In 2018, Nigeria’s business and economic environment was characterized by sustained but slow recovery from the 2017 recession. Investors had to contend with the typical constraints of the business environment – high interest rates, weak GDP Growth, weak consumer demand, deficient infrastructure, energy issues, traffic gridlock on Lagos port roads and insecurity in some parts of the country, amongst several others.

Despite these challenges, the economy continued to maintain low but positive growth; largely driven by the recovery of oil prices for most part of 2018, which, while it lasted, had a stabilising impact on the country’s macroeconomic fundamentals. The sharp decline in oil prices from a peak of $86 in October to $54 per barrel in December is a clear indication that more needs to be done to limit the impact of oil price shocks.

At an estimated 1.81%, GDP growth was lower than the IMF and the Federal Government’s Economic Recovery and Growth Plan growth forecasts of 2.1% and 4.1% respectively. And more importantly, far below 3% average annual population growth. This remains a cause for concern due to its wider implications for welfare and poverty conditions in the country.

The fast-growing public debt profile (currently at a high of $73.2bn) also threatens the country’s fiscal sustainability and macro-economic stability in the medium term. While foreign reserves hit a high of $47.37bn in March, surpassing South Africa’s reserves, sustained defence of the Naira later in the year put pressure on the reserve, causing a 9% decline.

Conversely, Manufacturing PMI continued to show resilience, indicating an expansion in the manufacturing sector for the twenty-second consecutive month as at December 2018. On the Forex market, higher oil prices and stable local production levels of crude oil where the two critical factors that helped maintain stability throughout the year.

The CBN’s Monetary Policy Committee consistently left the Monetary Policy Rate and other parameters unchanged. The Capital Market experienced some decline, due largely to capital outflows driven by increasing U.S treasury yields, and in anticipation of more rate hikes by the U.S Fed, as well as investors’ scepticism around the outcome of the country’s 2019 general election.

In worrying proof that the government needs to look beyond GDP growth and other major macro-economic indicators, Nigeria became the poverty capital of world, the housing deficit hovered around a deficit of 17 million homes, with continued weak education and health outcomes.

A&M’s 2019 Nigeria Economic Outlook Report examines nine key issues that will shape the polity in 2019. Some of these include the conduct and outcomes of the 2019 elections; the assent to the new minimum wage; the approval of the 2019 Budget of Continuity; the signing of the Africa Continental Free Trade Agreement; and the OPEC Oil cut.

These will all have implications for the economy, as well as present some opportunities. Amongst others, expected implications include slow economic growth (between 1.8% and 2.1%), surge in fiscal deficit, decline in foreign reserves and attendant slide in the Naira, increased foreign borrowing by the government, possible retrenchment of Federal and State government workers, and further reduction of subsidy on petroleum products or full implementation of the Petroleum Industry Governance Bill.

2019: Key investment opportunities

Notwithstanding, key areas of investment opportunities exist for investors keen on engaging or extending their portfolio of investments in Africa’s largest economy, and include investments in;

  • Short Term Government Securities such as T-Bills;
  • Infrastructure PPPs – with key reforms under way, there will be increased government appetite to finance and deliver social, transport and energy infrastructure through PPPs irrespective of who wins the presidential elections;
  • Medium to Long term government debt instruments as well as special alternative financing instruments such as Sovereign Sukuks;
  • Agricultural Value Chain and in Solid Minerals – there is significant pressure on government to create jobs and diversify the economic, and it is thus providing significant incentives and support to these two sectors. Real
  • Estate Developments – in particular, relatively untapped opportunities exist for the development of integrated sustainable communities and mini-cities in urban areas such as Lagos, Abuja, Port Harcourt and Enugu.