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THE NIGERIAN ECONOMY; A RETROSPECT LOOK

INFLATION

According to Nigerian Bureau of Statistics, the pace of price increases observed by the Consumer Price Index (CPI) which measures inflation eased for the third consecutive month in the November, 2014. Prices rose by 7.9 percent (year-on-year), down by 0.2 percentage points from 8.1percent recorded in October. The slower pace of price increases recorded by the Headline index was as a result of a slower rise in food prices as well as other divisions that yield the Headline index.
After peaking in August this year at 10.0 percent (year-on-year), the food index has continued to moderate. The Food index rose by 9.1 percent (year-on-year) in November, down by 0.2 percentage points lower from 9.3 percent recorded in October. Following the same trend observed in the Headline index, this is the third consecutive month where advances in food prices have been relatively muted. While the majority of groups that contribute to the food index declined, price increases were observed in the Vegetables and Coffee, Tea and Cocoa groups.
Price movements recorded by the “All Items less Farm Produce” or Core sub-index moved at roughly the same pace for the fourth consecutive month at 6.3 percent (year-on-year). Increases were observed in the Liquid and Solid Fuels, Non-durable Household Goods, Garments, and Passenger Transport by Road groups. Other groups and Divisions that contribute to the index exhibited slower increases.
The Headline index rose by 0.59 percent (month-on-month) in November, marginally higher from 0.51 recorded in October. Prices increased in most COICOP divisions that yield the headline index prices but eased in the Education, Restaurants and Hotels, Alcoholic Beverages, and Tobacco and Narcotics Divisions.
Year-on-year, the pace of increase of both Urban and Rural prices eased for the third consecutive month in November. The Urban Composite CPI rose by 7.9 percent, down by 0.2 percentage points from October, while the Rural Composite CPI eased marginally, rising by 7.9 percent in November. Urban prices increased at a faster pace in November; by 0.6 percent (month-on-month) relative to 0.5percent recorded in the previous three months. The pace of increases in the Rural All-items index also picked up, increasing by 0.6 percent, from 0.5 percent in October.
The percentage change in the average composite CPI for the twelve-month period ending in November over the average of the CPI for the previous twelve-month period was recorded at 8.0 percent. The corresponding 12-month year-on year average percentage change for the Urban index was 8.2 percent in November unchanged from rates recorded in October, while the corresponding Rural index was also unchanged in November increasing by 7.9 percent.
The onset of the harvest season has continued to bring consumers a respite from higher food prices after food prices peaked in August. Prices as measured by the food sub-index rose by 9.1 percent in November, 0.2 percentage points lower from rates recorded in October. The average annual rate of change of the Food sub-index for the twelvemonth period ending in November 2014 over the previous twelve month average was 9.5 percent. The twelve month rate of change has held steady for six consecutive months.
Gross Domestic Product
The Nigerian economy faced numerous challenges which impacted overall economic activity in 2014. Declines in the real growth rates of economic activity were experienced in the oil sectors. Oil production was less than expected due to security challenges and fall in crude oil prices.
On an aggregate basis, the economy when measured by the Real Gross Domestic Product (GDP), grew by 6.23 percent (year-on-year) in the third quarter of 2014, higher by 1.06 percentage points from rates recorded in the Third quarter of 2013, and lower by 0.31 percentage points from the Second Quarter of 2014.
Relative to the Second Quarter of 2014, the economy grew by 8.67 percent in the Third Quarter. The nominal GDP at basic prices for the Third Quarter of 2014 was estimated at N22,933,144.01 million, up 12.06 percent from N20,464,395.99 million estimated for the corresponding quarter of 2013 and 5.51 percent from N21,734,829.86 million recorded in the second quarter of 2014. The economy, can be broadly classified into two output sectors: Oil and Non-oil sectors:

The Oil Sector

The oil sector experienced production challenges. The average daily production of crude oil in the Third Quarter of 2014 was recorded at 2.15 million barrels per day (mbpd), a decrease from 2.26 mbpd recorded in the Third Quarter of 2013 and 2.21 mbpd recorded in Second Quarter of the year.
The result was a decline in oil GDP by 3.6 percent in the Third Quarter of 2014, This was also lower relative to 5.47 percent in the Second Quarter of 2014. The Oil sector contributed approximately 10.45 percent to real GDP in the third quarter of 2014, lower from the 10.76 percent contribution in the Second Quarter of 2014, and the 11.51 percent contribution recorded during the Third Quarter of 2013.
The Non-oil Sector
The non-oil sector growth was driven by growth inactivities recorded in the Crop Production, Textile, Apparel and Footwear; Telecommunications, and Real Estate sectors.
In the third quarter of 2014, the non-oil sector recorded 7.51 percent growth in real terms, lower compared to 8.46 percent at the corresponding period in 2013, yet higher than 6.71 percent in the second quarter of 2014.

Total Capital Importation

The $6,542.58 million of capital imported in the third quarter of 2014 demonstrated a continuation of the upward trend observed over the year thus far. From the second quarter value of $5,803.89 million, there was an increase of $738.69 million or 12.73%, whilst year on year growth amounted to $2,123.82 million, up 48.06% from the $4,418.75 of capital imported in Q3 of 2013.
Capital importation values post financial crisis were exhibiting a strong recovery throughout 2012, peaking at $6,699.57 million in the first quarter of 2013. However, 2013 saw a steady decline in inflows, bottoming out at $3,904.55 million of capital imported in the opening quarter of 2014. This represented a decline of $2,696.02 million or 69.05% from the peak recorded just one year earlier. Despite the steady rises in inflows observed throughout 2014, the cumulative total for the year of $16,251.02 million is still $385.97 million or 2.32% below the 2013 cumulative total of $16,636.99 million.

External Reserves

The country’s external reserve position lost steam falling to US$34.47bn to end the year 2014, representing a decrease of 20.09% from US$43.61bn as at the end of the year 2013. The gross external reserve at the end of October 2014 stood at US$36.25 billion, indicating a decline of 5.3 and 17.9 per cent below the levels in the preceding month and the corresponding period of 2013, respectively. The observed depletion in the external reserves was due to increased foreign exchange sales at the rDAS and interbank segments of the foreign exchange market. A breakdown of external reserves showed that Federation reserves was US$4.47 billion (12.3 per cent); Federal Government reserves, US$3.87 billion (10.7 per cent), and the CBN reserves, US$27.91 billion (77.0 percent).

Foreign Exchange

According to the Central Bank of Nigeria, Estimated aggregate demand for foreign exchange by authorized dealers under the retail Dutch Auction System (rDAS) and Bureau-de-change (BDC) was US$4.88 billion in October 2014. This indicated an increase of 14.1 and 17.9 per cent above the levels in the preceding month and the corresponding month of 2013, respectively. A disaggregation of total demand showed that demand at the rDAS-spot rose by 10.6 per cent to US$4.57 billion above the level in the preceding month, while at the rDAS-Forwards window and BDCs segments, it amounted to US$0.13 and US$0.18 billion, respectively.
Under the rDAS, the average exchange rate of the naira vis-à-vis the US dollar stood at N157.31 per US dollar, compared to N157.30/US$ and N157.42/US$ in the preceding month and corresponding month of 2013, respectively. This represented a depreciation of 0.01 per cent relative to the level in the preceding month but indicated an appreciation of 0.07 per cent relative to the level in the corresponding month of 2013.
At the BDC segment, the average exchange rate, at N169.43 per US dollar, depreciated by 0.5 and 2.6 per cent relative to the levels in the preceding month and the corresponding period of 2013, respectively.
Similarly, at the inter-bank segment, the average exchange rate of the naira vis-à-vis the US dollar, at N164.64 per US dollar, depreciated by 1.0 and 2.9 per cent, relative to the levels in the preceding month, and corresponding period of 2013.
Consequently, the premium between the rDAS and the bureau-de-change segments widened to 7.7 per cent, from 7.2 per cent in the preceding month. Similarly, the premium between the inter-bank and rDAS segments, increased to 4.7 per cent from 3.6 per cent in the preceding month.
Currently the exchange rate at the FX market closed the year 2014 at N183.00/US$ closing at a dip of 14.61% from N160.30/US$ in the preceding year.

CRUDE OIL

The CBN stated in their “Economic Report For October, 2014” that the Nigeria’s crude oil production, including condensates and natural gas liquids, was estimated at an average of 2.0 million barrels per day (mbd) or 62.00 million barrels for the month of October, 2014. This was 0.05 mbd or 2.4 per cent lower than the 2.05 mbd or 61.50 million barrels produced in the preceding month.
Crude oil export was estimated at 1.55 mbd or 48.05 million barrels for the month. This represented a decline of 3.1 per cent below the level recorded in the previous month. Deliveries to the refineries for domestic consumption remained at 0.45 mbd or 13.95 million barrels in the review month.
At an estimated average of US$88.78 per barrel, the price of Nigeria’s reference crude, the Bonny Light (37º API), fell by 9.9 per cent below the level in the preceding month. The average prices of other competing crudes, namely the U.K Brent, at US$87.51 per barrel; the West Texas Intermediate at US$84.40 per barrel and; the Forcados, US$88.96 per barrel showed similar trend.
The fall in crude oil prices was attributed, mainly, to discount offered by some OPEC member countries to their major customers as a strategy to retain market share in the face of increased output by the US. The average price of OPEC basket of eleven selected crude streams was US$85.06 per barrel in October 2014. This represented a decline of 11.4 and 20.3 per cent below US$95.98 and US$106.69 per barrel recorded in the preceding month and the corresponding period of 2013.
Currently the bonny light crude oil stands at $54.76 as at the end of Year 2014, which represent a 50.73% decline in price year on year.

Capital Market

Available data from Nigerian Stock Exchange show a very bearish equity Market with the Year on Year change a negative of 16.14% to close at 34,657.15 as at the end of Year 2014 from 43,329.19 from the preceding year. The NSE Banking, NSE Insurance, NSE Consumer Goods, NSE Lotus Islamic, NSE Industrial Goods indices declined by 18.03, 2.11, 17.88, 21.63, 15.98,  only gaining in NSE Oil/Gas and and NSE ASeM Indices by 11.84, and 26.09 per cent to close at 358.09, 146.19, 862.96, 2183.59, 2139.15, 399.51 and 1128.44, respectively, at the end of the review period.
The volume and value traded securities for the month of October, 2014  decreased by 38.7 and 66.5 per cent to 7.98 billion shares and N87.6 billion, respectively, in 94,903 deals, in contrast to 13.0 billion shares and N261.4 billion, respectively, in 103,079 deals, recorded in the preceding month.
Meanwhile, a turnover of 1.245 billion shares worth N15.898 billion in 12,018 deals were traded in the last week of the year by investors on the floor of The Exchange in contrast to a total of 1.860 billion shares valued at N12.760 billion that exchanged hands the week before in 13,469 deals.
The total market capitalization of all the listed securities (equities and debt) stood at N16.88 trillion at the end of the year under review, indicating a fall of13.15 per cent below the level in the preceding year. Similarly, market capitalization for the listed equities fell by 12.95 per cent below the level in the preceding year, to close at N11.49 trillion at the end of the review year. Listed equities accounted for 68.07 per cent of the aggregate market capitalization.

Interest Rate

Available data by CBN indicated that banks deposit and lending rates generally trended upward during the fourth quarter of 2014. The 1, 3, 6, 12months deposit rates for November, 2014 rose from 8.52, 9.33, 9.50 and 9.23 per cent to 8.56, 9.70, 9.79 and 9.31 per cent, respectively, while the savings deposit rate remained at 3.43 per cent, same rate as in the preceding month. The average prime lending rate fell by 0.06 percentage point to 16.47 per cent during  the review month. The average maximum lending rate, at 25.74 per cent, declined by 0.04 percentage point below its level in the preceding month. Consequently, the spread between the weighted average term deposit and maximum lending rates narrowed by 0.23 to 16.36 percentage points.

At the inter-bank call segment, the weighted average rate, which stood at 10.98 per cent in the preceding month, declined to 8.98 per cent in November, 2014. The weighted average rate at the open-buy-back (OBB) segment rose by 13.77 percentage point to 11.90 per cent in the review month. The Nigeria inter-bank offered rate (NIBOR) for the O/N, 30-day, 90-day, and 180-day tenor rose to 27.96 per cent, 13.78 per cent, 9.63 per cent and 7.50 per cent above the preceding month rate.

Sources:

DISCLAIMER
While I check for accuracy and invest time in research, I am not liable for any misinformation. The details here should be construed as my investment view and any use of same is at owners risk. 

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