Nigeria 2018 Outlook – No easy way out (Acta Non Verba)

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Amidst brighter prospects for global economic growth and the OPEC decision to extend the output cut agreement through 2018, we expect Nigeria to pursue its growth agenda within a relatively favorable global economic landscape. A promising revenue outlook and another record budget present a case for a year of strong fiscal stimulus – contingent on a deviation from the recent trend of delayed budget passage.

The FX market, a significant win in 2017, would remain essential in the coming year. Overall, driven by expansive fiscal and monetary policies, as well as strengthening consumer wallets, we anticipate 2.0% y/y GDP for Nigeria 2018 in our base scenario (Bear: -0.3% y/y, Bull: 2.9% y/y). As the Nigerian economy looks set to reach another gear, the timing of the potential political disruption from 2019 elections is unwelcome. Despite this, we anticipate an outsized influence of the imminent elections on economic and political stakeholders as 2018 winds down, hopefully only at a minor cost to economic activities.

Despite the 2017 equity market rally driven by a partial liberalization of the country’s exchange rate regime, the Nigerian Stock Exchange remains relatively undervalued. Now, favorable external conditions support further growth; bolstered by stability in FX and energy supply, receding cost pressure and strengthening consumer demand. Amidst this, we project a strong equity market performance in 2018, with an estimated full-year return of 15%-20% (Bear: -10%, Bull: 30%).

Meanwhile, late-2017 likely marked the end of Nigeria’s golden yield environment as the monetary authorities chart a path towards lower interest rates in the country. Material monetary easing is expected in 2018, the intensity of which would be driven by the relative demands of economic growth and the pace of moderation in inflation.

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