Nigeria’s 2019 Economic Outlook:

Key Issues, Challenges, and

Opportunities

Insight Reports

© February, 2019 | Africa PPP Advisory Services Limited, Nigeria

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Background

Key Highlights

9 Implications

Events that will shape 2019

Opportunities

Making the Move

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Background

Nigeria’s economic and business environment in 2018 was characterized by sustained

but slow recovery from the 2017 recession. Investors had to contend with the typical

constraints of the business environment – high interest rates, weak GDP Growth, weak

consumer demand, deficient infrastructure, energy issues, traffic gridlock on Lagos port

roads and insecurity in some parts of the country, amongst several others.

This insight report highlights Nigeria’s performance in 2018, and spots the key issues

that will shape the Nigeria business and economic environment in 2019, as well as the

key areas of opportunities for consumers, investors (local and International), and the

Government.

Despite the challenges, the economy continued to

maintain low but positive growth; largely driven by the

recovery of oil prices for most part of 2018, which, while it

lasted had a stabilising impact on the macroeconomic

fundamentals of the country. The sharp decline in oil

prices from a peak of $86 in October to $54 per barrel in

December is a clear indication that more needs to be done

to limit the impact of oil price shocks.

Revenue Diversification, Fiscal Deficit,

Unemployment, Infrastructure Deficit, Insecurity,

Poverty, and Poor Education continue to dominate

conversations in the polity

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4

2018 Economic and Investment Highlights

GDP

0

5

10

15

20Inflation Rate

0

510

1520

25

Unemployment Rate

At 1.81% GDP growth was lower than the IMF

and Economic Recovery and Growth Plan

(ERGP) growth forecasts of 2.1% and 4.1%

respectively for 2018. And far below the projected

3% annual population growth, which remains a

cause for concern due to its wider implications for

welfare and poverty conditions in the country.

2Source: National Bureau of Statistics, December, 2018

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2018 Economic and Investment Highlights

GDP

The Manufacturing PMI in the month of January

stood at 58.5 index points, indicating expansion in

the manufacturing sector for the twenty-second

consecutive month

Exchange rate was relatively stable in 2018 in

different segments of the FX market. At the parallel

market, the naira hovered within the band of

N361/$ – N363/$; and at the I&E FX window, the

naira traded within the tight band of N360.95/$-

N363.32. Higher oil prices and stable local

production levels of crude oil are the two key critical

factors that restored calm in the forex market.

Policy rate normalization in the United States of

America, which led to the US FED hike in policy

rate triggered capital flow reversals. The contagion

effect spread across emerging economies including

Nigeria, with foreign investment outflows leading to

pressures in the forex market. Consequently, in a

bid to support the value of Naira, the CBN

sustained its intervention in the forex market.

The Monetary Policy Committee (MPC) of the

CBN in its 2018 meetings consistently left the

Monetary Policy Rate (MPR) and other parameters

unchanged as follows:

- MPR was left unchanged at 14%;

- Cash Reserve Ratio (CRR) at 22.5%;

- Liquidity Ratio at 30.0%.

$47.37bn $43bn

Foreign Reserves

Debt Stock

N27

Trillion N22.4

Trillion

The Central Bank of Nigeria’s (CBN) sustained

defence of the Naira put pressure on the

country’s external reserves

March, 2018 December, 2018

The fast-growing public debt profile threatens the

country’s fiscal sustainability in the medium term

principally due to the affordability of the debt servicing,

which is reflected in a debt service to revenue ratio of

31%; and debt service to capital expenditure ratio of 75%

in the 2019 budget.

Manufacturing PMI

Q1, 2018 Q3, 2018

Year to Date (YtD) loss of the Nigerian Stock Exchange (NSE) All Share Index

stood at -20.37% as at December 20, 2018. The market decline was largely due to

factors such as capital outflows driven by increasing U.S treasury yields, and in

anticipation of more rate hikes by the U.S Fed as well as investors’ skepticism

around the country’s 2019 general election.

Stock Market2017 2018 Change

Average

Corporate Earning

N657.2b

n

N749.7bn 14.07%

Free Cash Flow 257.22 354.85 37.96%

Banks NPLs 15% 12.40% -2.60%

Banks CAR 10.20% 12.18% 1.98%Source: DMO, December 2018

Source: CBN, December 2018

Source: Proshare, January 2018

Source: CBN, January 2018

FISCAL

- African Continental

Free Trade Agreement

yet to be signed

- Bilateral Agreements

with China and Britain

MONETARY

- MTN Profit Repatriation Saga resolved

- PEBEC- Ease of doing business

INVESTMENT

Mostly Contractionary;

- MPR held at 14%, CRR, 22%,

CAR, 30%

- Skye Bank now Polaris Bank

- Increase in capitalisation of

Microfinance Bank

- CBN revokes license of 154

microfinance banks, 22 finance

companies and six primary

mortgage banks.

TRADE

- Controversial Excise duty on alcoholic

beverages

- 41 Items banned from official FOREX

increased to 42; fertiliser included

- Executive Orders 08; Voluntary Offshore

Assets Regularization Scheme

(VOARS); preservation of suspicious

asset recovered from corrupt officials

- Executive order for planning and

execution of projects, promotion of

Nigerian Content in contracts and

Science, Engineering, and Technology

- Value Added Tax Act (Modification)

Order and Review of Goods Liable to

Excise Duties and Applicable Rate Order

- Launch of VAIDS

2018 Policy Highlights

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Corruption and Rule

of LawWeak Education and

Health

Housing DeficitPoverty

• Total life expectancy is 55.2;

ranked 178 out of 192 countries

• A woman’s chance of dying

from pregnancy and childbirth

is 1 in 13

• Low access to quality

healthcare

• 13.2 Million out of school

children

• ASUU Strike

• 17 million housing deficit

• Over 100 million citizens

live in substandard

housing

• Lagos State – third worst

city to live in

• Low access to safe

drinking water

• Poverty Capital of the

World

• 87 Million People in

Extreme Poverty

• Extreme Poverty grow 6

people per minute

• Disobedience of Court Orders;

Sambo Dasuki, El Zackzaky

• Transparency International

scores Nigeria low on corruption

• DSS Invasion of National

Assembly

• Security Agencies Clash with

protesters

Highlights Beyond GDP

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012019

ELECTIONS

02MINIMUM

WAGE

03BUDGET OF CONTINUITY

05Monetary

Policy Committee 04

AFRICA CONTINENTAL FREE TRADE AGREEMENT

06Ministerial Appointme

nts

07Interest Rate

Hike in Advanced

Economies

08OPEC Oil

Cut

09ASUU

STRIKE

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Key events that will shape 2019

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# Outcome Rationale Likely

hood

Likely

Impact

1 Slow Economic Growth (expected to be

between the 1.8% and 2.1% band, and lower

than population growth of 3%)

- Elections and possibility of violence after elections; possible delay of passage of 2019

budget, due to continuous rift between Executive and Judiciary and post election dispute

and protests; Ministerial Appointment delays and initial inertia; OPEC oil cut and low oil

prices; US China trade war and increasing rising protectionism; etc

2 Surge in Fiscal Deficit - Low tax to GDP Ratio of 7%; Corruption, Maturity of government instruments, dwindling

oil prices, OPEC cut, Niger Delta Militancy, Minimum Wage Implementation etc

3 a) Decline in Foreign Reserve

b) Naira will Slide to between N375 -N395 / $1

- CBN’s frequent intervention in the FOREX Market due to Capital flight and reversals;

- dwindling oil prices, OPEC cuts, and possible Niger Delta Crisis post election will make

this unsustainable, and thus naira will slide;

- Politicians buying up dollars and escaping from the country due to post election

corruption campaign against opposition

4 Total Subsidy Removal or Full Deregulation of

the Petroleum Industry leading to increase in

Fuel Price (if “a” above takes place)

- If Opposition wins there will be full deregulation, if the incumbent remains, there will be

the need to source for more revenue and further subsidy removal will be a key

consideration

5 Lay off of Federal and State Government

workers

Rationalisation due to increasing pressure on State’s resources as a fall out of minimum

wage implementation and low FAAC Allocation;

6 Increase in cost of Electricity Full implementation of the Power Sector Recovery Programme in terms of payment of

cost reflective tariffs, to provide liquidity to the sector

7 Inflation will remain double digit and average

between 12.5 & 14%

- Minimum Wage Increase; Elections spending; Short term instrument maturity and

corporate pay-out

8 Increased Government Borrowing (high

interest rate)

- Huge fiscal deficit in the 2019 budget; more Islamic Financing, more Foreign Borrowing;

9 Stock Market Bearish H1, Bullish H2 Follows election cycle

Low Medium High9 Implications

NIGERIA REMAINS POVERTY CAPITAL OF THE WORLD

INFRASTRUCTURE DEFICIT REMAINS A SIGNIFICANT

CHALLENGE

GOVTS REVENUE BASE WILL REMAIN LARGELY

UNDIVERSIFIED

DEBT SERVICE/REVENUE RATIO WILL REMAIN HIGH 04

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Incumbent or opposition: 2019 Constants

Short term

Government

Securities such as T-

Bills

Infrastructure PPPs –

increased government

appetite irrespective of

who wins the elections

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Long term government

debt instruments, as

well as other

government special

instruments such as

Sukuk

Agricultural Value Chain

and in Solid Minerals –

there is significant pressure

on government to diversify

Nigeria’s revenue base

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Investment Opportunities

Real Estate – development of mini cities and integrated communities,

which include mixed development of commercial retail and housing,

schools, and health centres; particularly in urban areas like Lagos,

Abuja, Portharcourt, Enugu.

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IDENTIFYIdentify with an opportunity

VALIDATEValidate opportunity through expert

engagements, feasibility studies,

market research, conferences,

seminars, trainings

FUND Confirm funding requirements,

arrangements, source, etc

ENTER KEY PARTNERSHIPSDevelop key partnerships with

specific competencies that

complement existing

capabilitites

ENGAGEEngage with the opportunity,

learn fast or fail fast, tweak,

adapt, and press.

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Making the move

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Africa PPP Advisory Services

MULTI-DISCIPLINARY TEAM

Our team is drawn from member firms with expertise across

the legal, commercial, and technical aspects of private sector

development and investment analysis, with a well developed

reputation as consultants to Ministries, Departments, and

Agencies of National and State Governments and multi-

lateral organisations such as the Ministry of Budget and

National Planning, Ministry of Transport, the African

Development Bank, the World Bank, and the Department for

International Development

NETWORK

We have established and cultivated critical relationships

with international agencies, as well as public and private

sector leaders across various sectors of the Nigerian

economy. This rich relational network enables us to be well

positioned to get our clients the answers and results they

need to transform potential opportunities into tangible

outcomes

EXPERIENCED

Blended and balanced team of local and

international cross sectorial subject matter experts.

We are involved in a range of investment facilitation

and promotion projects in Nigeria and across the

African Continent

INNOVATIVEOur approach to assignments is innovative and

uncompromisingly collaborative with a deliberate plan

for knowledge transfer. We focus on the big picture,

and pride ourselves on delivering tailored solutions

and insights that meet and exceed client requirements

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Disclaimer

This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You

should not act upon the information contained in this publication without obtaining specific professional advice. No representation or

warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the

extent permitted by law, Africa PPP Advisory Services Limited (a limited liability company, its members, employees and agents do not

accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in

reliance on the information contained in this publication or for any decision based on it.

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Tel: +234 (0) 806 750 3229

Mike ImafidorResearch & Policy Lead,

Africa PPP Advisory

Services Limited

Mike.Imafidor@adamsand

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