Nigeria Q4 2019 GDP: Does the stimulus really work?

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Nigerian workers hold placards during a demonstration outside the government house in Lagos to protest against the government's failure to agree on a new minimum wage, on January 8, 2019. - Protesters across the country are demanding the government to increase the minimum wage to 30,000 naira (72 euro, $82) from 18,000 naira a month. (Photo by PIUS UTOMI EKPEI / AFP) (Photo credit should read PIUS UTOMI EKPEI/AFP/Getty Images)

Last week full-year 2019 GDP growth was reported at 2.27% year-on-year (y/y), an acceleration over 1.91% y/y growth for 2018. Q4 2019 grew at 2.55% y/y. On the face of it, these numbers look good.

However, Non-oil growth was 2.06% y/y in 2019, only slightly faster than 2.00% y/y in 2018 y/y. The Non-oil growth rate picked up after Q2, but Q4’s 2.26% y/y rate was lower than Q1’s 2.47% y/y.

Going forward, we see no reason to think that growth will accelerate much above 2.30% y/y. We in a long period of low growth.

Neutral implications for equities. The fastest-growing major sector in the economy is the Telecoms sector which grew at 10.26% y/y in Q4, while the construction and cement sectors also grew. These are big stock market sectors. However, stock-specific factors and fears over the coronavirus are likely to continue to weigh on the equity market.

Negative for inflation. Productivity does not appear to be growing quickly (the large Agriculture sector grew by 2.36% y/y in 2019) and land border closures are putting upward pressure on inflation.

Neutral for interest rates. Nigeria is in the middle of a radical overhaul of interest rates (T-bill rates are down from 14.86% in mid-October to 5.63% recently) and a policy of forcing banks to make customer loans (the mandatory loan-to-deposit ratio of 65.00%). The authorities might interpret rising headline GDP growth as vindication of their actions. If so, expect a continuation of current interest rate policies.

In our view, current policies amount to an inefficient way of stimulating growth. Manufacturing is only growing slowly. Credit policy has little influence on Telecoms (growing before monetary policies changed), nor on Oil & Gas which grew 4.59% y/y in 2019.

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