The New Year has kicked off with a promise of improved economy for the country by the president and operators. Analyst are optimistic that the government will institute and sustain policies that will drive the economy towards the desired growth. BUKOLA IDOWU, CHIKA IZUORA, YUSUF BABALOLA, TONY AWUNOR and OLUSHOLA BELLO write.
With the early passage of the 2020 budget and assurances of a better year than 2019 by President Muhammadu Buhari, Nigerians are optimistic of an improved economy as analysts opine that the outlook for the Nigerian economy hangs on a framework of a well-intended but slightly uncoordinated policy outline.
President Buhari in his New Year Message on January 1, 2020 had noted that the policies of the federal government are designed to promote genuine, balanced growth that delivers jobs and rewards industry. Plans he said have been put in place for critical infrastructure projects and policies that would ensure that the country is put on the path of growth trajectory.
Among the critical aspects he mentioned are road, electricity, oil and gas reforms, and trade amongst others as he said the recently appointed Economic Advisory Council which brings together respected and independent thinkers would be on hand to “advise me on a strategy that champions inclusive and balanced growth, and above all fight poverty and safeguard national economic interests.
“Already, we are making key infrastructure investments to enhance our ease of doing business. On transportation, we are making significant progress on key roads such as the Second Niger Bridge, Lagos – Ibadan Expressway and the Abuja – Kano highway.
“The revolution in agriculture is already a reality in all corners of the country. New agreements with Morocco, Russia and others will help us access on attractive terms, the inputs we need to accelerate the transformation in farming that is taking place.
“A good example of commitment to this inclusive growth is the signing of the African Continental Free Trade Area and the creation of the National Action Committee to oversee its implementation and ensure the necessary safeguards are in place to allow us to fully capitalise on regional and continental markets” he stated.
The director-general of Lagos Chamber of Commerce and Industry, Muda Yusuf speaking on the outlook of the country noted, “Amidst continued global slow growth and trade wars, we expect growth to be slow albeit stable in 2020 in the face of implementation of recent policy measures by the government.”
Yusuf noted that “from policy perspective, we are of the view that prolonging closure of the land borders will further add impetus to agricultural output in 2020. However, risk factors to our prognosis include: security challenges in the North-east zone, a major food producing region in the country; and resurgence in herders-farmers clash in the North-central region. Overall, we expect the sector to sustain its upward growth trajectory in 2020.
“The Nigerian economy remains susceptible to external shocks most especially oil price fluctuations. Thus, we reiterate that government as a matter of urgency must intensify efforts in diversifying the productive base to other high-impact and growth-driving non-oil sectors like agriculture, manufacturing and services.”
According to Yusuf, for Nigeria to achieve strong growth of about six to eight per cent that is needed to effectively tackle poverty and unemployment, “we advise economic managers and policy-makers to embrace structural reforms such as deregulating the oil & gas sector; harmonizing the multiple exchange windows, privatizing redundant state assets, fixing infrastructural problems of poor power supply and bad roads.”
Analysts at Cordoros Capital in an emailed note said the recent policies of the government and the implementation of the 2020 budget are good signals for the economy. “Notably, the recent amendment of the Deep Offshore and Inland Basin Production Sharing Contract (DOIBPSC) 1993 Act and the on-going reviews of the Tax Acts via the finance bill, will support the implementation of the 2020 Budget and beyond in the face of sharp rising debt profile.
“Again, the unprecedented early passage of the 2020 budget by the senate in Dec-19, to return the economy to a January to December budget cycle, effective 1st of Jan-20, is a positive development.
“Also, a lower yield environment, triggered by the CBN’s recent mix of heterodox policy actions, will not only ease the cost of rolling over government borrowings but also stimulate domestic private sector investment. On the back of the above, GDP growth is expected to sustain a gradual uptick in 2020, anticipated to expand above 2.3 per cent, faster than 2019 but below 3.0 per cent.
LCCI’s Muda Yusuf noting that Nigeria’s present administration remains committed to bridging the infrastructure deficit in Nigeria, said the government has prepared to reflate economic growth with an ambitious N10.6 trillion budget. The Buhari-led government earmarked N2.14 trillion for CAPEX spend in 2020 (excluding CAPEX components of statutory transfer).
The President has acknowledged that investing in critical infrastructure is a crucial component of the government’s fiscal strategy in 2020.
In the Agricultural sector, the LCCI noted that the Central Bank of Nigeria (CBN) like it did in 2019, will maintain status quo by not relenting in supporting the sector with much-needed funds in ensuring that the wide gap between local demand for food and supply is bridged, saying that “We also see improved credit flow to agriculture on the back of proposed increase in deposit money banks’ loan to deposit ratio to 70 per cent.”
For manufacturing sector LCCI stated that “Our prognosis for manufacturing sector is mixed. We believe manufacturing sector will continue to benefit big from CBN’s aggressive credit push to the real sector. In furtherance, we see scope that competition between foreign and local producers will fade on prolonged closure of land borders.
“Also, early budget implementation for capital projects is positive for the sector. We are of the view that failure by government to fix structural constraints with regards to fixing power challenges and rehabilitating deplorable road networks, will perpetuate the poor productivity and performance of the sector.”
Yusuf also noted that performance of trade sector in 2020 will be shaped by the direction of government policies. According to him, in our opinion, continued protectionist measures of government will most likely limit growth in 2020. Elsewhere, the level of the country’s engagement in Africa Continental Free Trade Area (AfCFTA) scheduled to kick-off July 1, 2020, will also impact the performance of trade sector.
He also opine that the potentials for growth of the Nigerian economy is immense, “but we should not remain a nation of potentials. In order to unlock these huge potentials, we need to put in place appropriate policies, regulations and institutions.”
For the aviation sector, the New Year holds a lot of hope as the new international terminal of the Lagos and Kano airports would have started processing passengers. In the second quarter, work would have been completed on the rehabilitation of the Enugu airport and Accident Investigation Bureau (AIB) would have been upgraded to multimodal accident investigation agency.
With increasing aircraft orders it is expected that commercial aviation will witness an improvement. Globally, the International Air Transport Association (IATA) is of the view that after the challenges of 2019, improvements are expected for 2020.
In its Nigeria Aviation Annual Review and Outlook, managing director of FCI International Limited, Mr Fortune Idu is of the view that there are huge potentials for businesses in the aviation industry. According to him, The sector needs more airlines, service providers and above all, major maintenance facilities; and Aero Contractors, which may attract new investors in the New Year could expand its facility and become a broad maintenance organisation for all types of aircraft.
“It is also expected that in 2020, the symmetry on national carrier and concession, which are major programmes of the Buhari administration will become clearer”, he stated. In his projections for aviation in Nigeria for 2020, secretary general of Association of Nigerian Aviation Professionals (ANAP), Comrade Abdulrasaq Saidu stated that, what is expected from the government this year is a renewed focus on infrastructural development, workers welfare, concession amongst others.
Comrade Saidu said that the issue of welfare of aviation workers has been lingering for a very long time, pointing out that money approved for the workers of some aviation agencies has not been completely implemented which he minister is expected to address in 2020.
On infrastructure, the labour leader said “government is trying in the areas of infrastructure but more efforts need to be put in 2020. The 18L runway in Murtala Mohammed Airport (MMA) must have to be taken care of, this year because the plan to repair the runway has been lingering for some time.
It not good that aircraft cannot land there after 6pm. So, they made planes landing at local airport to go and land at international and use 20 minutes to taxi back to the local terminal”.
On funding, he stated that “the Accident Investigation Bureau (AIB) is also expected to get more funds to be able carry out its work efficiently. The Ministry supposed to present a supplementary budget for AIB because they have improved and performed very well under the commissioner and CEO. They need proper funding this year. It is expected that the issue of indebtedness in the sector. The unions will tackle it this year.
“The Nigeria Air will succeed, that is, if the minister carries labour along. In as much as we are not going to support airport concession, we have resolved to support the Nigeria Air project totally. We are ready to discuss it and look at the roadmap. In fact the Nigeria Air is overdue for take-off. There is no gainsaying in saying that, Nigeria never need national carrier. Nigeria needs National carrier”, the ANAP scribe said.
The immediate president, Nigerian Shipowners Association (NISA), Aminu Umar, noting that the minister had given so much assurance in the maritime sector, said in the new year Shipowners will see the disbursement of Canotage Vessels Finance Fund (CVFF), Implementation of the $198million maritime security contract to reduce piracy in Nigerian waters.
“I believe in 2020, piracy will go down and CVFF will be disbursed for investors to do business so, I believe 2020 will be a very encouraging year for the Martime industry.”
When asked what government didn’t get right in 2019 and should do right in 2020, Umar said, “security situation on our Waterways should improve because there are lot of attacks at the end of the year on vessels on the nation’s seaports. We need to see a lot of improvement on attacks in the maritime security sector in 2020 to drive investment into the sector.”
Oil & Gas
The Minister of State for Petroleum Resources, Chief Timipre Sylva, raised hope that the review of the Petroleum Industry Bill (PIB) may likely be passed by mid-2020 as the review process is currently at an advanced stage.
Industry operators and indeed the International Oil Companies, IOCs, have said that the continued delay in passing the Petroleum Industry Bill, PIB, into law is creating uncertainties. The uncertainties had delayed the take-off of fresh projects worth several billions of dollars that would grow industry capacity and reserves.
In addition, government is likely going to launch a new oil licensing round in mid-2020 for both offshore and onshore blocks in a bid to hit its 3 million barrels a day b/d output target by 2023.
Group managing director, the Nigerian National Petroleum Corporation, NNPC, Mele Kyari said the bidding round will be launched after the government concludes talks with foreign oil companies on new fiscal terms for oil exploration following recent amendments to the law.
Nigeria needs the support of international oil companies to raise exploration activities in the country if it is to meet targets to raise production to 3 million b/d by 2023. Nigeria is also looking at progressing with some key deep offshore field development.
The prolific fields are the Zabazaba and the Etan fields which are located in oil prospecting lease (OPL) 245 offshore Nigeria in the Niger Delta of the Gulf of Guinea, in water depths ranging from 1,200 meter, -2,400 meter.
The oil and gas fields form part of an integrated project, which is being jointly developed by Nigerian Agip Exploration (NAE) and Shell Nigeria Exploration and Production Company (SNEPCO). Nigerian Agip Exploration (NAE) is also serving as the operator for the project.
Government is also set to commence the rehabilitation of four oil refineries in Port Harcourt, Warri and Kaduna in January 2020. The Group Managing Director of the NNPC, said that the corporation is determined to ensure the refineries achieve optimum refining capacity by 2022.
The aim of repairing the refineries is to restore the country’s refining capacity and the Corporation is determined to close out all necessary conditions for us to deliver on the project.
With the Nigerian stocks market closing 2019 on a negative note with 14.60 per cent loss, stakeholders have predicted the year 2020 will provide a more attractive market for investors.
The managing director, APT Securities and Funds Limited, Malam Garba Kurfi, expressed optimism that 2020 would be a good year for the stock market as witnessed in 2017 when the market gained more than 42 per cent after dropping in 2015 and 2016. He listed the factors expected to drive the market in 2020 to include early signing of the budget, payment of new minimum wage and increment in the Loan Deposit Ratio (LDR).
On the outlook for the market in 2020, CEO of Sofunix Investment and Communications, Mr. Sola Oni said that is attractive, saying that but this is contingent on fixing of Nigeria’s weak economy where the Gross Domestic Product (GDP) currently grows at 2.3 percent, while the country’s population grows at 2.6 percent, a misnomer.
According to him, we expect faithful implementation of 2020 budget which was approved on record time. Government at all tiers should also take advantage of the market to mobilize fund for development projects. However, we expect the market to be driven by a mix of factors.
“Effects of negative real return on fixed income securities following the new policy on OMO will continue to enhance demand for equities and attract more investors into the market. We expect consolidation to be the hallmark of Insurance Sector as the market shall witness a flurry of mergers and acquisitions as well as business combination in a bid by insurance companies to recapitalize in line with the new policy of the National Insurance Commission (NAICOM).
“Many stocks are still trading below intrinsic values; hence, attractive valuation will attract more investors. We expect intense competition among Securities Exchanges with the emergence of FMDQ as a full-fledged Exchange and Lagos Commodities and Futures Exchange (LCFE) which is set to commence as a Pan African Exchange.
Already, NASD Plc has raised the bar of Over-The-Counter (OTC) trading in Nigeria. But we expect the government to intensify efforts on creating conducive business environment through its policy on ease of doing business and building security.”
He also noted that the Securities and Exchange Commission (SEC) has just released the rules on trading in Derivatives and this is consistent with the plan by the NSE to commence trading in Derivatives in 2020, saying that this is expected to enhance price discovery and usher investors on the Exchange to modern risk management whereby they can hedge against volatility.
“We expect introduction of more innovative products to accompany derivative trading. Barring unforeseen circumstances, the Exchange is likely to commence demutualization and this will change the structure of the market as the current owners, the dealing member firms shall become shareholders and thus bring a new era of corporate governance on the Exchange. With the crash of yields on fixed income securities, pension funds may opt for high-yielding stocks in the securities market and this is expected to boost market activities,” he said.
For banks, analysts are looking at reduced income following a drastic cut in bank charges which took effect on the first day of this year alongside other policies that the Central Bank of Nigeria had introduced. One of such is the loan to deposit ratio minimum of 65 per cent that had become effective since last year and which the CBN plans to increase to 70 per cent this year. while this will see the banks being forced to lend more, they would no longer be able to profit as much as they used to from investment in treasury bills and other government securities which guarantee returns. Incomes from electronic transactions would also be cut by half with the reduced bank charges.
The Nigerian banking sector is entering a new phase, wherein industry players are legislated to transact in the more traditional business of banking as opposed to allocating more capital to high-yielding risk-free investments, as has been the case over the last few years. According to analysts at Cordoros Capital, with the new direction, the trajectory of growth in the revenue of banks will steepen as risk asset portfolios expand.
“However, this will come with increased systemic risk, given the pace of growth, and the still fragile state of the economy. Consequently, we expect the cost of risk across the industry to spike going towards 2021FY and NPL moderation to temper following an initial dip that will follow the significant loan growth. Notwithstanding, NPLs will spike in the event of any stress to the system, which could easily cascade into wider systemic frailty.”