What will Drive Nigeria’s Economy in 2019 - Dr. Doyin Salami


Wednesday, February 13, 2019 01.00PM / Bukola Akinyele for Proshare WebTV


Speaking at the NASD OTC Securities Exchange 2019 Business Breakfast meeting in Lagos, economist Dr. Doyin Salami gave insights into what will drive the Nigerian economy in 2019.

In his opening remarks he noted that it was important to understand what drives the economy in Nigeria, and for him the external sector  is at least as important as what happens internally,  and in the external sector 4 parameters were to be considered.

He asserted that what happens in international markets is very important and in this regard there are two dimensions to which attention should be paid.

The first dimension is what happens as far as international interest rates are concerned.

“I think if one’s asking that question you might say to yourself we already got forward guidance from the US Fed that interest rate is headed north in other words higher” Salami said.

Looking at the U.S budget Salami noted that the fiscal position is actually worsening. In 2019, the expectation is that the U.S. deficit would be about $20billion or slightly short of 1trn, which would be roughly 18% higher than what it was in 2018.

From his assessment, 2019 will witness higher US interest rates, which would equally drive international interest rates up.

Also, he said uncertainty around Brexit doesn’t help the European position and notwithstanding the fact that the Japanese are still in an easing mood, which agrees with the position of the IMF that interest rates are headed north. 

The economist was of the view that this is not good news for Nigeria as it means higher international interest rates will reduce the nation’s  attractiveness as an investment destination.  He believes it will be something that portfolio investors will be mindful of in determining where to place their funds. 

The second of the four parameters he mentioned  is trade, which according to him  has become a vexed issue over the last 12 to 18months especially trade between the United States and China. He identified the fact that  Nigeria’s interest in trade actually is more around oil and what happens to crude oil prices shapes the direction of the domestic Nigerian economy. 

Speaking further on this he said “My sense however is that in 2019 we should expect oil prices to ease below $60 on average probably drifting in the direction of a range between 50 and $55 a barrel if things hold out. The reason is not very difficult to understand if you think about it there’s a glut in global oil market in which OPEC is taking about 1.2millions barrels of that glut out, but that is actually not good  news for Nigeria because if you again reflect on the fact that Nigeria’s is committed to an OPEC quota of about 1.6million barrels of crude per day excluding condensates”. 

He said, if condensates are considered it would add a further 300,000 barrels of crude oil that takes the total to roughly 1.9million barrels. 

The Lagos Business School lecturer , was of the view that the Nigerian budget that has been presented before the National Assembly is predicated on an oil volume of about 2.3 million barrels of crude oil per day. 

“In essence the international environment as far as oil is concerned isn’t particularly favorable both on the price side and on the quantity side and let me perhaps even worsen that on the quantity side any analyst who has looked at Nigeria’s oil production over the last thirty years or there about, will discover one interesting parameter or one interesting characteristics and that is that in the year ahead of an election Nigeria’s crude oil production goes down, and as I keep explaining no self-respecting militant will breach oil pipelines after an election” Salami said. 

Another parameter Salami mentioned is capital flows. Nigeria once had a period of $20billion worth of inflows, but today that is now history and what worsens  Nigeria’s  challenge around capital flows is the uncertainty of the elections. For Nigeria, Salami stressed that the imperative of a successful election cannot be understated. 

“What would be ideal for Nigeria is most certainly to avoid a Kenya Scenario and if possible to replay Nigeria’s 2015 experience; what would be ideal for us is an electoral outcome that is successful”, he noted. 

He identified Diaspora flows as the fourth parameter and the reason is simple; the World Bank estimates that somewhere around $22-24biilion of diaspora flows coming into Nigeria. 

Salami speaking to the NASD OTC said “ For an exchange such as yours it might be interesting to find out who gets it? What is the money for? How much? What kind of characteristics? And what did they spend it on? You might find investable income generated from them”. 

Giving further insight , the economist said the international environment is not particularly favourable. International trade is already slowing down and the figures for 2018 already show that. The key parameter is going to be the Chinese and Americans coming to an agreement. He was positive of a deal between both economic powers. 

On the currency front, Salami observed that on the back of high US interest rate, the dollar will strengthen. He said he was clear in his mind that the Nigerian naira is probably already overvalued, I argued that that the naira is probably as high as 10% overvalued and to that extent post-election we will have to start thinking what happens next. 

For the domestic economy, he said “On the domestic macroeconomic front, the important thing to bear in mind is that we are growing, but we are growing very slowly” he said. 

“This is in my view  interesting; notwithstanding that we are growing , one quarter of Nigeria’s economy is still contracting ranging from iron and steel through to post and courier services. One quarter of this economy is still in contracting mode.” 

The economist said, that the economy was fragile with one quarter of it still in recession , although inflation has eased to 12.2% from about 16%. 

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Taking a look at the unemployment rate, he said from a social and security perspective, Nigeria as a country cannot afford to keep unemployment at these levels. 

“Demand is weak, Consumer price inflation represents the rate at which companies pass costs to households, and currently company costs are rising faster than inflation which means companies are under pressure; they are hemorrhaging margins”, he said. 

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In conclusion, he said in 2019 Companies will have to face the challenge of efficiency, "How do we cut our costs in order to retain profitability?".

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