Nigeria’s GDP Slows as Growth in Non-Oil Sector Slides by 16.29% in Q1 2020

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In Q1 2020, Nigeria’s GDP grew BY 1.87%, slower than 2.55% in Q4 2019 (and 2.01% in Q1 2019). Growth was driven by positive, albeit slower, growth in oil & gas and non-oil sectors by 5.06% and 1.55% from 6.36% and 2.26% respectively.

Exhibit M1 shows generally positive performance in Q1 2020, with the Financial Services sector and the Information & Communication sectors recording the biggest growth rates of 20.18% and 8.50% respectively while only the Real Estate and Trade sectors recorded losses of 3.45% and 0.58% respectively.

Nevertheless, business activity in Q2 2020 witnessed contraction as Manufacturing and Non-manufacturing PMIs fell to 41.1 points and 35.7 points respectively.

In the thick of the global pandemic, Nigeria’s economy took a hit from external shocks as the price of Bonny Light grade plunged to USD14.67 a barrel as at April 27, 2020 (from USD68.10 a barrel as at December 31, 2019) while the external reserves plummeted to USD33.43 billion as at April 29, 2020 (from USD38.60 billion as at December 31, 2019) amid lower prices and production output.

Following plunge in external reserves, the NGN/USD exchange rate spiked.

Hence, inflation rate continued to climb, albeit gradually, amid rising imported food prices, ongoing planting season and hike in transportation costs.

Impact of COVID-19 on Businesses
In the review year Manufacturing composite PMI contracted to 41.1 index points in June 2020 (from 59.2 in January 2020), the second consecutive contraction.

The contraction in manufacturing composite PMI was due to decline in new orders index to 36.4 in June 2020 (from 59.7 in January 2020), which resulted in lower production – the production index decreased further to 36.6 (from 59.6).

Producers were hit with higher costs of production (input price index rose to 67.2 from 63.5), but were unable to pass on costs to customers (output price index fell to 53.2 from 55.3) due to the drop in new orders.

Number of new hires recorded by manufacturers declined in tandem with the lower production volume – the index for employment fell to 38.8 points in June 2020 (compared to 57.3).

Meanwhile, the non-manufacturing sector also recorded contraction as its composite PMI fell to 35.7 index points in June 2020 (from 59.6 index points in December 2019).

This was driven by contraction in business activity to 34.3 (from 59.8).

The non-manufacturing sector also saw contraction in incoming business as well as employment.

Impact of COVID-19 on Households
According to a survey in the month of May by National Bureau of Statistics, the impact on employment and income have also been widespread:

42% of respondents who were working before the outbreak reported that they were not currently working due to COVID-19.
79% of respondents reported that their household total income has decreased since mid-March.

The most widely reported shock experienced by households was an increase in prices of major food items faced by 85% of households surveyed with 51% of all households resorting to reducing food consumption.

Central Bank of Nigeria Response to COVID-19 Pandemic
In order to soften the blows of the pandemic to the economy, CBN announced a policy response timeline during which it would provide a combined
stimulus package of about N3.5 trillion in targeted measures to households, businesses, manufacturers and healthcare providers; a move also aimed at building a more resilient, more self- reliant Nigerian economy.

Under its Immediate-Term Response, CBN activated the following:
• Ensure financial system stability by granting regulatory forbearance to banks to restructure terms of facilities in affected sectors;
• Grant additional moratorium of 1 year on CBN intervention facilities;
• Reduce interest rates on intervention facilities from 9 percent to 5 percent;
• Create N50 billion targeted credit facility for affected households and SMEs;
• Improve FX supply to the CBN by directing all oil companies (international and domestic) and all related companies (oil service) to sell FX to CBN and no longer to the NNPC;
• Provide additional N100b intervention in healthcare loans to pharmaceutical companies, healthcare practitioners intending to expand/build capacity;
• Provide N1 trillion in loans to boost local manufacturing and production across critical sectors

Review of Fixed Income Space in H1 2020
Interest Rates Drop Across the Board
Interest rates generally moved southwards in the first half of 2020 amid liquidity glut created by a Central Bank of Nigeria directive which banned high net worth individuals and non-bank financial institutions from participating in its Open Market Operations in line with international norms.

Against the backdrop of sustained monetary policy easing, we saw increased demand for short- and long- term Federal Government debt instruments which resulted in sustained crash in domestic stop rates – 364-day T-Bills fell to 3.75% in June 2020 (from 5.50% in December 2019) while 5-year FGN Bonds fell to 8% in June 2020 (from 11% in December 2019).

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