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Q1 and Outlook. Below is the summary:
updates global growth projection for 2021 to 5.5%
- The International Monetary Fund (IMF) in its January 2021
Outlook Update stated that the global economy will grow by 5.5% in 2021.
- This is an improvement from its earlier projection of 5.2%.
- According to the IMF, the update reflects "expectations of
a vaccine-powered strengthening of activity later in the year and additional
policy support in a few large economies".
- The Fund however noted that recovery will vary across
countries, depending on the efficacy of policy support, vaccine administration,
among other factors.
- According to data from the IMF, emerging and developing
countries will lead global economic recovery with a growth of 6.3%.
- China will experience a GDP growth of 8.1%, higher than the
pre-COVID-19 growth of 6% in 2019.
- The economy of Sub-Saharan Africa (SSA) is expected to
expand by 3.2% in 2021 after a contraction of 2.6% in 2020.
Markets: Capital markets showed signs of recovery in early 2021
- Yields on 10-Year government bonds moved upwards in major
economies in 2021Q1.
- Central Banks' decision on interest rate, breakthroughs in
the development of COVID-19 vaccines and inflation expectations are some
factors that led to upward yields movement.
- Yields on 10-year government bond inched closer to
double-digit for major economies in Africa.
- While the impact of COVID-19 affects market confidence
across countries, some markets still defy all odds.
- Although many of the markets on our watch list closed 2020
on an upside note, some markets could not sustain the momentum in 2020Q1.
Production cuts and COVID-19 vaccines sustained higher crude oil price in Q1 2020
- Crude oil price has trended upwards since the end of
- Year to date (March 19), crude oil price has increased by
26% and has averaged US$60.8 per barrel.
- The increase in the price of crude oil has been driven by
factors such as production cuts by OPEC and non-OPEC members and improved
demand due to the administration of COVID-19 vaccines.
- These factors will continue to sustain high crude oil price
in the second quarter of 2021.
Nigeria's Macroeconomic Update
records early exit from the recession with a growth of 0.1% in Q4 2020
Data Source: National
Bureau of Statistics
- In the fourth quarter of 2020, the Nigerian economy
expanded by 0.11%.
- This means that the economy exited one of its worst recessions
in the fourth quarter having posted a decline of 6.1% and 3.6% in 2020Q2 and
- The non-oil sector was responsible for the improved GDP
performance in 2020Q4. The sector grew by 1.7% in the quarter.
- Nigeria's crude oil sector remained in recession with a
negative growth of 19.8% in Q4, mainly due to lower crude oil output.
- Real GDP growth for 2021 is expected to be positive. We
expect the economy to expand by 1.3% in 2021 in our moderate case scenario and
2.3% in the best case.
keep rising as structural problems persist
- In February 2021, inflation rate continued its upward trend
to settle at 17.3%.
- Prices of goods have risen significantly in the last five
Data Source: National
Bureau of Statistics
rate depreciates due to demand pressures
- The foreign exchange market continues to witness supply
shortage of foreign currency to meet its demand.
- Consequently, the gap between the various markets keeps
- As at March 16, 2021, the Naira on the I&E window
closed at N409.67/US$, representing a year to date appreciation of 0.14%.
- It depreciated by 5.43% in the parallel market to N485/US$.
Meanwhile, on the CBN Official, the Naira remained stable at N379/US$.
- Foreign exchange pressure will continue into the second
quarter owing to limited inflows from both crude and non-oil sources, rising
imports and a backlog of foreign currency demand.
- External Reserves trended upwards at the beginning of the
year 2021, gaining 3.2% as at January 25.
- Despite rising crude oil prices, Reserves have lost 5.7% of
its value from January 25 to March 17.
- Challenged oil inflows due to OPEC cuts, weaker foreign
investment inflows, high demand for foreign currency to finance imports and
other needs and possible clearance of FX backlogs are factors that continue to
weaken External Reserves.
records largest Trade Deficit of N7.4 trillion in 2020
- In 2020, Nigeria recorded its largest trade deficit of N7.4
- While the value of exports declined by 35% in the year,
imports value increased by 17% in 2020.
- Constrained supply chain, closure of land borders, exchange
rate depreciation and weakened exports resulted in a larger trade deficit in
- The deficit is expected to narrow in 2021 as economic
Data Source: National
Bureau of Statistics
Analyst Views on GDP Growth, Inflation, FX and Trade
- Nigeria recorded a GDP growth of 0.1% in 2020Q4. We expect
that this positive growth momentum will continue in 2021 following the impact
of government's fiscal stimulus on key sectors as well as improving economic
activity. Major risks to growth are foreign exchange scarcity, slow pace of
reserve accretion, stagnant oil output and insecurity.
- Prices will continue to rise in 2021 given the challenges
associated with insecurity which has a direct impact on agricultural output and
- We expect, however, that the rate of change in prices
(inflation) will moderate in the later part of the year as the government will
intensify efforts to address insecurity concerns.
- Other factors such as high fuel cost, logistics bottlenecks
and infrastructure deficit will persist in the year.
- Foreign exchange challenges will persist in 2021 but we
expect moderation in the later part of the year. The wide gap between the
official rates and parallel markets will continue to be a major FX challenge in
- High interest rates environment, clearing of FX backlogs
which has been estimated at US$2 billion, issuance of Eurobonds, FX policy
clarity are actions that could attract FX inflows into the economy.
- We expect improvement in foreign trade figures,
particularly both oil and non-oil export as demand conditions improve across
- Import will continue to rise. Nigeria's ability to reverse
its trade deficit in 2021 will depend largely on crude oil production volumes.
- Foreign investment inflows will be higher than the US$9.7
billion recorded in 2021 but below the pre-COVID-19 level of US$24 billion.
Foreign exchange scarcity and insecurity will serve as a major constraint for
investment inflows in 2021.
Policy: FGN Expenditure aims to drive economic recovery
- Nigeria's President approved a spending plan of N13.59
trillion in 2021, which is 25.7% higher than the 2020 revised budget.
- Capital expenditure - N4.37 trillion (32.2% of total)
- Recurrent expenditure - N9.22 trillion (67.8%)
- Debt servicing totaled N3.32 trillion, accounting for 24.5%
of total expenditure.
- Debt servicing for 2021 is 41.6% of federal government
revenue, much better than 83% (actual) recorded in 2020.
- Overall, budget deficit for 2021 is N5.6 trillion. Actual
deficit will be higher due to the anticipated revenue shortfall when compared
with its target.
- Deficit as a share of GDP is expected to remain above 3% in
- Revenue projection of N7.99 trillion for 2021 is 37% higher
than 2020 projection of N5.84 trillion.
- For 2020, actual revenue was 73% of targeted revenue, despite
several revisions of crude oil benchmark price and output due to COVID-19.
- While actual revenue for 2021 will improve as economic
activities pick up in the year, it is expected to fall below projections
contained in the budget.
- Revenue will be constrained by crude oil output as Nigeria
complies with OPEC quota.
Policy: Outlook and Expectation
CBN Monetary Policy Committee (MPC) in its first meeting of 2021 made the
- Retained the MPR at 11.5%;
- Retained the Asymmetric Corridor at +100/-700 basis points
around the MPR;
- Retained Cash Reserve Ratio (CRR) at 27.5 percent; and
- Retained the Liquidity Ratio at 30 percent all through the
Key factors expected to
influence monetary policy decisions at the next MPC meeting are:
- The need to support economic growth
- Lower earnings from crude oil sales
- Lower foreign investment inflows
- Declining external reserves
- Exchange rate volatility
- Liquidity management
- Inflationary pressure
- Rising public debt
- The need to drive growth and equally curtail the pace of
inflationary pressure will put the CBN in a dilemma of either raising MPR to
curtail inflation of reduce MPR to support growth.
- With the admission that there is weak transmission between
the MPR and inflation at the previous MPC meeting, the Committee will not raise
rates at the next meeting.
- With the introduction of CBN Special Bill alongside
conventional OMO Auctions, system liquidity will be relatively stable.
- The interest environment will stabilize deep into the year
as government will have to offer higher rate to attract investors to purchase
- Exchange rate will remain volatile in the year given the
weak reserve position and lower earnings from non-oil exports.
- We expect the Naira to depreciate further into the year as
the outlook of major sources of inflows - oil price, foreign investment inflow,
export earnings - remains constrained.
Views on Fiscal and Monetary Policy
- Nigeria has a major revenue challenge. Despite the increase
in crude oil price in early 2021, external reserves continue to plummet, mainly
due to stagnant crude oil production.
- This means Nigeria will struggle to take advantage of
higher oil prices in the early part of 2021, until OPEC relaxes production
- The implication is that oil revenue will continue to be
challenged and could fall below its projection of N2.4 trillion in 2021.
- Non-oil revenue will be higher than the actual N2.42 trillion
realized in 2020 but lower than the projected N6 trillion. Structural
challenges, a large informal economy and tax compliance issues are factors that
will limit growth of non-oil revenue.
- Debt profile will continue to increase in 2021, likewise
actual government deficit.
- To ensure improvement in fiscal governance, the government
must intensify efforts to drive prudent fiscal spending and ensure transparency
and accountability of public funds.
- All through the year, Monetary Policy Committee will be
caught in the battle of either raising rates to attract foreign exchange
inflows into the economy or reducing rates to support economic growth.
- We expect the MPC to hold all parameters in its second
meeting of 2021. This decision will be based on the need to strike a balance
between growth and foreign exchange stability.
- For inflation, the MPC had earlier stated that inflation in
Nigeria is driven mainly by structural factors which dwell outside the control
of the Committee.
- While this view is true, we believe that exchange rate
which is largely influenced by the Central Bank is also a major determinant of
- Given this, tightening of monetary policy could favour FX
inflows and further suppress price increase. As seen in recent months, the CBN
can implement a tight monetary policy without necessarily adjusting the MPR. We
believe the CBN will adopt other measures to tighten monetary policy.
- Therefore, the Committee will keep rates stable in the
first part of the year with the expectation that there will be higher FX
inflows and reserve accretion.
Market: The impact of OMO regulation gradually fades out as yields advance
- The impact of the CBN's OMO regulation that restricted
participation of non-bank corporates from OMO transactions is gradually fading
out as yields recover across segments of the fixed income market.
- The increase in yields was driven by
- Week on week auction of OMO instruments by the CBN;
- Introduction of the CBN Special Bill;
- Desertion of the fixed income market for the equity market.
- Yields in the FGN Bond market advanced in 2021Q1 across
tenors as the average yield increased to 9.39% (as at March 16 2021) from 6.12%
at the beginning of the year.
- The federal government is positioned to borrow N5.6
trillion to finance the 2021 Budget which potentially could be higher at the
end of the year as revenue remains constrained.
- Yields in the NT-Bill market also advanced in 2021Q1.
- Average yield in the NT-Bill market increased to 3.13% as
at March 16 from 0.46% at the beginning of the year.
- Yields in the Treasury Bill space will continue to rise as
the government is positioned to borrow more in the year and the CBN continues
to implement measures to contain the liquidity in the banking system.
- Like other fixed income instruments, yields in the OMO
space are fast recovering.
- Average OMO yield expanded to 6.89% at the close of March
16 from 0.58% at the beginning of the year.
- The outcome in the OMO space is partly as a result of the
introduction of CBN Special Bill. Generally, the CBN has expressed its
willingness to raise rates in the year.
- Rising inflation rate might incentivize the CBN to auction
more OMO instruments at higher rates in 2021.
The equity market sheds gains recorded in 2020Q4 as profit-takers dominate
- Despite the impact of COVID-19, the NSE closed 2020 as one
of the best performing stock markets in the world having recorded a 50.03%
expansion in the All Share Index.
- This performance was largely motivated by gains in the
industrial index and telecommunication index.
- The NSE Market Capitalisation expanded by 62.5% in 2020,
representing a total of N8.1 trillion increase in investors fund.
- This, however, is being reversed as investors maintained a
profit-taking sentiment, which has become a trend in the first quarter in
- Year to date (March 16), the NSE-ASI has recorded a loss of
3.85% while investors have lost N797.84 billion driven largely by losses on
- The current appreciation of yields across segments of the
fixed income market has contributed to the bearish run in the equity market.
- Based on data for January 2021, investors' participation in
the equity market subsided, when compared with data for November and December.
- Particularly, foreign participation remains significantly
lower when compared with domestic participation.
- Month-on-month, participation in the NSE equity segment
shrunk to N232.5 billion in January 2021 (13.7% decline) from N269.2 billion in
- Domestic investors continue to dominate foreign
counterparts. Total domestic transaction decreased to N185 billion (7.2%
decline) in January 2021 from N199 billion in December 2020 accounting for
79.6% of the total transaction.
- Participation from foreign players decreased to N48 billion (32% decline) in
January 2021 from N70 billion in December 2020 accounting for 20.4% of the
- Despite the lower participation, foreign investors' transactions on the NSE were mainly divestment (investment outflows) while the
major investment inflows were from domestic investors.
Where do we go from here?
Projection for 2021
Economic Outlook: Public Spending after COVID
Macro-Economic and Banking Sector Themes for 2021
2021: Understanding 2021's Mega Trends
2021: Emerging Technologies Have Potential to Spur Growth
2021: A Gaze into Market Performance - Nigeria and the Commodities Market
2021: A Gaze into Market Performance - Fixed Income and Currency Markets
2021: How Sectors of the Economy Fared in 2020 - Transportation Sector
2021: How Sectors of the Economy Fared in 2020 - Finance and Insurance Sector
2021: How Sectors of the Economy Fared in 2020 - Telecommunication Sector
Best Affirms Credit Ratings of AXA Mansard Insurance Plc
2021: How Sectors of the Economy Fared in 2020 - Oil and Gas Sector
and P Global Assigns Ecobank Nigeria's $300m Senior Unsecured Loan Notes 'B-'
Assigns Ecobank Nigeria Limited's $300m Senior Unsecured Notes 'B-' Final
2021: How Sectors of the Economy Fared in 2020 - Agriculture Sector
2021: How Sectors of the Economy Fared in 2020 - Manufacturing Sector
2021: A Review of Monetary and Fiscal Policies Introduced in Nigeria in 2020
Revises Benin's Outlook to Positive Following the Re-opening of Border With
Tax and Regulatory Landscape: 2020 in Retrospect and Outlook for 2021
Economic and Financial Market Report: Unboxing the New Realities
2021: Inside a Perfect Storm: Monetary and Fiscal Sword Fencing -Monetary
2021: Inside a Perfect Storm: Monetary and Fiscal Sword Fencing - Nigeria's
Outlook: FBNQuest Research Sees modest GDP Growth for Nigeria in 2021
2021: The Year 2020 in Retrospect - A Bleak Year for Households
2021: Eyeballing Major Economic Indicators in 2020 - Exchange Rate
Economy and Financial Markets: 2020 Review and 2021 Outlook - A Blurry Path to
2021: Eyeballing Major Economic Indicators in 2020 - Nigeria's Public Debt
2021: Eyeballing Major Economic Indicators in 2020 - Trade Balance
The World and Nigeria in 2021 - A Review and Outlook
2021: Eyeballing Major Economic Indicators in 2020 - Capital Inflow
2021: Eyeballing Major Economic Indicators in 2020 - Unemployment