Macroeconomic Report & Economic Updates

 In the week ended 7^th August, the Nigerian Stock Exchange (NSE) reported a week on week growth as 1.065 billion shares were traded compared to the 0.421 billion shares traded in the previous week¹. Altogether, 20,482 deals were made, a majority of which were within the financial sector as the sector accounted for 63.59 percent of trades. The top 3 equities were FBN holdings, UACN plc and Access Bank. Both the All Share Index and market capitalization appreciated by 1.41 percent to close at 25,041.89 and N13.063 trillion respectively, indicating that market activity may continue to remain bullish as the economy reopens. However, various factors including a weak macroeconomic landscape, downward trends in Foreign Portfolio Investment (FPI), and the volatility of the naira will negatively impact the performance of the capital market in 2020. Nevertheless, given the size of the stimulus package the federal government plans to implement, the market is expected to remain relatively stable during the fiscal year.

According to the Central Bank of Nigeria’s (CBN) Business Expectation Survey carried out in July, the business outlook rose by 16.4 index points month on month. However, the overall Confidence Index for July 2020 remained pessimistic/negative at -7.9 index points considering that the Index in the preceding month was -24.3 points². The sectors surveyed were agriculture, manufacturing, and the construction sectors with a more disaggregated data showing that businesses that are neither import nor export-oriented were the most pessimist in the review period. In a more forward-looking survey, respondents had a more optimistic outlook for the month of August (33.7 index points). Understandably, as society transitions back to normal, business activities are expected to improve. While the business community will no doubt be adversely affected by the pandemic, the several interventions put in place by the government should be leveraged on to support businesses. 

Microsoft Word - Harvard help sheet The Nigerian Investment Promotion Commission (NIPC) reported a 67 percent decline in investment in H1 2020, compared to H1 2019. The decline saw investment fall to US$5.06 billion compared to US$15.15 billion in the preceding year². Top destination sectors include Transportation & Storage (39%) as well as Information & Communication (32%) sectors. However, the overall weak economic activity in top donor countries like United States of America (USA), which account for 43 percent of inflows contributed to the decline. Understandably, the lockdown measures and low oil price have slowed existing investment prospects and caused multinational enterprises to reassess new projects which will affect development. Going forward, investment is likely to continue to decline given that these conditions are unlikely to give way until the pandemic ends. Nevertheless, the NIPC should use the pandemic as an opportunity to promote investment in traditional and new opportunity areas including health, food and agriculture, and tech-related sectors. Furthermore, the NIPC should develop an online one-stop shop for investors in the absence of inter-country travel.

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The inflation rate for the month of June rose to 12.56 percent from 12.40 percent in May¹. The rise in inflation was driven by a rise in all components of the headline index, as food sub-index rose by 0.14 percent to 15.18 percent and the core sub-index rose by 0.01 percent to 10.13 percent. On a state level, headline inflation was highest in Bauchi (15.02%), Sokoto (14.88%) and Ebonyi (14.60%), while Cross River (10.95%), Lagos (10.78%) and Kwara (10.03%) recorded the slowest rise in headline inflation. The rise in the core sub-index was driven by an increase in the price of medical and hospital services, as well as motor cars and passenger transport by road which is intuitive given the upward pressure on the demand for these services. Given that the borders are still closed and restrictions to inter-state travel remain, we expect the demand for local medical services and road transport to remain high, thus causing suppliers to raise price and further increasing inflation. The monetary authorities will have to address the inflationary pressure while providing loans to the private sector with low interest rates to mitigate against the pandemic.

The Central Bank of Nigeria (CBN) recently announced a ban on the importation of maize/corn1. This ban adds maize to the list of 41 other products some of which include rice, cement, margarine, and palm kernel that had earlier been banned2. The embargo comes as a means to further encourage local production, stimulate economic growth as well as secure local jobs and livelihoods. Available data shows that Nigeria imported 400,000 tons of maize in 2019 the same as it did in 20183. However, forex restrictions on the importation of rice, coupled with the closure of the Nigerian land borders to neighboring countries, has seen the country move from a major importer to the largest producer of rice in Africa.⁴ By extension, it is expected that the addition of maize to the forex restriction list will help to stimulate its domestic production and thus reduce or eliminate dependence on imported maize. Consequently, this effort is also expected to limit domestic demand for forex and curb the exchange rate volatility.