Lagos, Nigeria, January 21, 2019//- There is no doubt that going into the forthcoming elections, issues like fighting corruption, insecurity occasioned by Boko Haram insurgency and herdsmen attacks will determine the ballot, but the larger part of this will be the performance of the economy.
Economic growth seems to have retreated below long-term growth rate of 6-7 percent, just as unemployment and underemployment have worsened at 23.1 percent and 20.1 percent, respectively, in Q3:2018 (8.2% and 18.3%, respectively, in Q2:2015).
West Africa’s leading independent investment banking firm, Afrinvest West Africa Limited, in its 2018 review and 2019 Outlook of the Nigerian Economy and Financial Markets, titled ‘The Precipice’, said the country would experience slow and uneven economic growth in 2019.
“In Q2:2018, growth further moderated to 1.5 percent due to both a 5.0 percent contraction in oil output and a slump in agriculture growth to 1.2 percent – the lowest in more than a decade. In Q3:2018, growth came in better at 1.8 percent but this was slower than the 2.1 percent we expected. Oil output contracted by 2.9 percent and agriculture growth remained weak at 1.9 percent in Q3:2018. This prompted a revision of our forecast of full year 2018 growth to 1.9 percent from 2.1 percent,” the report stated.
Victor Ndukauba, Deputy Managing Director, Afrinvest, in his presentation at the weekend, said growth expectations in 2019 were somewhat linked to the outcome of the election.
“We modelled three scenarios to capture different effects. One, the base case assumes that President Buhari wins the election, there is policy continuity, and not much else changes. Two, the optimistic case is that regardless of the winner, the government implements reforms to attract investment.
“The third is the pessimistic case that assumes that political risks intensify and leads to continued violence in the Middle-Belt, North-East and the Niger-Delta.
“In our ‘base case’ for 2019, we do not expect a marked turnaround in the economy. We estimate that growth will improve to 2.5 percent from 1.9 percent in 2018 based on the expectation of improved oil GDP and sustained expansion in the non-oil sector.
“This forecast implies that with population growing at 2.6-3.0%, Nigerians are projected to remain poorer on the average in 2019. We believe this growth outcome will reflect a soft rebound in agriculture, increased oil output and better performance in the services and manufacturing sectors.
“The downside risks remain the slower than expected recovery in agriculture, oil prices below budget benchmark of $60.0/bl and oil production at less than 2.0mb/d (including condensates). In our ‘pessimistic case’, we expect the impact of insecurity to be felt through lower agricultural and oil output. We assume that the decline in oil production will mirror the drop seen between Q2:2016 and Q3:2016.
Meanwhile, as members of the Monetary Policy Committee (PMC) of the Central Bank of Nigeria (CBN) begin their first meeting of the year in Abuja today, analysts have predicted that the committee will “do nothing” and keep monetary policy rates.
Analysts at Afrinvest said the monetary policy environment had remained tight since 2016 despite weak economic growth. While growth has stayed below population growth rate of 2.6 percent since 2016, inflation has remained elevated at double-digit – slowing to 12.2 percent monthly average in 2018 (2017: 16.5%).
They added that with price stability as objective, the MPC retained Monetary Policy Rate at 14.0% with a corridor of +2%/-5% in 2018, as well as Cash Reserve Ratio at 22.5% and liquidity ratio at 30.0% in 2018.
“Looking forward, the guidance offered by the bank so far is that the restrictive monetary policy stance will remain in place for the early part of 2019. This is due to expected inflationary pressures from food shortages, fiscal spending and possible implementation of a new minimum wage of N30,000/month. In our view, food shortages and devaluation in exchange rate are the biggest threats to inflation, as well as pricing adjustments for electricity and petrol.”
To analysts at FSDH, keeping policy rates at current levels is still prudent.
They expect the CBN to continue to use the sales of government securities to manage inflation expectation and exchange rate stability as developments in the global economy do not support strong growth in the crude oil price.
