2021 Outlook: Nigeria will record positive GDP growth – Economist

An economist, Ms Razia Khan, also Managing Director/Chief Economist, Africa and Middle East, Global Research, Standard Chartered Bank, on Tuesday said Nigeria would see a restoration of positive growth.

Khan made the assertion in her presentation at the virtual 2020 Market Recap and 2021 Outlook hosted by the Nigerian Stock Exchange (NSE) on Tuesday in Lagos.

The virtual event had in attendance no fewer than one thousand participants from within and outside Nigeria.

She said that for many emerging markets there would be a restoration to pre-COVID-19 level of Gross Domestic Products (GDP) by the end of 2021 and in 2022.

Khan urged the Federal Government to take proactive and concerted efforts in diversifying the economy, away from oil cycles.

She said: “Macro economic forecast for the Nigerian economy, we know that 2020 may have been a tough year with a contraction of four to 4.4 per cent in GDP.

“None-the-less, our expectation is that we will see recovery in 2021, and we are above the consensus of what the World Bank and IMF seems to be expecting.

“Nigeria has struggled to come out of the effect of the collapse in oil prices of 2014, none-the-less, Nigeria, unlike other oil producing countries in Africa, will see a restoration of positive growth before the COVID-19 hit.

“For many emerging markets, there will be a restoration to pre-COVID-19 level of GDP by the end of 2021 and in 2022.”

The economist said that as much as the Nigerian economy was centered on non-oil sectors, the impact of stimulus would be felt more clearly in 2021.

According to her, and the good news that there was higher oil price in place would impact Nigeria’s economy significantly.

Khan said that Nigeria needed meaningful economic diversification process in place and making it more resilient to the impact of these oil cycles.

“Regarding the easing cycle across major African economies, the Central Bank of Nigeria (CBN) was perhaps one of the last African Central Bank still putting in place rate cuts and with the inflation rate news, just puts a question mark about how easy it would be to sustain further easing.

“Most other regional central banks, the expectation is that the easing cycle a lot of it front loaded; Africa Central Banks also putting in place as much monetary accommodation as they could, that has largely come to an end.

“For many investors, portfolio investors who will be seeking higher yields will still be looking for many different African markets for the kind of returns they are looking for.

“So, we have globally an unprecedented amount of balance sheet expansion from central banks and many African markets looking like more different places that will be able to drive those potential returns.

“In caution, in terms of FX volatility that we have seen, we should not make assumption that sub-saharan African market remain as investible as they were prior to the pandemic.

“Because of the several disruptions experienced, so it may take a while before we see a recovery from that,” she said.

The economist also said that the shortfall affecting Africa economies was majorly debt load.

She said that the real issue in Africa was debt load that many African countries had taken on.

“There are certain initiatives available and some countries have signed up to them like the D-20 debt suspension initiative.

“And the basic issue with it is that the devouring of a lot of the debts obligation and does not, in any meaningful way, reduce the amount of debts.

“None-the-less, international financial institutions are taking different view of things and there is a growing consensus now that even before applying for the debt suspension initiative.

“If it is very clear that a country has unsustainable debt load, action should be taken to reduce the amount of public debt to achieve some kind of sustainability ratio.

“Nigeria’s trend growth has declined, this is almost a story entirely of what has happened in the oil market.

“Nigeria needs to find a new economic model, the old model has models of investments that are too low for Nigeria’s economy,’’ Khan said.

According to her, these raises a lot of questions like the kind of FX policy that would be in place. For the capital market, the big question is, when will Nigeria fully clear the backlog of accumulated demand?

“When do we see a working foreign exchange in place that will attract inflows from the rest of the world to attract savings to finance its own investments?

“Inflation has surged uncomfortably, this creates a demand for policy reforms which the opening of land borders and others speaks to, new stimulus to trade will help to contain inflation overtime,” she said.

Khan further said that Nigeria’s capital market would play a key role in the nation’s economic recovery.

She said Nigeria’s bond yields were negative in real terms compared to inflation and would seem less compelling to portfolio investors.

“The real questions, having seen the unprecedented amount of global stimulus and liquidity is how much is going to be attracted back to economies like in Nigeria?

“The building blocks for sustained economic growth are in place, it is not about the technical balancing growth.

“It is about whether we can see long term, lasting technically change which will be the best way of understanding performance of the Nigeria’s stock exchange,” she concluded.

On NSE performance, Mr Oscar Onyema, its Chief Executive Officer, said that the 2020 was historic owing to the pandemic as global markets witnessed sharp swings but the NSE became more resilient.

Onyema said the NSE renewed investor options which propelled a positive year end and earned the Exchange Best All Share Index (ASI) in Africa by Bloomberg.

He added that the strategic performance of NSE place the exchange as a more agile competitor and enhanced customer experience across all the value chains in the ecosystem.

Onyema said that NSE had introduced strategic programmes in place to grow the exchange and investors’ experience, specifically through the demutualisation of the exchange.

“We look forward to consolidating on the benefits of demutualisation in the coming year.

“We intend to aggressively pursue cutting edge products and services, access new markets and delivery better value for our valued stakeholders.

“The second wave of COVID-19 in Nigeria and globally may slowdown renewed social economic activities.

“The marines reopening of the business normalisation of the economy and revenue diversification drive of the Nigerian Government will elicit positive sentiments throughout the year.

“The global economy is projected to sustain in 2021 ND consolidate on growth made in the second half of 2020, albeit, below pre-pandemic levels.

“The IMF projects that the global economy will grow by 5.2 per cent,” he said.