Friday, 31 May 2019

WILL NIGERIA’S ECONOMY GATHER MOMENTUM DURING THE SECOND HALF OF 2019?

Lukman Otunuga,
FXTM Research Analyst

The news that Nigeria’s economy cooled down to 2.05 percent in the first quarter of 2019 compared to 2.38 percent in Q4’18 has left investors wondering about the chances of growth gathering momentum during the second half of the year. http://www.tectono-business.com/2016/02/contemporary-step-by-step-guide-to.html On the one hand, it’s an encouraging sign we’ve seen the fastest first-quarter growth since 2015, driven mainly by the non-oil sector which grew 2.47 percent. On the other hand, the Oil sector shrank by 2.4 percent, sending a worrying signal that the sector isn’t doing as well as it should be even amid rising Oil prices.

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It is becoming increasingly clear that economic growth is unlikely to reach the ambitious Economic Recover and Growth Plan (ERGP) target of seven percent but it may hit the Central Bank of Nigeria’s target of 2.47 percent. http://www.tectono-business.com/2016/02/contemporary-step-by-step-guide-to.html For this to happen, the growth trend in the Oil sector would need to rebound and the services sector would need to sustain its current strength. Added momentum could stem from Oil prices should they hit a bullish streak going forward, supporting the economy as the Oil trade still accounts for a handsome chunk of the nation’s foreign exchange earnings.

There are other potential areas of growth. Regionally there is a significant development which could increase economic efficiencies and trade within Africa - the African Continental Free Trade Area (AfCFTA) which comes into effect on May 30. Although Nigeria hasn’t yet joined AfCFTA, there’s still a chance it will do so, once discussions are completed with stakeholders. http://www.tectono-business.com/2016/06/are-you-estate-surveyor-or-property.html In addition to opening intra-Africa trade relations, the AfCFTA gives multi-national companies the chance to set up in one African country and be passported to another 52 countries within a common market made up of over one billion people. Increased access to foreign expertise and investment could improve local manufacturing and processing systems while driving more growth and jobs creation. In the best-case scenario, standardised trading agreements across AfCFTA may open up trading channels which could lead to increased company sales, revenues and profits. Nigeria sells just 12.7 percent of its total exports to other African countries, so if the treaty is ratified there’s scope for increased government and company revenues from a boost in trade.

Fellow Nigerians, are you aware that our crude oil will soon become useless? Yes, it will, in no distant time, become valueless owing to the fact that the countries that rely on it as their only source of energy are developing more affordable alternative sources of energy. When this finally happens, what will we do? How are we currently preparing for this imminent economic doom? Which other sector will continue to stabilize our economy? Nigerians, the only solution is developing the agricultural sector. In fact, this is the only solution. Very soon, the major source of revenue will become agriculture and agro-exports. How are you positioning yourself to play big in agro-export business? Why don’t you get a practical manual that explains the stages of export trade from processing and packaging of commodities to receipt of payment by the foreign buyers? Yes, arm yourself with the contemporary trends in export trade. This manual explains export operations, export management, export documentations and methods of payment in export trade? Yes, it is a contemporary step-by-step guide to export trade. It tells all the contemporary dynamics in export trade. To get it, click on this link: http://www.tectono-business.com/2016/02/contemporary-step-by-step-guide-to.html

In general, there needs to be a stronger push in diversifying away from Oil reliance to other sources of sustainable growth. http://www.tectono-business.com/2016/06/are-you-estate-surveyor-or-property.html An important part of sustainable growth is investment sentiment and the current economic stability along with easing inflationary pressures which may lead to a more dovish Central Bank of Nigeria (CBN) monetary policy by way of interest rate cuts. If so, a reduction in interest rates would stimulate borrowing and investment from local businesses, which in turn would support economic growth. A more robust economy plus foreign exchange reserves rising towards $45 billion would likely provide ammunition for the CBN to defend the Naira.

Another factor impacting on Nigeria’s recovery is the external threat of the US-China trade negotiations which could end up pressuring Oil prices if the result is a global slowdown, meaning less demand for Oil. http://www.tectono-business.com/2015/07/tectono-business-review-in-conjunction_21.html The USD is staying strong amid the trade tensions and should they intensify further, they will hit emerging markets where it hurts – in their currency exchanges. This would undermine the Naira while pressuring consumer spending and on top of that, falling Oil prices would likely dent government revenues.

Looking ahead, there is scope for Nigeria’s economy to gather momentum in the second half of the year, provided some key basics of growth are kept in focus: supportive monetary policy; keeping consumer spending healthy; sustaining investor confidence; and improving economic infrastructure, particularly in the Oil sector. http://www.tectono-business.com/2015/07/tectono-business-review-in-conjunction_21.html Even if the risks stemming from US-China trade disputes are out of Nigeria’s hands, shoring up the domestic economy could help it weather any storms. The worst-case alternative is less attractive. If a global slowdown is triggered due to the trade tensions, economic growth in Nigeria may follow suit, meaning the CBN will face more difficult challenges to support the Naira and wider economy through monetary policy.

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