By Goddy Egene
Vetiva Research has said Sub-Saharan African countries must navigate their economies in 2019 against the backdrop of weaker commodity prices, prolonged capital reversals, tepid investor sentiment, and geopolitical uncertainties.
Vetiva stated this in its Year 2019 Outlook report on the Nigerian economy, key sectors, and capital market.
Highlighting the challenging global environment in 2019, they projected oil price to be $60/barrel. According to the firm, despite the above, they expect the Nigerian economy to accelerate in 2019 and project a gross domestic product (GDP) growth of 2.7 per cent in their base scenario.
An analyst at Vetiva, Ifedayo Olowoporoku, said: “This forecast is driven by continued recovery in the manufacturing and services sectors, as well as higher expected aggregate demand in 2019 on the back of likely election spending and a potential minimum wage hike. We note that a GDP growth of 2.7 per cent in 2019 would just about equal estimated population growth, and we look beyond 2019 for true structural adjustment that can transform Nigeria’s economic growth trajectory.”
In his comments, Vetiva’s Chief Economist, Michael Famoroti, said: “The key economic headwinds in 2019 are currency volatility, policy instability, and severe fiscal strain as a result of excessive spending.”
Speaking on the 2019 elections, Famoroti suggested that economic activities in the first quarter of 2019 would be overshadowed by the polls but was more upbeat about the effect of politics on the economy for the rest of the year.
He said: “In 2019, the Nigerian economy would not be affected as much by who wins, but by the build-up to and fallout from the elections.”
Notably, Vetiva projects a mild depreciation of the naira to N390/$1.
“Currency depreciation is a matter of when, rather than if, once the demand-supply equation of the currency and inflation differential between the United States and Nigeria are considered. As it is apparent that the naira is trading above its market value and has been supported by the Central Bank of Nigeria via its external reserves. In addition to this, we believe there is a fair chance that the apex bank would increase its monetary policy rate to keep real interest rates positive and project a year-end base interest rate of 14.5 per cent,” he said.
Based on the foregoing a result, Vetiva said they would be an elevated yield environment in 2019.
“Rising global interest rates and consequent capital outflows, investor jitters caused by the elections, rising inflation, and tightening monetary policy all point towards higher yields,” Olowoporoku,