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Economy in rebound: Figures maintain uptrend but analysts remain cautious

By Emeka Anaeto, Business Editor
Ahead this year’s edition of  Vanguard National Economic Summit, macroeconomic highlights are still pointing towards real recovery, amidst some informed commentaries about fragility of many of indices.

Emeka Anaeto

However, current data from national institutions such as the National Bureau of Statistics, NBS, and the Central Bank of Nigeria, CBN, appear contradictory, apparently, drawing bases for some brainstorming sessions this Friday at the summit which brings Nigeria’s leading private sector and public sector executives to a round table discussion of the issues under the theme: “Economy in Rebound: Pitfalls, Trajectories and Resettings”.

The latest reports on macroeconomic indicators available to  Vanguardshows that the prospect of economic growth improved following an expansion in the Purchasing Managers’ Index (PMI) in March 2018 after recording two consecutive months of slowdown. But analysts at FSDH Merchant Bank Limited said yesterday that there are still infrastructure problems and security challenges that require urgent attention in order to ensure sustainable growth in the PMI, meaning that the March performance may be a flash in the pan.

Vanguard  economic watch also indicated that the rising foreign capital inflows into Nigeria; favourable crude oil price; and increased oil production have led to significant accretion to the external reserves. Indeed, the CBN Governor, Godwin Emefiele, indicated two days ago that the reserves is set to hit USD50 billion soon, up from about USD23 billion recorded in the bad days of economic recession in 2016. The current external reserves position continues to provide short-term stability for the value of the Naira.

The highest monthly foreign exchange inflows to Nigeria through the Investors’ and Exporters foreign exchange window was recorded in January 2018 at US$6.04billion while the inflows in March 2018 at US$5.15billion was higher than the highest amount recorded in 2017 at US$4.53billion.

Inflation rate has been on the downward trend in the past 14 months. FSDH Research says it expects the inflation rate to decline further to 13.49% in March, 2018 mainly on account of base effect of previous year.

The analysts at FSDH, however, noted that the declining inflation rate may lead to a further drop in the yields on fixed income securities, particularly at the short-end of the yield curve. This would put pressures on the earnings of financial institutions.

Though there is current concern over mounting public debt, analysts at FSDH Research notes that the current strategies of the Debt Management Office (DMO) to reduce the interest expense on the debt of the Federal Government of Nigeria (FGN) is working.

However, The Federal Government has announced that it may raise less debt in the second quarter of 2018 than initially indicated. This development, according to analysts,   may reduce further the yields on the FGN securities, bringing additional pressures on the banks’ earning lines.

Although FSDH Research believes the yields on the Nigerian Treasury Bills, NTBs, may drop further, they are of the view that the yields on the FGN Bond may move up gradually from the current level, cussioning the overall effect of declining yield of fixed income securities on banks.

Besides the above flashpoints on the economy, many analysts that spoke to Vanguard Economic Discourse team indicated that some of the uncertainties in the economy are: delay in the passage of the 2018 Budget; Possibility of capital flight as a result of monetary policy normalisation in the advanced countries and the possible increase in food prices as a result of the rising unrest in the food producing states in Nigeria.

Yet not a few expressed discomfort that the economic and fiscal issues would soon take back seat as the electoral season draws near.

But on the fears over normalization in the international economic front it is noted that the Federal Open Market Committee (FOMC) of the U.S Federal Reserve System raised its anchor interest rate, the Federal Funds Rate (Fed Rate), to between 1.50% – 1.75% from 1.25% – 1.50%. FSDH Research expects that the FOMC will increase the Fed Rate to between 2.25% – 2.50% by year end.

Consequently, FSDH Research notes that subsequent external borrowing may attract higher interest rates as yields  in the global market move up.

The GDP rebound

In the broader perspective, we rely on the last Gross Domestic Product (GDP) figures released by the National Bureau of Statistics’ (NBS) which showed that the fourth quarter of 2017 (Q4’17) was yet another good quarter for the Nigerian economy.

The results revealed that the economy expanded further in the quarter by 1.92% year-on-year, YoY,   (vs. 1.40% YoY in Q3’17) while full year real GDP was recorded at 0.83%, a recovery from the contraction of 1.58% in 2016.

The oil sector continued its positive trend, while the non-oil sector rebounded markedly in contrast to previous quarters where it had either been significantly subdued or in decline.

In Q4’17, the non-oil sector was a major driver of growth recording 1.45% YoY (vs. -0.76% in Q3’17, -0.33% in Q4’16).

To this analysts at Cardinalstone Finance Limited, a Lagos based investment house, stated: “In our opinion, this signals that the country may have started reaping diversification benefits.”

Non-oil sector, hope for a  New Dawn? 

At 1.45% YoY, the non-oil sector expanded at a much faster pace in Q4’17 than seen in the past seven (7) quarters. Growth in the non-oil sector was largely propelled by the Agriculture sector, which grew by 4.23% YoY, the highest growth rate in the past four (4) quarters. The agriculture sector benefited principally from contributions from the crop production sub-sector (makes up 90.1% and 23.6% of the agriculture sector GDP and Total GDP respectively) which advanced by 4.58% YoY. This is significant as it highlights mild success in the government’s efforts to improve agricultural output through the implementation of several initiatives most notable of which is the Anchor Borrowers’ Scheme. The  improved efforts by most firms to increase local sourcing of agricultural inputs for production processes also contributed to the growth of the sector.

On an annual basis, however, the growth in agriculture was lower compared to that of 2016 (2017- 3.45%; 2016- 4.11%).

Services sector emerges  from recession

Q4’17 Non-Oil real GDP growth was also supported by a rebound in the Services sector. Growth in the sector slid into positive (0.10%) after six (6) consecutive quarters of decline, largely propelled by trade.

Contributing over 16.75% to total GDP in real terms, the trade sub-sector recorded growth (+2.07%) for the first time in seven (7) quarters. This is a contrast to the Information and Communication sector (-1.46%), which extended its YoY decline for a third consecutive quarter. On a quarterly basis however, the sub-sector improved markedly as it grew by 22.5% QoQ evidenced in the improvement in the number of active mobile lines which grew by 3.7% QoQ to 144.6 million in Q4’17, according to data from the Nigerian Communications Commission (NCC). This figure is, however, 6.2% lower than that of the corresponding quarter in 2016 (154.1 million active subscribers).

Oil GDP growth in Q4’17

Real GDP growth for the oil sector was slower at 8.38% YoY in Q4’17 compared to the double-digit growth rate for Q3’17 (25.89% YoY). According to the NBS data, Q4 average oil production per day slipped by 5.9% quarter-on-quarter, QoQ, to 1.9 million barrels (Q3’17- 2.03 mbpd), although this was 8.5% higher than the average daily production figure for the corresponding quarter in 2016 (Q4’16- 1.76 mbpd).

Overall, the annual growth rate for the oil sector improved significantly to 4.79% in 2017, compared to the 14.45% shrinkage recorded in 2016.


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