2015 Nigeria outlook & Synopsis

Nigeria looks to recover eco- nomically in 2015 as past is- sues and dilem- mas are slowly resolved. The country is emerging from an electoral cycle that put extreme pressure on policy makers. In turn, monetary policy has suffered. Once the elections are settled, policy makers can return to ad- dressing economic concerns and re-focus the country towards strong economic growth. Executive and legislative branches inability to pres- ent prudent fiscal policy and restraint continue to hinder policy makers’ efforts to sta- bilize the economy, particu- larly the currency. A budget drawn up in 2011 was only ratified last May. Poor fiscal management is evident again as budget framework for 2015 budget became skewed when global oil prices depreciated. Capital spending cuts from N1.55trn to N630bln year-over-year are encouraging policy mak- ers. Mismanaged spending con- tinues to hinder Nigerian advancement. Sovereign debt indicators show a favorable picture and are not a primary concern, but the government is not showing prudent be- havior. Inclusion of Nigerian Na- tional Petroleum Company (NNPC) in budget adds to the economic and political crises. NNPC continues to fail to convince policy makers of it autonomy. Global oil prices recently started to stabilize but not before losing over $50/bbl. Nigeria will seek to use this event to parley deregulation of petrol prices. In November,
policy makers raised rates 100bps to 13%. Cash reserve requirements for private- sector bank deposits also were elevated from 15% to 20%. This policy change is not anticipated to have much ef- fect on the overall economy. The hike does offer limited protection from global condi- tions. Businesses are demand- ing rate cuts and looser credit. Policy makers, having little confidence in banks’ ability to manage themselves are ap- proaching this with caution. Inflation continues to be well managed. Targets were met in both 2013 & 2014, set- ting the stage for continued management. Policy makers have not yet a target for 2015. Currency depreciation and shrinking corporate margins are creating murky waters. Insecurity in close regions – particularly the north east – are creating fears of a disrup- tion of the food supply chain.

Any distruption could trigger consumer and wholesale prices to accelerate, bolstering inflation. Liquidity in leading markets also poses a threat to accelerate inflation. A larger concern is stabilizing the country’s currency. Policy makers are not getting support from forex earnings. Future rate hikes may be in order to continue to devalue the currency. Year-over-year valuation growth is expected from the All Share Index (ASI). In 2014 the market lost 16% of its value. Same year growth was projected flat to -1%. Although not a fiscal victory, it is a progressive growth win with food future indications. Year- over-year appreciation would be about 15% for the market. Fixed-income assets con- tinue to be flat. Bonds yield rates are holding at 2012 levels. Pressure is coming from a “negative watch” call by JP
Morgan. Bond auctions are seeing less action showing buyer fatigue which is also negative. The U.S. dollar re- mains strong creating a “flight to quality” effect on the Forex. The yield curve remains flat and is not expected to change much. Exports will be under pres- sure as global oil prices are ab- sorbed and priced into prod- uct. Imports are a sore thumb for Nigeria as the country fails to curb growth through domestic production. Key metrics may show signs of future expansion. GDP growth in 2012 was 4.3%. The country grew up till 2014 when it peaked at 6.1%. Fore- casts are projected at 5.3% in 2015. Key rates were raised to 14% recently, the highest in 3 years. Non-policy issues are Nigeria’s main issues. Poor, or lack of, solid policy in legisla- tive and executive branches present the greatest risk.