01 Sep

Daily Watch – Economy contracts, Education shows resilience

  • Nigeria’s manufacturing sector is now in a recession , as it has now seen 2 consecutive quarters of contraction. The decline is largely attributable to the manufacturing sector which has seen its largest sub-sector, food, beverages and tobacco, contract by 5.9% Year on Year in Q2 2015, as opposed to a growth of 5.2% Year on Year in the same period last year. Rencap believes that the manufacturing sector’s decline in H1 2015 is partly because of tight foreign exchange liquidity, which makes it difficult for manufacturers to acquire imported inputs. It is also likely that severe fuel shortages in Q2 2015 undermined production and distribution. RenCap also expects supply constraints, related to foreign exchange restrictions and the de facto import ban, to undermine growth in the second half of the year.
  • Meanwhile ,ratings agency Fitch says that Nigerian Banks could be in trouble because they are operating in increasingly difficult conditions and this may result in a sharp deterioration of their profitability, asset quality, liquidity and capital ratios. Nigerian banks have had to contend with the increased vulnerability of the oil and gas sector, pressure on the naira, the slower economy, tightening bank liquidity (including the exit of public sector funds into the TSA), and an uncertain environment. Loan growth contracted in first half 2015 which is likely to translate to weaker bank financial metrics for the year. According to Fitch, “The sector outlook is negative”.
  • The education sector is emerging as one of the most economically resilient sectors in the Nigeria’s economy, after posting growth of more than 7 percent while many other sectors experienced lower growth and contractions. According to analysts, including those from FBN Capital led by Gregory Kronsten, “education would often be at the tail end during a cutback in household spending,” even when there has been a squeeze on purchasing power for consumers across the country.
  • Aliko Dangote, said on Monday he plans to open a $400 million cement plant in Zimbabwe, a major boost for the southern African country that is desperate for foreign investment. He also said that he aimed to invest in coal mining and power generation in the country.
    The plant will produce 1.5 million tons of cement a year and if government permission is given, construction will begin in the first quarter of 2016, he said. Zimbabwe has been struggling for five years to recover from a catastrophic decade of contraction that was marked by billion percent hyperinflation and widespread food shortages. Some analysts say the economy could tip back into recession this year due to the slump in metals prices and a drought.
  • Turmoil in the world’s financial markets has hit foreign portfolio investment flows to emerging markets, including Nigeria, which turned negative in August for the first time in 2015 according to estimates by the Institute of International Finance. On August 24 alone, the IIF said outflows from the seven countries it monitors daily totalled $2.7 billion, the same as it recorded for September 17, 2008, during the week of the Lehman Brothers bankruptcy. It said cross-border flows to EM assets averaged just $3 billion a month during the past four months, compared with an average of $22 billion a month from 2010 to 2014.