Economic and Risk Outlook 2021 for West Africa - 10 February 2020 - Moody's ...
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Economic and Risk Outlook 2021 for West
Africa
10 February 2020
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Economic and Risk Outlook 2021
Muhammad Jafree Gega Todua Marcel Okeke Metin Epozedmir
Solutions Specialist Economicst Chief Executive Officer Solutions Specialist
Moody’s Analytics Moody’s Analytics Mascot Consult & Moody’s Analytics
Communications Ltd
West Africa Webinar Gega Todua, Economist, Economics and Business Analytics February, 2021
Soft End to 2020
Global Business Cycle Status, Dec 2020
Expansion
Recovery
At risk
Source: Moody’s Analytics
In recession
Economic and Risk Outlook West Africa 5
Synchronized Recovery in 2021
Real GDP growth, %
8
2019E 2020E 2021F 2022F
6
4
2
-1
-3
-5
-7
-9
World North South Asia Europe Africa West Africa
America America
Source: Moody’s Analytics
Economic and Risk Outlook West Africa 6
Daily Infection Cases
Confirmed cases of COVID-19 per 100,000 population, 7-day MA
8,000
100 West Africa (L)
Nigeria (L)
80 6,000
United States (R)
Europe (R)
60
4,000
40
2,000
20
0 0
15 02 18 03 19 04 21 05 22 06 24 07 25 08 26 09 28 10 29 11 31 12 01 02
20 20 20 20 20 20 20 20 20 20 20 21
Sources: WHO, Moody’s Analytics
Economic and Risk Outlook West Africa 7
Economic Exposure to Pandemic-Sensitive Industries
%, fuel exports + tourism receipts as a share of GDP
Libya 64.2
Angola 31.8
Algeria 23.0
Sudan 18.9
Nigeria 13.4
Ghana 12.2
Tunisia 8.3
Morocco
Cameroon 6.8 8.3
South Africa 5.7
Senegal 5.1
Egypt 4.9 GDP-Weighted
Tanzania 4.4
Ivory Coast 4.2 Average = 11.3%
Uganda 3.5
Ethiopia 3.5
Zambia 3.2
Kenya 2.8
Zimbabwe 1.2
DRC 0.2
0 10 20 30 40 50 60 70
Sources: World Bank, Moody’s Analytics Note: Graph includes average calculated for 20 largest economies in Africa
Economic and Risk Outlook West Africa 8
Policymakers Respond
Country Fiscal policy Monetary policy
$1.4 bln fiscal stimulus (0.4% of GDP)
Monetary policy rate cuts to 11.5%
Nigeria Cut government budget by 1% of GDP
Devaluated the exchange rate
$3.4 bln in emergency support from IMF
Rate cut in March (150 bps) to 7.5%; increased to 18.5% in August
$135 million (0.3% of GDP) package Postponed new minimum capital requirements program
Congo, Democratic
Temporary VAT exemption for basic goods $25 million foreign exchange intervention against depreciation
Republic of
Grace period for renters pressures
$310 million (0.5% of GDP) package Rate cut in March (150 bps) to 14.5%
Ghana Cut spending by $187 million (0.3% of GDP) Lowered reserve requirements
$218 million (0.4% of GDP) from the stabilization fund
Rate cut to 11%
Guinea $337 million (2.3% of GDP) emergency package Lowered reserve requirements
$20 million (1.1% of GDP) budget reallocation;
Rate cut (total 250bps) to 10%
Gambia $11.5 million (0.6% of GDP) financial assistance from donors
$21.3 million (1.2% of GDP) from IMF on-lend to the Treasury
BCEAO set refinancing rate at 2.5%
Senegal (7% of GDP) resilience package 3-month grace period for NPL
Economic and Risk Outlook West Africa 9
Oil Price Hit
Brent crude oil price, exchange rate, CPI: 2019Q4=100 index
125
13.5
113
100
12.5
88
75 11.5
63 Brent price, $ per bbl (L) NGN per $ (L)
CPI (L) Monetary Policy Rate (R)
50 10.5
19Q4 20Q2 20Q4 21Q2F 21Q4F
Sources: National Bureau of Statistics of Nigeria, SIX Financial Information, Moody’s Analytics
Economic and Risk Outlook West Africa 10Demand Recovery Key to Oil Market
Mil bpd
5 107
Nigeria: government balance % of GDP (L)
3 104
Global demand (R)
101
1 Global supply (R)
98
-1 95
-3 92
89
-5
86
-7 83
-9 80
19Q1 19Q3 20Q1 20Q3 21Q1F 21Q3F
Sources: IEA, Moody’s Analytics
Economic and Risk Outlook West Africa 11Timing of Renewed Expansion Varies
January baseline forecast, quarter when real GDP exceeds pre-pandemic level*
Country 2020Q1 2020Q2 2020Q3 2020Q4 2021Q1 2021Q2 2021Q3 2021Q4 2022Q1 2022Q2 2022Q3 2022Q4 2023Q1
China
S. Korea
U.S.
World
GCC
Europe
West Africa
Nigeria
Source: Moody’s Analytics * 2020Q1 level GDP
Economic and Risk Outlook West Africa 12Contact Us: Content Solutions - Economics & Business Analytics Offices
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Economic and Risk Outlook West Africa 14NIGERIA: ECONOMIC AND RISK OUTLOOK FOR 2021
BY
MARCEL OKEKE
Former Chief Economist & Group Head, Research & Economic
Intelligence, Zenith Bank Plc; currently Lead Consultant & CEO,
Mascot Consult & Communications Ltd.
Being presentation as a Guest Speaker at the Risk Management
Association of Nigeria, RIMAN & Moody’s Analytics, UK, joint
Webinar; Wednesday, 10 February, 2021
15OUTLINE
1. Nigeria’s Economic Output: GDP
➢ Oil Export Trend
➢ Hurting Unemployment
➢ Spiking Public Debt
➢ Exchange Rate Volatility
➢ Food Dominance in CPI
2. Risks to Growth Outlook
➢ Covid-19
➢ Monetary & Fiscal Policy
➢ Socio-political risks
3. Watch Out!
16Nigeria’s Economic Output
17Nigeria’s Economic Output (contd’)
This graph aptly depicts Nigerian economy’s slip into recession, the second
time in five years, after 12 consecutive quarters of feeble expansion.
The economy (measured by GDP) contracted by 6.1% in Q2’2020 mainly driven
by the crash in crude oil price and the implementation of lockdown and
restrictions engendered by novel Coronavirus pandemic.
In Q3’2020, the economy fell into a recession with a contraction of 3.6%.
This is now complicated by a stagflation environment with simultaneous
occurrence of high inflationary pressures, contracting output (GDP); high
unemployment and weak consumer demand, etc.
18Oil Export Trend
Figure 2: Nigeria: Oil Exports & Price
Source: National Bureau of Statistics
19Oil Export Trend (contd’)
Nigeria’s external reserves increased to US$36.23 billion as at 21st January,
2021 compared with US$34.94 billion at end-November 2020.
This essentially reflected improvements in crude oil prices, mild global
economic recovery amid optimism over the discovery and distribution of
COVID-19 vaccines by most developed economies.
Nigeria’s 2021 budget is built on oil price benchmark of US$40pb; at present,
the Brent crude sells around US$60pb (i.e. US$20 above the benchmark). But
the rampaging Covid-19 second wave and lockdowns, among other factors
could disrupt this scenario and cause much volatility in the market.
20Hurting Unemployment
Figure 3: Trend of unemployment Rate in Nigeria (percent)
21Hurting Unemployment (contd’)
As shown in figure 3, from a low level of 6.4% in Q4’2014, rate of
unemployment jumped to 14.4% by Q1’2017. (NBS data).
By Q2’2020, it had almost doubled, to stand at 27.1%.
Combined unemployment and underemployment rate stood at 55.7% as at
June 2020 (NBS data). Of the total population, youths (aged b/w 15-35)
account for 60%.
NBS data show that youth unemployment rate rose from 30% as at September
2018, to 35% as at June 2020. The actual figure is 14 million. This huge size
of jobless youth portends serious risks.
Every indication is that this scenario is getting worse, given the layoffs,
furloughs and factory closures engendered by Covid-19 in the past 12 months.
22Spiking Public Debt
Figure 4: Nigeria Public Debt Stock (N,Trillion)
Concern over consistently rising public debt stock, with its attendant
debt servicing challenges. In Q2’2020 alone, Govt’s external debt
service gulped US$287 Mn in the face of thinning income flow.
By end-September 2020, total public debt stood at N32.2 trillion
(about US$85 Bn), rising from N17.4 Bn five years ago (in 2016).
23Spiking Public Debt (Contd’)
Although a chunk of the debt is ‘soft loan’, Govt. borrowings from
local financial market (including ‘Ways & Means’ from the CBN) is
‘Crowding Out’ private sector operators.
This scenario heightens the risk of further debt accumulation, and
raises concerns about debt sustainability and vulnerability of the
economy to financial crisis.
24Exchange Rate Volatility
Figure 5: Movement of exchange rates (N/US$)
25Food Dominance of CPI Basket, %
Figure 6:
Source: National Bureau of Statistics
26Food Dominance of CPI Basket, % (Contd’)
Rising Consumer Price Index (CPI), dominated by cost of food items; in
turn, this reflects the adverse impact of insecurity on food (according
to CBN’s MPC). Farmers can no longer safely get to their farms.
As shown in figure 6 above, food and related items account for 52%,
followed by Housing & Utilities.
This trajectory could get worse, given the heightening insecurity in
the country.
The Government late 2020, placed a ban on the importation of food
items into Nigeria, thereby heightening food shortage.
Legacy structural factors, including major supply bottlenecks (e.g.
poor road network) across the country; which is yet a pointer to the
subsisting huge infrastructural financing deficit.
27Risks to growth outlook
28COVID-19
The discovery of new, more infectious COVID-19 variants and worries
about rise in new cases and fatality rate poses risks to Nigeria's
economic prospects in 2021. The vacillations and politics around the
timing and supply of vaccines portends even more risks, uncertainties
and worries.
Also, the return of several countries to different degrees of lockdown
is already slowing and/or disrupting the global trade recovery. There
could be a disruption of the crude oil market—mainstay of Nigeria’s
economy.
Already there are some forms of restrictions; some economic
activities are yet to resume (e.g. in the leisure and entertainment
industry).
In all, the rapid spread of the new variant of the Covid-19, associated
spike in fatalities and the recent re-introduction of containment
measures across several economies, may dampen the recovery in
2021.
29Monetary & Fiscal Policy
In 2020, the CBN devalued the Naira twice; this year, there is the risk of
further devaluation and increased illiquidity. This would adversely affect
consumer discretionary income and production cost.
The subsisting uncertainty in Nigeria’s macroeconomic environment is such
that the Monetary Policy Committee (MPC) of the Central Bank of Nigeria at
its first meeting in 2021, agreed to hold all policy parameters constant.
(Watching to see how the world is ‘unfolding’).
The MPC noted that NPLs ratio rose to 6.01% at end-December 2020 from 5.88
% at end-November 2020 and above the prudential maximum threshold of 5.0
%.
This trend which reflects the not-so-good financial health of corporate
borrowers poses macro-prudential challenge; NPLs could spike further in the
near term (that is, rising credit risk).
30Monetary & Fiscal Policy (contd’)
The combination of raised Value Added Tax (VAT), hiked electricity
tariff, fuel subsidy removal, in recent months, sustains the high and
rising inflation rate (standing at about 16% by end-December 2020).
This inflation rate has far exceeded the Monetary Policy Rate (MPR)
(11.5%); and this has created a suppressed yield environment and
negative real returns on most of Nigeria's investment instruments.
Financing of the N13.08 Tr 2021 budget, with a deficit of about N5.02
Tr (of which N4.28 Tr is to be borrowed), portends lots of further
distortions to the market.
31Socio-political risks
Civil disorders and socio-political concerns are some of the risks to
growth prospects in Nigeria. The rising spate of insecurity, reflected in
widespread terrorism, kidnapping, banditry and recurring cycles of
deadly clashes between herdsmen and crop farmers.
The population of Internally Displaced Persons (IDPs) is on very rapid
increase; according to the UN Office for Coordination of Humanitarian
Affairs (UNOCHA), the number IDPs now runs into millions.
Consequences of this include a slowdown in FDIs, FPIs and low
domestic investor-confidence/apathy;
Higher operational risks and increased insurance premiums which
could increase the cost of doing business in the country.
Policy inconsistency and high level of corruption as indicated in the
Transparency International Corruption Index (2020) recently released,
in which Nigeria ranked its worst since 2015: standing at 149 out of
180 countries; and the second most corrupt country in West Africa,
after Guinea-Bissau 32Watch Out!
Commencement of the African Continental Free Trade Area (AfCFTA)
in January 2021. Motely of challenges, including weak infrastructure
could pose risks for Nigeria.
‘Brexit’ and the ‘New Europe’: what relationships with Nigeria?
The new Joe Biden government in the US: what impact on Nigeria?
Trade ‘wars’, the WTO with Dr Okonjo-Iweala as D-G: whither Nigeria?
The new US government last week endorsed Dr Okonjo-Iweala for the
job.
Advancement in digital techs has continued to drive digital innovation
with speed and agility. Amid the COVID-19 Pandemic, businesses are
increasingly embracing remote working arrangements while consumers
are shifting to digital channels as a means of payment. 2021 may,
therefore, record surge in cybersecurity risks.
33THANK YOU
34Credit Risk Remains Elevated
Average Probability of Default for Corporate (All Industries)
Probability of Default
COVID -19 Impact
8.00%
7.00%
6.00%
5.00%
4.00%
3.00%
2.00%
1.00%
0.00%
Q4-2017 Q1-2018 Q2-2018 Q3-2018 Q4-2018 Q1-2019 Q2-2019 Q3-2019 Q4-2019 Q1-2020 Q2-2020 Q3-2020
Source: Based on Moody’s Analytics EDFTM Credit Measure and Point in Time Converter Model
Economic and Risk Outlook West Africa 35Sectoral Differences in Credit Risk
Industries with Most and Mild Impact from COVID-19
9.00% FOOD & BEVERAGE
9.00%
AGRICULTURE
8.00% 8.00% PHARMACEUTICALS
INSURANCE - LIFE
7.00% 7.00% INSURANCE - PROP/CAS/HEALTH
6.00% 6.00%
AEROSPACE & DEFENSE 5.00%
5.00%
UTILITIES, GAS
TRANSPORTATION 4.00%
4.00%
OIL, GAS & COAL EXPL/PROD
AUTOMOTIVE 3.00%
3.00%
2.00% 2.00%
Q4-2019 Q1-2020 Q2-2020 Q3-2020 Q4-2019 Q1-2020 Q2-2020 Q3-2020
Source: Based on Moody’s Analytics EDFTM Credit Measure and Point in Time Converter Model
Economic and Risk Outlook West Africa 36Defaults Rates are Rising and Expected to Peak
Sectors most exposed to Pandemic: Moody’s Financial Monitor
Economic and Risk Outlook West Africa 37How to Manage Credit Risk During Pandemic
» Consider multiple sources and perspective on credit risk where information is
available e.g. Fundamental view, Equity, Bond or CDS Markets view etc.
» Consider credit cycle adjustments or proforma projections for the financial
statements if they do not yet capture the impact on borrower.
» Identify any data sources for indicators and develop tool kit for early warnings.
» Identify vulnerabilities in the portfolio with what if, scenario and stress test
analyses, taking in to account pandemic impact via overlays
» Analyse portfolio risk considering concentrations in industries by risk contribution
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rights reserved. and rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold
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CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE 2001. By continuing to access this document from within Australia, you represent to MOODY’S that you are, or are accessing the document as a
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RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. CREDIT RATINGS AND MOODY’S PUBLICATIONS DO debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors. It would be reckless and
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DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. NEITHER CREDIT RATINGS NOR financial or other professional adviser.
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