BusinessDay, through a survey of over 40 analysts, has ranked the top seven themes that shaped Africa’s largest economy in 2019.
Buhari’s re-election
President Muhammadu Buhari’s election for another four-year term in February was always going to be decisive for the economy.
The 76-year-old’s first stint was coloured by weak economic growth, rising poverty levels and a raft of protectionist policies that did the economy more harm than good.
The economy slumped into recession in his second year in office as oil prices and production tanked. Critics say the government worsened the downturn by holding on to a currency peg for too long which deterred investment and saw thousands of companies go under.
His supporters say he rescued the economy from recession one year later. Data by the National Bureau of Statistics disagree with that claim. GDP data published by the statistics agency at the time showed that it took the rebound in oil prices and production for the economy to turn the corner rather than government policies.
Buhari’s supporters also point to strides made in the agriculture sector. Again, NBS data show that the sector has not grown above 4 percent since 2015 despite over N200 billion interventions in rice farming and other agric produce.
Buhari would clinch power for the second term running in 2019 after fighting off his closest contender in former Vice President Atiku Abubakar, despite cases of electoral violence that manipulated results and drew the criticism of local and international observers.
Expectations from Buhari’s second term were largely muted with many expecting him to continue with his policies of old. He has done just that with a few additions. He ordered a closure of the country’s land borders to stem smuggling and has added milk and dairy products to a list of 41 items banned from accessing dollars at the official window.
Pending reforms, from the Petroleum Industry and Governance Bill (PIGB) to adopting market pricing of electricity and petrol, have stalled and that cost the economy in 2019 in terms of attracting local and foreign investment as well as stimulating growth.
The economy probably expanded 2 percent in 2019, which remains below population growth rate of 2.6 percent annually. Foreign Direct Investment (FDI) will slide to a six-year low of $848 million, according to analysts’ estimates. Even Ghana, which is roughly the size of Lagos, is expected to triple that.
The economy remains largely undiversified with the oil sector retaining its stranglehold on government finances, and there’s been little or no improvement in infrastructure whether it’s power supply or transportation.
Unemployment rate has surged and a big jump in government borrowing, which has more than doubled in five years, has had no impact on economic growth.
Investor apathy
Another theme that shaped the Nigerian economy in 2019 was the lack of interest by foreigners in local assets other than debt instruments.
The stock market provides the best proof of that apathy exhibited by investors.
The market had a year to forget in 2019 as listed stocks turned in a loss of 17 percent on average.
This follows from the 17.8 percent decline recorded in 2018 and implies that the All Share Index, which tracks movement in listed stocks, has lost 35 percent in just two years, making Nigerian stocks some of the worst performers globally and the worst compared to African peers surveyed by BusinessDay.
Despite South Africa’s many economic troubles, the Johannesburg Stock Exchange posted a 2.9 percent increase in 2019.
Kenyan stocks returned 17 percent in a late rally driven by investors who cheered Nairobi’s move to dump a controversial interest rate cap on bank lending in November.
Egyptian stocks returned 6.6 percent as a raft of market reforms that started in 2016 continues to come good for Cairo.
The only other African country surveyed by BusinessDay that posted a negative return in 2019 was Ghana following an 8.4 percent slide.
Frontier stock markets returned 9 percent, emerging markets did 14 percent and developed markets posted a 17.9 percent growth.
It’s particularly worrisome that developed markets recorded 34 times the return of the Nigerian stock market despite offering less risk.
That could lead to heightened investor apathy towards Nigerian stocks which have fallen out of favour since that 42 percent rally in 2017 that saw them rank one of the best performers.
This is because it makes little business sense to invest in a risk- laden market only to earn far less than you would have if you invested in a developed market where your investment is much safer.
The abysmal performance of Nigerian stocks in 2019 would stretch into 2020 without key market reforms and removing the many obstacles to investment.
In 2019, the government failed to implement reforms in the foreign exchange and electricity markets, as well as push through pending legislation, the lack of which investment bankers say deters investment.
Both Kenya and Egypt are proof that investors will react to the right economic policies.
Every sector in Nigeria closed lower compared to the start of the year. The NSE 30, which tracks price movements in the share price of the 30 largest listed companies, fell 20 percent, even worse than the 18 percent decline in 2018.
Every sector from banking, oil and gas, industrials to consumer goods index saw double-digit declines.
It wasn’t all gloom for the stock market as at least 10 stocks outperformed the market and returned over 30 percent to investors. Leading that list of outliers was AG Leventis which returned 103 percent.
Rounding up the list of top five best performers include Cornerstone Insurance (90 percent), Chams plc (70 percent), Thomas Wyatt (65 percent) and ABC Transport (55 percent).
Others are Transcorp (52 percent), Access Bank (42 percent), Jaiz Bank (40 percent), Caverton (33.3 percent) and Boc Gases (30.6 percent).
Weak public revenues
Lower-than-planned government revenues meant lower capital expenditure in 2019 and that certainly impacted the economy.
The Federal Government’s revenue may have hit a new high in the third quarter but remained largely below the full-year target.
Data by the Central Bank of Nigeria (CBN) showed the Federal Government’s retained revenue for the third quarter of 2019 amounted to N1.03 trillion, an increase of 8.7 percent from the preceding quarter but a decline of 0.8 percent compared to the third quarter of 2018.
The FG’s retained revenue was, however, below the quarterly budget by 51.5 percent.
The Federal Government’s expenditure for the third quarter of 2019 was N1.4 trillion, below the level in the preceding quarter and the quarterly budget of N2.6 trillion by 11.0 percent and 45.8 percent, respectively.
A breakdown of the total expenditure showed that the recurrent component accounted for 62.9 percent, while capital and statutory transfers accounted for 26.4 percent and 10.7 percent, respectively.
A further breakdown of the recurrent expenditure showed that the non-debt component gulped 60.4 percent, while debt service payments took up 39.6 percent.
The trend of lower-than-budgeted revenue and expenditure is becoming a mainstay of the Nigerian government for some time now.
Despite failing to meet the target in each of the past four attempts, the government has continued to raise the stake for revenue to the bewilderment of some analysts.
In 2019, for example, the government earmarked N7 trillion in revenues, but in the first half of the year has only managed N2.9 trillion which is 30 percent less than the prorate estimate for the period.
A long history of failed revenue projections hasn’t deterred the government from raising its revenue target each year. For 2020, Abuja will target N8.15 trillion in revenues in a show of no lessons learnt from past trends.
Border closure
President Buhari on August 21, 2019 ordered the closure of the land borders to check smuggling activities and that immediately triggered a spike in inflation.
Nigeria’s inflation rate rose at a faster pace in September following the border closure as food prices soared as a result of the supply disruptions created by the closure.
Headline inflation rate, a measure of composite changes in the prices of consumer goods and services, increased by 11.24 percent in September from a year earlier, the fastest increase in four months, the NBS said. That’s coming after three months of consecutive decline. Inflation inched even higher in October as prices rose 11.6 percent from a year earlier. The trend was the same in November as consumer prices rose 11.9 percent from a year earlier, the Abuja-based bureau said in a report published on its website.
Data gathered by Tridge, a Global Trade Ecosystem in the food and agriculture industry, showed that the wholesale price of the broken parboiled rice, the specie consumed mostly in Nigeria, in top exporting countries, fell on the back of a glut resulting from a decline in exports.
According to Tridge’s data analysed by BusinessDay, the decline in rice importation into a country like Benin Republic and the drop in the commodity in rice-exporting countries like India and Thailand were recorded in the same period when Nigeria closed its land borders.
CBN’s aggressive lending push
The Central Bank of Nigeria’s lending push took a reinvigorated dimension in 2019 and that had some impact on economic activity, with the manufacturing sector a big beneficiary of increased access to loans.
In its bid to improve lending to the real sector of the Nigerian economy, the Central Bank of Nigeria (CBN) in July 2019 sent a circular to all Deposit Money Banks (DMBs) mandating that they maintain a minimum Loan to Deposit Ratio (LDR) of 60 percent by September 2019.
Barely three months after the first circular, the apex bank raised the bar and mandated banks to now maintain a minimum LDR of 65 percent by December 2019.
The punitive measure for non-compliance by DMBs is a levy of additional Cash Reserve Requirement (CRR) equal to 50 percent of the lending shortfall of the target LDR. Some banks were debited in September 2019 for failure to meet the 60 percent minimum. For the second time in 2019, the CBN upwardly reviewed 0deposit money banks’ portion of minimum loanable deposits to 65 percent with immediate effect.
The decision, which is subject to quarterly review, was informed by appreciable growth in the level of the banking sector’s gross credit following the pronouncement of a 60 percent minimum LDR and the need to sustain the momentum, the apex bank said in a recent circular seen by BusinessDay.
The CBN noted that gross credit of banking sector rose from N15.56 trillion as at end-May 2019 to N16.39 trillion as at September 26, 2019, translating to N829.40 billion or 5.33 percent increase within the period.
On one hand, available data show the policy has triggered increased lending to the real sector. However, according to the IMF, the unintended consequences of the policy could mean that banks’ asset quality, maturity structure, prudential buffers and the inflation target will come under pressure.
The implication of the new regulation on banks may be both positive and negative. Positively, it would mean increased access to funds by players in the real sector of the economy, particularly the SMEs, retail, mortgage, and consumer lending. Increasing access to funds for these players will translate to the expansion of their operations, creation of jobs, increased Gross Domestic Product, amongst others.
Invariably, the foregoing is expected to encourage accelerated growth and development for the economy. However, increasing the minimum required LDR for deposit money banks also comes with its risks. The perspective and attitude of banks to lending money is majorly focused on mitigating the risk of having non-performing loans.
This informs the tendency of the lenders to invest more money in low-risk enterprises such as government lending rather than giving loans to the private sector.
In extra efforts to boost credit to the real economy, the CBN also prevented local corporates and individuals from participating in both primary and secondary activities of its Open Market Operations (OMO).
The move has led to a collapse in bond yields and helped redirect cash away from being tied to government lending.
Another year of contracting GDP per capita
Millions of Nigerians living in extreme poverty got no relief in 2019, as GDP per capita continued contracting.
The GDP growth rate is forecast to be at 2 percent in 2019, lower than the country’s annual population growth rate of 2.6 percent, proof that the most populous nation in Africa is producing more people than it can feed. The trend of negative per capita GDP has now lasted four years.
According to the World Poverty Clock, Nigeria became the poverty capital of the world in 2018 when it overtook India as the country with the most extreme poor people in the world.
Nigeria grew its population to 201 million in 2019, figures compiled from the State of World Population Report released by the United Nations Population Fund (UNFPA) show.
According to the data, 54 percent of the country’s population is within the working-age bracket of between 15-64 years, thanks to the country’s almost 3 percent average annual growth rate.
The large population of the country, which many economists have said is a huge opportunity owing to its young people who provide market for the foreign and locally manufactured products, also comes with its nightmares.
Most recent data from the NBS show that Nigeria’s unemployment rate ballooned to a nine-year high of 23.1 percent in the third quarter of 2018.
Nigeria is projected to have almost 400m people by 2050, behind only India and China – but is tipped to suffer at least eight straight years of declining income per capita by the IMF.
“If the IMF is right, that would obviously be awful, a very depressing result,” said John Ashbourne, Africa economist at Capital Economics, a consultancy.
Access becomes Nigeria’s largest bank
The news that Diamond Bank joined forces with Access Bank to create one of Africa’s biggest banks is undoubtedly one of the key events that happened in Nigeria’s financial industry in 2019.
Access Bank is now the largest retail bank in Africa by number of customers, spanning three continents, 12 countries and 29 million clients and the biggest bank in Nigeria by asset base.
The merger which was completed three months before the anticipated deadline signified an increased market reach and customer convenience through an expanded network of over 600 branches across Nigeria with over 3,100 ATMs complemented by the strengthened distribution of world-class mobile and digital channels.
The fusion of Access Bank, a leading wholesale banking business, and Diamond Bank, a prominent retail banking franchise, provided benefits not only to the economy but to all stakeholders, including customers, shareholders and staff.
In the new entity, customers of both Diamond Bank and Access Bank will have access to over 600 branches, where they can enjoy same-day clearing of cheques in either bank, just as they will get rewarded for using either Diamond Bank or Access Bank POS terminals.
The merger saw a significant growth in bottom-line of Access Bank as post-tax profit surged 59 percent to N63 billion in the first half of 2019, from N39.6 billion a year earlier.
Amid the current low-interest environment which saw some lenders record declines in their interest income, Access Bank grew by 70.98 percent to N210.2 billion half-year 2019 from N122.94 billion in the previous comparable period. The bank attributed the surge in interest income to the increased volume of investment securities in the period.
The lender recorded a profit of N90.73 billion for the nine-month period of 2019, compared to N62.91 billion recorded at the end of the nine months period for 2018. This represents a 44.2 percent increase in profit.
The bank recorded N2.18 as earnings per share as at the end of the third quarter of 2018 compared to N2.79 as at the end of the third quarter of 2019.
Among its tier-one counterparts, Access Bank’s stock reported the biggest return at 46.32 percent in 2019.
