ECONOMY: Slower GDP rate seen in Q3 as CBN Moves to Boost FX Liquidity…

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In line with our expectation, Nigeria’s real Gross Domestic Product contracted year-on-year (y-o-y) by 6.10% to N15.90 trillion in Q2 2020, down from a 1.87% growth registered in Q1 2020 –
amid negative impact of COVID-19 pandemic
which compelled government to restrict
movements, especially in April 2020.

The non-oil sector shrank y-o-y by 6.05% (and contracted by 4.43% quarter-on-quarter) to N14.48 trillion – this was chiefly due to the 31.77%, 21.99% and 16.59% contraction withnessed in Construction, Real Estate and Trade sectors to N0.51 trillion, N0.85 trillion and N2.27 trillion respectively (which jointly accounted for 22.85% of GDP).

Despite the negative impact of COVID-19 on the local economy, financial services, information & communications and agricultural sectors, which jointly accounted for 46.48% of total GDP, all grew y-o-y by 18.49%, 15.09% and 1.58% respectively in Q2 2020.

The growths printed by information & communication and financial services sectors were due to the heavy reliance on technology by most companies and individuals to carry out their operations.

The oil & gas sector which moderated y-o-y by 6.63%, in contrast to a 5.06% growth recorded in Q1 2020, was on the back of a 10.40% q-o-q decline in Nigeria’s crude oil output to 1.81mbpd as well as lower crude oil prices – Bonny light tanked q-o-q by 42.32% to USD29.88 per barrel in Q2 2020.

In another development, the Central Bank of Nigeria (CBN), as part of its efforts to ease demand pressure on the exchange rate and boost supply of the USD to end users, mandated all banks in the country to submit the names, addresses, and bank verification numbers (BVN) of exporters that defaulted in repatraiting their exports proceeds from their international businesses, for possible sanctions.

This was in line with the Apex bank’s Foreign Exchange manual which mandates all exporters to repatriate their exports proceeds back into the country to support the local currency.

Also, CBN abolished third-party Form M payments as it banned authorised FX dealers from issuing Forms M for Letters of Credit and other forms of payments on behalf of companies through a third party. Going forward, the forms will be issued in favour of the ultimate supplier of the product or service.

According to the apex bank, the new directive would ensure prudent use of the country’s scare forex resources by eliminating incidences of over-invoicing, transfer pricing, as well as double handling charges which tend to be, avoidably, passed on to Nigerians as increased costs.

On the global scene, the US crude oil input to refineries increased week-on-week by 1.52% to 14.71 mb/d as at August 21, 2020 (but 15.51% lower than 17.41 mb/d printed in August 23, 2019).

Also, U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) fell w-o-w by 0.92% to 507.76 million barrels (but higher by 18.70% from 427.75 million barrels as at August 23, 2019).

As a result, WTI rose w-o-w by 0.51% to USD43.04 a barrel. Similarly, Brent rose by 0.26% to USD45.60 a barrel while Bonny Light increased by 0.23% to USD44.15 a barrel as at Thursday, August 27, 2020.

With the ease in lockdown coupled with rising crude oil prices, we expect a slower rate of GDP contraction in Q3 2020; although, the local economy may slide into recession in Q3 2020 given that August PMIs for manufacturing (48.5 points) and non-manufacturing (44.7 points) indicated contraction.

However, with the stimulus packages from the fiscal and monetary authorities, we expect Nigeria to be out of recession in 2021.

Meanwhile, we expect the continued efforts of the CBN to eliminate the unnecessary intermediaries associated with forex transactions; coupled with its move to improve FX liquidity, to stabilise the exchange rate, boost the external reserves and help reduce the upside risk of inflation rate which hit 12.82% in July 2020.

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Godwin Okafor is a Financial Journalist, Internet Social Entrepreneur and Founder of Naija247news Media Limited. He has over 16 years experience in financial journalism. His experience cuts across traditional and digital media. He started his journalism career at Business Day, Nigeria and founded Naija247news Media in 2010. Godwin holds a Bachelors degree in Industrial Relations and Personnel Management from the Lagos State University, Ojo, Lagos. He is an alumni of Lagos Business School and a Fellow of the University of Pennsylvania (Wharton Seminar for Business Journalists). Over the years, he has won a number of journalism awards. Godwin is the chairman of Emmerich Resources Limited, the publisher of Naija247news.

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