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NIGERIA JULY ECONOMIC REPORT - H2 Kicks Off With Notable Political Changes

H2 kicks off with notable political changes                                                                         

Despite Purchasing Managers’ Index numbers indicating steady economic momentum at the start of the quarter, July brought early warning signs of the challenges the Nigerian economy could face in the rest of the year. Annual inflation moderated once again in June, but the m/m pace accelerated further (from 1.1% to 1.2%) as food price pressure intensified. This triggered a more hawkish Monetary Policy Committee (MPC) stance than expected as 3 of 10 members actually voted to hike interest rates in late July, through the majority vote was a “HOLD”. In addition, Nigeria’s political machinery moved up the gears, starting with gubernatorial elections in Ekiti State where the APC candidate defeated the PDP candidate and incumbent State Deputy Governor, and ending with a string of high profile defections from the APC, Nigeria’s ruling party. Even with a few green shoots such as the resumption of Bonny Light loadings, the political dynamics are threatening to overshadow Nigeria’s precarious economic momentum.                                                                           

Nigeria’s debt situation is a slight but relevant worry. Data from the Debt Management Office (DMO) shows that the debt-GDP ratio has increased from 13.2% in 2015 to 20.0% in 2018, below the recommended (but unapproved) DMO threshold of 25.0%, and also below the 56.0% international threshold for peer countries. Furthermore, debt servicing (% government revenues) has remained stubbornly high, registering 30% in Q1’18 (based on estimated revenues and realized figures were likely lower). The composition of debt has also changed significantly, from an 84:16 domestic: external split to a 70:30 split, in line with government’s target of achieving a 60:40 split by 2020. Whilst the shift towards external debt has been positive in terms of reducing interest rate costs and private sector crowding out, we cannot completely shake the risk of currency depreciation bloating Nigeria’s external debt balance.                                                                       

What to look out for in August…                                                                             

• On the 13th of August, the Organization of Petroleum Exporting Countries (OPEC) would release its monthly report showing oil production across the group. The figures would give further clarity on the extent to which OPEC nations are able to ramp up production following the agreement to increase the joint production ceiling by one million barrels per day.
• Party primaries for Nigeria’s 2019 Elections commence on the 18th of August. That may signal the closure date of Nigeria’s unofficial political “transfer window” as aspirants settle on their chosen parties after a raft of moves.
• Nigeria’s Q2’18 Gross domestic product data would be released by the National Bureau of Statistics on the 20th of August.
• Nigeria’s Q2’18 Capital Importation data would be released by the National Bureau of Statistics on the 22nd of August.