‘Financial, telcos positive despite negative macroeconomic outlook’

Financial services and information and communication (ICT) sectors will continue to witness impressive growth in the months ahead despite a generally negative macroeconomic outlook that may see the Nigerian economy contracting by 1.85 per cent in the third quarter.

Macroeconomic analysts at Cordros Securities stated that the Nigerian economic outlook in the third quarter of 2020 remains negative but there are silver linings in the financial services and ICT sectors.

In its latest macroeconomic note, Cordros Securities predicted that financial institutions and ICT companies will continue their impressive run, although the pace of growth may be slower compared to the previous quarter.

Analysts said the growth in ICT will be driven by increased subscription for voice and internet, as companies maintain their work-from-home policies. However, the real estate, accommodation and transport sub-components of the services sector are expected to remain depressed as partial opening of the segment was only instituted in mid-August. Overall, the services sector is expected to decline by 1.79 per cent on annual comparison.

ADVERTISEMENTAnalysts said the Nigerian economy, which depends largely on crude oil receipts, would remain under pressure from global fluctuations while the foreign exchange (forex) shortage and resultant devaluation of naira will continue to depress the manufacturing sector.

“In third quarter 2020, we expect the oil sector to continue its negative growth trend on expectations of increased compliance by the country following the agreement to extend the current oil production cuts,” Cordros Securities stated.

Analysts noted that Nigeria did not fully comply with its quota in second quarter, as average oil production between May and July was 200,000 barrels per day more than the agreed production of 1.4 million barrels per day.

According to analysts, while the lobby for the Agbami oil grade to be considered as condensate rather than crude continues, Nigeria may make efforts to increase compliance with oil production quota. Thus, there is limited upside for higher crude oil production. With the high base of third quarter 2019, crude oil production inclusive of condensates may top 1.71 mb/d, translating to negative growth estimate of 17.90 per cent.

“For the non-oil sector, we expect growth to also remain negative, albeit at a slower pace, as lockdown measures continue to ease and activities in the contact-dependent sectors gradually increase. As such, we project the non-oil sector to decline by 0.11 per cent on year-on-year basis. In the Agricultural sector, we expect increased crop production, facilitated by the seasonality effect that comes with the harvest season. Due to the high base of third quarter 2019, we expect growth in the agricultural sector to print at a modest 1.22 per cent,” Cordros Securities stated.

According to analysts, the snags of limited forex supply and devaluation of the naira to continue to negatively impact manufacturing activities in the country. Thus, the manufacturing sector, excluding oil refining to close third quarter down by 2.44 per cent. Also, oil refining is expected to remain in the red zone due to the poor state of the country’s refineries. Overall, the manufacturing sector is expected to decline by 2.74 per cent.

“Having factored in the upside and downside risks across both oil and non-oil Gross Domestic Products ( GDP), we project negative growth of 1.85 per cent in third quarter 2020 and revise our 2020 full year GDP growth estimate to -1.88 per cent,” Cordros Securities stated.