Economy to grow 2%, but challenges remain, says Agusto
March 15, 2021561 views0 comments
By Charles Abuede
- Links growth to better investor sentiment
- Sees fragile macroeconomic, business environment
- Pressure remains from fuel importation
Agusto & Co., Nigeria’s foremost credit rating agency, is projecting the country’s total output to grow at a rate of 2 per cent in 2021 on the back of the COVID-19 vaccine and the attendant improvement in investor sentiments globally and domestically, relatively higher prices of crude oil and consequently its demand. In its latest report released over the weekend, the agency highlighted that in the year 2021 some key industries in Nigeria will witness the impact of the global health crisis and that this will affect their performance.
However, several factors were considered by the credit rating agency in its forecast that Nigeria’s output (GDP) will be a measly 2 per cent in 2021. The growth rate, according to Agusto, will be sub-optimal for a country with a population size of about 200 million persons, a population growth rate of about 3 per cent and severe economic challenges. It further highlighted that though, oil prices have rallied within the first few months of 2021 to hit a high of $70 per barrel, Nigeria’s reserves have been climbing downhill and in effect not growing at the same rate as the oil price.
The report also noted that gains from stronger oil prices will continue to be pressured by rising costs from refined crude oil importation at higher landing cost, gradual settlement of pent-up FX demand and the Eurobond redemption of $500 million by Nigeria as well as the maturing swap transaction. Furthermore, it projects that during the year under review, Nigeria’s macroeconomic and business environment in Nigeria will be fragile and largely on a recovery mode. The growing deficit of the government leaves little room for significant interventions to fund an expansionary fiscal policy.
On the business scene, Agusto asserts that most businesses in Nigeria will continue to share positive feeling about 2021 while some are believed to continue nursing the pandemic impact over the medium term. Also, it stressed that businesses and households would need to be innovative to mitigate the heightened macro-risks, which it believes would linger in the short to medium term. Thus, flexibility, value-adding propositions and market intelligence will be a germane success factors in 2021
A deeper look at the report accessed by Business A.M, shows a projection that the financial services sector will witness stronger net earnings owing to slightly higher interest income amid low-interest expenses while the loan book growth is projected to rest in the 12 per cent to 15 per cent band driven by intervention funding and a plausible devaluation of the domestic currency further. Also, the Nigerian insurance industry has forecast to contend with high outstanding claims settlements emanating from the aftermaths of the EndSARS protests and recapitalisation uncertainties. However, an increasing appreciation for insurance by businesses due to the destruction during the civil unrest may support premiums, coupled with the Industry’s stronger underwriting capacity from an improved capital base.
On a cursory analysis from other sectors of the economy in 2021, Agusto stated that in 2021, the agriculture sector will benefit from the private and public sector investments, the latter to a lesser extent; the disruptions in supply chain dynamics brought about by the lingering impact of the COVID-19 pandemic and foreign currency volatilities will trigger increased investments in backward integration, particularly by large multinationals with the financial capacity and in routes to the agriculture input market. However, the country’s dependence on imports will remain.
FCMG, QSRs and Food & Drink
Stability is expected in the FCMG sector in the short term, with strong demand for personal care products and other essentials. Given an increased focus on immunity and safety, products such as sanitisers, antiseptics, face masks and cleaning utensils will continue to record good sales in the coming months, as the COVID-19 pandemic lingers in Nigeria. Also, during the year 2021 as projected by Agusto, a continuous shift from unbranded packaged food to more trusted brands as affordability will also be a driver with a focus on smaller sized packs of food to carter for lower-income earners within the food, drink and confectionery sector.
Telecoms and Information
Further afield, the telecoms and information sector in Nigeria is expected to benefit from an aggressive uptake of data services by a considerable populace due to changes in the work and school environment. Agusto see prospects particularly in broadband penetration which remains low at 45.4 per cent in Nigeria compared to the average broadband penetration rate of 75 per cent for developing countries which suggest a need for additional investments in the sector. Elsewhere, the hospitality segment is also projected to perform better in 2021 with gradual recovery from a low revenue base in 2020, largely driven by less restrictive COVID-19 containment measures.
Albeit, recent data as published by the National Bureau of Statistics (NBS) also highlighted Nigeria’s economy a historical growth of 9.7 per cent quarter on quarter growth in its gross domestic product (GDP) in 8 years to N19.55 trillion in real terms. Consequently, Nigeria exit recession in the final three months of 2020 as growth in the output returned to positive territory with a modest annual growth of 0.11 per cent in the quarter and compares with the contraction of -3.62 per cent the previous quarter when it slumped into recession following two-quarters of consecutive negative growth; and 2.55 per cent in the year-earlier.