Glass Half Full?

…the revelation

H1-2017 review & H2 -2017 Outlook

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Global economic environment stable in H1 ‘17

Political events strengthens economic realities

Global growth was stable in H1 ’17 despite some developments which had capacity to

disrupt earlier projections at the beginning of the year. Fortunately, the concerns were

allayed as political developments helped to curtail some self-seeking intrigues. Chief

amongst these intrigues were; emergence of Donald Trump as the President elect of US

and his much-dreaded protectionist agenda, the expectation of Brexit trigger of Article

50, rising political upheavals in Brazil and Persian Gulf. Fallout- the European Union for

instance is enjoying political stability not seen in years and her economy is strengthening.

The Persian Gulf descended into the worst political crisis in foreseeable years after several

countries, led by Saudi Arabia, decided to sever diplomatic ties with Qatar abruptly in

early June. They also closed all borders with the country and imposed trade and travel

bans. Saudi Arabia and its allies have issued 13 demands for Qatar to end the political

and trade blockade, including the shutdown of broadcaster Al-Jazeera and to scale down

its ties with Iran. The U.S. role in the crisis has been controversial as President Donald

Trump endorsed the blockade, while some U.S. officials encouraged further dialog.

At this stage it is difficult to assess the impact of the crisis in the global economy, but it

certainly represents an escalation between the region’s leading powers Iran and Saudi

Arabia, with the support of the United States. Against this backdrop, the Iran nuclear

deal has been placed in the line of fire, while the consequences of this clash could spill

over into other regional conflicts.

Although growth in China has decelerated, it is expected to remain robust throughout

this year, while authorities will continue with the implementation of economic reforms

and initiatives to deleverage the financial sector. Moreover, monetary policies remain

largely accommodative, with the exception of the U.S. On a negative note, uncertainty is

high on Trump’s fiscal measures.

A political sweet spot has materialized in the European Union in the aftermath of the

elections in France and the United Kingdom. President Emmanuel Macron's victory in

the regional French elections will allow him to implement his economic reform agenda

while cementing political ties in the Euro area, reinforcing the German-French axis in

particular. Moreover, UK Prime Minister Theresa May’s defeat in the “Brexit election”

has softened the tone of Brexit negations. In fact, on 19 June, the UK delegation accepted

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the EU’s proposal of first discussing citizens’ rights and the exit bill instead of first

focusing on a potential trade deal in order to start talks.

Economic outlook were entirely stable

Taking a closer look at individual countries, the United States’ GDP growth forecasts held

stable as private consumption benefited from a 16-year low unemployment rate and soft

inflation. On the fiscal side, the much publicized budget stimulus plan has failed to

materialize, raising concerns about the scope and timing of the initiative. At its recent

June meeting, the Federal Reserve announced the widely-anticipated third rate hike,

although markets were surprised by the Fed’s rather hawkish tone given that inflation

has been rather weak of late.

The US outlook for the rest of the year remains bright on account of a solid job market, a

relatively healthy housing market and a notable turnaround in business investment

growth. Nonetheless, persistent political wrangling in Washington continues to foment

doubts about the administration’s ability to roll out growth-inducing policies later this

year.

The economic picture is becoming brighter in the Euro-zone. Complete data revealed that

GDP growth was stronger than previously estimated in the first quarter and recorded the

best result in two years. Private consumption grew healthily thanks to an improving labor

market and looser fiscal policies, while the external sector also improved. Moreover,

growth is broadening across economies and the common-currency bloc is shaking off

political concerns. The outlook for the rest of the year appears positive based on existing

accommodative financial conditions, falling unemployment and a brighter global

backdrop.

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The UK economy is continuing to face the headwinds of the entangled political situation,

following Q1’s disappointing performance. In May, house prices slowed further, while

consumer sentiments remained firmly entrenched in the negative territory. Although the

unemployment rate stood at a multi-year low in April, real wages declined in the

February-April period, casting a long shadow on the UK’s economic outlook. The weak

government resulting from the June election has added to an already uncertain economic

outlook as the country is sailing the uncharted Brexit waters. As a result, uncertainty is

deterring investment and consumers are feeling the pinch of rising inflation.

Among the emerging economies, fears of a sharp slowdown in China have almost

disappeared, despite a moderation in Q2 and this is supporting the outlook for Asia

excluding Japan. The ongoing economic recovery in Russia and resilient growth in the

Eurozone will prompt a marked strengthening in dynamics in Eastern Europe this year.

Although the Latin American economy will return to growth in 2017, the outlook is

worsening on the back of ongoing political turmoil in Brazil and still-high domestic

vulnerabilities across many economies in the region. Growth prospects for Sub-Saharan

Africa and the Middle East and North African regions are being kept subdued due to

uncertainty in the commodity markets, coupled with large macroeconomic imbalances

and geopolitical risks.

Oil Prices remain capped with potential downside risk still on the horizon

Brent crude dropped nearly 14.17% in H1 ‘17 on fears of supply glut as a result of

increased production levels in Nigeria and Libya. The OPEC Reference Basket (ORB)

declined in June to $45.21/b, down more than 8% to its lowest value for the year. The oil

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Global economies (actual & forecasts)

2016A 2017F 2018F

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market witnessed a sell-off amid significant bearish sentiment ignited by excess oil

supply and still-high oil inventories, despite ongoing high conformity by OPEC and non-

OPEC participating producers. Oil continued to be weighed down by the slow pace of

inventory drawdown globally amid a rebound in global oil supplies. Since reaching a

2017 peak in early February, the ORB’s value dropped 21% by June. Nevertheless,

towards the end of the month, its value recovered. Year-to-date (Y-t-d), the ORB’s value

was 38.3% higher or $13.90, at $50.21/b.

Nigerian Investment Environment

Policy and political landscape

In May, the All Progressive Congress (APC) led government clocked two years in the

saddle and the question of how well has the government performed became prominent

in the mouths of most Nigeria. Obviously, the government has encountered major

challenges in managing the expectation of the ‘change mantra’ which swoop the Nigerian

political landscape during her campaign in the 2015 elections.

Notable among these challenges is the squabbles between the executives and the

legislative arms. This resulted in hangover or delay in implementation of economic

decisions. The government has equally been viewed from the angle of leading Nigeria

into an economic recession for the very first time in over two decades regardless of the

handwriting on the wall that pointed to this direction during the fading days of the

previous government.

Quelling insecurity and ethno-religious tensions?

One area the government has fared well is curbing security challenges around the

Country. From the very first day, the government made it a cardinal point to drive

towards quelling elements of security challenges in the Country. To a large extent, so

much has been achieved in this respect. We recognize that in the battle against Boko

Haram, the Islamic sect that has terrorized North-East region for some time now, made

appreciable progress in 2016 and 2017. Territories that were under the control of the sect

have now been recovered by the military and neighboring countries military through

collaborations. As such, the spate of their attacks reduced significantly. Nonetheless, it is

important that the government consolidate on this stride to wipe out the sect completely.

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The Buhari led administration will equally be given credit for the peaceful engagement

of the Niger Delta elders and youth leaders which has yielded dividend in respect of

recent peace witnessed in the area. This has helped to quelled activities of the Niger Delta

Avengers (NDA) who attacks oil and gas facilities, disrupting production and output. At

the height of this attacks, Nigeria oil output fell to a decade low of 1.2mbpd in March.

Similarly, the government has been engaging the leaders of eastern and northern region

in respect of security threats posed on Nigeria unity on the ground of increasing agitation

by handful of youth from eastern region on Biafran struggle, the Nigerian military/Shiite

Muslims of Zaria confrontation and the Hausa-Fulani cattle rustlers tension. It is

important that the state assess this situation well, embark on due consultations before

taking necessary steps. The country cannot afford to let ethno-religious tension become

another threat to peace and safety of lives.

Drivers of economic environment

Fiscal policy towing towards recessionary recovery

As earlier indicated, the Nigerian economy fell into recession cycle in H1 ‘16 and this

coloured business activity the rest of H2 ’16 and H1 ’17. There were legacy issues around

the economy as the Buhari government struggled to push the system to workable state.

Policies were put out by the government to drive the Medium Term Expenditure

Framework (MTEF) known as “Economic Recovery and Growth Plan” designed to

restore and sustain growth throw achieving macroeconomics stability and economic

diversification.

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It was noted that macroeconomic stability will be achieved by undertaking fiscal

stimulus, ensuring monetary stability and improving the external balance of trade.

Similarly, to achieve economic diversification, policy focus will be on the key sectors

driving and enabling economic growth, with particular focus on agriculture, energy and

MSME led growth in industry, manufacturing and key services by leveraging science and

technology.

The above objective has started crystalizing as the government continued to showed

unalloyed commitment to the economy through various fronts.

Monetary policy in H1 ‘17: the rhythm of discordant tunes

The last MPC meeting held in H1 ’17 (May 2017) was an extension of the accommodative

monetary policy stance in response to positives witnessed in the broader environment.

Though, the MPC acknowledged the challenges that confronts the economy going

forward but opted to consolidate on the recent positive development in the economy

especially the FX policy that has seen the disparity between the official and parallel rates

shelved by 11.48% as at May 23rd compared to the last review date in March. The recent

FX policy is designed to improve liquidity, confidence and stability of foreign exchange

market.

It was hoped at the time that higher system liquidity would reduce borrowing costs, and

thereby spur lending to the real sector of the economy thus kick-starting the process of

revenue diversification which was long overdue. Despite robust system liquidity

however, credit growth remained muted, with banks using excess liquidity to speculate

in the FX market while also increasing investments in the fixed income market. It further

argued that the 2017 budget implementation which was recently passed will be central

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to its accommodative stance, again tied to the process of revenue diversification theme

low interest rate and higher credit to the real sector.

Purchasing Managers’ Index tipped-towed

Latest Central Bank of Nigeria (CBN) data on Purchasing Managers’ Index (PMI) shows

a positive development in the manufacturing sector of the economy in the H1 ’17. The

PMI reading for period stood at 52.9 index points compared to 48.2 at which it opened

the year. Notably, the manufacturing sector benefited from the recent CBN FX policy

which has seen the Naira appreciated against the US Dollar by 46.6% from peak of

N520.00 attained on 20th of February against current trading position.

The Nigerian manufacturing sector is classified into sixteen sub-sectors. Of this number,

ten of the sixteen sub-sectors reported growth in the review month in the following order:

primary metal; petroleum & coal products; plastics & rubber products; paper products;

electrical equipment; appliances & components; textile, apparel, leather & footwear;

cement; food, beverage & tobacco products and chemical & pharmaceutical products.

Conversely, transportation equipment; nonmetallic mineral products; fabricated metal

products; printing & related support activities; furniture & related products and

computer & electronic products.

According to National Bureau of Statistics (NBS), real GDP in the manufacturing sector

in Q1 (latest update) grew by 1.36% year-on-year (yoy). This was the first positive growth

recorded in the sector for over a year, and was 3.9 percentage points higher than rate

recorded in the preceding quarter.

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Agricultural transformation and food security:

Agriculture continues to be a stable driver of GDP growth, with an average growth rate

standing at 6.9%. It is expected that Agricultural sector will boost growth by expanding

crop production and the fisheries, livestock and forestry sub-sectors as well as developing

the value chain. Investment in agriculture will drive food security by achieving self-

sufficiency in tomato paste (in 2017), rice (in 2018) and wheat (in 2020). Thus, by 2020,

Nigeria is projected to become a net exporter of key agricultural products, such as rice,

cashew nuts, groundnuts, cassava and vegetable oil. The contribution of the sector to the

economy in Q1 ’17 stood at 3.39% (yoy), a marginal decline of 65 basis points over the

previous period (Q4 ’17).

The productive base (GDP) shows marginal recovery:

The economy in H1 ’17 showed a marginal budding to recover from recessionary trend.

GDP contracted marginally by 0.52% in Q1 2017 compared to 2.06% and 1.30% posted in

Q3 and Q4 2016 respectively. This was a positive development and we may likely see a

positive growth in Q2 2017 given that the fiscal authority has been assiduous on

implementing the expenditure spending plan as outlined in budget 2017 in line with the

ERGP. The recent strengthening of small-scale businesses and the promotion of

industrialization are priorities to the recovery drive.

Cursory monitor on performances indices reveals that the oil sector continued to stall and

had a lesser contribution to the GDP while the non-oil sector (buoyed by the Agricultural

sector) continues to support the economy. The oil sector was impacted by lower

production and weak prices at the international market.

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Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

2015 2016 2017

Real GDP Growth (%)

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Average crude oil production in Q1 ’17 increased marginally to 1.83 mbpd compared to

1.76 mbpd in the Q4 ’16. The oil sector shrank 11.64% YoY. The non-oil sector expanded

marginally by 0.72%, and was 1.05% higher that the figure posted in previous quarter.

In real terms, the non-oil sector contributed 91.1% to the GDP, lower from 93.25%

recorded in the previous quarter while the oil sector contributed 8.9% to the GDP and

higher from 6.75% posted in previous quarter.

Inflationary triggers subdued by base year effect

The Nigeria’s headline inflation rate stayed within the double digit territory all through

the first half of the year. Though, pressure on both core and food indices have waned

lately, but the element of cost-push factors continued to manifest. The headline inflation

rate in H1 stood at 16.10%, 262 basis points below the year opening and has equally

showed a deceleration for the fifth month in a row. Despite this development, the

headline inflation rate continues to trail the single digit era by as much as seventeenth

months.

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2015 2016 2017

Oil & Non-Oil Growth

Oil (%) Non-Oil (%)

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We note that both food and core inflations are also over the single digit range which are

above the CBN broad monetary policy stance and reflects structural bottlenecks that

confront the economy.

The weakened inflation rate in H1 was largely impacted by effect of easing on prices of

imported good items as well as favorable base effects over prices as at 2016 comparable

period.

There still abode a challenge going forward because farmers are currently confronted

with pest related issues, transportation cost and wastages as result of storage limitations

among others. This could affect the upcoming harvest season between August–

September thereby impacting on H2 ’17 outlook.

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J U L . ' 1 6 A U G . ' 1 6

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% C

HA

NG

EINFLATION INDEX GROWTH

CPI (Headline (%))

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Sept. '16 Oct. '16 Nov. '16 Dec. '16 Jan. '17 Feb. '17 Mar. '17 Apr. '17 May '17 Jun. '17

Inflation Index Movement

CPI (Headline (%)) 12-mth average (%)

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Challenges with growing unemployed youth labour force

Recent release of the National Bureau of Statistics (NBS) shows unemployment rate in

Nigeria at 14.2% as at Q4 ‘16, representing 30 basis points higher than previous quarter.

When we consider the old methodological reading, the rate should read as high as 35.2%.

The statistician General’s office equally stated that the available working age population

(age bracket of 15-64) rose to 108.59 million from 108.03 million in Q3 2016. This implies

that 560,000 were added to the working age population within the period.

Additional information shows that the active labour force population increased to 81.15

million from 80.67 million in Q3 2016. This represents an addition of 480,000 into labour

force population. What these statistics points is that 27.44 million of persons within the

available working age population were not engaged or employed within the period. If

this figure is not alarming, it is most scary when we come to the understanding that about

25% of the population outside the working age (age bracket of 1-14 and 65 above) are

directly or indirectly dependent on the 27.44 million population that were not engaged.

With an estimated population of 180 million, Nigeria should be a viable market place

capable of replicating the magic of the Asian tigers; China, Tiawan, Singapore and

Malaysia etc by harnessing its massive labour force through creation of relatively cheap

jobs that will drive productivity.

Money Market Instruments

Money market activities in the half-year 2017 (H1 ’17) were significantly influenced by

liquidity condition as results of provisioning and settlement of foreign exchange

purchases, auctioning of CBN bills, FGN Bonds and Nigeria Treasury Bills (NTBs). To

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Old Rate New Rate ILO Rate

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achieve its core function of price stability, the CBN conducted a number of Open Market

Operations (OMO) auctions to mop up excess liquidity arising from maturing bills and

fiscal injections.

The OBB and Overnight rates opened the year at 8.50% and 9.00%, witnessed periodic

fluctuations and eventually closed on the average at 5.33% and 5.75% respectively.

Reasonably, the CBN conducted OMO auctions twice every week within the review

period in order to mop up excess liquidity from the system. At over-the-counter (OTC)

segment of the market, a turnover of N67.13 trillion was transacted in H1 ‘17. Of this total,

money market instruments contributed 24.5%.

Fixed Income Instruments

The Treasury Bills: The treasury bills market traded on a positive sentiments in the

review period. There were notable increased in institutional and retail investors’

participation in this segment due to lull witnessed in the equity space and apathy

towards long-duration securities during Q1 ’17. Activity moderated in Q2 ‘16 as the

CBN FX re-alignment in the Export and Import window in mid-April drove up

investors’ interest in the equity market. A total of N31.31 trillion turnover was

recorded in H1 ’17 (dividend into Q1 ‘17- N18.27 trillion and Q2 ’17- N13.04 trillion).

This represents 46.7% of the total turnover recorded in the OTC market.

Bond Market: The bond market reacted periodically to various economic news that

highlighted investment environment in the reviewed period. The uncertainty around

movement of the Naira against the US Dollar limited diaspora interests in the market in the

Q1 ‘17. Inflation stayed above MPR all through the H1 ‘17, and posed a significant challenge

to investors. Although, yields across curve gained 36 basis points in the period, investors were

held back by the observed challenges noted above. As such, the bond market contributed

7.98% to the total turnover recorded in the OTC market within the period, representing

N5.35 trillion.

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5-yr FGN Apr '17 7-yr FGN Jun '19 10-yr FGN Mar '24 20-yr FGN May '29 20-yr FGN Jul '34

Average Yields & Prices

30/6/2017 Yield (%) 30/6/2017 Price (N) 31/3/2017 Yield (%) 31/3/2017 Price (N)

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The major policies that impacted the markets significantly in the H1 ‘17 are;

The instability at the FX market

The FGN Euro-Bond activities Switch to more hawkish stance by the MPC Impact of a tepid macro fundamentals (weakened productivity). High inflation rate

Re-opening of 12.5% FGN Jan 2026, 12.4% FGN Mar 2036 and 14.5% FGN Jul 2021

bonds

The FGN Savings Bond opened in March. Year-to-date, we have seen a succession

of five Monthly series conducted.

Listing of the 7.87% FGN FEB 2032 $1 billion Eurobond on the Exchange

The Equity Market

Equity market on a wild ride in H1 ‘17 on balancing of FX window

The Nigerian Stock Market ended the first half (H1 ’17) of the year on the positive side

and was significantly boosted by the Central Bank of Nigeria (CBN) major decision on

export and import side of the foreign exchange referred to as “Investors’ and Exporters

FX window”. This was established on April 21st and kicked off April 24th. It was designed

to boost liquidity in the FX market. This provided a fillip to the market as it gained 2.21%

the day it was launched (April 24th). Also, for the first time in the space of two years, the

market on 21st of June hit a new high of 34,477.89 points which was last seen on May 21st,

2015 when it dropped below 34,533.40 points.

In summary, the market All-Share Index (ASI) in H1 ’17 appreciated by 23.23% to close

at 33.177.48 points. Conversely, the Market Capitalization grew by 23.85% to close at

N11.45 trillion. The deviation in the two indices was due to delisting of some firms from

the Official List of the Nigerian Stock Exchange (NSE). Kindly view the activity table 1

for further details.

Activity table 1: Market Snapshot

MARKET STATISTICS- H1 2017 ended June 30th

June Closed Jan. Opened Points/Value Diff. % Change

Index (ASI) 33,117.48 26,874.62 6,242.86 23.23

CAP (N ‘trillion) 11,452.12 9,246.92 2,205.20 23.85

Year-To-June Returns 23.23%

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A total turnover of 44.16 billion shares worth N467.64 billion were traded within the

reviewed period by investors on the floor of the Exchange in contrast to a total of 71.04

billion shares valued at N310.51 billion that exchanged hands in comparable period of

2016.

Market highlights in H1 ‘17

FG conducted Euro-bonds in order to raise fund to finance 2016 budget deficit.

Several Rights’ Issues were observed amongst which are, Meyer Plc, UPDC Plc, Trans-

Nationwide Express Plc.

New-Listing: Jaiz Bank Plc- (N1.25) and Med-View Airlines Plc (N1.50) were

admitted to the Official List of the Exchange.

The following Companies were delisted from the Official List of the Exchange- Beco

Petroleum Plc, MTECH Communications Plc, MTI Plc and UTC Nigeria Plc.

Seventeen (17) quoted firms were suspended on the Exchange fol1owing their

inability to file their recent audited results after the grace period expired. There are;

African Alliance Insurance Plc, Equity Assurance Plc, Fortis Microfinance Bank Plc,

Guinea Insurance Plc, Premier Paints Plc, Resort Savings & Loans Plc, Sovereign

Trust Insurance Plc, African Paints (Nigeria) Plc, Aso Savings & Loans Plc, Ekocorp

Plc, Evans Medical Plc, Goldlink Insurance Plc, Great Nigeria Insurance Plc, Omatek

Ventures Plc, Union Dicon Salt Plc, Union Homes Savings & Loans Plc and

Universal Insurance Company Plc.

Equity outlook for H2 2017

We expect the market to stay on the positive side for the rest of the year. This we

anticipate will be boosted by the recently passed 2017 Budget which has 30% provision

for infrastructure development. Given that the appropriation bill is implemented to the

letter, we expect the market to benefit indirectly which will largely sustain the positive

activity witnessed this far.

Other anticipated positive triggers are; improving macro-economic environment,

increasing confidence from foreign investors on Nigerian economy and expectation of

strong Full-year corporate earnings.

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Nigeria: Analysis of 2017 Budget: ...

The government on Monday, June 12, 2017 gave accent to the 2017 budget that was

passed into law by the National Assembly (NASS) on Thursday, May 11th, thereby,

giving room for commencement of much awaited 2017 fiscal year. Recall that the 2017

budget was presented to the NASS by the President on December 14th 2016, and it took

NASS five good months before they could finish legislative work on it, raising issues of

budget handling in the Country.

The 2017 Budget is themed- ‘Budget of Economic Recovery and Growth’ and it is

designed to bring the Nigerian economy out of recession unto a path of sustainable and

inclusive growth by partnering the private sector through mobilization of developmental

capital to leverage and catalyze resources for growth.

Key highlights of the 2017 Budget:

In the approved appropriation bill for 2017 fiscal year, The NASS increased the total

spending plan from proposed N7.298 trillion by The Presidency to N7.441 trillion,

representing an increase of N143 billion or 1.96%. We observed that the increased was

necessitated by the NASS’s marked up on crude oil benchmark price to $44.5 per barrel

against $42.5 per barrel proposed by the Executive.

Expenditure Framework

2017 Expenditure Framework

Approved Proposed %

Fiscal Items 2017 (trillion) 2017 (trillion) Change

Budget Outlay 7,441 7,298 1.96

Statutory Transfers 434.41 419.01 3.68

Debt Service 1,841 1,664 10.64

Sinking Fund 177.46 177.46 0.00

Recurrent Expenditure 2,988 2,979 0.30

Capital Expenditure 2,178 2,059 5.78

Source: Fed Mins. Of Budget & National Planning, GTI Research

Assumptions:

The budget was underpinned by some assumptions which included an average exchange

rate of N305 to $1, a projected oil production level of 2.2 million barrels per day, same

was projected in 2016. As earlier indicated, the benchmark oil price was set at US$44.5

per barrel, higher than $38 per barrel benchmark used in the 2016 budget while GDP

growth was estimated at 2.50%, down from 4.37% projected for 2016. Obviously, the

revved up on the oil benchmark when compared to 2016 figure was as results of the recent

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buoyant activity in the pricing of crude oil in the global market, but the $44.5 approved

by the NASS appeared somewhat ambitious considering that oil glut is foreseeable as

results of increased production from the US shale oil commercial producers.

Budget Assumption

Source: Fed Mins. Of Budget & National Planning, GTI Research

Given this trend and the likelihood of lower oil regime continuing for the rest of the year,

we expect to see fiscal deficit rise to 5.1% of GDP in 2017 (vs 3.2% budgeted). That being

said, the recent liberalization of the foreign exchange market is likely to increase the

probability of accessing international funding window. Furthermore, international

investors will likely wait to see a firmer Naira, which we think will be conditioned on

reduced CBN interventions in the liberalized FX market. The authorities are currently

seeking offshore investment and debt flows, with the minister of Finance recently in

meetings with international investors.

Our score card for H1 2017

At the beginning of the year 2017, we published our outlook report for 2017 which was

captioned: Glass half full?. The report reviewed Global economies and the local economy

and based on the happenings at the time, our research team came up with the following

projections for Nigeria.

We expect GDP to average between 1.0% and 1.5% in 2017. We also expect that

the economy to exit its current recession by Q3 2017

We expect interest rate to reduce to between 11%-12% from the current 14%

Budget Assumptions

App. Prop. %

Fiscal Items 2017 (trn) 2017 (trn) Chg

Oil Production (mbpd) 2.20 2.20 0.00

Crude Oil Price ($) 44.50 42.50 4.71

FX Rate (N/$) 305.00 305.00 0.00

Revenue (trn) 5,081 4,942 2.81

Growth Rate (%) 2.50 2.50 0.00

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We expect exchange to settle between N315 and N320 to the dollar at the

official market rate. We expect to see a harmonized exchange rate in 2017. Our

expectation is more focused on stability than reduction because of the backlog

of dollar demand which will still put some pressure on exchange rate despite

the expected improved reserves at least in the short to medium term.

We expect the focus of the MPC to shift from fighting inflation to economic

growth. The rational thinking is that the refocus of the MPC to economic

growth from inflation will see inflation advance to higher than the current

18.5%. Our inflation forecast for 2017 is however between 15% and 16%. Our

forecast is premised on the assumption that the CBN will strive for a

harmonized exchange rate in 2017, which we believe will settle between N315

and N320.

Our assumption is that most of the people who bid for the dollar at the current

official rate of N305, end up not getting it at that rate or at best not getting as

much as they bided for to finance their importation and resort to sourcing the

deficit at the more expensive parallel market rate. Also, the list of 41 banned

from accessing the official window also gives impetus to our submission that

the current level of inflation reflects the exchange rate at N485 and not at the

current official rate of N305.

Based on that, we expect inflation to trend downwards towards 16% despite

our projected rate reduction. It is our opinion that a harmonized exchange rate

at N320 will actually be a discount considering the movement from N485 and

supported by improved dollar supply.

We expect the ALSI to close the year positively by 7.5% in 2017 driven by fresh

listings and improved FPI participation. We also project that 2017 will be a year

of recovery for a lot of listed companies which will impact their performance.

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Overview of Nigeria’s Economic Outlook/Projections

2016A 2017F

GDP -2.24 1% - 1.5%

Inflation 18.55% 15% - 16%

Exchange Rate NGN305.75/

US$

NGN320.00/

US$

Oil Price p/b $55.54 $65.00

MPR 14% 12%

Equities Market -6.17% 7.50%

NB- GDP is as at Q3 2016

Well, so far so good, most of our expectations are still currently in line and so we hold all

our forecast going into the second half of the year. We are optimistic that the economy

will maintain its current recovery trend.

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Disclaimer

This report by GTI Securities Ltd is for information purposes only. While opinions and estimates therein

have been carefully prepared, the company and its employees do not guaranty the complete accuracy of

the information contained herewith as information was also gathered from various sources believed to be

reliable and accurate at the time of this report. We do not take responsibility therefore for any loss arising

from the use of the information.

For enquires/research queries, please send an email to research@gti.com.ng