Economy: Nigeria off to best start since 2015


January 3, 2018 | 2:00 am
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Key economic indicators as of January 2018 suggest that the Nigerian economy is off to its best start in four years as Africa’s largest oil producer puts the worst of its recession nightmare behind it, largely due to a strong rebound in oil prices and production.

BusinessDay examined seven macroeconomic indicators to gain some insight into how Nigeria’s start to the new year compares to the same period within the past four years.

The indicators include global oil prices and local production levels, foreign exchange reserves, the All Share Index of the Nigerian Stock Exchange (NSE) and inflation. Also included are the Purchasing Managers Index (PMI) and exchange rate.

At $66.7 per barrel, as of January 2, 2018, the current price of Brent crude is the highest on the turn of a new year since January 2015 when it traded at $56 per barrel on January 2.


Economy: Nigeria off to best start since 2015

In January 2016, Brent price, hammered by a growing supply glut, fell off some 34 percent to $37 per barrel, compared to January 2015.

By January 2017 oil price at US$56 was 51 percent higher when compared to January 2016 in the wake of OPEC cuts implemented to check the supply overhang in the market. Oil price at US$66.7 on January 2, 2018 is 18 percent higher than the similar period in 2017, based on data compiled by BusinessDay. Current oil price is the highest in four years as at January, which will significantly boost the country’s oil dependent revenues if sustained for the rest of the year.

The level of oil production is also at a four-year high at the start of the New Year at 1.8 million barrels daily, as the dust settles on militant attacks on oil pipelines which cut output to a near two-decade low of 1.2 million barrels in 2016.

Oil output began 2017 at 1.5 million barrels daily, according to OPEC data, 12 percent lower than the 1.7 million barrels daily pumped in 2016 and 17 percent less than the 1.8 million produced at the start of 2015.

Higher oil prices and production played a crucial role in beefing up the country’s external reserves, which are also at their highest level since January 2015.

Although, the CBN is yet to provide data in 2018, external reserves hit $39 billion as of December 27, 2017 and it’s probably safe to assume nothing much has changed less than a week into 2018.

The current level of external reserves represents a 50 percent increase from $26 billion as of January 2017 and a 56 percent increase from $25 billion in January 2016, according to CBN data.

In January 2015, external reserves stood at $29 billion, 35 percent less than the current level (January 2018).

Nigerian stocks have also shown strength to overcome past turbulence.

The All Share Index (ASI) advanced 0.06 percent to close at 38.264 points as of Tuesday Jan 2, according to data provided by the stock exchange.

That’s also the best start to a new year since 2014. The ASI stood at 26,300 points at the start of 2017, 28,600 in 2016 and 34,600 in 2015, according to data compiled by BusinessDay. The ASI was up 42 percent in 2017, the highest gain by the index in four years, making it the third best performing stock exchange globally, a trend analysts are forecasting would be sustained in 2018.

The Purchasing Managers Index (PMI), a leading indicator of economic activity and business confidence, is also off to its best start in four years, according to data provided by investment arm of tier-one Nigerian bank, FBN Quest.

Data released by FBN Quest Tuesday, January 2, shows that the index hit an all-time high of 68.7 percent, although this captures sentiments for the month of December. That compares to 48.6, 44.6 and 56.4 points in 2017, 2016 and 2015.

FBN Quest analysts expect improved readings in 2018 on the back of improved foreign exchange liquidity.

The strong correlation between PMI readings and GDP growth in Nigeria also implies that the economy fared better in the last quarter of 2017 than in previous quarters.

Nigeria turned the corner on a painful recession that lasted five quarters in the second quarter of 2017, following an expansion of 0.72 percent in economic output. The positive trend was sustained in the third quarter with growth of 1.4 percent, according to data provided by the National Bureau of Statistics (NBS).

The median estimate of 14 economists polled in a BusinessDay survey for GDP growth in 2018 is 1.7 percent. The International Monetary fund projects a 2.1 percent growth, while the World Bank sticks with a conservative 1 percent.

Of the seven indicators examined, two bucked the trend of best starts in four years. These are Inflation and Exchange rates.

Inflation rate has been on a downward spiral since February 2017 after peaking at an 11-year high of 18.7 percent the month before, which was driven by a near 40 percent naira devaluation against the dollar and a 67 percent upward review in the retail price of petrol.

The mean estimate for 14 economists in a BusinessDay survey points at a marginal decline in January 2018 to 15.4 percent from 15.90 in December 2017.

If correct, it still wouldn’t mark the lowest inflation rate in the period under review, as 2016 and 2015 recorded single digit inflation rates of 9.6 and 8.2 percent respectively. It is however an improvement from the 18.7 percent recorded in January 2017.

The naira dollar exchange rate as of January 2018 is also not the strongest in those four years. The CBN quoted exchange rate as of Tuesday January 2 is N306 per US dollar. The exchange rate was N305/$, N197/$ and N182/$ at the start of 2017, 2016 and 2015 respectively, according to data available on the CBN’s website.

It is however arguable that the country’s foreign exchange market is at the most liquid state since 2015, after the dollar crunch in 2016 and the apparent improvement last year.

A window, NAFEX, introduced in April to meet the dollar needs of portfolio investors has triggered liquidity, boosted investor confidence and stoked an unprecedented stock rally.

In the last week of 2017, transactions on the market hit some $18 billion.



January 3, 2018 | 2:00 am
  |     |     |   Start Conversation

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