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Nigeria’s Economic Outlook for 2019

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  • Nigeria’s Economic Outlook for 2019

Nigeria’s economic outlook remains challenging in 2019 as investment inflows and revenue generation are projected to drop further in the new year.

The economy grew at 1.81 percent in the third quarter of 2018 after a 1.5 percent expansion in the second quarter but the unemployment rate rose to 23.1 percent from 18.8 percent recorded a year ago. A sign the economy is merely sustaining growth after recovering from the recession in 2017.

Despite growing for six consecutive quarters, new job creation is almost nonexisting and interest rate remained unchanged at 14 percent. Still, the manufacturing sector recorded growth for the 18th consecutive month without new jobs or substantial new entrants to broaden growth.

One of the key factors in measuring the healthiness of an economy, the stock exchange market, returned -15.39 percent in 2018 while the national foreign reserves dropped to $43 billion on weak capital importation.

Rising interest rates in developed economies will continue to hurt capital inflow into emerging markets like Nigeria in 2019, especially with the European Central Bank likely to raise rates in the new year after announcing an end to its asset-buying program.

Global Economy and Impacts in 2019

The trade war between the U.S and China, the two world’s largest economies, should slow down global growth in 2019 but as China continues to adjust its policy to accommodate U.S. demands for an open market, global growth should pick up and expand at about 3.5 percent in 2019, down from 3.7 percent in 2018.

While the four rate hikes in the United States, the two from the United Kingdom since the recession and Canada’s five times rate increase since summer of 2017 boosted capital outflows from Nigeria and other emerging economies in 2018. The trend is expected to continue in the first half of 2019 but into the Euro-area ahead of the European Central Bank rate increase.

Global oil market remains largely uncertain in 2019 due to the projected slow down in China’s economy, the world’s largest importer of crude oil. But with Saudi Arabia and Russia led OPEC+ recent accord to cut production by 1.2 million barrels a day, Brent crude may average $70 a barrel in the first half, however, that should fade in the second half of the year as U.S. producers sustain output at about 12 million barrels a day.

Nigeria’s Economy 2019

Employment/Unemployment

The labour market remained weak with low new job creation and shrinking existing jobs, the trend is expected to continue in 2019 and up until the second half of 2020 when new policies would have crystalised and interest rate lowered.

The Central Bank of Nigeria left interest rate unchanged at 14 percent, citing weak investment inflow and rising consumer prices. But with Dangote refinery scheduled to commence operation in 2020, the CBN would have more liquidity to stimulate growth and lower interest rates enough to support new jobs.

Therefore, the unemployment rate is projected to increase from the current 23.1 percent in 2018 to 25 percent by the third quarter of 2019 and start moderating by the second half of 2020.

Gross Domestic Product

OPEC+ production cuts and weak capital inflows will weigh on Nigeria’s economic productivity in 2019. Nigeria’s oil production is expected to be capped at 1.685 million barrels a day in 2019, this should reduce foreign revenue generation and impact Central Bank of Nigeria’s forex intervention program that has sustained economic activities in the last two years.

Despite crude oil production rising to 2.09 million barrels a day in 2018, growth remained lackluster with 20.9 million unemployed people and 43.3 percent national unemployment and underemployment rate. At a lower production level with a drop in investment inflow and high capital outflow, economic productivity is projected to slow down in the first half of 2019 and remained largely unchanged in the second half of the year when new administration would have been sworn-in.

Also, investment inflow and market sentiment are expected to start picking up by the second half of the year when implementation of the 2019 budget would have commenced.

However, analysts at Investors King Limited said: “The problem with the 2019 budget is that 71.34 percent of the 2019 budget will be spent on recurrent expenditure, 18 percent higher than 2018 budget. While non-oil revenue is expected to rise by just 0.1 percent in 2019.”

“In an economy that is likely to experience a drop in revenue in 2019 due to OPEC+ production cuts agreement, weak revenue generation amid huge capital expenditure that over the years has failed to stimulate new job creation and enhance economic productivity is the number one problem of the 2019 proposed budget.”

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

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Economy

Fitch Agency Revises Nigeria’s Growth Projection for 2021

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Fitch Ratings

Fitch Agency Revises Nigeria’s Growth Projection for 2021

Fitch Ratings, one of the world’s leading agencies, has revised down Nigeria’s growth projection for 2021.

The global rating agency predicted that Nigeria will grow by 1.5 percent in 2021, down from the previous 2.3 percent projection.

Fitch based its latest prediction on weaker base effects coming out of a shallower contraction recorded by the country in 2020.

While the agency said oil exports would be the main growth driver for Nigeria in 2021, consumer spending and investment were expected to remain subdued because of the rising inflation and the slow distribution of the COVID-19 vaccine.

Fitch Ratings, however, said Africa’s largest economy could expand by 2.7 percent in 2022, adding that by then it “expect Nigeria’s vaccination programme to gather pace, which will result in private consumption and fixed investment accelerating.”

“We at Fitch Solutions have revised our estimate for Nigeria’s real Gross Domestic Product (GDP) to a contraction of 1.9 per cent in 2020, compared to our previous estimate of a 3.2 per cent fall. The revision follows the release of stronger than expected GDP data indicating that the economy exited recession in the fourth quarter of 2020, growing by 0.1 per cent year-on-year, after contracting by 3.6 per cent in the third quarter of 2020 and by 6.1 per cent in the second quarter of 2020.

“The agriculture and services sectors led the Q4 2020 rebound, expanding by 3.4 per cent and 1.3 per cent respectively, resulting in non-oil growth rising by 1.7 per cent compared to a 2.5 per cent fall in Q3 2020. The oil sector (around 8.0% of GDP) contracted by 19.8 per cent in Q4 2020 – its third consecutive quarterly contraction – because of falling oil production and weak prices.

“Crude production slowed to 1.56 million barrels per day (b/d) in Q4 2020 from 1.67 milion b/d in Q3 2020, partly because of Nigeria’s commitments under the OPEC+ deal, while the price of Brent fell to an average of $43.2 per barrel (/bbl) in 2020 compared to $64.2/bbl in 2019,” it stated.

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Economy

Stop Maize, Soybean Export to Reduce Scarcity – NIAL

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Farm input

Stop Maize, Soybean Export to Reduce Scarcity – NIAL

The Nigerian Institute of Animal Science on Tuesday called on the Federal Government to halt the continued export of maize and soybean to reduce the scarcity of the commodities as well curb their price hike in Nigeria.

Registrar and Chief Executive Officer, NIAL, Prof. Eustance Iyayi, told journalists in Abuja that the poultry sector was currently hit by the severe scarcity of maize and soybean.

This, he said, was due to the continued export of the commodities, the COVID-19 pandemic, which had disorganised the international supply chain, lingering insecurity in the North-East, farmers/herders conflict and flooding in some parts of the country.

“Maize and soybean are being exported and this has exacerbated the situation leading to local scarcity and price escalation of the commodities in poultry production,” Iyayi stated.

He added, “The increasing prices of the essential commodities has resulted in the increase in price of finished feeds by about 75 per cent.

“This has led to the closure of small and medium sized poultry farms thereby threatening about 10 million jobs as a result of this scarcity.

“To set the poultry industry from total collapse, the institute urges the government to immediately halt the exportation of soybean and maize and grant import permit to importers at the official foreign exchange rate.”

Iyayi said there was shortage of soybean in Nigeria and other countries, stressing that the little amount being produced across the country should not be exported.

He said the current maize yield of about one to two tonnes per hectare being produced in Nigeria would not be enough to sustain the country.

The NIAL helmsman stated that the country should be producing between seven and 10 tonnes per hectare in order to meet the requirements for humans and animals.

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Economy

Petrol Landing Cost Jumps to N186, Oil Hits $64

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Petrol Landing Cost Jumps to N186, Oil Hits $64

Against the backdrop of the rising price of oil prices, the landing cost of Premium Motor Spirit (petrol) imported into Nigeria has increased to N186.33 per litre.

Investors King had exclusively reported on February 9 that the landing cost of PMS rose to about N180 per litre on February 5 from N158.53 per litre on January 7.

Crude oil price accounts for a large chunk of the final cost of petrol, and the deregulation of petrol price by the Federal Government last year means that the pump price of the product will reflect changes in the international oil market.

Going by the petrol pricing template of the Petroleum Products Pricing Regulatory Agency, the landing cost of petrol rose to N186.33 per litre on February 16, with the pump price of the product expected to be N209.33 per litre.

The international oil benchmark, Brent crude, closed at $63.96 per barrel on February 16, up from $59.34 per barrel on February 5.

The rising price of crude oil pushed the cost of petrol quoted on Platts to $560.75 per metric tonne (N163.08 per litre, using N390/$1) on February 16 from $543.25 per metric tonne (N157.99 per litre) on February 5.

Other cost elements that make up the landing cost include freight (N10.29), lightering expenses (N4.57), insurance cost (N0.25), Nigerian Ports Authority charge (N2.38), Nigerian Maritime Administration and Safety Agency charge (N0.23), jetty throughput charge (N1.61), storage charge (N2.58), and financing (N1.33).

The freight cost increased to $35.41 per MT (N10.29 per litre) last Wednesday from $30.04 per MT (N8.74 per litre) on February 5.

The pump price is the sum of the landing cost, wholesale margin and the distribution margins. The wholesale margin is N4.03 while the distribution margins comprise transporters allowance (N3.89), retailer (N6.19), bridging fund (N7.51), marine transport average (N0.15), and admin charge (N1.23).

Apart from the changes in global crude oil prices, the exchange rate of naira to the dollar also affects the cost of imported petrol.

The cost of petrol would be higher if the 410/$1 rate at which the naira closed on Monday at the Investors’ and Exporters’ Foreign Exchange Window was used. The naira closed at 480/$1 at the parallel market.

The Nigerian National Petroleum Corporation, which has been the sole importer of petrol into the country in recent years, is still being relied upon by marketers for the supply of the product despite the deregulation of the downstream petroleum sector.

Oil marketers said recently that they were ready to resume importation of petrol if the foreign exchange was made available to them at a competitive rate.

“The discussion we should be having today is how best to maximise the benefits of the removal of price controls and subsidies while minimising the adverse effects of this action on our citizens,” the Chairman, Major Oil Marketers Association of Nigeria, Mr Adetunji Oyebanji, said at a virtual press briefing.

Brent crude, against which Nigeria’s oil is priced, rose by $1.67 to $64.58 per barrel as of 6:08pm Nigerian time on Monday.

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