, Managing Director/Chief Executive, Financial Derivatives Company (FDC), Mr. Bismarck Rewane said: “The movements are directionally good but materially not much. It is like inflation dropping from 16.1 per cent to 16.05 per cent, the needle has not moved. So directionally correct but nominally not substantial.”

On his part, President, Nigeria Economic Summit Group, (NESG), Mr. Bukar Kyari, described the improvement in August PMI and external reserve as signs that confirm economic expansion. He said: “We had anticipated GDP growth since the June PMI was released. These indicators confirmed economic expansion. We expect positive growth in GDP for second quarter and the reason is that all the signs are there especially the PMI which is a leading indicator.”

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