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Green Shoots in the Non-oil Economy – Coronation Merchant Bank

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Non oil

The latest national accounts released by the National Bureau of Statistics (NBS) show that GDP grew by 4.0% y/y in Q3 ’21 compared with 5.0% y/y recorded in Q2 ’21.

This growth can be partly attributed to positive base effects, steady progress in stemming the spread of the coronavirus and resumption of economic/business activity. The oil economy contracted by -10.7% y/y in Q3 ‘21 compared with a contraction of -12.7% y/y recorded in Q2 ’21. Meanwhile, the non-oil economy grew by 5.4% y/y compared with 6.7% y/y recorded in Q2 ‘21.

In our chart, we highlight the top seven performing sectors in the non-oil economy, among those accounting for at least 1% of GDP.

The best performer was the finance and insurance sector which posted a growth rate of 23.2% y/y compared with a contraction of -2.5% y/y recorded in Q2 ’21. Meanwhile, within the sector, the financial institutions segment grew by 25.5% y/y compared with a contraction of -4.5% y/y in Q2 ‘21. This healthy improvement is also reflected in the strong performance of tier 1 banks as seen in their respective Q3 ’21 earnings report.

The second-best performer was the transportation and storage sector which grew by 20.6% y/y compared to 76.8% y/y posted in Q2 ’21. The sector contributed 1.0% to GDP. The major drivers of the sector were rail transport segment (59.9% y/y) and air transport segment (33.3% y/y). This was largely due to positive base effects and improvements in air and rail passenger traffic as global economies lifted lockdown measures. Road transport, which makes up 79% of the entire sector, grew by 21.1% y/y.

The trade sector grew by 11.9% y/y in Q3 ‘21 compared with 22.5% y/y recorded in the previous sector. The sector contributed 14.9% to GDP. We suspect that the release of pentup demand, particularly for consumers within the middle-income bracket may have supported trade activities.

The information and communications sector grew by 9.7% y/y in Q3 ’21 compared with 5.6% recorded in Q2 ‘21. Its major contributor, telecommunications, posted a growth rate of 10.9% y/y compared with 5.9% y/y recorded in the previous quarter. This expansion is mainly due to an increase in demand for voice, data, and digital services.

Additionally, entertainment via streaming services has picked up significantly and contributed to the segment’s growth.

The manufacturing sector grew by 4.3% y/y in Q3 ’21 compared with 3.5% y/y recorded in Q2 ’21. The sector contributed 9.0% to total GDP. Growth was significant in the chemical and pharmaceutical products segment (10.0% y/y), due to sustained demand for pharmaceutical products by the health sector. Its largest segment, food, beverages, and tobacco grew by 6.1% y/y, and the cement segment expanded by 5.7% y/y in Q3 ’21.

The African Continental Free Trade Area (AfCFTA) is expected to impact domestic manufacturing positively. However, to maximise the benefits of the agreement, local manufacturers need to significantly improve their service delivery and product standards.

The construction and real estate sectors grew by 4.1% y/y and 2.3% y/y in Q3 ’21 respectively. The growth registered in both sectors could be attributed to development activities on the back of recommencement of delayed projects which were paused due to the slowdown triggered by the pandemic. The World Bank has estimated that Nigeria would need to invest USD3trn in infrastructure to reduce the infrastructure deficit in the country.

Based on the FGN’s 2022 budget proposal, N5.4trn (USD12.9bn) has been earmarked for capital expenditure. From this allocation, N1.5trn has been set aside for expenses on infrastructure. This includes provisions for works and housing, power, transport, water resources and aviation.

Looking ahead, we expect growth of 1.5% y/y in Q4 ’21

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Economy

Nigeria’s Plan to Review Oil Companies’ Gas Flaring Strategies

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Oil

Nigeria is ramping up its efforts to address environmental concerns in the oil and gas sector with a comprehensive plan to review gas flaring strategies of international and indigenous oil companies.

The Minister of State for Environment, Dr. Iziaq Salako, announced this initiative during a national stakeholders engagement meeting on methane mitigation and reduction held in Abuja, Investors King reports.

Gas flaring, a common practice in the oil industry, releases methane—a potent greenhouse gas—into the atmosphere, contributing to climate change and posing health risks to communities near oil facilities.

Nigeria aims to end routine gas flaring by 2030, aligning with global climate goals and commitments.

Dr. Salako explained the importance of reducing methane emissions and highlighted the detrimental effects on public health, food security, and economic development.

He outlined practical steps being taken to tackle methane emissions, including the development of methane guidelines and the engagement of government institutions.

The ministry, through the National Oil Spill Detection and Response Agency, will conduct periodic reviews of oil companies’ plans to ensure compliance with the gas flaring deadline.

Deloitte management consultants will assist in conducting comprehensive forensic audits to scrutinize the legitimacy of forward-contracted transactions.

President Bola Tinubu’s commitment to environmental sustainability underscores the government’s dedication to addressing climate change and fulfilling its multilateral environmental agreements.

The engagement event served as a platform for stakeholders to discuss methane mitigation strategies, existing policies, and implementation challenges.

Collaboration and dialogue among diverse sectors are crucial in charting a unified course towards sustainable methane reduction in Nigeria’s oil and gas industry.

As the country navigates its environmental agenda, ensuring accountability and transparency in gas flaring practices remains paramount for achieving a greener and healthier future.

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Economy

Interest Rate Jumps to 24.75% as CBN Takes Aggressive Stance Against Inflation

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Dr. Olayemi Michael Cardoso

The Central Bank of Nigeria (CBN) has announced a significant increase in the monetary policy rate, known as the interest rate, to 24.75%.

This move disclosed by CBN Governor Olayemi Cardoso during the 294th Meeting of the Monetary Policy Committee press briefing in Abuja, represents a bold step by the apex bank to address the mounting inflationary pressures faced by the country.

With inflation soaring to 31.70% in February, the CBN aims to moderate this upward trend by tightening its monetary policy stance.

This decision follows the previous hike in the interest rate to 22.75% in February, showcasing the CBN’s commitment to combatting inflationary forces.

While the bank opted to maintain the Cash Reserve Ratio at 45%, the significant increase in the interest rate underscores the urgency of the situation and the need for decisive action.

Governor Cardoso emphasized that these measures are essential to stabilize the economy and safeguard the purchasing power of the Nigerian currency.

The 294th MPC marks the second meeting under Governor Cardoso’s leadership, indicating a proactive approach to addressing economic challenges.

The next MPC meeting is scheduled for May 20th and 21st, 2024, highlighting the ongoing commitment of the CBN to navigate Nigeria’s economic landscape amidst inflationary pressures.

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Economy

Nigeria Braces for 10th Consecutive Interest Rate Hike by Central Bank

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Central Bank of Nigeria (CBN)

As Nigeria grapples with persistently high inflation, the Central Bank of Nigeria (CBN) is gearing up to implement its tenth consecutive interest rate hike in a bid to curb the soaring prices and attract investment.

Analysts surveyed by Bloomberg are anticipating a substantial 125 basis-point increase in the key rate to 24%, marking one of the most significant adjustments in the current tightening cycle.

The decision, expected to be announced by Governor Olayemi Cardoso on Tuesday at 2 p.m. in Abuja, comes on the heels of inflation accelerating to 31.7% in February, far surpassing the central bank’s target range of 9%.

This surge has been primarily attributed to the sharp depreciation of the naira, prompting authorities to devalue the currency twice since June to narrow the gap with the unofficial market rate and encourage investor confidence.

While these measures have seen the naira strengthen in recent days and bolstered investment inflows, including a fourfold increase in overseas remittances and significant foreign investor portfolio asset purchases, there remains a palpable need for more decisive action.

Giulia Pellegrini, a senior portfolio manager at Allianz Global Investors, emphasized the necessity for the CBN to intensify its tightening efforts to regain foreign investors’ confidence in the local bond market.

While acknowledging the positive strides made by the central bank, Pellegrini stressed the importance of a more assertive approach to prevent the diversion of investor attention to other frontier markets.

As the Nigerian economy navigates through these challenging times, the impending interest rate hike signals the CBN’s determination to address inflation head-on and foster a more stable economic environment.

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