by Gregory Kronsten & Chinwe Egwim
Our latest research report makes a call on the
macro environment in Nigeria under the shadow of COVID-19. Household
consumption is the largest component of GDP by expenditure, as elsewhere. Its
share was 65% in 2014 and 59% in 2019. This compares with 62% in South Africa
and 70% in Ghana last year although the latter series has a statistical
discrepancy accounting for more than 9% of the total.
There are few regular consumption indicators
in Nigeria, and several in existence are produced so late as to be of
negligible use to analysts. Two that are relatively timely however, are the
series on mobile telephony from the Nigerian Communications Commission, and
that on electronic payments from the Nigeria Inter-Bank Settlement System.
Another two that are released less promptly cover air passenger traffic from
the Federal Airports of Authority of Nigeria and container traffic from the
Nigerian Ports Authority. By way of obvious gaps in available indicators, we
would highlight monthly retail sales and housing starts.
We are pleased, therefore, to have access to a
survey carried out in May by REACH Technologies, a Nigeria-based fintech,
through its flagship app. For our take
on the resilience of the economy in the face of COVID-19, we also draw material
from the second edition of COVID-19 Impact Monitoring, a publication
from the National Bureau of Statistics (NBS) with support from the World Bank.
The REACH survey asks 12 questions of its
sample base of 100 respondents. Our first reaction is surprise that the answers
were not more negative, given that the exercise took place when the selective
lockdown (including Lagos and Abuja) was still in force. Below are the brief
highlights:
Household budgets under further stress
Nigeria has a shortage of timely consumption indicators,
so we are indebted to REACH Technologies and the National Bureau of Statistics
(NBS) to assess the impact of COVID-19. From REACH we find a few isolated cases
of Nigerians’ sunny optimism. However, its urban clientele has dropped the
ambitious business and personal plans it had in January and made its largest
spending cuts on personal care. Already-weak spending has taken another hit.
Timely boost to banks’ loan books
One bright spot has been the 21% increase (N3.3trn) in
the loan books of deposit money banks over 12 months. For manufacturing, the
increase has been closer to 35%. As well as leaning on the banks to boost
lending as their regulator, the CBN has also multiplied and deepened its own
credit interventions over the period. The beneficiaries are not identifying
themselves and probably include few SMEs, yet the increase should help
businesses in their hour of need.
Less integration, less GDP contraction
We see better access to bank credit and more
government spending on the agenda too, but the principal driver of the
(negative) growth number this year is Nigeria’s position a little apart from
the global village. Its large agricultural economy and sizeable domestic
market, together with limits to its international integration, together mean
that its GDP will contract in 2020 by rather less than many of its peers. For
the same reason (its uneven development), the rebound next year is set to be
modest.
Re-employment in a harsher environment
The NBS survey shows a better-than-expected return to
work after lockdown, particularly in rural areas. Most returnees work in
agriculture and non-farm household firms. However, respondents are returning to
companies with a fall in revenue relative to pre-COVID and with magnified
operating challenges. Farmers have generally reduced the area planted to crops.
There are large gaps in the safety nets of many households.
Closing with the impact of the virus on inflation,
there are downward pressures such as a further weakening in consumption
patterns due to the lockdown. However, there are also upward pressures such as
the shutdown of factories and general supply chain disruptions. Our take is
that the headline rate will see a further modest rise to 13.1% y/y at year-end
2020 from 12.6% in June. We see the economy contracting at a little more than
-3% this year.
Gregory Kronsten & Chinwe Egwim are of the Macroeconomic and Fixed Income Research, FBNQuest
