Nigeria Economy in 2021: Tough times, tough takes!

Nigeria Economy in 2021: Tough times, tough takes!

Covid-19 took its toll on the Nigerian economy in 2020, after the FGN imposed widespread nationwide lockdowns in Q2-2020 to contain the virus. The oil market collapse wiped out export earnings and 50.0% of government revenue, even as domestic economic activities were ground to a halt in the country’s largest commercial hubs.

The CBN devalued the Naira on its official and I&E windows in the face of the pandemic, launched a series of intervention programs, slashed the monetary policy rate, and kept the system inundated with liquidity.

Nigeria Economy in 2021 Brandspurng Tough times, tough takes!
Sources: NBS, United Capital Research

Despite the concerted efforts, the economy slipped into another recession as GDP contracted in Q2 and Q3-2020. Inflation galloped to a 33-month high of 14.89% y/y in Nov -2020, amid sharp food price increases and the currency market crisis.

Also, the CBN imposed administrative measures to curb the depletion of the external reserves, which slid to $35.4bn (down $3.2bn YTD) in Dec-2020. As such, the parallel market rate crossed N500/$ in Q4-2020 while foreign capital inflows hit rock bottom.

In 2021, we expect GDP growth to rebound by 1.7% to 2.0%, buoyed by increased economic activity and some improvements in the oil market. Although the reopening of the borders in Q4-2020 should ease pressures on food prices, other structural factors such as FX market illiquidity, potential increases in petrol price, etc. may keep general prices elevated.

As a result, we expect the headline inflation rate to peak at around 16.0% before pulling back if no further policy adjustment is made. Finally, we expect that the CBN would begin to tighten its monetary policy stance at some point in Q2-Q3 2021.