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Monthly Economic Report - November 2016

​Kicking off the final quarter of a year likely to bring Nigeria’s first annual GDP contraction since 1995, it was a case of “business as usual” in October with economic malaise persisting amidst remarkably sluggish movement in the fiscal space. The CBN Purchasing Managers’ Index (PMI), a leading indicator, remained below the 50 threshold – suggesting further output contraction in the month. The 2016 Budget, saluted for its boldness and laced with hope, has made way for a more mundane reality characterized by delays and false dawns. Nevertheless, ₦750 billion has been disbursed as capital expenditure (CAPEX) as at Q3 which although is just over half of the allotted full-year amount (₦1,590 billion), still represents a marked improvement on 2015 disbursement of ₦387 billion (₦557 billion allocated). As stated in our Nigeria Outlook report, Seeking a Winning Formula (20 September) we are doubtful about multiplier effects of budget spending materializing until 2017, and note that full budget implementation is unlikely given the current run rate, thus making the particular breakdown of disbursements tremendously important.

Fiscal support is needed to lift a business environment reeling at the mercy of the triple-headed monster of high inflation, high interest rates, and foreign exchange scarcity. Inflation reached 17.9% year-on-year in September, and although the pace of price increase is slowing markedly, remains dangerously close to levels observed to inflict a negative output effect. This partly explains the tight monetary stance enacted by the CBN’s Monetary Policy Committee (MPC) even as firms suffer from higher lending rates. The MPC meets for the final time this year later this month and will assess the inflationary trend, as well as recent uptick in foreign capital inflows (Q3 inflows up 75% on a quarterly basis) when deciding how to alter policy levers. We expect October inflation to register at 18.1%.

Whilst some commentators believe Q4’16 to be the start of Nigeria’s economic recovery, we find the notion doubtful considering the seemingly paltry implementation of the budget. Moreover, with the foreign exchange market still distorted and a high interest rate environment expected even going into next year, we see little cause for optimism in the very short term. Upcoming data releases, including NBS estimates of third quarter GDP, unemployment/underemployment, and international trade should provide further pointers to the severity of the recession.