FSDH Predicts Rise in Private Sector Investment in 2019

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Analysts at FSDH Merchant Bank Limited have predicted that the share of private sector investment in Nigeria’s Gross Domestic Product (GDP) will average 23 per cent in 2019.

The noted that private investment has been on an upward trend as it accounted for 19 per cent of GDP in 2018.

The actual figure achieved in the first quarter of 2019 was 25 per cent.
FSDH Merchant Bank stated this in its macroeconomic review for 2019 and outlook for 2020, titled: “Navigating through the era of slow growth,” obtained at the weekend.

Nigeria’s GDP is largely driven by household consumption which accounts for approximately 70 per cent of the GDP.

According to the investment bank, growth in private sector investment was triggered by spending on transportation, machinery and equipment and non-residential building which displayed a year-on-year growth of 203 per cent, 99 per cent and 67 per cent respectively in the first quarter of 2019.

“Investment remains a key component to boosting economic growth due to its multiplier effect,” it noted.

Government expenditure accounted for 5.6 per cent of GDP in the first quarter of 2019.
It noted that the Nigerian economy continues to improve; albeit on a slow growth trajectory as real GDP expanded by 2.3 per cent in the third quarter of 2019. The growth recorded in the third quarter represented the second highest quarterly GDP growth since 2015.

“Growth is expected to average 2.3% in 2019. This is also the highest annual growth rate since 2015.
“The Oil sector continues to influence overall GDP growth. The sector grew by 6.5 per cent in the third quarter, largely due to improvement in crude oil output.

“The non-oil sector grew by 1.9 per cent due to slow growth of major sectors like Manufacturing as well as decline of key sectors such as trade and real estate.

“In the last two quarters of 2019, the oil sector expanded faster than the non-oil sector,” it stated.
According to the report, expansion in the oil sector during the period was mainly due to improvement in crude oil production.

Oil sector’s share of the economy stood at nine per cent in the first nine months of 2019.
“This share is expected to remain the same in 2020. Over the last three years, the share of the economy has remained the same.

“Within agriculture, crop production accounts for 90 per cent of the sector’s output. In mining and quarrying, crude oil accounts for 98 per cent of total output. “Manufacturing accounts for nine per cent of total GDP and 40 per cent of industrial GDP.

“The focus for 2020 should be to accelerate growth and restructure the economy in favour of the industrial sector, particularly manufacturing,” the Lagos-based firm advised.

In its review of the trend of inflation, the report pointed out that from January to November, Inflation rate has averaged 11.34 per cent, lower than the 12.2 per cent recorded in full year 2018.
“Inflation moderated within the first seven months of 2019. The policy to close all land borders which was implemented from August led to an increase in prices,” it stated.

Inflation rate rose from 11.1 per cent in July, to 11.6 per cent in October and 11.85 per cent in November.

The increase was triggered by higher prices of food items such as rice, bread and cereals, oil and fat, meat, potatoes, yam and other tubers, fish and vegetables.

The report estimated that inflation would average 11.4 per cent in 2019 full year.
“Looking forward, inflationary pressures stem from higher government spending, potential tax increase and the closure of the land borders.

In August 2019, the federal government ordered partial closure of land borders to curtail smuggling of rice and other products into the country. Also, in October 2019, the government announced full closure of land borders, citing non-compliance of neighboring countries with ECOWAS protocols on transit of goods.

Similarly, in November 2019, the Nigerian government engaged with officials of Niger and Benin Republic on the land border closure. The government prescribed some conditions that must be met by the two countries before the land borders would be opened.

Some of the conditions include: Compliance with rule of origin; compliance with agreed packaging standards and rules; and dismantling of warehouses around the borders.
The closure, according to the Director General of Nigeria Customs Service, was expected to last till January 31st 2020, pending compliance with the above conditions.

“This policy stance could be viewed as a setback in promoting free trade in Africa, especially given Nigeria’s recent commitment to the AfCFTA agreement.
Closure of land borders was largely responsible for the increase in inflation rate from 11.2 per cent in September to 11.9 per cent in November 2019.

“The price of 50kg bag of rice has increased significantly from N14,000 before the border closure to about N25,000 in October. Local producers of rice and other affected commodities continue to take advantage of the supply-demand gap to increase price,” it explained.