By Obafunsho Adenekan
It is no longer a secret that Nigeria is ‘technically’ in recession. There is a steady rise in food prices (even now the market woman says ‘dollar oga ….na dollar’) and there is talk of fuel prices going up (further) as well.
Almost all lending is extended at floating rates and banks should be able to reprice their loans quite quickly, but borrowers will face more difficulties in servicing their debts. Impaired loans are already high in the Nigerian banking sector, where average non-performing loan ratios reached 6.2% at end of March 2016, partly reflecting the impact of currency depreciation on businesses as well as higher oil-related problem loans at some banks.
GDP contracted by 0.4% year on year in 1Q16 and forecast GDP growth to fall to 1.5% in 2016 (2015). This is probably not the best of times for the citizenry but there is light at the end of the tunnel. Foreign Investors are said to be making enquiries in droves for the last 2 weeks which could see the return of FDI (Foreign Direct Investment) which could stimulate the economy.
Here are a few of the highlights of the Nigerian Economy from week ending on the 19th of August, 2016:
- Crude oil prices rose by 8% week on week, its highest since June 22, after sliding for over two months on news that the Organisation of Petroleum Exporting Countries (OPEC) and other key exporters may revive talks on freezing output levels when they meet in Algeria next month. Brent Crudes closed Thursday at $50.75 per barrel while WTI closed at $48.30 per barrel.
Effect – This could lead to more income generated from oil sales but in recent times, our output has been cut (with a further freeze on all OPEC members could crash prices) and the Niger Delta Avengers are still bombing pipelines.
- Foreign Exchange – The Naira appreciated to N321.50/$ at the interbank (but depreciated to N394/$ at the parallel market) despite Central Bank intervention on Aug. 15 and 16.
Effect – Food Prices will certainly go up. Goods and services linked (..or not) to the US Dollar will go up as well. CBN may intervene again but this will mean Nigeria is further depleting its foreign reserves.
- Money Market – The Bills market saw a drop in yields across all maturities traded this week, despite expectations of a negative liquidity position after the debit for bond auction passed. The biggest mover was the 16th Feb. paper which previously printed at 17.48% at the last primary auction. This 181-day bill was offered as low as 15.65% from 16.3% where it opened the day. Other long dated bills only shed 10 to 15bps day- on-day.
Effect – CBN will keep mopping up excess cash in the system due to rising inflation. If you are liquid, this is the best of times to invest in these high yield opportunities as it may not last too long.
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Author: Obafunso Adenekan
Obafunso is a chartered accountant. He started his career as an investment banker working on complex divestment transactions, capital raising, and structured debt transactions for large corporations and States in the Nigerian capital markets. He is passionate about the growth of small businesses in Nigeria. Obafunso currently lives in Lagos with his family.