Economic and Financial Markets Outlook ( ):

Economic and Financial Outlook: 2016-2020 Economic and Financial Markets Outlook (2019 2021): Bumpy Road Ahead Policy Options and Strategies FSDH Research 25 January 2019 FSDH Research 1

Economic and Financial Outlook: 2016 Bumpy Road Ahead Policy Options and Strategies Contents Executive Summary:... 5 1.0 Global Economic Growth:... 7 1.1 Risks to the Global Economic Growth Outlook:... 9 1.2 Implications for the Nigerian Economy:... 9 1.3 Global Bond Market:... 10 1.4 Global Crude Oil Price:... 11 1.5 FOMC Rate Decision:... 13 2.0 The Nigerian Economy:... 14 2.1 Purchasing Managers Index (PMI):... 14 2.2 Real Gross Domestic Product (GDP):... 15 2.3 Opportunities:... 21 2.4 Risks:... 21 3.0 External Reserves:... 22 4.0 Foreign Trade:... 23 4.1 Outlook:... 26 5.0 Foreign Exchange Rate:... 27 6.0 Public Debt:... 29 7.0 Unemployment Rate:... 31 8.0 Nigeria s Capital Importation:... 33 9.0 Inflation Rate:... 35 9.1 Implications:... 37 9.2 Risks to the Single Digit Inflation Rate:... 37 10.0 The FGN Medium-Term Expenditure Framework 2019-2021:... 38 10.1 Implications:... 40 11.0 Interest Rate:... 41 12.0 Equity Market:... 46 12.1 The Secondary Market:... 46 12.2 Equity Market Drivers in 2018... 46 12.3 Outlook for 2019... 47 12.4 Sectoral Outlook Analysis:... 48 12.4.1 Industrial Goods:... 48 12.4.2 Consumer Goods:... 48 12.4.3 Financial Services (Banking and Insurance):... 48 12.4.4 Oil and Gas:... 49 2

Economic and Financial Outlook: 2016 Bumpy Road Ahead Policy Options and Strategies Glossary of Figures and Tables Summary of Forecasts of Key Economic and Financial Market Variables... 6 Table 1: GDP Growth Rate (Actual Vs Forecast)... 7 World Economic Growth (Actual vs Forecast)... 8 USA Economic Growth (Actual vs Forecast)... 8 Economic Growth (Actual vs Forecast) China and India... 8 Economic Growth (Actual vs Forecast) South Africa and Nigeria... 8 Table 2: Summary of Key Indicators... 10 Selected Countries: Real Yield... 10 Table 3: Global Demand and Supply for Oil (mb/d)... 11 Crude Oil Demand and Supply: (mb/d)... 12 Crude Oil Price Actual and Forecast (US$/b)... 12 Contribution of China and US Demand for Crude Oil... 12 Movements in Federal Funds Rate... 13 1.75% US Treasury Note May, 2023... 13 Purchasing Managers' Index... 14 Table 4:Performance of Leading Sectors of the Nigerian Economy... 16 Table 5: GDP (N trn)... 17 Nigeria Real GDP Growth Rate:(Actual and Forecast)... 17 Table 6: Real GDP (2017-2021) N bn... 19 Table 7 : Sectoral Real GDP Growth Rate (2017-2021)... 20 Table 8: Contribution to GDP (2017-2021)... 20 Table 9: External Reserves 2017-2021 (US$ bn)- End Periods: Actual vs Forecast... 22 Table 10:10 Nigeria s Leading Trading Products... 24 Table 11: 10 Nigeria s Leading Trading Partners... 24 Exports, Imports and Trade Balance (N' Trillion) (Q1 2016 - Q2 2018)... 24 Contributions of Crude Oil Exports to Total Exports vs Bonny Light Price (US$bn... 24 Table 12: Foreign Trade Statistics (N trn)... 25 Table 13: Analysis of Exports (N bn)... 25 Trade Balance (N'trn)... 25 Foreign Capital Importation via the I&E Window - US$bn... 27 Official,Parallel and I&E FX Rates - 2018... 27 Table 14: Our View of the Important Determinants of Foreign Exchange Rate in Nigeria... 28 Table 15: Foreign Exchange Rate Forecasts (2019-2021) (US$/N)... 28 Table 16: Determinants of Public Debt... 29 Table 17: Nigerian Public Debt - N bn... 30 3

Ratio of Government Revenue to Nominal GDP ( 2017)... 30 Ratio of Domestic Interest Payment to FAAC Allocation (FGN Only)... 30 Table 18: Labour Force Statistics (Million)... 31 Unemployment and Underemployment Rates... 32 Misery Index in Nigeria... 32 Table 19: Nigeria Capital Importation Investment Type (US$ mn)... 33 Foreign Portfolio Investments... 34 Foreign Direct Investments... 34 Others: Loans, Trade Credits, Currency Deposits and Other Claims... 34 9.0 Inflation Rate:... 35 Table 20: Inflation Rate Forecast... 36 Table 21: Average Inflation Rate... 36 Inflation Rate Forecasts... 36 Table 22: FGN Medium-Term Expenditure Framework 2019-2021:... 39 Breakdown of Budget Revenue (N'trn)... 39 Breakdown of Budget Expenditure (N'trn)... 39 Table 23: Yields Vs Inflation Rate 2018... 41 Table 24: FGN Bond Yields Monthly Average Actual vs Forecast... 44 Table 25: Treasury Bill Yields Monthly Average Actual vs Forecast... 44 Table 26: Yearly Average Interest Rates and Yields Forecast (2019 2021)... 45 Monthly NSE ASI Change 2018... 46 Table 27: Quarterly Equity Market Trend Analysis (2012-2018) NSE ASI Analysis... 47 NSE Sectoral Indices Performance in 2018... 48 Table 28: Some Selected Stock Market Indices as at December 2018... 50 Table 29: Asset Allocation... 51 Table 30: Stock Watch List... 51 Table 31: Summary of Forecasts of Key Economic and Financial Market Variables... 52 4

Executive Summary: The short-term outlook of the global economy does not support strong growth in the crude oil price. This has implications for crude oil exporting countries like Nigeria The crude oil production cut of the Organization of the Petroleum Exporting Countries (OPEC) may reduce the FGN s revenue if crude oil price does not increase to compensate for the output cut. This will increase fiscal deficit and put pressure on interest rates Most crude oil price forecasts indicate that the price will be lower in 2019 than 2018. A significant decline in the crude oil price will have negative fiscal and monetary implications for the Nigerian economy FSDH Research expects most of the Central Banks in advanced countries to increase interest rates in 2019. The implications of hike in interest rates include: rising global yields, monetary policy challenges in developing countries, pressure on foreign currency and possible capital reversal from emerging markets FSDH Research estimates Nigeria s Gross Domestic Product (GDP) growth rate of 1.94% for 2018 and forecasts GDP growth rate of 2.48% for 2019. These growth rates are lower than the Nigerian population growth rate Nigerian policy makers must implement policies that will diversify the Nigerian economy, create sustainable foreign exchange stability, and assist in lifting aggregate demand in the domestic economy We expect Federal Government of Nigeria (FGN) and state governments to sign more Public Private Partnership (PPP) deals to promote infrastructure development FSDH Research believes few factors support stability in the value of the Naira at the current level. We believe the currency may depreciate toward N390/US$ in 2019 FSDH Research expects the Nigerian public debt figure to increase in the medium term. The debt service to revenue ratio will be higher than what was projected by the FGN because of weak revenue outlook. We expect the FGN to borrow more money from the domestic market in 2019 than in the external market FSDH Research expects the inflation rate to remain in double digits in 2019 through 2021. Price adjustments to critical prices such as Premium Motor Spirit (PMS) pump price and electricity tariff will increase consumer prices FSDH Research notes that the assumptions of the FGN 2019-2021 Medium Term Expenditure Framework (MTEF) and the Fiscal Strategy Paper (FSP) need to be adjusted to reflect realities. The expected average crude oil price and production are 5

aggressive, while the expected average exchange rate is conservative FSDH Research expects the average yields on fixed income securities to increase in 2019 more than in 2018 Corporates may borrow money from the short-end of the market through Commercial Papers more than the long-end of the market through bonds in 2019 FSDH Research expects the Monetary Policy Committee (MPC) to maintain tight monetary policy stance in order to maintain price stability. However, it may provide some key sectors of the economy with palliative measures to boost growth FSDH Research expects the equity market to recover marginally in 2019. We expect a growth of about 10% in the NSE ASI for the year Summary of Forecasts of Key Economic and Financial Market Variables Indicators 2017A 2018E 2019F 2020F 2021F Real GDP Growth Rate 0.83% 1.94% 2.48% 3.00% 2.80% Nominal GDP Growth Rate 12.00% 12.28% 8.78% 12.28% 13.28% Inflation Rate 16.55% 12.15% 11.27% 11.11% 11.24% Inflation Rate with Adjustment 16.55% 12.15% 12.50% 12.73% 12.36% Exchange Rate (N/US$) 365.58 361.97 390.00 390.00 390.00 NTB Yield (91- Day ) 13.93% 11.28% 12.53% 12.45% 12.39% NTB Yield (182- Day ) 18.48% 12.92% 15.17% 15.10% 15.00% NTB Yield (364- Day ) 21.73% 14.70% 18.63% 18.40% 18.00% FGN Bond Yield (5-Year ) 15.91% 13.97% 15.88% 16.37% 16.00% FGN Bond Yield (10-Year ) 15.72% 14.40% 16.35% 16.10% 16.00% FGN Bond Yield (20-Year ) 15.76% 14.21% 16.64% 16.48% 16.20% Prime Lending Rate 17.55% 20.73% 18.32% 18.10% 18.00% 90 -Day Deposit Rate 13.93% 11.28% 12.53% 12.45% 12.39% NSE ASI Change 42.30% -17.81% 10.48% 15.25% 13.28% Sources: NSE, CBN, DMO, NBS and FSDH Research. A: Actual, E: Estimate, F: Forecast 6

The short-term outlook of the global economy does not support strong growth in the crude oil price. 1.0 Global Economic Growth: The short-term outlook of the global economy does not support strong growth in the crude oil price. This has implications for crude oil exporting countries like Nigeria. In the January 2019 edition of its Global Economic Prospects (GEP), the World Bank expressed that moderating activity and heightened risks are clouding global economic prospects. It revised its global economic forecast for 2019 to 2.9%, down from the forecast of 3.0% released in the June 2018 GEP. The major drivers for the downward revision are: a gradual slowing in global trade, the removal of monetary policy accommodation in advanced economies and significant financial market stress in emerging market and developing economies (EMDEs). The World Bank also warned that more World Bank notes that economic growth in the EMDEs has slowed considerably leading to a forecast of 4.2% in 2019. frequent severe weather events will raise the possibility of sizeable movements in international food prices. This development may increase general prices in Nigeria. World Bank notes that economic growth in the EMDEs has slowed considerably, leading to a forecast of 4.2% in 2019. The growth in sub-saharan Africa was significantly lower than expected, partly due to economic weakness in Angola, Nigeria and South Africa. The 2019 growth forecasts for Nigeria and South Africa are now 2.2% and 1.3% respectively. The growth forecast for China and India remained unchanged for 2019. World Bank recommends that EMDEs should rebuild policy buffers. The World Bank recommends that EMDEs should rebuild policy buffers while laying a stronger foundation for future growth by boosting human capital, promoting trade integration and addressing the challenges associated with informality. Table 1: GDP Growth Rate (Actual Vs Forecast) Difference From June 2018 GEP 2016A 2017A 2018E 2019F 2020F 2021F 2018E 2019F World 2.4% 3.1% 3.0% 2.9% 2.8% 2.8% (0.1%) (0.1%) USA 1.6% 2.2% 2.9% 2.5% 1.7% 1.16% 0.2% 0.0% Japan 0.6% 1.9% 0.8% 0.9% 0.7% 0.6% (0.2%) 0.1% Euro-Area 1.9% 2.4% 1.9% 1.6% 1.5% 1.3% (0.2%) (0.1%) Emerging & Developing Economies 3.7% 4.3% 4.2% 4.2% 4.5% 4.6% (0.3%) (0.5%) China 6.7% 6.9% 6.5% 6.2% 6.2% 6.0% 0.0% (0.1%) India 7.1% 6.7% 7.3% 7.5% 7.5% 7.5% 0.0% 0.0% Sub-Saharan Africa 1.3% 2.6% 2.7% 3.4% 3.6% 3.7% (0.4%) (0.1%) Nigeria (1.6%) 0.8% 1.9% 2.2% 2.4% 2.4% (0.2%) 0.0% South Africa 0.6% 1.3% 0.9% 1.3% 1.7% 1.8% (0.5%) (0.5%) Source: World Bank, Global Economic Prospects (GEP), January 2019. A: Actual, E: Estimate, F: Forecast. 7

3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 2.4% World Economic Growth (Actual vs Forecast) 3.1% 3.0% 2.9% 2.8% 2.8% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% USA Economic Growth (Actual vs Forecast) 2.9% 2.5% 2.2% 1.6% 1.7% 1.2% 0.5% 0.5% 0.0% 2016 2017 2018E 2019F 2020F 2021F 0.0% 2016 2017 2018E 2019F 2020F 2021F 8.0% 7.5% 7.0% 6.5% 6.0% 5.5% 5.0% Economic Growth (Actual vs Forecast) 7.5% 7.5% 7.5% 7.3% 7.1% 6.9% 6.7% 6.7% 6.5% 6.2% 6.2% 6.0% 2016 2017 2018E 2019F 2020F 2021F China India 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% -0.5% -1.0% -1.5% -2.0% Economic Growth (Actual VS Forecast) 2.2% 2.4% 2.4% 1.9% 1.7% 1.8% 1.3% 1.3% 0.8% 0.9% 0.6% 2016 2017 2018E 2019F 2020F 2021F -1.6% South Africa Nigeria Source: World Bank, Global Economic Prospects (GEP), January 2019. A: Actual, E: Estimate, F: Forecast. 8

The expected increase in the US Fed Rate could have a negative impact on foreign capital inflows into Nigeria and foreign exchange rate. 1.1 Risks to the Global Economic Growth Outlook: Possible sharper-than-expected tightening of global financing conditions Trade disputes between China and US leading to a further slowdown in trade and economic growth. This will reduce demand for crude oil and possible a drop in crude oil price, leading to increase in interest rate and yield and pressure on currencies in EMDEs Heightened political uncertainty Escalating geopolitical tensions and conflict FSDH Research recommends that companies should reduce their foreign exchange liabilities or hedge their positions where they have to have foreign exchange exposure. 1.2 Implications for the Nigerian Economy: The expected increase in the US Fed Rate could have a negative impact on foreign capital inflows into Nigeria and foreign exchange rate The increase in the interest rate in the international financial market may lead to higher interest expense on FGN borrowings from the international market The yields on fixed income securities may rise, leading to an increase in interest expenses for corporates. In addition, corporates may limit issuance of debt instruments to short-term tenor FSDH Research recommends that companies should reduce foreign exchange liabilities or hedge their positions where they have to have foreign exchange exposure. Nigerian policy makers must implement policies that will diversify the Nigerian economy, create sustainable foreign exchange stability, and assist in lifting aggregate demand in the domestic economy. Investment in critical infrastructure will grow the key sectors of the economy and allow for stronger buffers against external headwinds. It is vital to invest in human capital, quality education and healthcare in order to increase productivity in the country. 9

FSDH Research observed that prices of sovereign bonds depreciated in more countries that we monitored in 2018 than they appreciated. 1.3 Global Bond Market: FSDH Research observed that prices of sovereign bonds depreciated in more countries that we monitored in 2018 than they appreciated. This is because of the rising global yields. The significant price appreciation recorded by the Turkey Bond to end the year could not lift the bond price to the year opening figure. Consequently, the 8.8% September 2023 Turkey Government Bond recorded the highest Year-on-Year (YoY) price decrease of 15.81% to 74 as at end-december 2018. The 12.705% June 2022 Kenya Government Bond recorded the highest YoY price increase of 3.08% to 104.29. All the bonds we monitored closed at positive real yields, except the Turkey bond. The real yield on the Kenya Bond remains the most attractive as at end of the year. Table 2: Summary of Key Indicators S/N Indicators China Egypt India Kenya Nigeria Russia South Africa Turkey USA 1 Bond Price 102.12 97.20 102.97 104.29 103.31 99.65 98.80 74.00 96.92 2 Bond Yield 2.97% 18.14% 7.16% 11.17% 14.99% 7.92% 8.10% 16.98% 2.50% 3 Bond Price YoY Change 2.12% (6.54%) (0.61%) 3.08% (3.54%) (4.18%) (0.62%) (15.81%) (0.68%) 4 Bond Yield YoY Change (0.55%) 2.49% (0.03%) (1.18%) 0.96% 1.60% 0.21% 5.24% 0.27% 5 Real Yields 0.77% 2.44% 4.83% 5.46% 3.71% 4.12% 2.90% (3.32%) 0.30% 6 Volatility 0.78 4.19 14.20 1.17 2.38 1.59 1.50 9.39 0.61 7 FX Rate YoY Change* 5.40% 0.66% 8.45% (1.38%) 1.26% 16.85% 13.89% 28.22% (4.83%) 8 Inflation Rate 2.20% 15.70% 2.33% 5.71% 11.28% 3.80% 5.20% 20.30% 2.20% 9 Policy Rate 4.35% 16.75% 6.50% 9.00% 14.00% 7.75% 6.75% 24.00% 2.50% 10 Debt to GDP 47.60% 101.00% 68.70% 57.10% 21.30% 12.60% 53.10% 28.30% 105.00% 11 GDP Growth Rate 6.50% 5.40% 7.10% 6.00% 1.81% 1.50% 1.10% 1.60% 3.00% 12 Nominal GDP (US$) 12,238bn 235bn 2,597bn 74.94bn 376bn 1,578bn 349bn 851bn 19,391bn 13 Current Acct to GDP 1.30% (6.50%) (1.90%) (5.90%) 2.00% 2.20% (2.50%) (5.50%) (2.40%) *-ve means appreciation while +ve means depreciation. Bond prices and yields are as at Year-end Sources Bloomberg, Trading Economics and FSDH Research Analysis FSDH Research expects the yields across the world to increase further in 2019 with the planned monetary policy normalisation in advanced economies. 6.00% 4.00% 2.00% 0.00% -2.00% -4.00% -3.32% 0.30% Selected Countries: Real Yield 0.77% 2.44% 2.90% Turkey USA China Egypt South Africa 3.71% 4.12% 4.83% 5.46% Nigeria Russia India Kenya Sources: Trading Economics and FSDH Research Analysis FSDH Research expects the yields across the world to increase further in 2019 with the planned increase in interest rates in advanced economies. 10

Most crude oil forecasts indicate that crude oil price will be lower in 2019 compared with 2018. 1.4 Global Crude Oil Price: Most forecasts indicate that the price of crude oil will be lower in 2019 compared with 2018. A significant decline in the crude oil price will have negative fiscal and monetary implications for the Nigerian economy. Crude oil prices increased to a four-year high in October 2018 but dropped consistently to end the year. The decrease in the oil price was largely driven by geopolitical concerns, weak global economic growth leading to weak crude oil demand and higher than expected supply. According to data from the U.S. Energy Information Administration (EIA), Brent price decreased by 24.22% to US$50.57/b as at end-december 2018 from US$66.73/b as at end-december 2017. Bonny Light price also decreased by 22.94% to US$51.98/b at end-december 2018, from US$67.45/b at end-december 2017. OPEC will still be relevant in influencing the global oil price. According to the EIA, the total crude oil demand in 2019 should be 101.54mb/d while supply is 101.79mb/d, leading to excess supply of 0.25mb/d. Organization of the Petroleum Exporting Countries (OPEC) is expected to supply 36.24mb/d, while non-opec producers are expected to supply 65.54mb/d. We note that the supply from the non-opec producers will not satisfy the global demand. Therefore, OPEC will still be relevant in influencing the global oil price. The World Bank has stated that this production cut may not be enough to buoy the oil price as it does not adequately compensate for the increased supply from the US. In December, OPEC and several non-opec countries agreed to a production cut of 1.2 million barrels per day for six months beginning January 2019. The cuts were in response to evidence that oil markets could be oversupplied in 2019. However, the World Bank has stated that this production cut may not be enough to buoy the oil price as it does not adequately compensate for the increased supply from the US. China and US trade war may also lead to decreased demand for crude oil leading to a drop in crude oil price. The OPEC production cut may reduce the Nigerian government s revenue if crude oil price does not compensate for the output cut. This will increase fiscal deficit and also put pressure on interest rates. Table 3: Global Demand and Supply for Oil (mb/d) 2016A 2017A 2018A 2019F 2020F World Oil Demand 96.93 98.55 100 101.54 103.07 World Oil Supply 97.38 98.04 100.41 101.79 103.49 Excess Supply 0.45-0.51 0.41 0.25 0.42 OPEC Supply 39.41 37.33 37.24 36.24 36.05 Non-OPEC Supply 57.97 60.71 63.17 65.54 67.44 Demand Gap to Fill by OPEC 38.96 37.84 36.83 36 35.63 Excess Supply from OPEC 0.45-0.51 0.41 0.24 0.42 Average Brent Oil Price US$ 43.74 54.15 71.19 60.52 64.76 Sources: U.S Energy Information Administration(EIA) January 2019 Report; FSDH Research Analysis 11

120 100 80 60 Crude Oil Demand and Supply: (mb/d) Actual and Forecast 96.93 98.55 100 101.54 57.97 60.71 63.17 65.54 80 70 60 50 Crude Oil Price Actual and Forecast (US$/b) 71 72 68 67 65 66 67 61 61 54 55 53 44 45 43 40 40 20 30 0 2016A 2017A 2018A 2019F 20 2016A 2017A 2018A 2019F 2020F Non-OPEC Production Global Oil Demand Brent - EIA Bonny Light - FSDH Research* World Bank Price** Contribution of China and US Demand for Crude Oil 33.5% 33.8% 34.3% 34.6% 34.8% 20.3% 20.3% 20.5% 20.5% 20.4% 13.2% 13.6% 13.9% 14.1% 14.4% Sources: U.S Energy Information Administration (EIA) and World Bank. *FSDH Research derived the forecast for Bonny Light Price from historical movement with Brent ** Average of Brent, Dubai Fateh and West Texas Intermediate Mb/d: Million Barrel per Day 2016A 2017A 2018A 2019F 2020F China USA Total 12

FSDH Research expects the FOMC to increase the Fed Rate to a range of 3.00% - 3.25% in 2019. 1.5 FOMC Rate Decision: FSDH Research expects the Federal Open Market Committee (FOMC) of the US Federal Reserve (The Fed) to raise the Federal Funds Rate (Fed Rate) three times in 2019 to a range of 3.00% - 3.25%. The FOMC will have its first 2019 meeting on 29-30 January 2019. However, FSDH Research does not expect a rate hike at the January 2019 meeting. Implications of the Expected Rate Hike: Rising global yields and increase in interest rates on foreign debt Monetary policy challenges in developing countries and pressure on foreign currency Decrease in global financial liquidity Portfolio realignments amongst global portfolio managers in favour of fixed income Possible capital reversal from emerging markets Increase in Eurobond yields 4% Movements in Federal Funds Rate 3.25% 3% 1.75% US Treasury Note May, 2023 3% 3% 3% 3% 2% 3% 2% 1% 1% 0% 2% 2% 2% Sources: US Federal Reserve, Bloomberg FSDH Research Analysis 13

The PMI in Nigeria remained above 50 points in 2018, indicating an expansion in the manufacturing and nonmanufacturing sectors. 2.0 The Nigerian Economy: 2.1 Purchasing Managers Index (PMI): The Purchasing Managers Index (PMI) in Nigeria remained above 50 points in 2018, indicating an expansion in the manufacturing and non-manufacturing sectors. The PMI report for December 2018 that the Central Bank of Nigeria (CBN) published shows a third consecutive month of a faster increase in the PMI than the previous month. This is an indication of the increased economic activities usually associated with the last quarter of the year and may have a positive impact on GDP in Q4 2018. At 61.1 points, the Manufacturing PMI attained the highest level since July 2014. Similarly, at 62.3 points the Non-Manufacturing PMI attained the highest level since December 2017. The expansion in the PMI is an indication of the improvement we expect in the Nigerian economy in 2019 which will create financing and investing opportunities in the economy. The expansion in the PMI is an indication of the improvement we expect in the Nigerian economy in 2019. 64 62 60 58 56 54 52 50 48 Purchasing Managers' Index Manufacturing Composite PMI Non-Manufacturing Composite PMI Baseline Source: Central Bank of Nigeria (CBN) 14

FSDH Research forecasts a real GDP growth rate of 1.94% in 2018 and 2.48% in 2019. The real GDP growth rate still remains sluggish lower than the population growth rate in the country of about 2.78%. FSDH Research notes, however, that the contraction in the Oil sector moderated in Q3 2018 compared with the contraction recorded in Q2 2018. FSDH Research estimates that the Nigerian economy will have generated a real GDP of N19.05trn in Q4 2018, translating to a growth rate of 2.67% in Q4 2018 and a growth rate of 1.94% in 2018. 2.2 Real Gross Domestic Product (GDP): FSDH Research forecasts a real GDP growth rate of 1.94% in 2018 and 2.48% in 2019. The real GDP in 2018 showed improvement but the economy remains fragile. The real GDP growth rate still remains sluggish lower than the population growth rate in the country of about 2.78%. As at Q3 2018, the three largest sectors of the economy, which account for 56% of the total GDP, recorded positive growth rates. FSDH Research notes that other dominant sectors of the economy which contracted during the quarter recorded lower contractions than were recorded in Q2 2018. According to the National Bureau of Statistics (NBS), the Nigerian economy as measured by the GDP grew by 1.81% in Q3 2018, higher than 1.17% recorded in Q3 2017. The economy grew by 1.95% and 1.50% in Q1 2018 and Q2 2018. The main driver of the GDP growth rate in Q3 2018 was the Non-Oil sector of the economy which expanded by 2.32% in Q3, higher than 2.05% in Q2 2018. Information and Communication was the largest contributor to the GDP growth rate in Q3 2018. Despite the double digit growth rate recorded in Information and Communication 12.09%, the World Economic Forum (WEF) rates Nigeria low in its ICT adoption in the global competitive report 2018. FSDH Research believes this is an indication of huge untapped opportunities within the sector. However, policies are needed that could create an enabling environment for this sector to thrive. Other sectors that contributed to the growth are: Agriculture, with a growth of 1.91%; Manufacturing 1.92% and Trade 0.98%. The Oil sector of the Nigerian economy entered a recession in Q3 2018 following two consecutive quarters of contraction. FSDH Research notes, however, that the contraction in the sector moderated in Q3 2018 compared with the contraction recorded in Q2 2018. The oil GDP contracted by 2.81% in Q3 2018, lower from Q2 2018 when the sector declined by 3.84%. The non-oil sector contributed 90.62% to the GDP in Q3 2018, while the oil sector contributed 9.38%. The YTD average crude oil price of US$58.49 as at 11 January 2019 is below the forecast for the year 2019 US$60/b - US$70/b. A declining oil price has negative implications for the Nigerian economy, hence there may be low economic activity. FSDH Research estimates that the Nigerian economy will generate a real GDP of N19.05trn in Q4 2018, translating to a growth rate of 2.67% in Q4 2018 and a growth rate of 1.94% in 2018. 15

Real GDP Growth Rate 2.11% 1.95% 1.50% 1.81% 1.17% 0.72% Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2016 2017 2018-0.91% -1.19% -1.73% -2.34% Table 4:Performance of Leading Sectors of the Nigerian Economy Q3 2018 Activity Sectors ^Size GDP* WG Agriculture 29.25% 1.91% 0.56% Trade 15.80% 0.98% 0.16% Information and Communication 10.55% 12.09% 1.28% Mining and Quarrying 9.53% -2.81% -0.27% Manufacturing 8.84% 1.92% 0.17% Real Estate 6.50% -2.68% -0.17% Professional, Scientific and Technical Services 3.75% 1.93% 0.07% Construction 3.01% 0.54% 0.02% Other Services 2.55% 2.86% 0.07% Financial and Insurance 2.52% -4.81% -0.12% Sources: National Bureau of Statistics (NBS) and FSDH Research Analysis. WG: Weighted Growth; ^Sector Contribution to GDP; *GDP Growth Rate. The current crude oil price may not spur investment activities in the oil and gas sector. Going forward, we expect that the following factors will drive GDP performance in the medium term: I. Crude Oil Price and Production: The current crude oil price may not spur investment activities in the oil and gas sector. It also portends lower revenue for the federal government to execute its budget. OPEC s production cut may also have negative impacts on Nigeria s economy if the price of crude oil does not increase to compensate for the lower oil production. A rebound in the crude oil price may accelerate economic activities in Nigeria. PPP is crucial now, given the expected low government revenue in the short-term. II. III. Infrastructure Development: The economic managers should critically look into the state of infrastructure in Nigeria that will boost the GDP growth rate. Keys areas that are labour intensive, e.g. construction; development of appropriate transportation system for efficient transportation of goods, services and people across the country; affordable housing units for Nigerians should be given priority. FSDH Research advocates for more Public Private Participation (PPP) arrangements to accelerate development. PPP is crucial now, given the expected low government revenue in the short-term. Social Unrest in the Country: Attacks on lives and property in the areas affected by insurgency remains a source of concern. The insurgency has forced residents out of their homes and hampered farming and economic activities in these regions. Also, the issue of herdsmen have almost crippled farming activities in the 16

The IMF said global economy could increase by 1.5% if trade restrictions are reduced by 15%. IV. middle belt region. These affect the overall economic activities and lead to escalating prices of goods and services. Global Economic Outcome: If not resolved, the ongoing trade war between China and the US could have severe implications for the global economic outlook. The International Monetary Fund (IMF) said the global economy could increase by 1.5% if trade restrictions are reduced by 15%. In contrast, if trade tariffs were to remain, the IMF predicts that 0.75% of the global economy could be lost by 2020. If the recent truce between China and US is able to avert the trade war, global economic growth and trade flows should increase. It should also support a modest recovery in price of crude oil: this would impact economic activities in Nigeria because of Nigeria s reliance on the oil sector for revenue and foreign currency. Table 5: GDP (N trn) Year 2017A 2018F 2019F 2020F 2021F Real GDP 68.50 69.82 71.56 73.71 75.77 Nominal GDP 114.90 129.01 140.35 157.59 178.52 Real Growth Rate 0.83% 1.94% 2.48% 3.00% 2.80% Nominal GDP Growth Rate 12.00% 12.28% 8.78% 12.28% 13.28% Sources: NBS, FSDH Research A: Actual, F: Forecast and E: Estimate Nigeria Real GDP Growth Rate: (Actual and Forecast) 3.50% 3.00% 2.50% 2.48% 3.00% 2.80% 2.00% 1.94% 1.50% 1.00% 0.83% 0.50% 0.00% 2017A 2018E 2019F 2020F 2021F 17

FSDH Research expects Agriculture to continue to drive growth in the non-oil sector of the Nigerian economy. FSDH Research notes that there are huge untapped potentials in the information and communication sector. Sector Specific Expectations (2019-2021): Agriculture: FSDH Research expects Agriculture to continue to drive growth in the non-oil sector of the Nigerian economy. The support for the sector from the CBN, Bank of Industry (BOI) and Bank of Agriculture in the provision of loans at concessionary terms should continue in order to drive activities. We have observed innovative financing in the sector through crowd funding. Opportunities exist in agro-processing activities (rice, cassava, tomato processing, etc.). Deepening the agricultural space would help to ensure the realisation of the import substitution strategy as a nation. The good soil and weather conditions should support the growth in the sector. Trade: As the purchasing power of consumers rise, trade margins will improve. The Trade sector recently exited from recession, an indication of an improving trade margin and the prospect of short-term profitability. Manufacturing: A boost in the agricultural sector will empower the manufacturing sector, increase the ability of companies to locally source inputs, which will lead to high industrialisation. Stable government policies, effective regulatory agencies and good infrastructure are some of the many factors that will affect the growth in the manufacturing sector. The changing taste of Nigerians towards locally manufactured goods should boost activities. We see a significant boost in cement manufacturing and oil refining to be catalysts for the growth of the sector. This sector has the capacity to employ a large section of the population, thereby generating employment opportunities. Information and Communication: In the last two quarters, this sector has contributed the highest growth to the GDP. However, FSDH Research notes that there are huge untapped potentials in this industry: in its Global Competitive Report 2018, the WEF rates Nigeria low in its adoption of Information and Communication Technology (ICT). Government policies are required to enable this sector to blossom. The Global System for Mobile Communications (GSM) companies and Internet service providers are the major drivers in this sector. The growing data consumption in Nigeria will drive activities in the sector further. Construction and Real Estate: The fact that the Real Estate sector is still in economic depression is of concern to FSDH Research. Real Estate is a labourintensive sector which provides job opportunities for different categories of labour: 18

Strong economic activities that propel growth in the Real Estate sector could employ many unemployed Nigerians, which would help to address the high unemployment level. unskilled, semi-skilled and highly skilled. Strong economic activities that propel growth in the Real Estate sector could employ many unemployed Nigerians, which would help to address the high unemployment level. In addition, the sector has a multiplier effect on other sectors of the economy such as manufacturing (cement production) and construction. Improved activities in the real estate and construction sector could improve the standard of living through the provision of quality and affordable housing for Nigerians, which in itself should increase labour productivity. The tables 6, 7 and 8 show the growth outcomes we expect in the different sectors of the Nigerian economy. They also show where we expect opportunities given the relative size of the economy. Table 6: Real GDP (2017-2021) N bn Activity Sector 2017A 2018E 2019F 2020F 2021F Agriculture 17,179 17,755 18,358 18,905 19,368 Mining And Quarrying 6,032 6,062 6,184 6,369 6,528 Manufacturing 6,289 6,351 6,490 6,718 6,919 Electricity, Gas,Steam & Air Conditioning Supply 270 298 328 357 390 Water, Sewerage, Waste Mgt & Remediation 108 118 127 137 150 Construction 2,546 2,646 2,779 2,973 3,092 Trade 11,546 11,525 11,536 11,651 11,826 Accommodation And Food Services 609 625 672 736 802 Transportation And Storage 840 886 936 982 1,032 Information And Communication 7,777 7,922 8,199 8,462 8,715 Arts, Entertainment And Recreation 153 167 182 200 220 Financial And Insurance 2,053 2,086 2,117 2,159 2,213 Real Estate 4,694 4,686 4,681 4,752 4,872 Professional, Scientific And Technical Services 2,530 2,557 2,584 2,615 2,646 Administrative & Support Services 14 15 16 16 17 Public Administration 1,564 1,624 1,657 1,692 1,734 Education 1,508 1,553 1,646 1,762 1,859 Human Health And Social Services 474 499 519 545 576 Other Services 2,311 2,449 2,547 2,674 2,808 GDP 68,497 69,825 71,557 73,705 75,768 Growth Rate 0.83% 1.94% 2.48% 3.00% 2.80% Sources: NBS and FSDH Research A: Actual, E: Estimate and F: Forecast. Both the estimate and forecast are that of FSDH Research 19

Table 7 : Sectoral Real GDP Growth Rate (2017-2021) Sectoral Growth Rate 2017A 2018E 2019F 2020F 2021F Agriculture 3.45% 3.35% 3.40% 2.98% 2.45% Mining And Quarrying 4.72% 0.51% 2.00% 3.00% 2.50% Manufacturing -0.21% 0.98% 2.20% 3.50% 3.00% Electricity, Gas,Steam & Air Conditioning Supply 16.43% 10.59% 10.00% 9.00% 9.00% Water, Sewerage, Waste Mgt & Remediation 4.16% 9.64% 7.00% 8.00% 9.50% Construction 1.00% 3.94% 5.00% 7.00% 4.00% Trade -1.05% -0.19% 0.10% 1.00% 1.50% Accommodation And Food Services -1.61% 2.61% 7.50% 9.50% 9.00% Transportation And Storage 3.86% 5.50% 5.60% 5.00% 5.00% Information And Communication -1.04% 1.87% 3.50% 3.20% 3.00% Arts, Entertainment And Recreation 4.13% 9.62% 9.00% 9.50% 10.00% Financial And Insurance 1.26% 1.59% 1.50% 2.00% 2.50% Real Estate -4.27% -0.18% -0.10% 1.50% 2.54% Professional, Scientific And Technical Services -0.26% 1.07% 1.05% 1.20% 1.20% Administrative & Support Services 0.64% 4.42% 2.80% 3.50% 3.50% Public Administration -0.38% 3.86% 2.00% 2.15% 2.50% Education -0.72% 3.00% 6.00% 7.00% 5.50% Human Health And Social Services -0.31% 5.28% 4.00% 5.00% 5.70% Other Services 2.35% 5.98% 4.00% 5.00% 5.00% Sources: NBS and FSDH Research Table 8: Contribution to GDP (2017-2021) Contribution to GDP 2017A 2018E 2019F 2020F 2021F Agriculture 25.08% 25.43% 25.66% 25.65% 25.56% Mining And Quarrying 8.81% 8.68% 8.64% 8.64% 8.62% Manufacturing 9.18% 9.10% 9.07% 9.11% 9.13% Electricity, Gas,Steam & Air Conditioning Supply 0.39% 0.43% 0.46% 0.49% 0.51% Water, Sewerage, Waste Mgt & Remediation 0.16% 0.17% 0.18% 0.19% 0.20% Construction 3.72% 3.79% 3.88% 4.03% 4.08% Trade 16.86% 16.50% 16.12% 15.81% 15.61% Accommodation And Food Services 0.89% 0.90% 0.94% 1.00% 1.06% Transportation And Storage 1.23% 1.27% 1.31% 1.33% 1.36% Information And Communication 11.35% 11.35% 11.46% 11.48% 11.50% Arts, Entertainment And Recreation 0.22% 0.24% 0.25% 0.27% 0.29% Financial And Insurance 3.00% 2.99% 2.96% 2.93% 2.92% Real Estate 6.85% 6.71% 6.54% 6.45% 6.43% Professional, Scientific And Technical Services 3.69% 3.66% 3.61% 3.55% 3.49% Administrative & Support Services 0.02% 0.02% 0.02% 0.02% 0.02% Public Administration 2.28% 2.33% 2.31% 2.30% 2.29% Education 2.20% 2.22% 2.30% 2.39% 2.45% Human Health And Social Services 0.69% 0.72% 0.73% 0.74% 0.76% Other Services 3.37% 3.51% 3.56% 3.63% 3.71% Sources: NBS and FSDH Research 20

Emergence of the real estate sector from economic depression should create job opportunities for all categories of labour. 2.3 Opportunities: Watch out for laws that will unleash investment opportunities in the oil and gas sector Agriculture and agro-processing sector will continue to generate investors interest Increased global economic growth may sustain high oil price We expect FGN and state governments to sign more Public Private Partnership (PPP) deals to promote infrastructure development Construction activities should continue to grow Road, Rail, etc. Emergence of the real estate sector from economic depression should create job opportunities for all categories of labour. Nigeria depends on oil revenues and is therefore particularly vulnerable to any volatility in the prices and production of crude oil. 2.4 Risks: The possible increase in the pump price of PMS, devaluation of the currency, and an increase in electricity tariff may lead to escalating inflation rate and increase in the interest rate in the short-term Nigeria depends on oil revenues and is therefore particularly vulnerable to any volatility in the prices and production of crude oil. A drop in the crude oil price may have an adverse impact on economic activities There could be capital flight out of Nigeria if there are excessive hikes in the interest rates in advanced economies Weak infrastructure development in the country Security challenges in the Northern regions 21

The external reserves grew in 2018, hitting a 5-year high despite pockets of significant drawdown. 3.0 External Reserves: The external reserves grew in 2018, hitting a 5-year high despite pockets of significant drawdown. The drawdowns were as a result of persistent foreign exchange demand in the face of declining foreign exchange inflows. FSDH Research notes that the proceeds from the US$2.86bn Eurobond issuance made a significant contribution to the growth of the external reserves towards the end of 2018. According to the CBN, the 30-Day Moving Average of Nigeria's external reserves as at 31 December, 2018 stood at US$43.12bn, representing an increase of US$4.35bn or 11.22%, compared with US$38.77bn at the end-december 2017. 50.00 45.00 40.00 35.00 30.00 25.00 20.00 15.00 10.00 5.00 - External Reserves (Yearly Average) - US$'bn 46.71 44.64 38.07 38.80 33.54 30.70 31.31 26.29 2011 2012 2013 2014 2015 2016 2017 2018 50 48 46 44 42 40 38 36 34 32 30 40.7 Jan- 18 42.5 Feb- 18 External Reserves(Monthly Average)- US$bn 46.3 Mar- 18 47.5 47.6 47.8 Apr- 18 May- 18 Jun- 18 47.1 45.8 Jul-18 Aug- 18 44.3 Sep- 18 42.00 42.17 43.12 Oct- 18 Nov- 18 Dec- 18 The following factors will influence external reserves in 2019: Positive factors to drive the external reserves: The expected improvement in the Nigerian economy A peaceful election, resulting in increased Foreign Portfolio Investment (FPI) and Foreign Direct Investment (FDI) Stable crude oil price and production Growth in non-oil exports Negative factors that may put downward pressure on the external reserves: Capital flight as a result of rising global yields Significant drop in crude oil price and production Our forecast external reserves in 2019 2021 are shown in the table below: Table 9: External Reserves 2017-2021 (US$ bn)- End Periods: Actual vs Forecast Year 2017A 2018A 2019F 2020F 2021F External Reserves* 38.77 43.12 44.63 46.86 50.14 Sources: CBN and FSDH Research A: Actual, F: Forecast *30-Day Moving Average 22

Crude oil exports accounted for 85% of total exports in Q3 2018 Nigeria s foreign trade is susceptible to movements in the crude oil market. FSDH Research estimates that Nigeria would have recorded an unfavourable balance of trade in Q3 2018 had the price of crude oil not increased substantially during that period. There is a need to engage Nigeria s trading partners to ensure reciprocal trading relationships that will benefit Nigeria. 4.0 Foreign Trade: FSDH Research expects the country s total exports value to drop in 2019 compared with the 2018 figure. This is because of the expected lower crude oil price in 2019 than in 2018 and the possibility of lower oil production. Although the trade balance has remained positive since 2017, FSDH Research observed the huge contribution of crude oil exports to total exports. This means that the external trade is vulnerable to movements in the crude oil market. Nigeria recorded a favourable trade balance (total merchandise exports higher than merchandise imports) in Q3 2018. However, it dropped sharply compared with previous quarters. The external trade data for Q3 2018, published by the National Bureau of Statistics (NBS), shows that there was an importation of submersible drilling platforms of N1.16trn in August 2018. This increased imports significantly during the quarter. However, adjusting for the occasional drilling platforms, the trade balance was lower than Q1 and Q2 2018. Despite the substantial increase in the price of crude oil in Q3 2018, the growth in the exports was not impressive (especially nonoil). This had adverse implications for the exchange rate. Crude oil exports grew by 40% in Q3 2018 compared with the level recorded in Q3 2017, while non-crude oil exports grew by 17%. The contribution of crude oil exports to total exports increased to 85% in Q3 2018, the highest level attained since Q1 2016. The increase in the price of crude oil without a corresponding growth in non-crude oil exports, was the major driver of the growth of crude oil exports to total exports. FSDH Research estimates that Nigeria would have recorded an unfavourable balance of trade in Q3 2018 had the price of crude oil not increased substantially during that period. There is a need to engage Nigeria s trading partners to ensure reciprocal trading relationships that will benefit Nigeria. FSDH Research observes that South Korea and China, which accounted for 43% of Nigeria s total imports in Q3 2018 are not on the list of Nigeria s top ten export trading partners. Nigeria can negotiate better trading terms with its trading partners in order to create more markets for Nigerian-made goods on the international market. FSDH Research expects the following factors to influence the foreign trade performance in the short-to-medium term: The FGN s efforts to improve the ease of doing business The growth of the import substitution strategy in Nigeria Nigeria will continue to import basic inputs and machinery for manufacturing companies 23

Completion of Dangote refinery which may likely increase exports and reduce imports. 6 Exports, Imports and Trade Balance (N' Trillion) (Q1 2016 - Q2 2018) 95% Contributions of Crude Oil Exports to Total Exports vs Bonny Light Price (US$bn) 80 5 4 3 90% 85% 83% 84% 81% 83% 83% 84% 85% 70 60 2 80% 78% 79% 78% 76% 50 1 75% 40 0-1 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2016 2017 2018 Imports Exports Trade Balance 70% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2016 2017 2018 Crude Oil Exports to Total Exports -LHS Bonny Light Price (US$b/d) - RHS 30 Table 10:10 Nigeria s Leading Trading Products S/N Exports P of E Imports P of I 1 Crude Oil 85.4% Drilling Platforms 27.8% 2 Natural Gas, liquefied 9.7% Motor Spirit ordinary 20.5% 3 Other petroleum Gases 0.6% Gas Oil 1.9% 4 Butanes, Liquefied 0.4% Used Vehicles 1.8% Vessels and Other 5 Floating Structures 0.3% Durum Wheat 1.4% 6 Propane, Liquefied 0.3% Cane Sugar for Sugar Refinery 1.1% 7 Urea 0.2% Durum Wheat, Seed 1.0% 8 Electrical 0.2% Motorcycles and Cycles 1.0% 9 Cashew Nuts 0.2% Medical Surgical, Sciences 0.9% 10 Sesame Seeds 0.2% Lubricating Oils 0.8% P of E: Proportion of Exports. P of I : Proportion of Imports Source: National Bureau of Statistics Table 11: 10 Nigeria s Leading Trading Partners S/N Exports P of E Imports P of I 1 India 16% South Korea 29% 2 Spain 11% China 14% 3 France 10% Netherlands 12% 4 South Africa 7% Belgium 7% 5 Netherlands 6% United States 5% 6 Indonesia 5% India 4% 7 Brazil 5% France 3% 8 UK 4% Latvia 2% 9 US 4% Germany 2% 10 Canada 4% Russia 2% Total 72% Total 80% P of E: Proportion of Exports. P of I : Proportion of Imports Source: National Bureau of Statistics 24

Table 12: Foreign Trade Statistics (N trn) Year Imports Exports Trade Balance Total Trade 2017A 9.56 13.60 4.04 23.16 2018E 11.73 18.38 6.65 30.12 2019F 12.15 17.53 5.38 29.67 2020F 12.45 19.13 6.68 31.57 2021F 12.70 20.29 7.59 32.99 Sources: NBS, FSDH Research Table 13: Analysis of Exports (N bn) Year Total Exports Crude Oil Exports Non-Oil Exports Crude Oil Exports to Total Exports Non-Crude Oil Exports to Total Exports 2017A 13.60 11.03 2.57 81.09% 18.91% 2018E 18.38 15.04 3.34 81.84% 18.16% 2019F 17.53 14.21 3.31 81.09% 18.91% 2020F 19.13 15.43 3.69 80.69% 19.31% 2021F 20.29 16.31 3.98 80.39% 19.61% Sources: NBS, FSDH Research 8.00 Trade Balance (N'trn) 7.59 7.00 6.65 6.68 6.00 5.38 5.00 4.00 4.04 3.00 2.00 1.00 0.00 2017A 2018E 2019F 2020F 2021F Sources: National Bureau of Statistics and FSDH Research 25

4.1 Outlook: The expectation that the average price of crude oil in 2019 will be lower than in 2018 and an anticipated cut in crude oil production may lead to a drop in total exports. The launch of the Dangote refinery should reduce the import bill and increase exports. We expect Nigeria to benefit from this from 2020 onward. Our forecast for total merchandise trade for Nigeria in 2019 is N29.67trn; we expect this figure to increase to N32.99trn in 2021. FSDH Research expects oil exports to continue to dominate total exports in 2019. Implications: We expect temporary pressure in the foreign exchange market in 2019 Exchange rate may remain stable after 2020 There would be trade finance opportunities in the country 26

FSDH Research expects the value of the Naira to depreciate towards N390/US$ in 2019. The foreign exchange market witnessed relative stability in 2018. The total capital imported through the I&E window in 2018 stood at US$33.38bn. 5.0 Foreign Exchange Rate: FSDH Research expects the value of the Naira to depreciate towards N390/US$ in 2019. The foreign exchange market witnessed relative stability in 2018 following interventions from the CBN. However, there were some indications of demand pressure which led to a depreciation in the value of the Naira across all foreign exchange rates. FSDH Research expects a depreciation in the value of the Naira after the 2019 general elections. Year-on-year, the value of the Naira depreciated marginally by 0.33% and 0.41% to close at N307/US$ and N365/US$ at the inter-bank and parallel market respectively at end- December 2018, compared with end-december 2017. Similarly, at the I&E window, it depreciated by 1.01% to close at N364/US$ at end-december 2018, compared with end- December 2017. The highest rate recorded at the inter-bank, parallel market and I&E window in 2018 were N307/US$, N369/US$ and N365.33/US$, respectively. The lowest values were N305.20/US$, N359/US$, and N359.38/US$, respectively. The data obtained as at Monday, 07 January 2019 from the FMDQ OTC Securities Exchange on the total capital importation through I&E window in 2018 stood at US$33.38bn. This represents 118.63% increase from 2017. The total capital importation through the I &E window from inception to December 2018 totalled US$48.65bn. FPI was the largest contributor to inflow in 2018. However, FSDH Research notes that towards the end of 2018 there was increased contribution from the CBN above FPI. This was a reflection of the cautious approach the FPI adopted to investing in Nigeria. 4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50 0.00 Foreign Capital Importation via the I&E Window - US$bn 3.55 3.47 3.58 3.13 3.00 2.91 2.59 2.67 2.48 2.29 2.20 2.08 370 360 350 340 330 320 310 300 Official, Parallel and I&E FX Rates - 2018 368 366 364 362 360 358 356 354 Official-LHS I&E Window-LHS Parallel-RHS NAFEX-RHS Sources: FMDQ, CBN and Cash Hunters LHS: Left Hand Side RHS: Right Hand Side 27

We believe the following factors will drive the foreign exchange rate in the short-term: Table 14: Our View of the Important Determinants of Foreign Exchange Rate in Nigeria Indicators Favourable/Fair Borderline Not Favourable Balance of Payment (BoP) Position Balance of Trade Oil Price Forecast /Crude Oil Production Militants in the Niger Delta Fiscal Position Debt Sustainability Fiscal Position Fiscal Deficits/GDP Fiscal Position Interest Cover Political Stability Possibility of FOMC Increasing Rate The External Reserve Position Inflow of FDIs, FPIs and Others Inflation Rate Source: FSDH Research Strong growth in both oil and non-oil exports, drop in demand for foreign exchange and implementation of policies to lower inflation rate may support stability in the foreign exchange market. From the table above, FSDH Research believes few factors support stability in the value of the Naira at the current level. We believe the currency may depreciate toward N390/US$ in 2019. However, strong growth in both oil and non-oil exports, drop in demand for foreign exchange and implementation of policies to lower inflation rate may support stability in the foreign exchange market. Table 15: Foreign Exchange Rate Forecasts (2019-2021) (US$/N) Year 2019F 2020F 2021F Base Case 390 390 390 Best Case 365 355 355 Worst Case 400 400 410 Source: FSDH Research 28