Q4 GDP and the implications for markets

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Last week the National Bureau of Statistics (NBS) reported GDP data for the fourth quarter (Q4) of 2020 and these surprised the market by showing growth, albeit a low level of growth.

Q4 2020 GDP grew by a meagre 0.11% year-on-year (y/y) though non-oil growth was a respectable 1.69% y/y. This came after a 3.62% y/y contraction in the economy in Q3, with the non-oil economy contracting by 2.51% y/y at that time. For the full year 2020, GDP fell by 1.92% y/y.

What is going on?

It is important to note that registering an economic recovery in Q4 2020 was close to policy makers’ hearts, the key to rating the Economic Sustainability Plan (ESP) as a success, and justifying last year’s crashing of market interest rates.

(1-year Nigerian Treasury bill rates fell from 5.40% at the beginning of 2020 to 0.15% at the beginning of December, and commercial bank credit expanded.)

Against this, the IMF was predicting a 4.3% recession in Nigeria in a report published in the middle of last year, and as recently as January the World Bank estimated that Nigeria’s economy had contracted by 4.1% in 2020.

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Clearly, the data suggest that Nigeria has done far better than these estimates.

Quarterly GDP development, year-on-year

Q4 GDP and the implications for markets Brandspurng
Source: National Bureau of Statistics (NBS), Coronation Research

If there are questions about the data, it is difficult to point to exactly which data. For example, one eye-catching item was the 3.42% y/y growth in Agriculture in Q4, which had a significant effect on overall growth because Agriculture itself accounts for 26.95% of GDP.

We can back-test this and ask what the overall Q4 growth rate would have been if Agriculture has grown by merely its average trend growth rate of 2.15% y/y over the previous eight quarters.

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The answer is that the entire economy would have contracted by 0.22% y/y in Q4 2020 but that non-oil GDP would still have grown at a respectable 1.33% y/y.

However, it is not possible to question such data with any evidence and, in any case, the difference between the actual data and the extrapolated trend is often small. What such back-tests do show, however, is certain robustness in the non-oil economy as opposed to the oil-related economy.

In Q4, the oil & gas sector (which accounts for 5.87% of the economy) fell by 19.76% y/y, which reflects low oil prices during Q2 and Q3 (oil contracts are generally sold forward).

Investors’ gained ₦350.15 billion w/w to restore YTD performance indicator to a positive region
Afolabi Sotunde Illustration Naira

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There was a noticeable improvement in the trend for Trade (15.46% of the economy) where the rate of contraction improved from 12.12% y/y in Q3 to 3.20% y/y in Q4. In Manufacturing (8.60% of the economy) the rate of contraction was maintained at 1.51% y/y for both Q3 and Q4.

It seems that both these large segments of the economy, while still contracting year-on-year in Q4, had made significant adjustments to difficult trading conditions and had adapted to exchange rates, including the exchange rate in the parallel market.

One significant effect of this, naturally enough, would have been upward pressure on inflation as import costs for traded items and raw materials were passed through to customers.

Read Also:  Price of 1kg of Tomato increased by 7.05% to N257.25 in April 2019 - NBS

The least surprising development was the continued growth of Telecoms (12.45% of the economy) which maintained its rapid development, growing by 17.64% y/y in Q4. Homeworking and data streaming likely account for its success.

The most surprising sector was Real Estate (6.38% of the economy) which ended its long recession by growing by 2.81% y/y in Q4. The six sectors mentioned so far (Agriculture, Trade, Manufacturing, Telecoms, Oil & Gas and Real Estate) together account for 75.71% of GDP and are the ones on which we concentrate our analysis.

Implications for markets

Interest rates.

Policymakers are likely satisfied with their performance in 2020, as it can be argued that a combination of low-interest rates, credit-generating policies and the ESP prevented the recession (the full-year recession of 1.92% y/y) from being worse.

Inflation was not a central concern of policymakers in 2020 (who saw it as more of a structural than a monetary issue), but we expect them to return to this topic in 2021.

After all, if low-interest rates are needed during a recession, then we can infer that a growing economy can bear higher rates than before.

We are seeing market interest rates move sharply up this year and we expect this process to continue. We expect Nigerian Treasury Bill (T-bill) rates of 10.0% by mid-year.

One important note to make here is that commercial banks may find it difficult to adjust their savings rates upwards, as a large proportion of their funds are still tied up by the Cash Reserve Ratio (officially 27.5% but, according to the recent Article IV report from the IMF, closer to 46.0% in practice), earning very low rates.

Savers wishing to earn interest income are likely to head for Money Market Mutual Funds, in our view, as these do not bear such reserves.


Equities performed extremely well in 2020, the Nigerian Stock Exchange All-Share Index (NSE-ASI) recording a gain of 50.53%. This, in our view, was closely related to the significant decline in market interest rates.

As rates rise we would expect the attractions of equity investments generally (but not all equity investments) to wane.

At the same, the growth in the economy is not necessarily enjoyed by listed companies and we have argued for a long time (see Coronation Research, Power to the Price Point, May 2019) that consumers on moderate incomes buy products from predominantly unlisted food manufacturers (and most of their food purchases are of basic commodities, anyway).

In conclusion, the resumption of growth signals a move away from the radical and heterodox policies of 2020 towards a more conventional policy mix in 2021.

Though market interest rates are a long way from the rate of inflation (16.47% y/y in January) we expect them to move in this direction. Savers in Money Market funds look to be the winners of this process.

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Latest News

Vivocom’s Group Game Changer – Multi-Billion Sand Project Secured

  • Initial contract worth RM3.79 billion for three years
  • Aspires to be a major industry player 'with exponential growth prospects'

KUALA LUMPUR, MALAYSIA - Media OutReach - 26 February 2021 - In a filing to Bursa Malaysia this evening, Vivocom Intl Holdings Berhad ('Vivocom') announced that V Development Group via one of its subsidiaries has secured a 'massive win' worth approximately USD934.7 million or the equivalent of RM3.79 billion.

Rain International Sdn Bhd ('Rain International') is a 97% owned subsidiary under the V Development Group which was recently merged into the Vivocom Group. The Company's proposed acquisition of V Development Group had been recently approved by the relevant authorities.

Rain International is principally involved in the mineral trading and exportation business, supplying sand to its client mainly in Hong Kong and China for reclamation and construction works. The Company had recently signed a contract for the supply of marine sand for a minimum period of three years.

The contract is for the supply of sand to Zhen Hua Engineering Company Ltd-China Communications Construction Company Ltd-CCCC Dredging (Group) Company Ltd. (ZHEC-CCCC-CDC), a Joint Venture contractor appointed to undertake the main reclamation works for the Hong Kong International Airport Three Runway System Project.

Director Mr William Chan Ching-Kee said: "As the appointed agent for the ZHECC-CCCC-CDC Joint Venture, we are looking forward to the exportation of sand from Malaysia to our client in Hong Kong to commence without any further delay."

Dato Seri Chia is optimistic that the contract would be extended for another two to three years and could potentially generate revenue of up to RM6 billion.

"The sand business is a major boost because it gives us tremendous visibility. The potential revenue is huge, recurring and highly scalable," its jubilant CEO, Dato Seri Chia Kok Teong exclaimed.

"The potential for explosive growth in the sand business is real and tangible, and bodes well for the Group in the next few years."

"We are starting with 3 years but the contract can easily be increased to 5 years and beyond, with higher tonnage shipped every 6 months. The exportation of sand will increase sharply over time," he added.

Besides the reclamation works for the Hong Kong International Airport, the rapid pace of construction and reclamation works in China and Singapore also requires heavy demand for sand, which is a considerable boon to Malaysia.

"The market for sand export is extremely humongous and will fuel the Group's rapid growth for the next several years. The RM3.79 billion Win is the first of many more to come."

"I have in fact urged my team to secure up to RM10 billion worth of sand contracts by the end of 2021. This is part of our overall transformation strategy to become a multi billions conglomerate," declared Dato Seri Chia.

"It is our core strategy to strengthen and diversify the Group's revenues generation capabilities and capacities and not be too narrowly focussed."

"Presently, we are already in negotiations for another RM2 to RM3 billion sand contract. Once finalised, we will make the relevant announcement as per Bursa Malaysia's requirements," Dato Seri Chia elaborated.

The sand would be procured from an approved permit holder to export sand overseas, and sourced from concession areas in Sandakan and Sungai Beluran in Sabah and throughout Malaysia.

"Even with this massive sand contract already secured, we will not be complacent. I have earlier promised to transform Vivocom into a behemoth Conglomerate and I will work non-stop to deliver on the promise," Dato Seri assured.

Since Dato Seri Chia's entry into Vivocom in January 2020 when its price was at 15 cents, the share has climbed sharply and last closed at RM1.06 on Thursday, 25th February 2021.

"I am very optimistic that Vivocom shares will continue to grow strongly and be worth a lot more than presently over time. I'm proud to say that we are no longer a penny stock," he reflected.

"My team is totally committed to building Vivocom into a reputable and profitable public company, one with solid fundamentals, sustainable profits and healthy cashflows."

"As a priority, we will work towards getting the Group elevated to the Main Board of Bursa Malaysia and be a dividends-paying company soonest possible," quipped Dato Seri.

To show his commitment, Dato Seri Chia has undertaken a voluntary self--imposed moratorium (or SIM) in that he will not dispose his personal stakes in Vivocom for the next 3 years. This will ensure the company's long-term price stability and sustainability.

"We want a stable and strong share price so that the Company can use its shares with its high liquidity as a currency for M&A activities to fund and fast-track expansion and growth," he explained.

"A strong share with high liquidity is a most valuable and prized asset. We will use it to buy Companies with game-changing and disruptive strategies. To look for the Next Big Thing."

"The enormous followings in the Company are what is driving in tremendous liquidity and momentum giving our share price added impetus," Dato Seri proudly asserts.

"We aspire to emulate Berkshire Hathaway strategy started over 40 years ago by Mr Warren Buffet. Mr Masayoshi Son built SoftBank Group of Japan along the same philosophy and Alphabet in US adopted similar strategies."

"These three companies are presently amongst the most valuable and admired companies in the world. I have the same dream for Vivocom. I am determined to leave behind an enduring legacy for all our valued shareholders," concluded Dato Seri Chia.

Q4 GDP and the implications for markets - Brand Spur
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