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Nigeria dodges the bullet with sluggish GDP growth (0.51%)

The GDP data released by the NBS last night revealed sluggish but positive growth (0.51%) for the first quarter of 2021. Of the 46 activities tracked by the NBS, 23 expanded (mostly job inelastic). While the Agric sector was weighed down by insecurity, the Telecom sector was a victim of the NIN policy and the embargo on new SIMS. Both sectors account for 31.24% of GDP. The numbers also mean that Nigeria avoided the much dreaded double-dip recession like in the Eurozone. The GDP numbers, in addition to the slight moderation in inflation numbers for April (18.12%), will be key considerations in tomorrow’s MPC meeting. The committee is likely to maintain status quo and continue to monitor trends closely.

No more official rate – act of Omission or Commission?

The erasure of the official exchange rate from the CBN website for over ten days is being interpreted by the markets as a move towards exchange rate convergence. In 2020, the official rate was taken down from the CBN website – but for only 3 days. The CBN seems to be have used the last 10 days to evaluate market reaction, which has been largely positive. This could mean the beginning of a move to a more market determined exchange rate mechanism. The apex bank has also stopped the use of transactions by telephone and insists on a system generated trading platform for forex dealers. This means more transparent price discovery and settlement of forex deals which could be signalling a transition towards convergence of the existing multiple exchange rates. Meanwhile the gap between the parallel rate (N486/$) and the official rate (N412/$) has declined from N100 early this year to N74 today. In addition to this, the path to full convertibility is typically preceded by the move from an auction system to an interbank market. The move will help Nigeria meet some conditions precedent to its proposed $3bn Eurobond issue and accessing a $1.5bn loan from the World Bank.

More money, more problems

Oil prices seem set for a strong summer on the back of the acceleration in the rollout of COVID vaccines across Europe and unleashed pent-up travel demand as increasingly more airlines announce the resumption of international flights. This gives OPEC+ more leeway to continue on its quest to reel in output cuts that have been crucial in the oil price recovery. However, Nigeria is confronted with the potentially disastrous consequence of higher oil prices which manifests itself in the form of subsidies on imported fuel. These subsidy payments are on the verge of crippling the government’s finances amid major pushback from labour. Something will have to give… but what?

In this edition of the FDC monthly publication, the FDC Think-Tank analyzes these issues and their implications on businesses and the economy at large.

Enjoy your read!