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SBM says it got 60% of its 2019 predictions right. Here’s its 2020 outlook

An intelligence platform which got 60 percent of its 2019 predictions correctly and was partially correct on 14 percent gives its outlook for next year

Among other things, Lagos-based SBMorgen correctly predicted average oil price, the impact of regulation on Fintechs, fiscal problems of the FG-although it was wrong on its prediction that Nigeria would see another recession in 2019.

Here we draw some of the most important forecast made that can help guide your investment decisions next year (BusinessDay is not recommending any investment action).

Nigeria’s 2020 growth to beat World Bank forecast:

SBM says Nigeria will grow better than the World Bank expects to around 2.4 percent next year on the back of improved oil revenues.

It however says Nigeria would still be trapped in a low-growth cycle for the next few years unless there is a reform.

To achieve faster growth, SBM recommends attracting targeted investments at sectors like oil and gas, agriculture, manufacturing and telecom, which are all growth-driving sectors. It is however not likely any of these would happen, SBM says.

Global economy will slightly improve next year but will be dependent on the outcome of the US-China trade move for a truce and Brexit.

Read also: World Bank warns on ‘towering’ $55tn emerging market debt pile

Inflation will continue to rise in 2020:

Food inflation will keep stoking price level next year, says SMB, which expects an average inflation rate of 13 percent in 2020.

The intelligence platform says that despite talks by the CBN that the impact of its FX supply restrictions on some food items and the closure of the border would wane in three to four months, the VAT increase, a possible electricity tariff hike and increase in retail price of petrol next year would push inflation higher.

Unstable oil price next year:

OPEC will struggle to control production next year and has forecast that oil process price may come under selling pressure due to the US-China trade war negotiations, say SBM.

OPEC will count on Saudi Arabia to keep a lid on its production so oil can be around $65/barrel but US Shale producers will only be encouraged by the price to produce more and cause a glut.

SBM says oil can dip to $40 per barrel by 2020end given that US has become a net exporter of the commodity for the first time in decades and US and China could cause a global slowdown.

More Oil majors will sell off their assets in Nigeria:

SMB says there will be more exits in Nigeria’s oil industry. This, we believe, calls for policymakers to adjust frameworks in other to encourage capital to stay.

Fixed income yields to trail inflation:

SMB believes that the once high-yielding risk free zone would underperform inflation next year. Already yields on treasury bills are lower than inflation meaning investments have negative real returns.

Devaluation of the Naira in H1:

The OMO bubble is expected to burst and foreign portfolio investors withdrawal their dollars from the economy.

SBM says government purse is in bad shape and with the minimum wage not yet being paid, the CBN cannot defend the Naira at current levels.

FDIs will keep away given the lack of positive macro conditions while FPIs will take short term positions and the net FX inflows will oscillate.

The CBN which has spent no less than $3.3bn in the second half of the year to support the naira has outlined the conditions for devaluation: reserve at $25bn-$30bn and oil price at $50-$45.

The Intelligence platform expects government to take the hard choice of devaluing the Naira on or before June 2020.

(Reserve was at $39bn and oil price was at $66.37 as of Friday: BD data).

Equity prices should improve:

SBM says it expects some funds to rotate to the equity market in Q1 2020 following the restriction of OMO window to non-bank local investors.

Dividend-yields of blue chips will be the pull factor but there would be no rally like was seen in previous years, SBM says.

Price subsidy will be adjusted or removed:

The days of cheap fuel may soon be over or at least Nigerians would likely pay more next year, SBM says.

The subsidy is a drag on revenue and Buhari would surprise many with a partial or full subsidy removal although it remains to see if there would be a full deregulation of the oil sector.

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