The total value of Nigeria’s merchandise trade in Q2:2020 declined by 37.6% q/q and 27.5% y/y to ₦6.2tn, the weakest since Q4:2017, as reported by the NBS. As a result, the moderation in trade deficit in the preceding quarter was short-lived as it worsened to -₦1.8tn in Q2:2020 from -₦139.9bn in Q1:2020, driven by a sharp decline in exports. This is the third consecutive trade deficit recorded since Q4:2019 and the worst performance on record.
There was sustained pressure on consumer prices as inflation rose to 12.8% y/y in July 2020 from 12.6% y/y in June based on the Consumer Price Index (CPI) report published this week. This is the highest level of headline inflation since March 2018 while the streak of increasing inflation has been sustained since the land borders were shut around September 2019. The noticeable increase in headline inflation was driven by higher MoM inflation at 1.3%, the highest since June 2017.
Nigeria’s indebtedness to China has recently come into sharp focus. This has become a hot topic for good reasons. There is concern about who truly benefits from China’s infrastructure investments in developing economies through direct loans, especially given stringent conditions that could mean handing over sovereign assets to the country in the event of a default.
The Global Insurance Industry maintained steady growth in 2019 as premiums increased by 3.0% to $6.3tn after crossing the $5.0tn mark in 2018, representing 7.2% of Global GDP. Growth was supported by the improvement in both life and non-life insurance segments in China and the non-life segment in advanced markets. The non-life segment printed an impressive 3.5% growth in premiums to $3.4tn in 2019 while life insurance premiums grew by 2.2% to $2.9tn.
The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) retained all policy rates at its fourth meeting of the year on July 20, 2020. The Monetary Policy Rate (MPR) was held at 12.5% with the asymmetric corridor at +200bps/-500bps, while the Cash Reserve Ratio (CRR) and Liquidity Ratio (LR) were unchanged at 27.5% and 30.0% respectively. There was weak sentiment towards further easing as 8 of 10 members voted to hold all policy parameters constant, compared with the unanimous vote to ease during the May 2020 meeting.
The recently published Q1:2020 debt statistics showed a sustained increase in the FG’s debt profile, further putting a dent on debt sustainability even without accounting for the impact of COVID-19 yet. Nigeria’s total public debt as at Q1:2020 rose to ₦28.6tn ($79.3bn) from ₦27.4trn ($79.4bn) as at year-end 2019, with debt to GDP ratio at 19.3% (2019: 19.0%) based on annualised Q1 data.
With elevated external shocks, Nigeria’s economy has been hit hard and the banking system would be impacted. Moody’s ratings agency in a recent report cited risks of dollar funding challenges for banks amid declining oil revenue, weak foreign investment inflows and lower remittances. While banks are more resilient given current deposit and liquidity levels, the agency indicated that there are vulnerabilities, indicating that Nigerian banks could face a resurgence of the foreign currency liquidity pressures witnessed between 2016 and 2017.
In early April 2020, the FG inaugurated the Economic Sustainability Committee (ESC) with a mandate to develop a response to deal with the health and economic impacts of the COVID-19 pandemic. The fall in oil prices to a two-decade low of around $20.0/bbl. made this urgent, much like how the oil price crash between 2014 and 2016 necessitated the Economic Recovery and Growth Plan (2017-2020) which is nearing completion.
If our tone at the end of last year was grim, it wasn’t grim enough. In our 2020 Outlook, At the Cliff’s Edge, published last December, we cautioned that the global economy was due to face more turmoil in the year, but were cautiously optimistic about a Sino-US trade truce driving modest global growth. However, the onset of a global pandemic has seen economies collapsing quicker than during the Great Depression and increased volatility across markets than ever before – and all of this while many of us were confined to home.
More data point on the performance of the economy so far in 2020 emerged this week, with the release of Q1:2020 GDP and capital importation statistics. Starting with economic growth, Q1:2020 GDP report revealed that the Nigerian economy expanded at a slower pace of 1.9% Y-o-Y (vs 2.6% in Q4:2019), the weakest since Q3:2018. This performance was largely supported by growth in the oil sector amid a much slower expansion in the non-oil sector. The oil sector grew 5.1% Y-o-Y in Q1:2020 (vs 6.4% in Q4:2019) as oil production rose 3.0% Q-o-Q and 4.0% Y-o-Y to 2.1mbpd, the highest since Q4:2015.