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Select Economic and Financial Indicators2014201520162017e2018f
Real GDP (% change)6.32.7-1.60.82.5
GDP (USD bn)568.5493.8405.4394.8460.7
Inflation (average)8.09.015.716.513.5
Fiscal Balance (% GDP)-1.0-1.6-2.2-3.0-2.8
Broad Money (% change, end period)20.45.918.4-8.05.0
Population (mn)176.5181.2186.0190.9195.9
Exports (USD bn)83.950.138.452.660.6
Imports (USD bn)85.773.547.041.450.2
Current Account Balance (% GDP)0.2-3.20.61.91.0
FX Reserves (USD bn, end period)40.044.226.037.038.5
Exchange Rate (average)165.12197.74258.40334.09365.23
Oil production (mn bpd)2.22.12.02.12.3
Sources: IMF, World Bank, UN, Bloomberg, Ecobank Research

Economic outlook

Economic outlook

Real GDP: We are optimistic about prospects of Nigeria’s exit from recession in 2017, thanks to a recovery in oil production, improved FX supply and sustained expansion in crop cultivation. With regard to oil GDP, we believe stability in the Niger Delta, following the adoption of a more conciliatory approach by the government towards militancy (via increased amnesty payments), is likely to pave way for a recovery in oil production to 2mbpd from multi-year lows in 2016. On non-oil, we see higher domestic grain prices, which are a fall-out of NGN weakness and protectionist trade policies, as supportive of stronger growth in agriculture, even as increased FX availability raises possibility of a resurgence in manufacturing GDP. Nonetheless, regulatory-induced pressures in telecommunications (10% of GDP) and declines in real wages since 2015 give us a bearish picture about the state of private consumption spending (~63% of GDP). Accordingly, we are pessimistic about the strength of the recovery in non-oil GDP (~83% of GDP) which underpins our muted real GDP growth estimate for 2017 (0.8%). Going into 2018, sustained positive improvements in the external sector is supportive of further gains in FX supply even as declining inflation provides leg-room for the CBN to shift to an accommodative monetary policy stance which should lead to modest credit expansion. Alongside on-streaming of new oil fields and an improving regulatory environment with increased prospects for passage of the long-awaited Petroleum Industry Governance Bill, we forecast real GDP growth rate of 2.5% in 2018.

Inflation: Largely reflecting the sizable base effects from 2016’s fuel and electricity price hikes, headline inflation has steadily decelerated over 2017. In addition, improved USD liquidity, on the back of aggressive CBN interventions in the FX market, has reduced the parallel market premium over the interbank exchange rate and helped lower diesel and kerosene prices. However, food-price inflation has remained elevated and we expect this trend to continue as NGN depreciation has induced higher outflows of Nigerian farm produce to neighbouring countries resulting in a shortfall in domestic supply of certain key items. On balance, higher food prices should temper the scale of deceleration in inflation. In 2018, a fairly stable FX picture, relative to 2014-2016, and stronger base effects cascade into moderation in inflation to near trend levels. Although pressures are mounting for upward adjustments to electricity and fuel prices, we see the limited political appetite to stoke fresh hikes as political campaigning ahead of the presidential elections in 2019 commence over 2018.

Fiscal balance: In its quest to reflate the economy, Nigeria’s government plans to spend a record NGN7.4trn in the current fiscal year (extended to April 2018; and up 20% from 2016 budget) with capital spending set to account for 30% of budget. On the revenue side, the government projects fiscal revenues at NGN5.1trn assuming average oil price of USD42.5/bbl, oil production of 2.2mbpd and an exchange rate of NGN305:USD1. Though non-oil revenue projections were lowered, current levels remain above trend levels and are inconsistent with a soft growth recovery profile which imply scope for a wider budget deficit than assumed in the budget (2.18%). While concerns over credibility might linger following budget underperformance in 2016, we see greater budget implementation in 2017 as elections draw closer and estimate an expansion in fiscal deficit of 3.0% of GDP (2016: 2.2% of GDP). Amid mounting concerns over debt-service costs, the government will seek to plug the fiscal deficit by ramping up foreign borrowing via Eurobonds. Over 2018, improved fiscal revenues and a plan to refinance NGN debt with USD bonds to lower debt service costs raise prospects of a moderation in fiscal deficit.

Current account: Higher crude oil production and relative strength in Brent crude prices have resulted in higher exports receipts in 2017. Although increased USD availability is likely to buoy a modest recovery in imports, which dipped below trend levels in 2016, subsisting import curbs on certain items constrain the scale of the rebound in non-oil imports (~83% of total imports) over 2017. Accordingly, we are biased towards further improvement in Nigeria’s current account in 2017 (1% of GDP) after the positive return in 2016 (0.6% of GDP). In 2018, while import growth should rise towards trend levels as domestic demand strengthens and as FX supply stabilises, improving global oil price outlook and higher oil production are likely to result in the trade balance remaining in positive territory albeit narrowing; continued surplus should help to reduce FX demand and thereby support the NGN.

Risks

Given the size of oil receipts to fiscal revenues (~75% of total revenues) and exports (over 90%), sudden declines in global crude oil prices and resumption of violence in the Niger Delta pose downside risks to government spending and exchange rate stability. Meanwhile, any further deterioration in the health of incumbent president Muhammadu Buhari, or any unexpected death, following recent medical trips to the UK, could heighten political risk. Nonetheless, legislative changes in the aftermath of President YarAdua’s death in 2010 and clear rules on handover and transfer of power reduce the threat of a power vacuum. Furthermore, although we expect electioneering to rise ahead of the 2019 election, possibly reducing the authorities’ commitment in implementing the economic agenda, it is unlikely to be acute enough to significantly affect the country’s risk profile.

FX, FI and Commodity Information

FX, FI and Commodity Information

Exchange Rate Structure

RegimeManaged float with multiple exchange rate tiers
TargetCurrently no explicit target exists, but a hard peg has formed at NGN305:USD1 for the official interbank
Type of interventionThe CBN intervenes via Secondary Market Intervention (SMIS) auctions and via use of forwards
Convertible currency?No
Market participantsCBN, Authorized dealers (banks and non-banks), inter-dealer FX brokers
Source: Bloomberg, IMF, and Ecobank Research

FX

FX ProductsSpotForwardsNon-deliverable Forwards (NGN and USD settled)OptionsSwaps
On offerYesYes – up to 12 monthsYesNoYes
Daily trading volume (USD mn)213184n/a
Average trade size (USD mn)Interbank (USD1mn), FX primary dealers (USD 2mn), CBN-FXPD (USD10mn)1.79
Average spreadn/a
Trading hours08.00-15.009.00-14.00
Settlement cycleT+2T+1 to T+Tenor+2T+Tenor+2n/aT+2
FX Market StructureThe CBN is the largest provider of FX.  Multi-tier FX windows: Investors & Exporters window, Private/retail, SME window, CBN-interbank widndow.
Non-resident FX RegulationsSpotForwardsNon-deliverable ForwardsOptionsSwaps
Trade and FDI flowImport licenses required to obtain FX to import specific goods; but at time of writing, Since June 2015, FX bans exist for the import of 40 specific goodsn/a
Financial flowCertificate of Capital Importation required for capital inflows
Resident FX RegulationsSpotForwardsNon-deliverable ForwardsOptionsSwaps
Trade and FDI flowImport licenses required to obtain FX to import specific goods; but at time of writing, since June 2015, FX bans exist for the import of specific goodsn/a
Financial flowNo restrictions
Source: Bloomberg, IMF, and Ecobank Research

FI

Primary MarketTreasury billsTreasury notesSavings bondsTreasury bondsOMOs
IssuerGovernmentn/aGovernmentGovernmentCentral bank
End useGovernment financingGovernment financingGovernment & infrastructure financingLiquidity management
Maturity structure91- to 364-days2-3years2- to 20-yr7-days to 364-days
CouponZeroFixedFixedZero
Coupon paymentsn/aQuarterlySemi-annualn/a
Secondary Market 
Daily trading volumen/aLimited tradingLimited trading
Average trade sizeNGN250mn between money market dealers, and NGN1bn between CBN and money market dealers NGN50mn quoted for Bonds ≥ NGN30bn < NGN75bn volume in issue, whilst NGN100mn for bonds above NGN75bn
Settlement cycleT+2

Ecobank local affiliate contact details:
Ecobank Nigeria, Plot 21 Ahmadu Bello Way, Victoria Island, Lagos, Nigeria.
Tel: +234 1 444 86 20 / 24
Source: Bloomberg, IMF, BCEAO, and Ecobank Research

FI primary market information

FI primary market information

Nigeria Debt

Nigeria Debt2014201520162017e2018f
Government debt (% GDP)10.612.118.623.324.1
Sub-Sahara average44.351.554.754.854.8
External debt (official creditors, % GDP)2.63.14.05.14.9
Sub-Sahara average25.429.531.333.033.4
External public debt stock (USD bn)14.515.216.320.423.3
Share of total sub-Sahara debt (%)5.86.05.76.46.8
Source: IMF and World Bank

Banking sector information

Banking sector information

Nigeria has the largest banking sector in Middle Africa. At end-2015 there were 19 deposit money banks (DMBs) with active operations in the country, regulated by the Central Bank of Nigeria (CBN). In FY2015 total banking sector assets declined by 5% in local currency (Naira) terms to an estimated USD132.8bn. Loans & cash, which account for 68% of total assets, both declined by 9% year-on-year.

Comparative breakdown of balance sheet items

AssetsFY2014FY2015
Cash27,50422,936
Loans to customers70,63362,342
Loans to banks10,6885,349
Investment securities25,74823,784
Other assets18,36118,415
Total assets152,933132,826
Funding
Customer deposits105,41188,591
Borrowings and debt notes issued12,39715,581
Source: Ecobank Research (consolidated data for 17 banks).

The sector is highly concentrated, with the top six banks accounting for 67%, 68% and 69% of total banking sector assets, customer loan and customer deposit liabilities, respectively, at end-2015. However, the concentration risk raised by these six banks has been partly mitigated by the rigorous regulatory regime applied to Domestically Systemically Important Banks (D-SIBs). D-SIBs have to set aside higher loss absorbency (HLA) via an additional capital surcharge of 1% on top the minimum required CAR, which should be met with Common Equity Tier 1 (CET1) capital. They must also meet a host of additional requirements, including quarterly stress-testing of capital and liquidity, quarterly disclosure of the banks’ financial position and risk management, and detailed recovery plans that must be submitted annually to the CBN and Nigeria Deposit Insurance Corporation (NDIC).

Lending has slowed down in response to the economic downturn

Corporate lending accounted for 88% of total outstanding credit in 2015, with public sector lending (7%) and consumer credit (5%) making up the balance. Nigeria’s oil & gas sector accounted for the lion’s share of credit – estimated at 26% of total credit in 2015. Manufacturing (15%) and trade (11%) were the other key sectors for bank lending. However, the economic downturn triggered by the slump in oil prices since mid-2014 has slowed lending in all sectors of the Nigerian economy, a situation that is likely to persist into 2018 as banks switch their focus away from lending and instead focus on portfolio management.

Foreign currency funding pressures persist

DMBs are reliant on deposits for funding, with customer deposits accounting for 85% of all funding liabilities (borrowings, debt notes issued and customer deposits) at end-2015. These are dominated by demand and contractual deposits (72% of all local currency deposits), with savings deposits accounting for the balance. In 2015 funding liabilities declined by 3% year-on-year in local currency terms to an estimated USD104bn, primarily driven by an 8% year-on-year decline in customer deposits. This decline was driven by the contraction in current account domiciliation, especially for oil & gas obligors. DMBs experienced severe foreign currency funding pressures in 2015; this was reflected in the comparison between the local currency loans-to-deposit ratio (LDR) which stood at 53% versus the foreign currency LDR which averaged 107%. We expect foreign currency funding pressures to persist into 2018-19, triggering a flurry of foreign currency debt fundraising activities in the global debt markets.

Provisions and funding costs have impacted revenues

In FY2015 DMBs’ total net revenues (net of loan loss provisions, funding costs and other direct costs) declined by 21% to an estimated USD8.3bn. Net funded revenues accounted for 68% of this total, with non-funded revenues making up the balance. Net funded revenues declined by 12%, driven down by an 81% surge in loan loss provisions and a 13% growth in balance sheet funding costs. This drove up the gross non-performing loans (NPLs) ratio from 3% in FY2014 to an estimated 11% in FY2016 as Nigerian banks chose to recognise bad loans. We expect this trend to continue in 2018-19. Non-funded revenues declined by 35%, pulled down by the slump in foreign currency revaluation gains (after the Naira stabilised) and the ongoing slump in commission on turnover (COT) charges levied on customers. DMBs spent 84% of their net revenues on overheads in FY2015, only retaining 16% as bottom line.

Commodity and trade information

Commodity and trade information

Hydrocarbon & mineral production

Nigeria is Africa’s largest crude oil producer with average output of over 2mn barrels per day of crude oil and other liquid hydrocarbons per day. Since the first commercial discovery by Shell-BP in 1956, the country has enjoyed significant exploration success and currently all the major oil companies are operating on and offshore the country. Nigeria’s crude oil wealth is concentrated in the Niger Delta region which is estimated to hold 37bn barrels of crude oil. Nigeria continues to face insecurity challenges in the Niger Delta region fuelled by the dissatisfaction of the local population which feels marginalised. Nigeria is also the largest gas producer in Middle Africa, with output of over 2trn cubic feet annually and estimated gas reserves of 187trn cubic feet (three times the country’s crude oil reserves).

Nigeria exports almost its entire crude oil production, refining little, and revenue from crude oil sales make up over 75% of government revenue. The country also exports Liquefied Natural Gas via its Nigeria LNG company, a joint venture with major oil companies.

Despite being Africa’s largest crude oil producer, Nigeria is one of the region’s largest importers of petroleum products. Nigeria has three refineries with a combined refining capacity of 405,000 bpd. However, poor maintenance and financing constraints have seen capacity utilization plummet to uneconomical levels. Nigeria consumed 20,000 tonnes of petroleum products in 2016, the largest consumption in Africa (after Egypt and South Africa). 85% of petroleum products consumed in Nigeria in 2016 were imported, with local refineries contributing just 3,000 metric tonnes. The country has the lowest pump price of gasoline across the region which makes imported products vulnerable to illegal export to neighbouring countries where prices are higher.

Nigeria has substantial hard mineral reserves, but they have been little exploited owing to the dominance of the hydrocarbon sector. There is marginal output of limestone, coal, gold and coltan, which could be greatly scaled up, and the potential to develop industrial-scale production of iron ore and uranium. Nigeria is believed to have Africa’s second largest reserves of iron ore, estimated at 2bn tonnes. In recent years Nigeria has become the largest producer of cement in West Africa, with total estimated installed capacity of 42.7mn tonnes in 2015. The surge in production is being driven by the Dangote Group, which is expanding operations across Sub-Saharan African and which plans to boost exports of clinker and cement from Nigeria to the sub-region.

Soft commodity production

Although Nigeria’s agriculture sector has long been overshadowed by the hydrocarbons industry, Nigeria is an agricultural powerhouse producing an array of cash and food crops. Nigeria is the world’s largest producer of cassava and yams, the key staples of the population, with estimated output of 55mn tonnes and 45mn tonnes in 2016, respectively. The country is also Sub-Saharan Africa’s second largest producer of maize, with estimated output of 6.9mn tonnes in 2017. However, Nigeria produced just 60,000 tonnes of wheat in 2016, necessitating huge imports of the grain to close the domestic deficit, while milled rice production – estimated at 2.8mn tonnes in 2016 – also falls well short of domestic demand – estimated at 6.3mn tonnes. Major investment led by Dangote & BUA aims to substantially boost domestic production and milling of rice over the next ten years.

Nigeria produces and exports an array of cash crops. Nigeria is Africa’s third largest cocoa producer, with estimated production of 230,000 tonnes in 2016/17 (August-July). The government has long-term plans to boost production to 500,000 tonnes, well above peak output of 300,000 tonnes achieved in the early 1970s. But competition from other crops, erratic weather and endemic diseases (notably Black Pod) will restrain any increase in production in the near term. Nigeria is a small cocoa grinder, with estimated grindings of 45,000 tonnes in 2016/17. This reflects the constraints facing Nigerian grinders, ranging from the lack of supply of beans to high production costs (the result of erratic power supply).

Nigeria is Sub-Saharan Africa’s largest producer of palm oil, with estimated output of 980,000 tonnes of crude palm oil (CPO) in 2017. However, CPO production has stagnated in recent years, owing to a lack of investment in new plantations and dry weather that has cut yields. The country also produced 151,000 tonnes of natural rubber (NR) in 2014, making it the region’s second largest producer, after Côte d’Ivoire. Nigeria is Africa’s fourth largest producer of cashew nuts, with estimated output of 190,000 tonnes of raw cashew nuts in 2017, representing 5.7% of world production. However, the cashew nut sector is undermined by rampant smuggling, with up to a third of the crop being smuggled to Benin, Cameroon, Togo and Ghana as farmers search for higher prices. Nigeria is Sub-Saharan Africa’s largest producer of tomatoes, with output of around 2mn tonnes per year, representing two-thirds of West Africa’s tomato output. However, around half of annual production rots before it reaches market, owing to poor infrastructure and logistics, necessitating Africa’s largest imports of tomato paste. Nigeria also produced an estimated 50,000 tonnes of sesame seeds and 50,000 tonnes of cotton lint in 2016.

In recent years Nigeria has developed the world’s largest sugar refining complex in Lagos, as part of the government’s backward integration programme. The government has phased out imports of packaged and refined sugar, and today Nigeria refines raw sugar imported from Brazil into fortified refined sugar, both for domestic consumption and for export to the sub-region. Major investment is underway to boost production of sugarcane, with the goal of meeting all of Nigeria’s demand for sugar from domestic output, while continuing to boost exports of refined sugar to sub-regional markets.

Trade flows

Imports

Nigeria’s imports totalled US$35.2bn in 2016, sharply down on previous years owing to acute dollar liquidity constraints. Petroleum products, capital and consumer goods, industrial raw materials and food made up the bulk of imports. Nigeria imported US$9.8bn of petroleum products in 2016, mostly from Western Europe and the USA, reflecting the weakness of Nigeria’s domestic refining sector. Imports of machinery, vehicles and ships were the next largest category, worth US$8.7bn in 2016, reflecting the strong demand from Nigeria’s industrial and transport sector, as well as the relatively undeveloped manufacturing sector. Imports of industrial raw materials included US$1.5bn worth of plastics & US$1.3bn of iron & steel.

Despite producing large volumes of food crops, Nigeria is heavily dependent on food imports, importing US$1.3bn of cereals, US$804m of raw sugar for refining locally and US$620mn of fish in 2016. Overall, Nigeria accounted for 28.4% of Sub-Saharan Africa’s wheat imports and 5.4% of its palm oil imports in 2016. Officially Nigeria imports little rice, but an estimated US$2bn worth is smuggled in from neighbouring countries, notably from Benin and Niger.

Nigeria’s exports totalled US$32.9bn in 2016, three-quarters lower than the peak in 2012 owing to the slump in world oil prices. Hydrocarbons dominate export flows, representing an estimated 81.9% of total export earnings in 2016. That year Nigeria exported US$26.9bn worth of crude oil and US$4.6bn of gas, with just US$34mn of petroleum product exports. The largest soft commodity exports are cocoa and cocoa products, worth US$303mn in 2016, most of which were exported to Western Europe. Nigeria also exported US$122mn worth of sesame seeds, of which the majority went to Turkey and Japan. The rest of Nigeria’s commodities are exported raw to world markets, including small volumes of timber, cotton lint and natural rubber.

Nigeria’s exports totalled US$32.9bn in 2016, three-quarters lower than the peak in 2012 owing to the slump in world oil prices. Hydrocarbons dominate export flows, representing an estimated 81.9% of total export earnings in 2016. That year Nigeria exported US$26.9bn worth of crude oil and US$4.6bn of gas, with just US$34mn of petroleum product exports. The largest soft commodity exports are cocoa and cocoa products, worth US$303mn in 2016, most of which were exported to Western Europe. Nigeria also exported US$122mn worth of sesame seeds, of which the majority went to Turkey and Japan. The rest of Nigeria’s commodities are exported raw to world markets, including small volumes of timber, cotton lint and natural rubber.

  • Flag
  • Population
    188,462,640
  • Area
    923,768 km2
  • Capital
    Abuja
  • Largest city
    Lagos
  • Offical language
    English
  • Major languages
    Hausa, Igbo, Yoruba
  • Currency
    Naira (₦) (NGN)

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