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2020: Nigerian Analyst strongly disagrees with IMF on 5.4% economy contraction

By Chinyere Joel-Nwokeoma
Lagos, July 29, 2020 Cowry Asset Management Ltd on Wednesday projected three per cent contraction for the Nigerian economy in 2020, contrary to the International Monetary Fund’s (IMF) -5.4 per cent projection.

Mr Johnson Chukwu, its Group Managing Director, gave the projection at the company’s webinar themed: “H1 2020 Review: Expectations and Investment Strategies in H2 2020″.

Chukwu projected that the country’s economy, with the robust growth in agriculture and ICT, would contract only between two and three per cent.

“While we agree that the Nigerian economy will contract in 2020, we, however, believe that the contraction will not be as steep as the 5.4 per cent projected by the IMF.

“We expect the agriculture sector, which accounts for about 22 per cent of the GDP, to remain resilient due principally to favourable weather conditions this year.

“In summary, robust growth in agriculture and ICT, which combined accounts for 36 per cent of the GDP, will have the effect of cushioning the rate of economic contraction in 2020.

“We, therefore, project an economic contraction of -2 per cent to -3 per cent,” Chukwu stated.

He noted that the ICT sector, which accounts for 14 per cent, was expected to maintain its growth momentum in the remaining quarters of the year.

According to him, the oil & gas and manufacturing sectors are expected to contract in H2 2020.

On general guidance for investing through the pandemic, he urged investors to incorporate a long-term view into their portfolio decisions.

Chukwu stated that diversification was key, noting that crypto-currencies, agricultural funds and foreign exchange trading should be seen as high-risk investments.

“Anyway you slice it, the Nigerian economy may only recover slowly in the aftermath of the pandemic.

“We expect weak Q2 and Q3 results will drive equities prices lower.

“Investors with long-term horizon may be facing the best time to take position.

“We advise focus on fundamentally strong companies with low price earnings, high-dividend yield and historically high-return on equity.

“Sectors less impacted by the pandemic — ICT, health care, financial services and agriculture — may offer additional value,” Chukwu said.

On fixed income, he favoured investment in the short-term bonds and in fixed deposits, to retain the ability to benefit from the expected upward shift in the yield curve.

Chukwu noted that more corporates would access the market with corporate bonds, to raise funds for their businesses.

“We may see new corporate bond issues, as firms look to take advantage of the low-yield environment,” Chukwu said.

He noted that consumer demand would remain weak in H2 2020, due to increased level of unemployment, reduced salaries and limited fiscal capacity of the Federal, States and Local Governments.

Chukwu stated that inflation rate would trend further north, driven by deprecating local currency, increasing cost-reflective fuel prices, electricity tariff and food costs.

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