nigeria economic outlook for 2020 - gti group research · microfinance gti trading floor. 24-dec-19...

Damilare AsimiyuJunior Economist & Research Analyst, GTI Group

Nigeria Economic Outlook for 2020

Providing Basis for Effective Strategizing

GTI RESEARCH

GTI

Capital

GTI

Securities

GTI

Asset Mgt.

& Trust

GTI

MicrofinanceGTI

Trading Floor

24-Dec-19 2

1. Review of Global Economy in 2019

Contents


2. Review of Global Oil Market in 2019

3. Review of Domestic Macroeconomy in 2019

4. Global Economic Outlook for 2020

5. Domestic Economic Outlook for 2020

24-Dec-193


5.4%

4.3%

3.5% 3.5% 3.6% 3.5% 3.4%3.8% 3.6%

3.0%3.4%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019E2020F

REAL GDP GROWTH (Annual Percentage Growth)

GLOBAL GROWTH TREND

World Advanced Economy EMDEs

2.30% 1.60%

4.60%3.00% 2.60% 3.00%

-0.32%

8.15%

23.07%

-8.20%

15.50%17%

2015 2016 2017 2018 2019E 2020F

GLOBAL MERCHANDISE TRADE & LIQUIDITY LEVEL

Merchandize Trade MSCI World Equity Index

HIGHLIGHTS

Global growth is expected to weaken to 3.00% by the end of

2019, driven by economic slowdown in both Advanced and

Emerging Economies – IMF WEO, Oct. 2019

In advanced economies, growth in 2019 is expected to settle at

1.7% as against 2.3% in 2018, while in Emerging Markets and

Developing Economies (EMDEs), growth is expected to print at

3.9% as against 4.5% in 2018.

Growth of merchandize trade is expected to ease to 2.60% in

2019 (from 3.00% in 2018), while global liquidity level is

expected to rise to 15.50% from a contraction point of 8.20%

in 2018.

DRIVERS

Spillover effect of the U.S. – China trade dispute

Increased protectionism agenda

Brexit negotiation uncertainty

Weak growth in Euro-Area

Pockets of Geo-political tensions (e.g. U.S. & Iran, U.S. &

Venezuela)

Prolonged civil unrest (e.g. protest in France, Hong-Kong)

Global Economy in 2019

Sources: IMF, WTO, MSCI

24-Dec-19 Nigeria Economic Outlook for 20204

Global Economy in 2019… cont’d

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

USA China Euro-Area India Japan Russia

Growth Trend in Major Economies

2017 2018 2019E 2020F

• Divergent growth trend to characterize major economies in

2019 and 2020

In the U.S. and China, growth is expected to ease in

both 2019 and 2020

In Euro-Area and Russia, growth is expected to slide

in 2019 before seeing modest recovery in 2020

However, India is expected to see further expansion

in its economic growth, albeit at a slow pace

• Quantitative easing of varying magnitude prevailed

across major economies in 2019 due to global growth

concern resulting mainly from the negative spillover effect

of the protracted trade dispute between the U.S. and

China.

-1.00%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

Q4'18 Q1'19 Q2'19 Q3'19 Q4'19 2020F

Interest Rate Environment in Major Markets

U.S ECB India China Japan

Sources: IMF, ECB, U.S. Fed, BOJ, BoI


28 June ‘16

While Campaigning for

the White House,

Donald Trump promised

to counter unfair trade

practices from China. Trump and Chinese

president, Xi

Jinping, agreed to

a 100-days plan

for trade talk.

President Trump

orders probe into

alleged Chinese

intellectual property

theft.

The two sides

failed to agree on

a new step to

reduce U.S. trade

deficit with China

after the 100

days talk.

Trump orders 25% tariffs

on Steel and 10% on

Aluminium from all suppliers

including China. China

responded with a 25%

tariffs on 128 U.S. products.

After two days of

trade talk with little

progress, president

Trump announced a

new 10% tariffs on

$300bn Chinese

imports (effective,

Sep. 1 2019), but

insist trade talk will

continue despite the

new tariffs.

The U.S. and China agreed

on a 90-days halt to new

tariffs. The deadline for the

cease fire was extended on

February 25, 2019.

At G20 meeting in Osaka,

Trump and Xi agreed to

restart the trade talk.

The U.S. released list of

$16bn Chinese goods to

be subject to 25%

tariffs. China retaliated

with a 25% duties on

$16bn U.S. goods.

Trump imposes

tariffs on all

imported washing

machines and solar

panels from China

and others.

Timeline of the U.S. – China Trade War

7 April ‘17

31 March ‘17

Trump (now president)

signed two executive orders

to tightened tariff

enforcement in anti-subsidy

and anti-dumping trade

cases, and to review and

address causes of trade

deficit.

19 July ‘17

14 Aug. ‘17

22 Jan ‘18

8 Mar. – 2 Apr. ‘18

7 Aug. ‘18

The U.S. implements an

additional 10% tariffs on

$200bn of Chinese imports.

China answered with duties

of $60bn on U.S. goods.

24 Sept.’18

Feb 25 – 29 Jun ‘19

1 Aug. ‘19

1 Sep. ‘19

U.S. imposed 15% new

tariffs on $300bn

goods; China

retaliated with 5%

and 10% tariffs on

1,717 items.

12 Dec ‘19

Trump signed-off on an

initial trade agreement

with China to halt new

tariffs imposition while

negotiation continues into

2020. China replicate

same gesture by

suspending new tariffs on

U.S. goods

Global Economy in 2019… cont’d

What will end the

trade war? U.S.

Election or

Trump’s

Impeachment?

• Global daily average crude oil demand increased by a

marginal 1% in 2019 to 99.8mb/d. Same growth rate is

expected in 2020 due to projected weak growth of global

demand

• Despite efforts by OPEC and its ally, Russia, to stabilize oil

prices through series of output cuts, oil price outlook still

remains on the downside due to the rapid and sustained

increase in U.S. shale crude oil production (also known as

WTI) amid weak rise in global demand.


Global Oil Market in 2019

0

20

40

60

80

100

120

2016 2017 2018 2019E 2020F

Global Oil Market Performance

World Oil Demand World Oil Supply Share of Non-OPEC Supply

Share of OPEC Supply Shortage

0

20

40

60

80

100

120

2014 2015 2016 2017 2018 2019E 2020F

Oil Prices

Brent Crude Oil OPEC Crude Oil WTI Crude Oil

Sources: OPEC MOMR, Oil Price.com


Africa Biggest Economies in 2019

• Among Africa’s three biggest economies, only Egypt will

end 2019 with a GDP growth that doubled that of its

population growth rate

• Nigeria’s par-capita GDP is twice as low as that of Egypt,

and almost four times lower than that of South Africa. This

by implication means more Nigerians are poorer than

citizens of the other two biggest economies

• Nigeria is the only country among the three biggest

economies in Africa with both Inflation and Benchmark

Interest rate (i.e. MPR) in double digits

• Nigeria and South Africa have their unemployment rate

above 20%, while Egypt’s unemployment rate is below

10%

• Among the three biggest stock markets in Africa, only the

Nigeria Stock Exchange will end 2019 on a negative YTD

return.

AFRICA'S BIGGEST ECONOMIES: KEY PERFORMANCE INDICATORS FOR 2019

Country

Name

GDP

size

($bn)

Population

Size (mn)

Per

Capita

GDP ($)

GDP

Growth

(Q3’19)

Populatio

n Growth

rate

Benchm

ark

Interest

Rate

Inflation

Rate

Unemploy

ment Rate

Equity

Market

(YTD)

Nigeria 376.28 200.96 1,881.4 2.28% 2.70% 13.50% 11.86% 23.10% (17.0%)

South Africa 349.29 56.7 6,237.3 -0.6% 1.20% 6.75% 3.60% 27.60% 9.2%

Egypt 237.04 100.39 2,370.4 5.60% 1.90% 12.75% 3.60% 8.10% 6.5%

Sources: CBN, NPC, NSE, Investing.com


Timeline of Key Events in 2019

JanFeb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

• CBN lowered MPR for the

first time in over 2-years

to 13.5% while retaining

CRR, LR and Asymmetric

Window at 22.5%, 30%,

and +200/-500bps

around MPR respectively

• CBN cashless policy on

lodgment and withdrawal by

Individual and corporate

accounts kick started

• Nigeria GDP grew by 2.12%

in Q2

• CBN added milk importation

to the list of commodities

excluded from accessing FX

at official rate

• President Buhari dissolved

EMT led by the VP,

inaugurate 8-man EAC

• Legal battle begins between

Nigeria and P&ID over a

failed gas processing

investment for which a UK

court granted P&ID prayers

to seize Nigeria’s assets

worth $9.6bn

• President Muhammadu

Buhari signed the African

Free Trade Agreement

(AfCFTA)

• CBN adjust LDR to 60%

from 48%

• Airtel Africa Plc listed

3.76bn shares on NSE and

LSE

• CBN excluded individual

and local corporates from

investing in OMO auctions


Buhari presented ₦10.33

trn expenditure for 2020 to

the National Assembly

• CBN announced LDR by

65% in December 2019

• EODB 2020 report: Nigeria

moved up 15 places to

131st position

• Nigeria GDP grew by

2.28% in Q3

• World Bank review down

Nigeria’s growth projection

for 2019 to 2.0%

• Dongote flour mills delisted

from the NSE

• CBN ordered commercial

banks to stop selling T-bills

to individuals and small

businesses

• National Assembly passed

Finance Bill 2019; a key

component of which is VAT

increase to 7.5%

• The National Assembly

passed 2020 budget of

₦10.59 trn

• FG re-present $29bn

foreign loan request to the

National Assembly

• CBN review guide to

charges by Banks, Other

financial and Non-bank

financial Institutions –

Reduced fee on

withdrawal from other

ATM to ₦35 (effective

Jan. 1, 2020)

• President Muhammadu Buhari

signed 2019 budget into law

• Nigeria GDP grew by 2.10%

in Q1’19

• MTN Nigeria listed 20.35bn

shares on NSE

• President Buhari re-appoints

Mr. Godwin Emefiele as

governor of CBN for second

term

• Access bank merger with

Diamond bank formally

consummated

• Federal government

signed new minimum wage

bill into law. The lowest

paid worker now to be

receiving ₦30,000 (as

against the previous

minimum wage of

₦18,000)

• World Bank projected

a 2.2% growth for

Nigeria


Buhari ordered the closure

of all Nigeria land

borders with neighboring

countries due to smuggling

of commodities and arms

• 2019 general elections

took place

• APC won the presidential

election and most of the

gubernatorial and national

assembly seats

• CBN released five year

policy thrust with focus on

5-key areas of Preserving

macroeconomics & financial

stability; Developing robust

payment system

infrastructure; Improving

access to credit by farmers,

MSMEs and consumers;

Growing external reserves;

and Supporting

diversification efforts

• Customs duty exchange

rate increases to ₦326/$1

from ₦306/$1

• Since exiting the 2016 economic recession,Nigeria’s GDP has continued to grow, albeit ata very slow pace

• The Oil GDP component performance hascontinued to be shaped by the global priceand output volatility

• The Non-oil GDP component, though has beengrowing recently but still below the pre-recession average of 3.5% annual growth.


Breaking Down the GDP Performance in 2019

7.84

4.894.28

5.39

6.31

2.65

-1.58

0.83

1.91 2.17

-4

-2

0

2

4

6

8

10

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019(AVG)

Annual GDP Growth Rate (%)

-20.00%

-15.00%

-10.00%

-5.00%

0.00%

5.00%

10.00%

2015 2016 2017 2018 2019(AVG)

Performance of the GDP Components

Non-Oil Growth Rate Oil Growth Rate

Source: NBS

• Just like in 2018, growth of the three non-

oil sectors is on the verge of converging

around 2%, which is still very low to

generate the kind of “big push” needed by

the economy to fully rebound

• Only 5 out of the 46 sectors that make up

the Nigeria economy grew by more than a

quarter of a trillion (i.e. above ₦250bn) in

the last 12-months


-10.00

-8.00

-6.00

-4.00

-2.00

0.00

2.00

4.00

6.00

2015 2016 2017 2018 2019(AVG)

Sectors of the Non-Oil

AGRICULTURE INDUSTRIES SERVICES

-1.00

-0.50

0.00

0.50

1.00

1.50

2.00

Tele

com

mun

ication

s…

C

rop P

rodu

ctio

n

Cru

de P

etr

ole

um

…

Road T

ransp

ort

Food

, Bev

era

ge…

Const

ruct

ion

Cem

ent

Oth

er

Serv

ices

Ed

uca

tion

Acc

om

moda

tion

and

…

Air

Tra

nsp

ort

Insu

rance

Fin

anci

al In

stitution

s

Bro

adca

stin

g

Pu

blic

Adm

inis

tration

Woo

d a

nd

Woo

d…

Motion

Pic

ture

s,…

F

ore

stry

F

ishin

g

Hum

an H

ealth &

…

Art

s, E

nte

rta

inm

ent…

Oth

er…

P

last

ic a

nd R

ubber…

Non

-Meta

llic

…

Tra

nsp

ort

Serv

ices

P

ulp

, P

aper

and

…

Coa

l M

inin

g

Publish

ing,

Adm

inis

trative &

…

L

ivest

ock

C

hem

ica

l a

nd

…

Wa

ter

Tra

nsp

ort

E

lect

rica

l a

nd…

R

ail T

ransp

ort

&…

Po

st a

nd C

ouri

er…

M

oto

r v

ehic

les

&…

Meta

l O

res

Wa

ter

Supp

ly,…

Basi

c m

eta

l , Ir

on

…

Q

ua

rryin

g a

nd…

T

extile

, A

ppa

rel…

Ele

ctri

city

, G

as,

Ste

m…

Oil R

efi

nin

g

Pro

fess

ion

al,…

Real Est

ate

Tra

de

y/y Absolute change (₦trn)

Breaking Down the GDP Performance in 2019… Cont’d

Source: NBS

• The national budget has continue to

underperform due largely to revenue shortfalls

• Both the Oil and Non-oil revenue has continue to

print below the budget targets

• Due to the revenue shortfalls, the capital

expenditure component of the budget has

suffered the most from the revenue shortfalls

• Federal government has increased VAT to 7.5%

(effective, Jan. 2020) from 5%, but this will not

significantly solve the revenue shortfall problem

as it (the VAT increase) will add less than

₦100bn to the revenue


Fiscal Policy in 2019

EXPENDITURE

2018 Budget Performance 2019 Budget Performance

Approved

Actual (Jan-

Dec) Variance

% of

Variance Approved

Pro-

Rata(Jan-

Jun)

Actual (Jan-

Jun) Variance

% of

Variance

Total Expenditure (₦trn) 9.12 7.45 -2.18 -23.9% 8.92 4.46 3.39 -1.07 -24.0%

Recurrent Expenditure

(₦trn) 5.7 5.25 -0.46 -8.1% 6.32 3.16 3.16 -0.02 -0.6%

Capital Expenditure

(₦trn) 2.87 1.74 -1.64 -57.1% 2.09 1.05 0.294 -0.76 -72.0%

Statutory Transfers

(₦trn) 0.53 0.46 -0.07 -13.2% 0.5 0.25 0.23 -0.02 -8.0%

Debt Servicing (₦trn) 2.2 2.15 -0.05 -2.3% 2.25 1.13 1.11 -0.02 -1.8%

REVENUE SIDE

2018 Budget Performance 2019 Budget Performance

Approved

Actual (Jan-

Dec) Variance

% of

Variance Approved

Pro-

Rata(Jan-

Jun)

Actual (Jan-

Jun) Variance

% of

variance

FGN Total Revenue

(₦trn) 7.16 3.96 -3.2 -44.7% 6.99 3.5 2.04 -1.45 -41.4%

Oil Revenue (₦trn) 2.99 2.32 -0.68 -22.7% 3.68 1.84 0.9 -0.94 -51.1%

Non-Oil (₦trn) 1.47 1.21 -0.35 -23.8% 1.41 0.7 0.61 -0.09 -12.9%

Others(₦trn) 2.70 0.43 -2.17 -80.4% 1.9 0.96 0.53 -0.42 -43.8%

Source: Budget Office

• Value Added Tax (VAT) increased to 7.5% from 5% effective January2020. Only seven items comprising –

Exported Services

Medical & Pharmaceutical products

Basic food items

Baby products

Medical services

Play & performances conducted by educational institutions as part oflearning, and

Materials and equipment imported for use in downstream gas activities areExempted

• Petroleum Profit Tax – Introduced Withholding tax of 10% on dividendspaid out of profits of companies engaged in petroleum operations

• Capital Gain Tax – Companies to now pay capital gain tax whentransferring assets between two entities; anyone with compensation inexcess of ₦10mn after loss of employment to also pay

• Stamp Duties – ₦50 on banks transfer from ₦10,000 andabove

• Customs & Excise Tariffs – Goods imported into Nigeria mustnow pay excise duty

• Personal Income Tax – TIN now mandatory to operate bankaccount

• Company Income Tax – Corporates must have TIN to operatecorporate account; Foreign companies engaged in digitalbusiness with or without physical presence to pay tax


Fiscal Policy in 2019… Cont’d

C&ET

CGT

PPT

Stamp

Duties

PIT

CIT

VAT

7-Highlights

of the New

Finance Bill

2019

• National Assembly approved 2020 budget in record

time, return Nigeria to January – December budget

cycle

• On the low side, despite revenue constraints, FG and

the National Assembly increased 2020 budget by

18.7% when compared to 2019 size.

24-Dec-19Nigeria Economic Outlook for 2020

13

Approved Budget for 2020

Appropriation Bill 2020

Total Expenditure (₦'Trn) 10.59

Recurrent Expenditure (Non-Debt) (₦'Trn) 4.84

Capital Expenditure (₦'Trn) 2.47

Debt Service (₦'Trn) 2.73

Sinking Fund (₦'Bn) 296

Statutory Transfer (₦'Bn) 560.47

Total Revenue (₦'Trn) 8.15

Oil Revenue (₦'Trn) 2.64

Non-oil Revenue (₦’Trn) 1.81

Other Revenue (₦’Trn) 3.7


24-Dec-19 Nigeria Economic Outlook for 2020 14

Approved Budget for 2020: Expected Revenue Sources

S/N Description 2019 Budget 2020 Budget Variance % of Varaince

a Share of Oil Revenue 3,688,282,600,552.00 2,637,609,314,988.00 (1,050,673,285,564.00) -28%

b Share of Dividend (NLNG) 39,889,887,640.00 124,269,200,000.00 84,379,312,360.00 212%

c Share of Minerals & Mining 1,288,084,234.00 1,895,673,251.00 607,589,017.00 47%

d Share of Non-Oil 1,409,186,629,523.00 1,805,115,823,875.00 395,929,194,352.00 28%

Share of CIT 813,365,752,583.00 839,306,973,052.00 25,941,220,469.00 3%

Share of VAT 229,339,263,648.00 292,573,424,131.00 63,234,160,483.00 28%

Share of Customs 310,866,122,279.00 618,647,203,735.00 307,781,081,456.00 99%

Share of Federation Acct. Levies 55,615,491,012.00 54,588,222,958.00 (1,027,268,054.00) -2%

e

Revenue from GOEs (Top 10 GOEs excluding

NNPC) 955,361,046,920.00 990,113,888,722.00 34,752,841,802.00 4%

Top 10 GOEs Operating Surplus (80% of which

is captured in Independent Revenue) (359,831,060,380.00) (436,938,846,257.00) (77,107,785,877.00) 21%

f Independent Revenue 631,079,910,674.00 849,968,442,768.00 218,888,532,094.00 35%

g FGN's Balances in Special Levies Accounts 12,910,083,472.00 300,000,000,000.00 287,089,916,528.00 2224%

h FGN's Share of Actual Bal. in Special Accts 8,327,994,472.00 345,000,000,000.00 336,672,005,528.00 4043%

i Signature Bonus / Renewals / Early Renewals 84,228,494,867.00 939,300,022,585.00 855,071,527,718.00 1015%

j Domestic Recoveries + Assets + Fines 203,379,583,341.00 237,012,653,161.00 33,633,069,820.00 17%

k

Earmarked Funds (Proceeds of Oil Assets

Ownership Restructuring) 710,000,000,000.00 (710,000,000,000.00) -100%

l Stamp Duty 200,000,000,000.00 200,000,000,000.00

m Exchange Rate Differentials (Non-FAAC) 125,479,949,022.00 125,479,949,022.00

n Grants and Donor Funding 209,915,780,857.00 36,392,600,000.00 (173,523,180,857.00) -83%

AMOUNT AVAILABLE FOR FGN BUDGET

(including GOEs) 7,594,019,036,171.00 8,155,218,722,115.00 561,199,685,944.00 7%

• Government to leverage more

on TAX and the technology of

TSA to boost non-oil revenue

• Revenue expectation from oil

is modest, and can suffice for

a “Base Case” scenario – that

is, current aggregate crude oil

output is 2.04mb/d and oil

price of $55/bl


• CBN cut MPR by 0.5% to 13.5%, the first time since June 2016

• CBN raised LDR of commercial banks to 60% in July, then to 65% in October

• CBN bars individual and local corporates from investing in OMO auctions

• CBN stops Treasury-bills sales to individuals and small firms

• CBN directed commercial banks to begin charging of processing fee on

individual/corporate deposits and withdrawal

OBJECTIVES OF THE POLICIES

To reduce cost of fund, especially to those in employment generating real sector

To reduce high preference of domestic retail investors in risk-free government

securities (as they mostly prefer short term) and give more room for “the money

bags” that will take position on the long end of the curve

To reflate interest in equity based investment, real estate, agriculture, and boost

aggregate consumption

To drive the cashless policy agenda of the Apex bank

REALITIES

Despite the high interest rate environment in Nigeria, portfolio investors (who are

the major target of the CBN to bring in more FX) are currently being cautious of

investing in Nigeria’s risky assets over concerns of possible devaluation of the Naira,

multiple exchange rate regime, and fiscal tightening

Also, the high inflation rate in the country will continue to negate the objectives of

the CBN policies

24-Dec-19 Nigeria Economic Outlook for 2020 15

Monetary Policy in 2019

0.0%2.0%4.0%6.0%8.0%

10.0%12.0%14.0%16.0%18.0%20.0%

Jan

Mar

May

Jul

Sep

No

v

Jan

Mar

May

Jul

Sep

No

v

Jan

Mar

May

Jul

Sep

No

v

Jan

Mar

May

Jul

Sep

No

v

2016 2017 2018 2019

Trend of MPR and Inflation Rate

MPR Inflation Rate

0

100

200

300

400

500

600

Jan

Ma

r

Ma

y

Jul

Sep

Nov

Jan

Ma

r

Ma

y

Jul

Sep

Nov

Jan

Ma

r

Ma

y

Jul

Sep

Nov

Jan

Ma

r

Ma

y

Jul

Sep

Nov

Jan

Ma

r

Ma

y

Jul

Sep

Nov

Jan

Ma

r

Ma

y

Jul

Sep

2014 2015 2016 2017 2018 2019

Naira/USD Exchange Rate Movement

Naira/USD (Official Rate) Naira/USD (Parallel Market)

Source: CBN

• Foreign reserves which accrued by more than $6bn in the firsthalf of the year has continued to compress (since beginning ofH2) due to the twin-effect of oil price & output volatility, andfall in capital importation

• The most affected component of the Capital Importation isFPI (also known as Hot Money), suggesting foreign investorslack of confidence in Nigeria policy environment andexchange rate stability


Foreign Reserves Position in 2019

0.00

10.00

20.00

30.00

40.00

50.00

60.00

Foreign Reserves Movement

0.00

1000.00

2000.00

3000.00

4000.00

5000.00

6000.00

7000.00

8000.00

9000.00

Q1'18 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 Q3'19

Capital Importation

FDI ($'Mn) FPI ($'Mn) Other Investment ($'Mn) Total ($'Mn)

$-

$10.00

$20.00

$30.00

$40.00

$50.00

$60.00

$70.00

$80.00

1.6

1.65

1.7

1.75

1.8

1.85

1.9

Nigeria's Crude Oil Production & Prices

Crude Oil Production (mb/d) Price of Bonny Light (pbl)

Saudi Oil

Vessel

attacked by

Iran

OPEC

agreed to

further

tighten

output

Nigeria

bargain for

high output

Sources: CBN, NBS, OPEC MOMR

• Despite the listing of two big telecoms firms – MTNN and Airtel Africa, onthe Nigeria Stock Exchange, the NSE All Index has fallen by more than 4,800index points YTD, to signify the huge sell-off in the market

• With the exception of Access, MTNN, and Dangsugar, other large capitalizedstocks will close 2019 with a negative YTD return. This is driven by absenceof market stimulating policy and weak performance of many listedcompanies

• In the fixed income market, yields was relatively stable in the first nine monthsof the year before the CBN different policy drives towards advancing morecapital flows to the private sector weighed on yield levels


Capital Market in 2019

0.00%

5.00%

10.00%

15.00%

20.00%

Jan-1

8

Feb

-18

Mar-

18

Apr-

18

Ma

y-1

8

Jun

-18

Jul-

18

Aug-1

8

Sep-1

8

Oct

-18

Nov-1

8

Dec-

18

Jan-1

9

Feb

-19

Mar-

19

Apr-

19

Ma

y-1

9

Jun

-19

Jul-

19

Aug-1

9

Sep-1

9

Oct

-19

Nov-1

9

Trends in the Fixed Income Market

T.BILLS 3-Months True Yield T.BILLS 6-Months True Yield

T.BILLS 12-Months True Yield BOND 5yrs Marginal Rate

BOND 10yrs Marginal Rate

25,000.00

26,000.00

27,000.00

28,000.00

29,000.00

30,000.00

31,000.00

32,000.00

33,000.00

NSE All Share Index

0

200

400

600

800

1000

1200

1400

Sectoral Performance of the Equity Market

Banking Industrial Consumer Goods Oil/Gas Insurance

MTNN listing

boost

performance

CBN stopped sale of

OMO & T-Bills to

individuals and small

businesses

CPI rose for the first

time in 20-months

• U.S. – China trade spat may not last beyond H1’2020

• U.S. Fed may consider new interest rate cut in early 2020 if GDP growth disappoint in Q4’19

• Republican dominated senate will likely not vote to impeach President Trump as done in the

House of Rep. However, Trump’s popularity will continue to wane, and will likely loose the

November 2020 presidential election

• PM Boris Johnson may likely deliver on Brexit promise before 31st March, 2020 “Good” or

“Bad”

• Global liquidity level will remain high due to quantitative easing in many advanced and EMDEs.

However, only EMDEs with clear growth strategies and stable exchange rate outlook will benefit

from global liquidity wash in search of better yields

• Global merchandise trade volume is expected to remain subdued due to increasing

protectionism and weak global growth

• ECOWAS adoption of a single currency “ECO” may not come to fruition

• Crude oil price may fall below $55 if the U.S. and China trade dispute re-escalate. Beside,

crude oil demand is not likely to rise significantly in 2020 irrespective of the outcome of U.S. –

China trade dispute


Global Economic Outlook for 2020

• Returning to January – December budget cycle to boost business planning and investment

intents

• Equity market to witness modest recovery; driven by low yields in the fixed income market (vs.

high inflation rate), dissipation of political risk, and expectation of improved budget

implementation

• Bond yield might gain traction (modest) by early Q2’ 2020 as FG will need to repay

c.₦500bn on maturing bond instruments

• Power tariffs may likely be reviewed upward to reflect current-cost realities

• Mass industrial action likely to go down in many states (in H1’2020) over inability to pay the

new minimum wage

• Insurance sector & Microfinance banks recapitalization directives will reduce number of

players due to need for mergers & acquisition. Nonetheless, the surviving ones will be stronger

and more liquid

• CBN may push for banks recapitalization over Moody’s recent report which downgrades

Nigeria banking sector long-term rating to “Negative” from “Stable”

• Naira value may depreciate if oil price slide by more than 10% below $55/bl


Domestic Economic Outlook for 2020

• More commodity likely to come under CBN forex restriction if external reserves

continued to be pressured

• Nigeria may re-open land borders before end of Q1’2020 to avoid losing out on

AfCFTA opportunities

• Inflation may like surge to 12% if border closure extends beyond January 2020.

This may also force CBN to return MPR to 14%

• National Assembly expected to approve FG’s $29.9bn foreign loan request

• Nigeria to breakthrough on P&ID legal battle but will part with some fortunes

• More government agencies to be captured in the IPPS and TSA for fiscal

prudency

• GDP growth to remain weak due to unaligned fiscal and monetary policy focus,

and over-dependent on crude oil as the main source of FX. Hence, we expect

GDP growth to settle between 2.10% - 2.40%


Domestic Economic Outlook for 2020

24-Dec-19 21Nigeria Economic Outlook for 2020


Conflict of Interest

GTI Securities Ltd and its sister companies within the GTI Group may execute transactions in securities of companies

mentioned in this document and may also perform or seek to perform investment banking services for those companies

mentioned herein. Trading desks may trade, or have traded, as principal on the basis of the research analyst(s) views

and report(s).

Analyst Certification

Where applicable, the views expressed in this report accurately reflect the analysts' views about any and all of the

investments or issuers to which the report relates, and no part of the analysts' compensation was, is, or will be, directly

or indirectly, related to the specific recommendations, views or corporate finance transactions expressed in the report.

Disclaimer

This report by GTI Securities Ltd is for information purposes only. While opinions and estimates therein have been

carefully prepared, the company and its employees do not guaranty the complete accuracy of the information

contained herewith as information was also gathered from various sources believed to be reliable and accurate at the

time of this report. We do not take responsibility therefore for any loss arising from the use of the information.

For enquires/research queries, please send an email to [email protected]

Presented by

Damilare Asimiyu +234 8060 722 944

Disclaimer

nigeria economic outlook for 2020 - gti group research · microfinance gti trading floor. 24-dec-19...

Documents