From Recession to Struggling

Transcription

1 From Recession to Struggling LCCI Monthly Economic Updates and Outlook September, 2018

2 Outline Global Conditions Domestic Macroeconomic Review Opportunities Outlook and Implications

3 What Drives the Nigerian Economy? Activity Output Income & Expenditure Foreign Trade Credit Volume Inflation Interest Rates Exchange Rates Cost GLOBAL CONDITIONS POLICY Fiscal, Monetary, Regulatory Conditions Equity Market Fixed Income Market Financial Markets Source: Doyin Salami/ LCCI Research Team Economic and Social Development Changes in Structure of Output Competitiveness - Global Competitive Index & Ease of Doing Business Inequality HDI

4 Global Event

5 Key Global Developments: US Q2 18 GDP growth expanded at an annualized rate of 4.1 Fastest pace in nearly four years in the second quarter The gains were driven by strong consumer spending and a surge in exports as firms rushed to beat new trade tariffs Many analysts are cautious, projecting the acceleration may cool off Growth in H2 18 likely to slow to less than 2 Two major risks to the US economy: trade war with China and the end of Q-E Trump has criticized US Fed interest rate hikes as the strengthening dollar is weighing on competitiveness of US exports The IMF warns that US/ China tariffs could reduce global growth by 0.5

6 Key Global Developments: UK IMF cut its 2018 forecast to 1.4, down 0.2 from its April projection o Inflation remained flat at 2.4 in June against expectations of a higher rate, fuelled by rising oil prices o Wage growth now at six-month low of 2.5 despite unemployment holding steady at 4.2 (43-year low) o Falling wage growth dims chances of a Bank of England (BoE) interest rate hike in August o Higher wage growth than inflation is typically a major boost to consumers purchasing power

7 Jan-14 Aug-18 Jan-14 Aug-18 Index Environment plagued with strengthening Dollar and rising US Interest Rates 3.50 US 10-Year Treasury Maturity Rate Trade Weighted U.S. Dollar Index

8 2014Q1 2014Q2 2014Q3 2014Q4 2015Q1 2015Q2 2015Q3 2015Q4 2016Q1 2016Q2 2016Q3 2016Q4 2017Q1 2017Q2 2017Q3 2017Q4 2018Q1 2018Q2 US$/brrl Billion US$ US $ Millions External Influences Impact of External Conditions FX Reserves and Oil Prices Capital Importation Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q Bonny Light Price FX Reserves (RHS) FDI FPI Others

9 External Influences The direction of Capital Importation Capital Imporation by Sector 2018 Q2 Financing 3 Agriculture 2 Production 4 Others 1 Oil And Gas 0 Banking 5 I T Services 1 Trading 1 Servicing 9 Shares 74

10 Domestic Economy

11 Major Issues in the Economy 1 Nigeria s GDP Growth slowed in second quarter 2018 The growth in second quarter was largely driven by the Service Sector. This however portray the importance of the sector to the economy. o The sector currently contributes percent of GDP and percent of total employment o Poverty and inequality incidence is still high Key Consumers facing sectors exhibit weakness so fragility remains 2 Four major challenges persists: Continued pressure on Consumers and Corporates High Unemployment Ease of doing business still remains a challenge Logistic Problems still persist (Apapa Gridlock) 3 Significant Attention to Investment Policy Ease of Doing Business Executive Orders Energy Policy (Petroleum Industry Governance Bill (PIGB) suffers delay in passage as the president declines assent. Africa Continental Free Trade Agreement (ACFTA) Bilateral Meetings between Nigeria and World Power The New Fiscal Policy Measure on Import duties

12 GDP slowed in second quarter of 2018, however driven by Non-oil Sector as Oil Production withered GDP GROWTH (YEAR-ON-YEAR, ) GDP Oil GDP Non-oil GDP Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q

13 The Performance of the Six Biggest Sectors Q1 2014Q2 2014Q3 2014Q4 2015Q1 2015Q2 2015Q3 2015Q4 2016Q1 2016Q2 2016Q3 2016Q4 2017Q1 2017Q2 2017Q3 2017Q4 2018Q1 2018Q2 AGRICULTURE Q1 2014Q2 2014Q3 2014Q4 2015Q1 2015Q2 2015Q3 2015Q4 2016Q1 2016Q2 2016Q3 2016Q4 2017Q1 2017Q2 2017Q3 2017Q4 2018Q1 2018Q2 TRADE (0.70) (3.82) (1.75) 0.38 (7.00) (3.36) (4.38) (2.54) (2.85) (10.00) (5.00) Q1 2014Q2 2014Q3 2014Q4 2015Q1 2015Q2 2015Q3 2015Q4 2016Q1 2016Q2 2016Q3 2016Q4 2017Q1 2017Q2 2017Q3 2017Q4 2018Q1 2018Q2 MANUFACTURING Q1 2014Q2 2014Q3 2014Q4 2015Q1 2015Q2 2015Q3 2015Q4 2016Q1 2016Q2 2016Q3 2016Q4 2017Q1 2017Q2 2017Q3 2017Q4 2018Q1 2018Q2 TELECOMS Q1 2014Q2 2014Q3 2014Q4 2015Q1 2015Q2 2015Q3 2015Q4 2016Q1 2016Q2 2016Q3 2016Q4 2017Q1 2017Q2 2017Q3 2017Q4 2018Q1 2018Q2 Oil & Gas Q1 2014Q2 2014Q3 2014Q4 2015Q1 2015Q2 2015Q3 2015Q4 2016Q1 2016Q2 2016Q3 2016Q4 2017Q1 2017Q2 2017Q3 2017Q4 2018Q1 2018Q2 REAL ESTATE

14 Important Deductions from 2018Q2 GDP Numbers Oil sector records contraction in 2018Q2 (last Contraction: Q1-2017) This was largely driven by a fall in oil production from 2mbpd in first quarter 2018 to 1.85mbpd in second quarter Manufacturing expansion slowed to 0.68 in Q2, from 3.39 in Q Impact Infrastructure Deficit Multiplicity of Taxes Logistics issues still persist -Apapa gridlock are said to be drivers of the slowed growth in the sector Agriculture records deceleration in growth to 1.19 in 2018Q2 from 3 in 2018Q1 Impact of Herdsmen-Farmer crises Climate change and general productivity challenges in the sector. Telecoms registers second expansion from 1.88 in 2018Q1 to in 2018Q2 Last expansion: Q1-2017

15 Important Deductions from 2018Q2 GDP Numbers Trade still in negative territory, but improved marginally from in 2018Q1 to 2.14 in 2018Q2, Pressure on consumers due to weak purchasing power driven by inflation, o high cost of goods and services, o low disposable income, o delays in payment of salaries in the public sector, o naira exchange rate effect and high import duties on many consumer items. Real Estate sector still negative territory, but improved from in 2018Q1 to 3.89 in 2018Q2, the major drivers of this sector are; Purchasing power and high cost of building materials Government bureaucracy in land titles and building approval Low awareness about and inadequate market data to guide buying decision High cost of fund and short tenure Anti-corruption war On balance, trend in big sectors indicate cause for worry, despite sustained recovery in output The major implication of this slow expansion of output to both foreign and domestic investment is ambiguous as the economy is still fragile and vulnerable

16 Jan-14 Aug-18 Jan-14 Aug-18 Inflation turned v-shape Inflation, Y/Y 3.00 Inflation. M/M, Headline Core Food Headline Core Food

17 Inflation turned V-shape The Latest release by the National Bureau of Statistics suggests: The consumer price index, (CPI) which measures inflation increased by percent (year-on-year) in August This is 0.09 percent points higher than the rate recorded in July 2018 (11.14) percent and represents the first year on year rise in headline inflation following eighteenth consecutive disinflation in headline inflation. On month-on-month basis, the Headline index increased by 1.05 percent in August 2018, down by 0.08 percent points from the rate recorded in July 2018 (1.13) percent). The urban inflation rate increased by percent (year-on-year) in August 2018 from percent recorded in July 2018, while the rural inflation rate increased by percent in August 2018 from percent in July 2018

18 of GDP Trade Performance TRADE PERFORMANCE Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q Imports Growth Exports Growth Balance ( of GDP, RHS)

19 Trade Performance o The total value of Nigeria's merchandise trade was N6.6 Trillion in the second quarter of 2018, which was a contraction from the figure recorded in Q1, 2018 (N7.2 Trillion) and a growth from Q2, 2017 (N5.7 Trillion). The contraction of total trade in the reviewing quarter was mainly driven by the decline in both imports and exports. o The trade balance in Q2, 2018 was a surplus of N2.4 Trillion, which is an 8.36 increase from the figure in Q1, 2018 (N2.2 Trillion) and a increase from the figure in Q1, 2017 (N billion). o Total Imports value was N2,106.7 billion in Q2, 2018, lower than Q1, 2018 (N25 Trillion) and lower than Q1, 2017 (N2, billion). o Total export value amounted to 4.5 Trillion in Q2, 2018, representing a contraction of -4.9 over Q1,2018 (N4.7 Trillion) and a growth of 43.8 over Q2, 2017 (N3.1Trillion).

20 Debt Profile

21 Debt Profile o The total public debt which encompasses the domestic and external debt stock of the federal and 36 state governments and the Federal Capital Territory, stood at N22.38 trillion or $73.21 billion as of June 30, This is indeed scary. o In Nigeria, Africa s largest economy, the current state of affairs, of a growing public debt profile is scary, particularly since 2015 when the Muhammadu Buhari administration came into power. According to the Debt Management Office (DMO), Nigeria s total debt has increased by about 90 in almost three years from about N12.6 trillion in December 2015 to about N22.71 trillion as at March 2018 o Government needs to be cautious in growing the national public debt. In as much the effort to rebalance the debt away from domestic debt to external debt is commendable; the critical focus should be on getting value for money for every dollar or naira borrowed. Borrowing should not be incurred to finance consumption.

22 Nigerian Consumers Expenditure Pattern S/N Division Nov base period weights ( of Consumption Basket) May 2003 base period weights ( of Consumption Basket) 1 Food and Non-Alcoholic Beverages Alcoholic Beverages, Tobacco and Kola Clothing and Footwear Housing, Water, Electricity and Gas Furnishings, Household Equipment Health Transport Communication Recreation and Culture Education Restaurants and Hotels Miscellaneous Goods and Services Source: NBS

23 Opportunities

24 Identifying Opportunities from GDP Numbers In thinking about Opportunities, we identify sectors of the economy along the following lines: 1. Sector Size: Which are the largest sectors, based on Contribution to GDP? 2. The Pace of Sector Growth: Which are the fastest growing sectors?

25 Sector Size We adopt the following criterion for delineating the economy s sectors by size into Large, Medium and Small sectors, based on their respective contributions to GDP: Large Sectors: >5 of GDP Medium Sectors: 1 5 of GDP Small Sectors: 0 1 of GDP This criterion reflects the prevailing condition of significant concentration of activity in the economy at present

26 Contribution to GDP Small Sectors (0 1 of GDP) Rail Transport & Pipelines Water Transport Electrical & Electronics Coal Mining Administrative & Support Metal Ores Quarrying & Other Mining Publishing Post & Courier Services Transport Services Motor Vehicles & Assembly Pulp, Paper & Paper Products Air Transport Water Supply, Sewage & Oil Refining Electricity, Gas, Steam & Air Chemical & Pharmaceutical Basic Metal, Iron & Steel Forestry Arts, Entertainment & Wood & Wood Products Plastic & Rubber Products Non Metallic Products Other Manufacturing Insurance Fishing Human Health & Social Cement Cement Human Health & Social Accomodation & Food Insurance Fishing Electricity, Gas, Steam & Air Other Manufacturing Non Metallic Products Plastic & Rubber Products Forestry Wood & Wood Products Basic Metal, Iron & Steel Chemical & Pharmaceutical Arts, Entertainment & Oil Refining Water Supply, Sewage & Quarrying & Other Mining Air Transport Pulp, Paper & Paper Products Transport Services Motor Vehicles & Assembly Publishing Administrative & Support Post & Courier Services Coal Mining Metal Ores Water Transport Electrical & Electronics Rail Transport & Pipelines SMALL SECTORS, Q Small Sector Q2-2018

27 Contribution to GDP Medium Sectors (1 5 of GDP) Accomodation & Food Services Road Transport Motion Pictures, Sound Recording & Music Livestock Broadcasting Education Textile, Apparel & Footwear Public Administration Financial Institutions Professional, Scientific & Technical Serv. Construction Other Services Food, Beverage & Tobacco Construction Food, Beverage & Tobacco Professional, Scientific & Technical Serv. Other Services Financial Institutions Public Administration Broadcasting Textile, Apparel & Footwear Education Livestock Road Transport Motion Pictures, Sound Recording & Music MEDIUM SECTORS, Q Medium Sector Q2-2018

28 Real Estate Tele. & Inform. Services Crude Petroleum & Natural Gas Trade Crop Production Crop Production Trade Tele. & Inform. Services Crude Petroleum & Natural Gas Real Estate Contribution to GDP Large Sectors (>5 of GDP) LARGE SECTORS, Q Large Sector Q2-2018

29 ix Big Sectors Driving Nigerian Economy ollectively Account for 78 of Nigerian Economy Six sectors dominate Nigerian economy 78 of GDP NIGERIA: SECTOR CONTRIBUTION TO GDP 2018 Q1 NIGERIA SECTOR CONTRIBUTION TO GDP Q Others 24 Agriculture 22 Others 22 Agriculture 23 Real Estate 6 Manufacturing 10 Oil and Gas 9 Manufacturing 9 Crude Petroleun & Natiral Gas 9 ICT 12 Trade 17 Trade 16 ICT 14 Real Estate 7

30 Sector Growth Speed Given current conditions, with so many sectors of the economy contracting in the quarter, we have classified the economy into expanding and contracting sectors Better times would make for a different classification based on the pace of growth into fastest and slowest sectors

31 Motion Pictures, Sound Accomodation & Food Arts, Entertainment & Plastic & Rubber Products Education Rail Transport & Basic Metal, Iron & Steel Broadcasting Chemical & Wood & Wood Products Textile, Apparel & Tele. & Inform. Services Other Services Motor Vehicles & Transport Services Water Transport Coal Mining Forestry Post & Courier Services Pulp, Paper & Paper Crop Production Fishing Electricity, Gas, Steam Water Transport Forestry Cement Insurance Electrical & Arts, Publishing Quarrying & Textile, Apparel Other Services Accomodation Wood & Wood Professional, Crop Production Plastic & Food, Beverage Financial Non Metallic Human Health Rail Transport Transport Services Real Estate Non Metallic Products Trade Professional, Scientific & Technical Serv. Livestock Public Administration Construction Other Manufacturing Administrative & Support Services Business Services Human Health & Social Services Education Fishing Chemical & Pharmaceutical Livestock Trade Motion Pictures, Sound Recording & Motor Vehicles & Assembly Administrative & Support Services Other Manufacturing Real Estate Crude Petroleum & Natural Gas Basic Metal, Iron & Steel Coal Mining Public Administration Oil Refining Sector Growth Speed CONTRACTING SECTORS: Q Contracting Sector Q SLOW GROWING SECTORS: Q Slow Growing Sectors Q2-2018

32 Cement Food, Beverage & Tobacco Oil Refining Electrical & Electronics Air Transport Water Supply, Sewage & Waste Mang. Publishing Financial Institutions Crude Petroleum & Natural Gas Road Transport Insurance Quarrying & Other Mining Metal Ores Air Transport Road Transport Broadcasting Post & Courier Services Water Supply, Sewage & Waste Mang. Tele. & Inform. Services Construction Electricity, Gas, Steam & Air Conditioner Metal Ores Pulp, Paper & Paper Products Sector Growth Speed FAST GROWING SECTORS: Q Fast Growing Sectors Q2 2018

33 Outlook and Implications

34 Drivers of Outlook 1. Oil remains central Supply competition and OPEC response Sustained calm in the Niger-Delta or not? 2. Political Instability Risk Political activity gathers momentum With implications on foreign capital flows Influence on investors sentiments 3. Implementation of 2018 Fiscal Budget 4. Unconventional Monetary Policy

35 Thank You