In the just concluded week, the Central Bank of Nigeria (CBN), in a move to further cushion the negative effect of COVID-19 in the country and support economic growth, approved regulatory
forbearance for the restructuring of credit facilities in the Other Financial Institutions (OFIs).
Consequently, all CBN intervention
facilities through OFIs were granted one-year moratorium on principal repayments and their interest rates were slashed to 5% from 9% for one-year period, effectively from March 1, 2020.
Similarly, the Monetary Policy Committee (MPC) at the end of its meeting on Thursday, May 28, 2020 voted to reduce the Monetary Policy Rate (MPR) by 100bps to 12.50%; albeit, other policy tools were left unchanged: Cash Reserve Ratio was retained at 27.50%; Liquidity Ratio retained at 30%; and Asymmetric band retained at +200 bps and – 500 bps around MPR.
Meanwhile, Nigeria’s real Gross Domestic Product (GDP) grew year-on-year (y-o-y) by 1.87% to N16.74 trillion in Q1 2020, slower than 2.55% growth registered in Q4 2019.
The non-oil sector which accounted for the relatively weak GDP growth rate, grew y-o-y by 1.55% to N15.15 trillion.
This was majorly due to the 2.82% and 4.75% contraction withnessed in Trade and Real Estate sectors to N2.69 trillion and N0.87 trillion respectively (of which trade and real estate joint share of GDP constituted 21.29%).
On the other hand, agricultural, information & communications and manufacturing sectors, which jointly accounted for 45.69% of total GDP, all grew y-o-y by 2.20%, 7.65% and 0.43% respecively in Q1 2020, albeit, slower than 2.31%, 8.50% and 1.24% respectively in Q4 2019.
The financial services sector spiked by 20.79% even as its share of real GDP rose to 3.81%, from 3.19% it printed in Q4 2019.
The oil & gas sector grew y-o-y by 5.06%, albeit slower than 6.36% recorded in Q4 2019 – average price of Nigeria’s sweet crude, bonny light fell q-o-q by 20.11% to USD52.07 per barrel in Q1 2020, while its average crude oil production rose q-o-q by 0.55% to 1.8 million barrels per day in Q1 2020.
In the fiscal space, President Muhammadu Buhari mandated the Bureau of Public Enterprises (BPE), the Ministry of Finance and other Ministries involved, to finalise the electricity deal with Siemens AG, on the pre- engineering processes and the concessionary financing agreement, under the Presidential Power Initiative (PPI), in order to improve power infrastructure by fixing the transmission and distribution infrastructure and increasing grid capacity.
The deal would see power supply in Nigeria increase to 7,000 megawatts by next year, 2021, and to 11,000 megawatts in 2023.
Meanwhile, the United States Crude Oil Input to Refineries rose week-on-week by 0.70% to 12.99 mb/d as at May 22, 2020 (but 21.42% lower than 16.77 mb/d as at May 24, 2019) while Refinery Capacity Utilization ticked higher to 71.3% from 69.4% in the preceding week (but remained less than 91.2% as at May 24, 2019).
Also, U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) rose w-o-w by 1.50% to 534.4 million barrels (and by 12.15% from 476.5 million barrels as at May 24, 2019).
On a weekly basis, WTI crude moderated by 5.07% to USD32.20 a barrel while Brent crude fell by 5.85% to USD34.28 a barrel; however, Bonny Light crude spiked by 3.42% to USD33.28 a barrel as at Thursday, May 28, 2020.
With the sharp decline in crude oil prices, especially in the month of April 2020 – bonny Light average price was USD20.29/b –, coupled with the significant contraction in manufacturing and non-oil manufacturing sectors (their respective May 2019 PMIs read to 42.4 and 25.3 index points as against 51.1 and 49.2 index points in March 2020) amid total lockdown order, we expect a negative growth in Nigeria’s Q2 2020 real GDP.
However, we note that the Nigerian economy should recover quickly from the anticipated recession, given the proactive actions taken by CBN to boost economic growth, and the renewed efforts on the fiscal side to increase infrastructure.