As the year 2019 rolls over, it is leaving behind a retinue of some ups and downs on the economic flank. Although largely influenced by the elections, 2019 will nevertheless be remembered as the year of minimum wage resolution, the Central Bank of Nigeria’s dogged defence of the naira and a less-than cheerful capital market performance, among other challenges. Group Business Editor SIMEON EBULU examines the trend with additional reports by Capital Market Editor Taofik Salako, Asst Editor Nduka Chiejina, Senior Correspondent Collins Nweze and Labour Correspondent Toba Agboola
HIGHLIGHTS
• GDP up 2.28% in Q3
• Total Trade valueN9,187.6b in Q3
• Average daily oil production of 2.04m
• Non-oil sector contributed 90.23% to GDP
• 30,000 minum wage wrapped up
• Capital market remains bearish
• Landmark listing of MTN, Airtel
• CBN pushed for more loans to real sector
• Loan-to-Deposit Ratio raised to 65%
Since Nigeria exited recession in the third quarter of 2017, almost 30 months ago, it has, through a combination of deft economic manoeuvrings and engagement in a series of reforms, managed to stave-off a recourse to that trajectory. The economy is being repositioned on the growth path. The series of data churned out by the National Bureau for Statistics (NBS) have lent credence to this.
Positive Trade Balance
In its latest release on bilateral and multilateral trade figures in the third quarter of 2019, the NBS said the value of Nigeria’s total trade stood at N9,187.6 billion, representing 6.77 per cent increase over the value recorded in the second quarter of the year, and 1.33 per cent increase relative to Q3, 2018. The value of the export component, put at N5,288.5 billion, increased by 15.02 per cent against Q2, 2019 and 8.97 per cent compared with the corresponding quarter in 2018.
On the other hand, the import component valued at N3,899.1 billion, decreased by 2.70 per cent in Q3 against Q2, 2019 and 7.47 per cent against Q3, 2018. The increase in exports coupled with the decrease in imports culminated in a positive trade balance of N1,389.3 billion during the period
Other Indicators
There are yet other indicators that signpost growth for the economy since the recession regime.
Gross Domestic Product (GDP)
Nigeria’s Gross Domestic Product (GDP) has continued to record some marginal growth. In the third quarter, it grew by 2.28 per cent (year-on-year), in real terms. When compared to the third quarter of 2018 which recorded a growth of 1.81 per cent. The real GDP growth rate observed in the third quarter of 2019 indicate an increase of 0.47 per cent points. When juxtaposed against the 2019 second quarter return growth rate of 2.12 per cent, the Q3 2019 outcome represented an increase of 0.17 per cent points, indicating that on a quarter-on-quarter basis, real GDP grew by 9.23 per cent. Put succinctly, the growth rate in Q3 2019 represented the second highest quarterly rate recorded since 2016.
In value, the aggregate GDP in the third quarter of 2019 stood at N37,806,924.41 million in nominal terms, a performance the NBS said, “is higher compared to the aggregate of N33,368,049.14 million recorded in the third quarter of 2018, representing a year on year nominal growth rate of 13.30 per cent.” Despite the positive growth, the margin was however lower relative to the rates recorded in the third quarter of 2018 by –0.28 per cent points and the rates recorded in the preceding quarter by –0.71 per cent points.
Economic classification
The nation’s economy has been classified broadly into the oil and non-oil sectors.
Oil Sector
In the review period (Q3 2019), Nigeria recorded average daily oil production of 2.04 million barrels per day (mbpd), representing its highest production in more than three years. This output level was 100,000 barrels daily higher than the daily average production of 1.94mbpd recorded in the same quarter of 2018, and 20,000 bpd higher than the revised oil production levels in the second quarter of 2019 which was put at two million and twenty thousand barrels per day.
In percentage terms, real growth of the oil sector was 6.49 per cent (year-on-year) in Q3 2019 indicating an increase of over 9.40 per cent points relative to the rate recorded in the corresponding quarter of 2018. However, the rate was lower by –0.68 per cent points when compared to Q2 2019 which was put at 7.17 per cent. Quarter-on-Quarter, the oil sector recorded a growth rate of 18.88 per cent in Q3 2019, thus contributing 9.77 per cent to total real GDP in the third quarter of 2019. This push represented an increase when compared with the figures recorded in the corresponding period of 2018, as well as the preceding quarter, which accounted for 9.38 per cent and 8.98 per cent respectively.
Non-Oil Sector
The non-oil sector, which incorporates Agriculture, Mining and Quarrying, Transportation and Storage, and Manufacturing. grew by 1.85 per cent in real terms during the review period, indicating a drop of –0.48 per cent when compared to the rate recorded in the same quarter of 2018 Nonetheless, it represented a leap of 0.20 per cent points higher than the second quarter of 2019. In the review period, the recorded growth was driven mainly by the Information and Communication sector. In real terms, the Non-Oil sector contributed 90.23 per cent to the nation’s GDP, which was however slightly lower than the share recorded in the third quarter of 2018
Unemployment
Given the nature of the Nigeria’s unstructured economy and the largely agro-based economic engagement, unemployment and underemployment rates vary across states according to the nature of economic activity predominant in each state. The result is that states that are pro agro-allied, or with higher focus on seasonal agriculture tend to have higher rates of underemployment compared to unemployment. This may swing from high full-time employment during periods of planting and harvest, when they are fully engaged on their farms, to periods of high underemployment and even unemployment at other periods in between.
That said, there is unanimity of agreement that unemployment is assuming an alarming rate across the nation, irrespective of the period under review. Nigeria’s unemployment rate is now put at 23.1 per cent of the work force in the third quarter, up from 18.1 per cent a year earlier, the Head of the Statistics Office Yemi Kale said on his official Twitter feed .
According to NBS: “As of Q3 2018, the calculated unemployment rate was 23.1 per cent, the underemployment rate was 20.1 per cent, and the combined unemployment and underemployment rate was 43.3 per cent. While the Q3 2018 results showed a rise in the rate of unemployment, it also depicts a slowing down in the rate of increase in unemployment, which is usually the first sign of improvement in reducing unemployment,” it said.
In Q3 2018, NBS data indicated, Akwa Ibom state reported the highest unemployment rate (37.7 per cent), followed by Rivers State with (36.4 per cent), Bayelsa state (32.6 per cent), Abia (31.6 per cent) and Borno state (31.4 per cent). The top five states with the highest unemployed population are Rivers (1,673,991), Akwa Ibom (1,357,754), Kano (1,257,130), Lagos (1,088,352) and Kaduna with (940,480). Among these these states with the highest unemployed population, Lagos State reported the lowest rate of 14.6 per cent during the reference quarter.
Katsina, Jigawa, Kaduna, and Yobe, recorded the highest underemployment rates during the reviewing period, of 39.5 per cent, 38.1 per cent, 31.0 per cent and 30.0 per cent respectively. The National unemployment rate for the quarter was 23.1 per cent, while the underemployment rate was 20.1 per cent.
Between Q3 2017 and Q3 2018, nine states recorded a reduction in their unemployment rates, despite an increase in the national unemployment rate. They include: Akwa Ibom, Enugu, Imo, Kaduna, Kogi, Lagos, Nasarawa, Ondo and Rivers. The same states recorded reduction in their combined unemployment and underemployment rates.
The six states that recorded the highest gains in net full-time employment between Q3 2017 and Q2 2018 are Lagos adding 740,146 net full-time jobs, Rivers (235,438), Imo(197,147), Ondo (142,514), Enugu (122,333) and Kaduna (118,929).
Given that the population is building relative to availability of job openings and coupled with the pervading poverty across the nation, the National Assembly is already calling for the declaration of emergency to arrest the spiralling unemployment mantra.
Minimum wage
The struggle for new minimum wage and the consequential adjustment occupied the better part of discuss in the course of the year, with its possible resolution still uncertain as the debate of agreeing to a uniform nationally acceptable minimum wage, as well as the terms of payment.
The President, Nigeria Labour Congress, Comrade Ayuba Philibus Wabba, said the goal of the leadership was to provide a voice to the voiceless, saying as a matter of top priority, labour has “confronted the huge inequality gap in our society. We have expanded the platform of participation for our women and youths.” For the first time in the history of the Congress, “we have created a democratic youth structure with visible representation at the highest organs of Congress. We have also strived towards the attainment of gender equality and improvements in the conditions of women in the world of work and society in general. We have encouraged our affiliates to emulate this.” 2019 will go down as the year the organised labour extracted a new minimum wage for workers, nationally.
The Capital Market
As a gauge of the state of health of the economy, the Nigerian capital market swiveled through ups and downs in 2019. It witnessed the upstart and the downside of trading through the year
As it stands, the Nigerian equities market is heading towards its second consecutive year of decline and the fifth year of negative returns in six years. Share prices have dropped to their lowest and yields are dropping at the debt market. Faced with liquidity problem both at the stock market and in corporate cash flow, many companies retracted from the public into the shell of private limited liability and unquoted status. But the market made major strides with the listing of the largest telecommunication companies, signposting what the future holds if companies in the dominant sectors of the economy are listed on the stock market. Notwithstanding continued investors’ apathy, the primary market remained relatively active, although new issues were mostly narrowed to rights issue and debt capital raising.
Benchmark indices for the Nigerian equities opened last week with double-digit negative returns. The All Share Index (ASI)- the benchmark index that tracks share prices at the Nigerian Stock Exchange (NSE), indicated average year-to-date return of -14.56 per cent at the opening of the market on Monday November 09, 2019. This implied net loss of about N1.71 trillion so far this year. The ASI opened this week at 26,855.52 points. It had opened 2019 at 31,430.50 points, 17.81 per cent down from its 2018’s opening index of 38,243.19 points. It has been a market-wide bearishness with losses in many sectors outweighing the average loss by the common index. The NSE 30 Index, which tracks the 30 most capitalised stocks at the NSE, indicated average year-to-date return of -19.94 per cent. The NSE Consumer Goods Index, which tracks the consumer goods manufacturing sector, posted the worst return of -26.42 per cent. The NSE Oil and Gas Index followed with -22.59 points. The NSE Banking Index carried a return of -10.53 per cent. The NSE Industrial Goods Index was down by 13.63 per cent while the NSE Insurance Index, showed the strongest resistance with a return of -5.79 per cent.
Aggregate market value of all quoted equities at the NSE stood at N12.962 trillion as against its opening value of N11.721 trillion for the year. The seeming appreciation in the year-to-date performance of aggregate market value of all quoted equities was due to the unabsorbed boost from the listing of two leading telecommunication companies- MTN Nigeria Communications Plc and Airtel Africa Plc. Based on market values, both the ASI and market capitalisation are correlated indices and without new listing or delisting, usually move simultaneously in the same direction. But the ASI is weighted, and as such adjusted for effect of new listing while the market capitalisation is a straight-line summation of share prices and issued shares. Thus, where the ASI and market capitalisation differ, the ASI is widely regarded as the true representation of the market condition.
The 2019 pricing performance further exacerbated the losing streak that had gripped the market since 2014. The market reversed to negative in 2018 with average full-year return of -17.81 per cent. Aggregate market value of all quoted equities at the NSE had declined by N1.889 trillion in 2018. The stock market had been on a losing streak since 2014. Investors lost N1.75 trillion in 2014 and followed this with another loss of N1.63 trillion in 2015. Against the general expectation that political transition and new government will quicken a rebound, equities closed 2016 with a net capital loss of N604 billion. After three years of consecutive decline, the market however recorded a major recovery in 2017 with full-year return of 42.3 per cent in 2017, equivalent to net capital appreciation of N4.36 trillion.
Most analysts agreed that political risks, security risk and macroeconomic uncertainties were major factors that adversely impacted the capital market. The intense political activities in the run-up and aftermath of the 2019 general elections further fuelled macroeconomic concerns as investors waited on the sideline for clear macroeconomic direction. With foreign portfolio investors accounting for nearly half of transactions at the Nigerian stock market, the tense global economic outlook, trade disagreements among major economies, decline in crude oil price and attractive yields in less-risky economies compounded the Nigerian market situation. Foreign portfolio investors (FPIs) showed less appetite for the most part of the year. Foreign portfolio transactions dropped by N326.9 billion in the first half of this year, as foreign investors continued to trade more on the sell side than buy side. Official report at the NSE indicated that total foreign transactions for the six-month period ended June 30, 2019 stood at N472.78 billion, a decline of 40.9 per cent from N799.70 billion recorded in the comparable period of 2018.
The listing of MTN Nigeria Communications and Airtel Africa Plc as well as the Initial Public Offering of Airtel Africa were major positive highlights for the year. MTN Nigeria Communications displaced Dangote Cement to emerge the most capitalised quoted company, underlining the possible impact listing of major companies in key sectors of the economy will have on the market. Skyway Aviation Handling Company (SAHCO) was also admitted to the main board of the NSE after a successful, though undersubscribed, IPO.
Although still relatively inactive, the primary market also witnessed considerable activities with several quoted companies returning to the market to raise new equity and debt capital. Companies that had raised funds or still raising funds included Guinea Insurance, Red Star Express, Wapic Insurance, Union Bank of Nigeria, Access Bank, C & I Leasing and International Breweries among others.
One of the major highlights of the market was the merger of two quoted banks – Access Bank Plc and Diamond Bank Plc, to transform the post-merger Access Bank to Africa’s largest retail bank. The divestiture of Mr. Femi Otedola from Forte Oil and the sale of Dangote Flour Mills by Alhaji Aliko Dangote were major transactions in the mergers and acquisition space.
Seven companies were delisted in the year including four companies that opted to voluntarily delist their shares and reverted to private entities. Diamond Bank was delisted due to the merger with Access Bank. Skye Bank and Fortis Microfinance Bank were delisted by authorities at the Exchange. Skye Bank was taken over by the Central Bank of Nigeria (CBN). Great Nigeria Insurance, First Aluminium Nigeria, Newrest ASL Nigeria and Dangote Flour Mills opted for voluntary delisting.
While the composition of the board of Securities and Exchange Commission (SEC) strengthened the regulatory outlook, the unresolved fate of the suspended Director-General of the Commission Mr. Mounir Gwarzo, even after the court had ruled in his favour, continued to haunt the market. To most analysts, the outlook for the market remains uncertain in the short term. But most also agreed that significant values lay ahead in the medium to long terms.
CBN: conserving forex, lending more to economy
The 2019 was a year with diverse occurrences in the financial services sector. It was a year that the Central Bank of Nigeria (CBN) moved against the continuous use of foreign exchange to pay for items that can be produced locally has become a big challenge foe the Federal Government.
The Federal Government has spent over N1.3 trillion on rice, fish, sugar and wheat imports in the last 12 months which prompted the CBN to take steps to conserve forex.
There were moves to boost lending to the real sector by increasing the banks’ Loan to Deposit Ratio (LDR) to 60 per cent and later to 65 per cent.
CBN Deputy Governor, Corporate Services, Edward Lametek said the apex bank was committed to improving the domestic supply of these commodities which put a lot of pressure on the country’s import bill.
Lametek said the Anchor Borrowers’ Programme (ABP), launched in November 2015, was designed to build partnerships between small holder farmers and reliable large-scale agro-processors, with a view to increasing agricultural output, while improving access to credit for farmers.
“Our targeted focus on the agricultural and manufacturing sectors was driven by the vast opportunities for growth in these sectors given our high population. These sectors have the ability to absorb the growing pool of eligible workers in our effort to meet local demand and save critical foreign reserves. For many countries, the objectives of monetary policy are explicitly stated in the laws establishing the Central Bank, while for others, they are not. The objectives of monetary policy may vary from country to country,” he said.
He said the CBN’s approach to stimulating economic development is centered on Agriculture, Micro, Small and Medium Enterprises (MSMEs) and Infrastructure development.
“You are no doubt aware that the Central Bank of Nigeria has transcended its core mandate of maintaining monetary, price and financial system stability, to undertake developmental initiatives with a view to spurring economic growth and job creation,” he said.
The CBN also, within the year, restricted forex allocation for the importation of milk into the country.
Emefiele had insisted that there was no going back on its planned policy to restrict forex allocation to importers of milk.
At the end of the Monetary Policy Committee meeting for July, the official said the CBN was determined to go ahead with the policy to help conserve between $1.2 billion and $1.5 billion the country spends on the importation of milk every year.
CBN said its priority is on Nigeria and the welfare of all Nigerians had always come first in all its policy considerations.
“Being an apolitical organisation, we (CBN) do not wish to be dragged into politics. Our focus remains to ensure FOREX savings, job creation and investments in the local production of milk,” the CBN statement said.
The CBN described the reactions by some interest groups to the planned policy ”as an attempt to mislead the general public by misrepresenting its case for investments in local milk production.”The apex bank said while it is aware that some of its policies may hurt business interests, ”Nigerians should be allowed to have the buy-in and intense interest in the policies of the CBN”.
The apex bank assured that, as a people-oriented institution, it will remain focused on the overarching and ultimate welfare of the Nigerian masses.
The CBN also advised banks to stop processing milk imports on a credit basis, bankers said on Tuesday, after the bank last month said it would ban access to foreign currency for the imports to spur local production. Nigeria spends between $1.2 billion and $1.5 billion annually to import milk.
Loan to Deposit Ratio Increase
The apex bank had within the year raised the the Loan to Deposit Ratio (LDR) for banks to 65 per cent.
The CBN said banks that fail to meet its directive on 65 per cent LDR by December 31, will be sanctioned.
Emefiele, said most of the banks have obeyed directive to raise LDR to 60 per cent, which was the initial benchmark, and those that fail to do so will face penalties.
Based on the CBN guidelines, failure to meet the minimum loan to deposit ratio of 60 per cent by October 1 will result in a levy of additional Cash Reserve Requirement (CRR) equal to 50 per cent of the lending shortfall of the target.
For breaching its guidelines on lending to the real sector, CBN had also within the year fined 12 major banks N499.1 billion.
The CBN loan to deposit loan policy policy is expected push banks to increase lending to high risk-borrowers, with the potential of incurring heavy losses and higher non-performing loans.
Emefiele also said the CBN wants to see inflation at nine per cent or below inflation before considering cutting its key rate, and that will likely only happen next next year.
“How soon do I see interest rates coming down? I’m not seeing that coming this year,” Emefiele said in an interview with Bloomberg TV in London . “During the course of 2020 we may be able to see that, but I can’t see that until we begin to see the numbers showing inflation is trending downward.”
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