Macro Forum: The Street View




The economy is showing positive signs with GDP growth at 1.8% year-on-year in Q3 2018 up from 1.5% in Q2 driven by an improvement in oil production and higher oil prices.. Average daily oil production rose from 1.84mbpd to 1.94mbpd over the quarter as pipeline leakage issues were resolved. The non-oil sector expanded 2.3% year-on-year largely driven by the information and communications sector which grew by 12.1% y/y. Despite the uptick in both the oil and non-oil sector, the economy is expected to remain under pressure due to lower global oil prices and an output cut imposed by the Organization of the Petroleum Exporting Countries (OPEC). GDP growth is expected to be 1.9% in 2018 and is forecast to improve to 2.4% in 2019.

Inflation increased slightly to 11.44% year-on-year in December 2018 from 11.28% in November. Food inflation was the main driver of the rising inflation trend after easing in the first half of 2018. Headwinds to the inflation outlook include fiscal slippages, implementation of the new minimum wage, continued insecurity in the middle belt region impacting agricultural output and mounting pressure on exchange rates resulting from the lower oil prices. Inflation is forecast at 11.4% in 2019 . The benchmark interest rate was maintained at 14% with a cautionary tone on potential for resurgence of inflationary pressures.

The current account surplus reduced from US$9.3bn to US$5.9n during the first half of 2018 In Q3 the trade surplus narrowed further to US$2.1bn. Along with robust growth in services imports, the current account fell back into a deficit of US$3.1bn [in Q4 ], the first since Q3 2016.

The state of the capital account evidenced a decline in investor sentiment in Q3 with net FDI amounting to only US$93.5m. Net FDI was US$650m in the first three quarters of 2018 compared to US$1.6bn in the same period in 2017.

Although external balances have come under some pressure, rebound in imports has supported the strengthening seen in the non-oil sector and improvement in liquidity. However, reserves are likely to come under pressure again because of the decline oil price and possible portfolio outflows ahead of elections. The CBN’s management of FX will be key with the likely outcome being the CBN defending the naira, which may become overvalued. The NGN appreciated slightly from NGN363.72 to NGN 362.59 in the fourth quarter. Post 2019 elections, internationals investors will potentially return leading to an improved external position.


With presidential elections due to take place in February 2019, President Buhari, with his national approval rating at only 40% according to the NOI survey carried out in December, has focused on populist policies such as minimum wage increase and cash transfer schemes for the low income traders which is expected to increase his chances for re-election. It is not however without a robust challenge from Atiku Abubakar, a former Vice President, who is running as a pro-business candidate and taking Buhari to task on mediocre performance on the economy and the high unemployment rate. In addition, former President Obasanjo who up to October 2018 had said he would not support Abubakar, has now come out in support of him. Obasanjo’s influence in the south-west is strong and with the south-west accounting for the second largest voting pool in Nigeria.










Real GDP Growth

Source: International Monetary Fund

Nigeria FX vs FV

Source: Bloomberg Spot Price and Actis methodology for Fundamental Value


Source: International Monetary Fund