On the brink of the oil glut worldwide, Nigeria slipped into recession which had grave impacts on businesses in Nigeria particularly, small business owners. According to the National Bureau of Statistics in Nigeria, Nigeria has exited recession. What is the implication of this development for business owners in Nigeria? Early this year, FATE Foundation organized the “Nigerian Business Outlook 2018” session led by Mr. Opeyemi Agbaje, CEO, RTC ADvisory Services. This article is culled from Mr. Agbaje’s presentation and looks at Nigeria’s Business Outlook for 2018; the Good, the Bad and the Opportunities.   

The Good

1) The oil prices are on an upward movement at over $70pb (per barrel). The upward trajectory has remained consistent for some time now.

2) Recession is technically over. As an economy, we exited recession in the 2nd Quarter (Q2) of 2017

3) Global economic growth prospects have improved modestly due to stronger US growth expectations, exit of some large economies (e.g. Brazil and Russia) from recession, and rising commodity prices.

4) 2018 GDP growth projections are looking good and averaging about 2.5-3.5%

5) Improvement in doing business ranking, Nigeria moved up from the 165th position to the 145th position in the world’s doing business ranking.

6) External Reserves as at January 2018 are $39,531M – The external reserves have been increasing since the 3rd Quarter (Q3) of 2017. This is why there has been some stability in the exchange rates. 

7) The exchange rates have remained stable since June 2017 and the margin between the Central Bank of Nigeria (CBN) rate and the Public market has been within N60 – N65

8) Purchasing Managers Index is suggestive of future growth.

9) Inflation is down. As at October 2017 it was 15.91%

10) The Capital Market is up; Nigeria was one of the best Capital Markets in 2017 at 42% growth. Some stock e.g. First Bank Plc tripled in value during the year 2017. Foreign reserves also doubled in value.

The Bad

1) The Fuel Subsidy Conundrum:

Nigeria has created an economic structure in which it benefits from higher oil prices (in one pocket-federal and sub-national revenue streams) and suffers in the other pocket through the oil subsidy scheme.

At the best of time, the fuel subsidy scheme destabilizes downstream oil sector operations and limits growth and efficiency in the sector; it also tends to deliver low value-for-money.

The problem is worse at this time because there is no formal oil subsidy scheme.

2) GDP

Even though recession is technically over, per capita income shows that Nigerians are getting poorer. The combined effect of: Recession + devaluation + inflation = Crashed economy. 

3) The Recovery

Even though recession is technically over, the truth is that the recovery is exclusively about the oil sector performance. The 3 sectors not in recession in Nigeria include Oil, Utilities and Agriculture. Every other sector is either marginally above the recession line or still in recession. 

Going by the last available data – Nigeria is not totally out of recession. The more accurate statement will be that 11% of Nigeria’s Economy is out of recession while about 89% is still in recession. 

4) Unemployment

The unemployment rate is still on an upward trajectory.

5) Global Competitive Index

Nigeria is 27th in Africa in terms of competitiveness

6) Inflation

There has been notable decline in Inflation but some critical subcomponents of inflation particularly with regards to food continues to rise.

The Outlook

Budget suggests that 2018 will be expansionary with a lot of spending. The total estimated budget for 2018 is N8.6 Trillion. This is a 16% increase from the N7.4 Trillion in 2017. Revenue assumptions are aggressive at N6.6 Trillion.

There is also a huge increase in projected spending because of the coming election year.

There’s a significant 17% increase in recurrent expenditure and a 12% increase in Capital Expenditure. This means that there will be a lot of money in circulation.

Debt Servicing:

23.3% of our proposed budget is for debt servicing and 40% of our revenue will be borrowed. 

Nigeria has consistently increased both its domestic and external debt for the past 10 years. These statistics show that Nigeria is potentially heading for a debt crisis.

The outlook for oil and gas sector in Nigeria has improved with the following: OPEC-Russia production cutbacks; oil prices reaching $70 per barrel; the truce in the Niger-Delta; and government appearing more willing to adopt private capital structures to fund oil and gas activities.

However, risks remain with continuing threats from the Niger-Delta, especially as political activities intensify; and with global oil prices. Substantive oil and gas sector reform and legislation also constitute a threat.

State governments are beginning to look inwards and utilize resources to build their economies. The Lagos State government for instance with +20% of GDP and a N1trillion budget is now creating a dual-economic structure for Nigeria-Federal and Lagos.

The Opportunities

• Better business prospects: Higher oil prices will lead to resumption of growth and some improving macroeconomic fundamentals suggest better prospects for business, especially as oil sector effects diffuse into other sectors.
• Accelerated Government spending: Government spending will accelerate in 2018. While economists and policy analysts will worry about budget deficits, fiscal sustainability, inflation and money supply etc, entrepreneurs should leverage public sector procurement opportunities and ensure they collect their payments before 2019!
• The upstream oil and gas and related sectors are regaining viability again! On the other hand, the downstream sector is again subverted by rising oil prices and the re-emergence of oil subsidies.
• Increased activities across specific sectors: Some economic sectors may see positive side-effects of increased government spending e.g. construction, real estate, hotels and restaurants and public administration. The quantum of the impact will have to be calibrated through the year.
• Improved Capital Market: Nigeria’s capital market gained +40% in 2017. Persons with knowledge and expertise in stocks and securities may examine the opportunity, especially in the first half of 2018 before political risk becomes a dominant concern for investors.
• Increased investment opportunities: We can expect (at least) modest improvements in agro-processing, mining, ICT software and services, local inputs-based manufacturing, multimedia and production, the creative sectors and entertainment. Large investments in healthcare will increase and unique propositions in the education space will also generate value.
• Tourism: Russia 2018 World Cup related tourism may present a one-time opportunity for those in travel and tours to invest and make financial gains.
• Government/Private sector Funding for MSMEs: Entrepreneurs should research, find out and leverage all government, CBN and private sector financing programmes for MSMEs, women, manufacturing, agriculture etc.

While Nigeria is undoubtedly on the way to economic recovery, it may yet be a longer walk rather than a quick dash for the non-oil sector. The opportunities presented above however, provide a guide to entrepreneurs and business owners seeking information to position their businesses, make smart business decisions and invest wisely this year.

This article was culled from the FATE Foundation Nigerian Business Outlook 2018 session facilitated by Opeyemi Agbaje, CEO, RTC Advisory Services.