Nigerian economy ranked high above its African counterparts

By Mahmud Jika

Nigerian economy has been ranked far ahead of its peers on the continent based on the strength of the country’s macroeconomic indicators.

A Lagos-based research and financial advisory firm, Renaissance Capital (RenCap), revealed this in its latest report on sub-Saharan Africa (SSA) titled, ‘Who’s Hot and Who’s Not’.

Other countries assessed in the report were Ghana, Kenya, Rwanda, Tanzania, Zimbabwe and Zambia.

Nigeria, in April this year, rebased its gross domestic product (GDP), which saw estimates hitting $509.9 billion. Following the rebasing exercise, Nigeria emerged Africa’s biggest economy and the 26th largest in the world.

Also, in spite of the huge infrastructure gap and security challenges in the country, the activities in the Nigerian manufacturing sector had continued to grow, attracting huge foreign direct investment (FDI) inflows by global multinational brands.

The RenCap report highlighted the country’s improving external position (9 to 10 months of import cover) and a small fiscal deficit (1 to 2 per cent of GDP), as major factors driving its macroeconomic growth.

Moreover, it pointed out that a recovery in the oil sector had led to stronger growth in Nigeria.

Accordingly, RenCap revised its growth forecast for the country to 6.3 per cent and 6.5 per cent in 2014 and 2015 respectively, as against its prior forecast of 5.7 per cent and 5.6 per cent.

It explained: Nigeria’s macro (economic fundamentals) stand well ahead of its peers. Yes, elections are almost upon us (February 2015), but we do not think that should detract Nigeria’s otherwise solid macro credentials – especially given our view that the electoral process and outcome will be relatively stable.

Post-elections, we expect interest rate cuts as soon as the second half of 2015, which we think will allow year-on-year credit growth to pick up from current high single-digits to the mid-teens.

This is positive for equities and the banks should also give a lift to the consumer, as the effect of any pre-election wage hikes dissipates.”

It also rated Nigerian banks above their peers in Kenya based on valuation. Admittedly, the operating environment in Nigeria is tougher versus other key SSA markets and this has led to a lower sector-wide return-on-equity (RoE). The good news is we see a recovery from the second half of 2015, when we expect Nigeria’s monetary policy to ease, which is banks-positive, it declared.

Nigeria’s economic growth improved to 6.5 per cent year-on-year in the second quarter of 2014, as against the 5.4 per cent year-on-year attained a year earlier, on the back of a recovery in the oil and gas sector.