Nigeria Economic Update QNB Group. September 2014

Transcription

1 Nigeria Economic Update QNB Group September 21

2 Nigeria Overview A rebasing of GDP in 213 has made Nigeria the biggest economy in Africa with the largest population; the economy is growing rapidly but remains constrained by a poor business environment and lack of infrastructure; ratings are low Overview Data (213) GDP (bn USD) % GDP related to Agriculture 21.7 Real GDP Growth (%) 6.3 Per Capita GDP (k USD, PPP) 2.8 CPI Inflation (%) 8.5 Current Account Balance (% of GDP) 2.6 FX Reserves (months of import cover, end-213) 6.7 Exchange Rate (USD:NGN, end-213) Fiscal Balance (% of GDP) -2.7 Government Debt (% of GDP) 1.6 Broad Money Growth (%) 8.9 Banking Assets (% of GDP) Month Interbank Rate (%) 12.1 Population (m) Population aged 15-6 Years (% share, 212) 52.9 Population growth (%) 2.7 Unemployment (%, 211) 18.8 Religion (% Muslim) 5. Doing Business Rank out of Competitiveness Rank out of Moody s Rating (Long-term FX debt) Ba3 Nominal GDP by sector (213) Agriculture Industry Services Agriculture Wholesale & Retail Trade Other Services Mining & Quarrying Transport & Comms Manufacturing Government Services Finance Other Total 21.7% 16.8% 16.% 1.3% 1.% 12.% 6.7% CAGR % 3.3% 5.5% 11.1% 1.9%.% 27.9% 89.2% 12.6% 13.% 2.9% 19.1% Sources: Central Bank of Nigeria (CBN), CIA World Factbook, International Monetary Fund (IMF), Nigerian National Bureau of Statistics, World Bank, World Economic Forum and QNB Group analysis 2

3 Nigeria Hydrocarbon Sector Hydrocarbon production and exports have grown rapidly in recent years, notwithstanding significant oil theft and pipeline closures, but lower global projected oil prices could moderate further gains, requiring further economic diversification Export Breakdown (bn USD) Total Hydrocarbon Non-Hydrocarbon f 215f 216f Hydrocarbon Production Gas (bn cubic feet/day, LHS) Oil (m barrels/day, RHS) Brent Price (USD/b) Commentary Oil production declined in 213, from increased oil theft that was amplified by pipeline closures after the sabotage Mitigating measures have included collaboration with local leaders in oil-producing communities and international initiatives to discourage the purchase of illegal oil by foreign refineries With the oil sector accounting for roughly 75% of government revenue and 95% of exports, the reduction in oil exports adversely affected the fiscal and external positions in f 215f 216f * btu = British Thermal Unit ** bp/d = thousand barrels per day; cf/d = cubic feet per day Sources: Bloomberg, British Petroleum (BP), IMF and QNB Group analysis and forecasts 3

4 Nigeria GDP Growth Real GDP growth is expected to increase over the medium term, partly driven by higher investments, which should lower the high unemployment rate despite high population growth Real GDP Growth (%) Investment (bn USD) CAGR 11.1% f 215f 216f f 215f 216f Unemployment (%) Population (m) CAGR 2.7% f 215f 216f f 215f 216f Sources: Bloomberg, IMF, Nigerian National Bureau of Statistics and QNB Group analysis and forecasts

5 Nigeria Balance of Payments The current account surplus is expected to decline over the medium term on lower oil prices; the central bank intervened to stabilize the Naira in 213 by restricting portfolio outflows, thus limiting the decline in international reserves Current Account (% of GDP) Exchange Rate (USD:NGN) Exports (RHS) Balance (LHS) Imports (RHS) f 215f 216f f 215f 216f International Reserves (months of import cover) Directions of Trade (213) f 215f 216f Exports Imports Destination (bn USD) Source (bn USD) India 12. China 13.2 United States 1.7 United States 7.1 Brazil 9.6 India 2.9 Spain 6.8 France 2.2 Netherlands 6.8 United Kingdom 2.1 Sources: Bloomberg, CBN, Nigerian National Bureau of Statistics and QNB Group analysis and forecasts 5

6 Nigeria Fiscal Policy Fiscal policy aims to limit the deficit while stimulating growth and creating jobs; fuel subsidies continue to impose a toll on the fiscal balance, thereby limiting capital expenditures, while public debt remains low Government Budget (% of GDP) Government Expenditure (% of GDP) 3 Expenditure Revenue Balance Total Current Capital f 215f 216f f 215f 216f Public Debt (% of GDP) Fiscal Policy f 215f 216f Fiscal policy aims to limit the deficit while stimulating growth and creating jobs Government expenditures fell in 213, largely from policies to control personnel expenses in the federal government, including the enhancement of payroll administration processes The room for increasing capital expenditures remains limited by still large (albeit declining) fuel subsidies Public debt is low and is expected to increase marginally over the medium term, provided fiscal deficits remain low Sources: CBN, IMF, Nigerian National Bureau of Statistics and QNB Group analysis and forecasts 6

7 Nigeria Monetary Policy Monetary policy aims to ensure monetary and price stability; the central bank managed to reduce inflation to single digits in 213 with high short-term interest rates and limiting broad money growth; inflation is expected to decline further Inflation (%) Broad Money Change (%) Interbank Interest Rates (%, 3-Month) 16 Nigeria US Monetary Policy Monetary policy aims to ensure price stability The central bank managed to reduce inflation to single digits in 213 with high short-term interest rates and containing broad money growth Nigeria s Monetary Policy Committee has set the inflation target range for 21 at 6-9% Inflation is expected to decline over the medium term, in line with a tight monetary policy and a lowering trend in food prices Sources: Bloomberg, CBN, Nigerian National Bureau of Statistics and QNB Group analysis and forecasts 7

8 Nigeria Banking Sector Overview The banking sector experienced a systemic crisis in 29 that significantly reduced asset penetration; assets and deposits have started to grow again, while loan growth has been positive for the last two years; profits are recovering Assets to GDP (213) Asset (bn USD) Loans (bn USD) Bahrain UK France Lebanon China Singapore Switzerland Jordan Iran Morocco UAE Qatar S Africa Turkey Kuwait Tunisia Egypt Libya India Oman Saudi Arabia Mauritania Indonesia Iraq Yemen Nigeria Sudan Syria S Sudan 586% 57% 373% 351% 268% 261% 218% 178% 136% 13% 132% 12% 113% 111% 1% 98% 96% 88% 78% 73% 67% 55% 55% 6% 37% 3% 25% 23% 15% CAGR 7.5% Deposits (bn USD) CAGR 11.7% Analysis Profits 1 (bn USD) Loan growth remains subdued as credit to the private sector is sluggish with banks showing more appetite for low-risk government securities CAGR % Implied estimates from average assets and return on average assets Sources: Bankscope, Bloomberg, CBN, Nigerian National Bureau of Statistics and QNB Group analysis and forecasts 8

9 Nigeria Banking Sector Ratios After the 29 banking crisis the authorities took over bad loans, injected capital and acquired three banks, lowering the loan to deposit ratio and NPLs, raising the capital adequacy ratio and helping profitability to recover Loan to Deposit Ratio (%) Return on Average Assets and Equity (%) ROAE (LHS) ROAA (RHS) Capital Adequacy Ratio (%) Non-Performing Loans (% of Gross Loans) Basel III Guideline for Sources: CBN, IMF and QNB Group analysis and forecasts 9

10 Nigeria Banking Sector Competitor Analysis The top 5 banks control 7.7% of total assets, with good profitability and low non-performing loans; the expansion of the banking sector is hampered by an inefficient legal system and lack of credit information on borrowers Financials for Top 5 Banks (213)* Market Share by Assets Net Income Equity ROE Assets ROA Loan to Deposit Ratio Non-Performing Loans (%) (bn USD) (bn USD) (%) (bn USD) (%) (%) (%) First Bank of Nigeria Zenith Bank United Bank for Africa Guaranty Trust Bank Access Bank Analysis There are 21 banks operational banks, with the largest being First Bank of Nigeria, Zenith Bank and United Bank of Africa The top 5 banks account for 7.7% of assets, with relatively high levels of ROE and ROA The banking sector s potential to grow retail lending remains substantial, however, this potential will remain constrained for as long as an inefficient legal system makes it difficult to enforce collateral, and the lack of credit information (such as that provided by a credit bureau) prevents banks from assessing the credit history of potential borrowers The resilience of the banking sector s growth prospects could be tested by country s underdeveloped governance structures, significant corruption, inadequate infrastructure, and increased militant and criminal activity in the oil-rich Niger delta * Consolidated balance sheet of each bank, including international operations Source: Bankscope, CBN, Moodys, IMF and QNB Group analysis 1

11 Nigeria Financial Markets The Nigerian Stock Exchange is up 9.9% since Jan-13 on higher investor confidence and robust economic fundamentals; sovereign yields and CDS spreads have eased on lower risks; S&P s and Fitch sovereign rating are below investment grade Nigeria Stock Exchange Index Sovereign USD 1-Yr Bond Yield (%) 5, PE Ratio Market Cap 16.7% of GDP 2, 35, 3, 25, 2, 15, 1, Jan-12 Jun-12 Nov-12 Apr-13 Sep-13 Feb-1 Jul-1 Sovereign Credit Default Swap Spreads (basis points) Jan-12 Jun-12 Nov-12 Apr-13 Sep-13 Feb-1 Jul-1 Sovereign Ratings (July 21) Jul-12 Nov-12 Mar-13 Jul-13 Nov-13 Mar-1 Jul-1 Rating Outlook Moody's Ba3 Stable Standard & Poor's BB- Negative Capital Intelligence NR N/A Fitch BB- Stable 1 Price to Earnings (PE) ratio, 12-month forward 2 Market Capitalization as at July 21 as a share of 213 GDP Sources: Bloomberg, CBN, Nigerian National Bureau of Statistics and QNB Group analysis and forecasts 11

12 Disclaimer and Copyright Notice All the information in this report has been carefully collated and verified. However, QNB Group accepts no liability whatsoever for any direct or consequential losses arising from its use. Where an opinion is expressed, unless otherwise cited, it is that of the authors which does not coincide with that of any other party, and such opinions may not be attributed to any other party. The report is distributed on a complimentary basis to valued business partners of QNB Group. It may not be reproduced in whole or in part without permission.