A BusinessDay survey that captured twelve growth projections from reputable sources suggests that the Nigerian economy would expand 2.7 percent in 2018, as Africa’s largest oil producer gets a lift from higher oil prices and production.
The 2.7 percent mean estimate derived from the survey which featured projections by US-based global lenders, World Bank (1 percent) and the International Monetary Fund (2.1 percent), as well as Russia-based Investment bank, Renaissance Capital (2 percent), also reflected optimism over improved foreign exchange liquidity.
The survey also featured projections by US-based rating agencies, Fitch (2.6 percent) and Moody’s (4 percent), as well as global consulting firm, Price Waterhouse Coopers (4 percent).
Projections by Lagos-based FSDH Merchant bank (2 percent), Cowry Assets (2 percent), Financial Derivatives Company (2.2 percent), the Lagos Chamber of Commerce and Industry (4 percent), as well as local lender, Stanbic IBTC (2.5 percent), were also used.
“Asides the improvements in real GDP, the performance across several other macro-indicators suggest that the economy is on track for a broad-based recovery,” said Andrew S Nevin, a partner and chief economist at PWC.
Nigeria has been hammered by a lengthy collapse in oil prices that began in mid-2014 and snowballed into a two-decade low of $28 per barrel in January 2016.
The pain inflicted by militant attacks in the Niger-Delta, which sent production levels to near decade-lows of 1.2 million barrels, dealt an even steeper blow on the oil-dependent economy.
These factors tipped the economy into its first full-year contraction in 25 years and triggered acute dollar shortages that stifled the non-oil sector, as the latter contracted 0.2 percent to record its worst performance since 1984.
However, the economy managed to limp off the recession in the second quarter of 2017 after expanding 0.55 percent, on the back of a rebound in oil prices, following an agreement reached by OPEC members in 2016 to shave some 1.2 mbpd off the market to nip a growing supply glut in the bud and relaxed hostilities in the Niger-Delta.
In addition, the non- sector recorded a positive growth for the second consecutive quarter, spurred by on-going recovery in the manufacturing sector due to improved Foreign Exchange (FX) liquidity.
This year, “We expect the Nigerian economy should continue its rebound, perhaps reaching 2.5 percent driven mainly by further improvements in the oil sector and some structural adjustments,” Ayomide Mejabi, an economist at Stanbic IBTC, said.
A barrel of Brent oil sold for $67 as of Friday, January 5, according to data obtained from the Bloomberg terminal. That’s a 17.7 percent increase compared to the same period last year ($56.8) and an 80 percent leap from an average of $37.28 per barrel in January 2016.
Oil production hit 1.8 million barrels daily in November 2017 according to the most recent OPEC data, representing a 50 percent increase from the 1.2 million barrels produced in the thick of militant attacks.
Increased flow of petrodollars have pushed the country’s external reserves to a 34-month high of $38 billion as of December 2017, according to data available on the Central bank’s (CBN) website, adding to positive exchange rate expectations.
“We retain our favourable outlook for the exchange rate amid sustained stability in global crude oil prices which should result in further build-up in foreign reserves as well as CBN’s continued intervention to meet demand at the interbank foreign exchange market,” analysts at Cowry Asset Management said in a note to investors.
Foreign exchange liquidity has improved following not only increased CBN firepower, but the creation of the investors & exporters window in April 2017 to boost liquidity and ensure timely execution and settlement for eligible transactions as stipulated by the CBN. Some $18 billion have been traded at the window since inception.
The dollar exchanged for N360 at the said window on Friday, according to data provided by trading platform, FMDQ.
Despite the bullish views shared by local and international observers, the World Bank is worryingly bearish.
The Washington-based lender forecasted 1 percent growth in 2018, as against its Sub-Saharan Africa’s estimate of 3.2 per cent.
“I do not think we can have as little as one percent growth in 2018 except there is a reversal in oil prices, which doesn’t appear immediately feasible,” said Ayo Akinwumi, head of research at FSDH Merchant bank.
“There will be an improvement in the economy this year on the back of increased agricultural output, declining interest rates and yields on government bonds- which will in turn encourage corporate bond issuances to access long term funds to finance their operations, thus boosting economic activity,” Akinwunmi added.
Last year’s low growth base is also tipped to play a part in higher than 1 percent growth in 2018.
Amid the flurry of optimism for growth, part of it is tempered by the economy’s continued dependence on the oil sector rather than sustainable government policies.
“Attaining a growth of 2 percent is dependent on right policy choices of the government,” said Johnson Chukwu, managing director at Lagos-based financial advisory, Cowry Assets.
“The government should adopt measures to bring down interest rates to stimulate real sector growth and boost non-oil revenue,” Chukwu said.
“Once the non-oil sector begins to grow, it will complement the growth we are seeing in the oil and gas sector which could trigger growth of over 2 percent,” Chukwu said by phone.
In 2015, about 80 per cent of the loans by the federal government came from the domestic market, with just 20 per cent from external sources.
The borrowing activities in the domestic market resulted in crowding out the private sector, with yields on government borrowing spiralling to 18 percent.
A fresh debt strategy by the Debt Management Office, DMO for 2016-2019 seeks to rebalance the country’s debt portfolio, by shifting the focus of government borrowing from domestic to more of lower interest foreign loans to reduce servicing cost.
The government plans to rebalance its debt portfolio to 60 percent domestic and 40 percent external as against the current 79 percent domestic and 21 percent external.
As part of the rebalancing act, Nigeria issued a dual-tranche USD3 billion Eurobond in November 2017 out of which USD500 million is for the refinancing of domestic debt.
LOLADE AKINMURELE & MICHEAL ANI
