2020- a year to remember or forget€¦ · inflationary pressures will persist in 2021 average...
TRANSCRIPT
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Breakfast at Dinner time
Presented by Bismarck Rewane
CEO, Financial Derivatives Company Ltd.
December 17, 2020
2020- A Year to
Remember or Forget
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OutlinePart A:2020- A Year to Remember or Forget
Regional Economic Outlook
Nigeria- What to Expect
The world in 2021
Sectors to Watch
Part B- The New Reality
Conclusion & Forecasts
The World & Nigerian Economic Review
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This time last year, what were you doing?
Having a blast at your office’s Christmas party
Attending Davido’s sold out concert
Planning a holiday getaway
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2020- The Year when Everything Changed5
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2020- A Year to Remember or Forget?
“The first pandemic, 101 years
after the Spanish flu (1918)”
No one saw it coming!!!
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2020 is a Leap Year!
There is a superstition that a leap
year means more deaths
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One in a 100-Year Probability
The Great depression – 1929Spanish Flu – 1918
Global Financial Crisis – 2008/2009
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Sports in 2020
Stadia filled to the brim
with fans
Cancellation of all
sporting events
Sporting events held behind closed doors
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Aviation
Airlines operating at full
capacity with no
restrictions or social
distancing
Flights cancelled except
for essential services
Airlines operating at 50% capacity with
mandatory restriction measures in place
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Entertainment
• Cinemas filled to capacity
• Multiple events cancelled
•Concerts, award shows,
weddings...
• Cinemas closed
• Online streaming platforms
like Netflix enjoyed the spike
in subscriptions and
viewership
• Reduced foot traffic due to social distancing
• Increased use of virtual platforms
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E-commerce & Retail
Long queues at supermarkets •Foot traffic into malls &
supermarkets ceases
•Demand for luxury
goods plunges
• E-commerce spikes
•Delivery services benefit
from the rally
• Foot traffic gradually picks up but
limited by social distancing
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10 Global Trends in 2020 that could Continue in 2021
Bitcoin's gains surpass gold
Hunting for yield, no reward without risk
ETFs in vogue
The Green revolution
Negative rates don't boost inflation for long
Banks bear the brunt of negative rates
How low can you go?
Quantitative easing explosion
Relentless rally in global equities
Second wave of lockdown
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16 Leading IndicatorsIndicators 2019 Direction2020
GDP Growth Rate
Avg. Oil Production
Avg. FBN PMI
Stock Market Cap (End Period)
1.61mbpd 1.79mbpd
2.27% -3.2% *
53.41 51.11
N12.96trn N18.55trn
Total Vol. of E-Payments
Total Value of E-Payments N125.73trn
N2.4bnN1.62bn
N175.70trn
Source: * FDC’s forecast
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17 Leading IndicatorsIndicators 2019 Direction2020
Avg. Oil Prices
External Reserves (End
Period)
Parallel Market Rate- (End
Period)
Avg. FAAC
$34.85bn$38.60bn
$64.16pb $42.89pb
N362/$ N478/$
N678.9bn N648.44bn
Avg. Inflation
MPR (End Period) 13.5%
12.98%11.39%
11.5%
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18 Summary of LEIs- 2019 vs 2020
Impact of Covid and oil price shock was severe
3 Positive 9 Negative
Of the 12 Indicators
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New World Order in 2021United Kingdom
Ghana
South Africa
Tanzania
USA
Venezuela
Boris Johnson
Joe Biden
Cyril Ramaphosa
John MagufuliNana Akufo-Addo
Nicolas Maduro
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World Views on Global Economy in 2021
• Global growth: 5.2%
• Global growth: 4.4%
• Global growth: 4.2%
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23 10 Fastest Growing Economies
25%
Asia
• Macau (35.4%)
• Maldives (8.0%)
Africa
• Libya (20.9%)
South America
• Guyana (23%)
• Peru (9.2%)
North America
• British Virgin Island (11.5%)
• Sint Maarten (9.3%)
• Antigua & Barbuda (8.0%)
• St. Lucia (8.0%)
Europe
• Albania (8.5%)
In 2019/20 – the list contained 3 African countries
(Ethiopia, Rwanda & Ivory Coast)
In 2021 – No SSA country23
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26 Key Events that will Shape the African Economy in 2021
African Single Market for Aviation
AfCFTA ECOWAS protocol
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27 AfCFTA & Intra-Regional Trade
Commencement date:
Jan 1, 2021
Expected boost in
intra regional trade
Single tariff-free market of
$3trn
Largest economies to
benefit the most: South
Africa, Ghana & Nigeria
Eliminates cross-
border tariffs on 90%
of goods
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28 SSA: Eurobond OutlookMore African countries to penetrate the Eurobond market
Gabon and Ghana were the only countries to issue Eurobonds this year
Risk premium in the SSA region will remain high due to the combined effects of
rising debt levels and risk of default
To be priced in by foreign capital market investors
Most SSA issuers, particularly Nigeria, will remain reluctant to raise dollar
denominated debt due to
Prevalent fiscal pressures
Exchange rate concerns
Widening risk premium
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29 SSA: 2nd Wave of COVID-19 Remains a Major ThreatAfrica’s confirmed COVID-19 cases surpass 2.3mn mark
South Africa (860,964) is the most affected country in the continent
Followed by Morocco (399,609), Egypt (121,575) and Ethiopia
(116,769)
Nigeria also on the verge of a second wave of COVID-19 infections
Recorded highest daily new cases (930) in six months
Renewed spike in infections could trigger stringent restrictive
measures and a possible precision lockdown
This could delay the recovery process
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Leading Economic Indicators - OutputLEIs 2020 2021 % Change Comments
GDP growth (%) -3.21 1.7 4.91 Real GDP will rise marginally by 2021
Average Oil
Production
(mbpd)
1.61 1.65 2.48 Nigeria’s oil production to increase as
OPEC+ agreed to ease output cuts
by 500,000bpd from Jan’21
Average Oil
Price ($pb; avg)
45.0 50.0 11.11 Vaccine rollouts and fuel demand
recovery to keep oil prices high. Will
be more significant in 2022/23
Money Supply
(Ntrn) – end
period
35.69 37.0* 3.67 Money supply saturation will persist,
further exacerbating inflationary
pressures
Source: CBN,NBS, EIU, IMF, OPEC, FBNQuest *: FDC’s forecast
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Leading Economic Indicators - MarketsLEIs 2020 2021 % Change Comments
Average Inflation
(%)
12.98 16.0 3.02 Inflation will remain high in 2021 as
currency adjustment, price
deregulation and forex restrictions for staple imports feed into consumer
prices
External Reserves
($bn; month-end)34.85 34.0* -2.44 External reserves to keep declining as
the CBN keeps the naira stable. New guidelines on Diaspora remittances
and higher oil prices to slow rate of
depletion
Exchange Rate
(N/$; month-end:Parallel
478 485 1.46 Convergence of the naira will continue
but unification is unlikely
Average Lending
Rates (%)15.0 16.00 -0.1 To increase with shift to a
contractionary monetary policy stance
Source: CBN,NBS, NSE, FMDQ, EIU, Trading Economics*: FDC’s forecast
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Summary of LEIs
LEIs point to a gradual recovery in 2021
4 Positive 4 Negative 2020-2021
Of the 8 Indicators
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Positive Growth Unlikely Until Q3’21Negative growth to linger
through Q1 & Q2 2021
But rate of contraction to slow
Positive growth expected from
Q3’21
Driven by land border reopening,
AfCFTA and pick up in economic
activities
FY’21 growth estimate: 1.1%Source: EIU, NBS, FDC Think Tank
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Sector Outlook
Growth in non-oil sectors to improve from Q1’21
Uneven recovery expected across sectors
Construction, ICT and financial institutions will be growth drivers
Source: FDC Think Tank
Re
al Est
ate
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Double-Digit Price Inflation will RemainInflationary pressures will persist in 2021
Average inflation estimate (2021): 16% (EIU)
2020: 12.98%
Electricity tariff hike
PMS price increase a function of global oil
prices if market is fully deregulated
Capacity constraints of local producers
Exchange rate adjustment
Source: EIU, NBS, FDC Think Tank
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Growth in M2 to Slow on CBN Special Bills Impact of CBN special bills to be more
potent early 2021
To taper M2 growth from Q1’21
EIU estimates M2 growth to slow to
16.6% (2021) from 25% in 2020
Source: CBN, FDC Think Tank38
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When will Interest Rates Start Rising???Nigeria already in a liquidity trap
CBN will have no choice but to raise interest rates
As it prioritizes price stability over economic recovery
Timing of an interest rate increase will be a function of
Money supply growth
FG overdraft
Galloping inflation
Exchange rate pressures
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Exchange Rate Pressures to Subside Temporarily in Q1’21Currency pressures to taper temporarily in
Q1’21 on World Bank loan disbursement &
possible increase in Diaspora remittances
Pressures expected to resurface on
increased capital outflows, heightened
forex demand and dollar dearth
Driven by weak macroeconomic
fundamentals
Another currency adjustment likely in 2021
IEFX rate will oscillate between N440-
N450/$Source: EIU, FDC Think Tank
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Economy to Remain Vulnerable to External Imbalances2020 2021
Current account balance
($’bn)
-10.8 -9.2
Balance of trade ($’bn) -6.0 -4.8
Terms of trade 24.4 25.4
External debt-to-GDP (%) 13.5 16.5
External Reserves ($’bn) 34.85 34.0
Fiscal deficit-to-GDP (%) 3.6 3.1
Misery Index 70.59 81*
Unemployment (%) 27.1 35.0*
Underemployment (%) 28.6 30.0*
Life expectancy at birth (yrs) 54.81 55.0*
Source: EIU. :* FDC Think Tank
External debt vs
external reserves ratio
expected to widen
Debt service to remain
at the front row of govt
budget (2021-2023)
Fiscal deficit to stay
above 3%
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44 Oil Production & Rig CountNigeria’s oil production will be
capped by its quota: 1.46mbpd
Active rigs to increase in tandem
with production in 2021
Source: OPEC, Baker Hughes,*: FDC’s forecast 44
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45 Value of Transactions to Continue Upward Trend
Value of transactions across the e-payment channels to keep increasing
Could reach N30trn by 2021
As more consumers and corporates use these channels instead of cash
Source: NIBSS
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FAAC Allocation to Increase on Higher Oil PricesAverage FAAC disbursement to
return to pre-pandemic levels:
approximately N700bn
On higher oil receipts, increased
VAT remittances
Source: NBS; *FDC Forecast
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Manufacturing PMI to Remain in Expansion TerritoryManufacturing PMI
Both CBN & FBN manufacturing PMI to remain above 50 points in 2021
On increase in economic activities
Sub-indices like supplier delivery time, output and employment levels
to increaseSource: FBN Quest, CBN
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Ships Awaiting Berth
Seaport activities expected to increase as global trade picks up
on increased covid-19 vaccinations by 2021
Vessels awaiting berth at Lagos ports to decline significantly
There is still high need to utilize other seaports and de-congest
Lagos ports (especially Apapa)
Vessels
Awaiting Berth
Oct Nov 2021*
Lagos -
Apapa
22 22 15
Lagos - Tincan 6 6 2
Source: NPA
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Monetary Policy in 2021The CBN to shift focus back to price stability in 2021
As multiple objectives will undermine monetary policy effectiveness
Change in interest rate policy likely
The introduction of special bills will serve as an additional tool for
liquidity management
Signalling an increase in interest rates
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Fiscal Policy in 2021FG confronted with wider fiscal deficit (N5.19trn) amid lower revenues
Will attempt to spend its way out of the recession
And significantly boost domestic revenue mobilization
Options before it are limited:
Broadening the excise base
Increasing rates for excises (e.g. fuel)
Increasing the VAT rate gradually to the ECOWAS average of 15% by 2025
Change in low interest rate environment will increase debt servicing
costs
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Fiscal Policy in 2021New Petroleum Industry Bill (PIB) will be passed
This makes a return to petrol price controls less likely
The PIB will encourage upstream oil investment by bringing clarity to
fiscal terms
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Possible market reversal
Current rally not backed by strong economic fundamentals
Possible increase in yields of fixed income instruments
Banking stocks to dominate activity levels due to high sensitivity
to liquidity
Market to see more delisting than listing of new companies
Further consolidation in the insurance space
Net foreign outflow to persist especially with improved FX liquidity
Stock Market Outlook -2021
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Sectors – 2020 vs 20212020 2021
Aviation
Sports
Entertainment
E-commerce
& Retail
• No flights & loss in airline
revenue
• Low to no passenger traffic
• Resumption in air travel
• Slight pick up in revenue
and passenger traffic
• No Olympics & halt of
major events
• Scanty stadiums
• Lower revenue
• Recoupment of losses
• Audience capacity > 50%
• Olympics & major sports
events to take place
• No concerts, cinematic
experiences
• Increase in virtual events
• Increase in onsite events
• Revenue of streaming
platforms to remain high
(Netflix, Spotify
• Long queues at
supermarkets
• Drop in foot traffic
• Boost in delivery services
• Rise in foot traffic
• Delivery services to become
more rampant
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COVID-19 exacerbated underlying issues
Low purchasing power to continue to weigh on revenue
Pricing has become a key source of competitive advantage
Smaller brands with lower prices gain market share from
larger players
Players to benefit from low cost of borrowing
Flour mills to benefit from lingering border closure
FMCGs
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Competition to intensify – especially in the retail space
Possible merger and acquisition within and across tiers
Macroeconomic weaknesses likely to be reflected in FY result
Significant increase in impairment charge
A drag on capital adequacy
Lower deposit repricing to support growth in net interest income
Further naira devaluations will present the industry with revaluation gains
Broadly net positive foreign assets position
Move to holdco structure by tier 1 banks to improve their revenue
sources
Banking
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Increased operational and financial resilience to persist
Telcoms to further compete with financial Institutions
Pursue PSB license
Partner with digital content providers
Telcoms to focus on increased network capacity
Expanding rural coverage
Focus on 4G coverage
Deepened multi-products propositions
Telecoms
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Likely consolidation across the industry driven by:
Need to meet up with the new capital requirement
Industry attractiveness to deteriorate
Banks to encroach on industry space through the holdcos
Increasing poverty rate and decline in purchasing power makes the
idea of insurance unthinkable to many Nigerians
Need for players to offer specific products desirable to various
income and demographic levels
Recent #EndSARS crisis presents an opportunity
Insurance
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64 Aviation Industry in 2021
Industry to recover but remain in
a loss position ($38bn) in 2021
An improvement from 2020’s
estimated loss of $118bn
Due to weak consumer
confidence
Asia Pacific to record fastest
recovery in airline
performance
Followed by airlines in
developed markets
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65 Aviation Industry in 2021
Covid vaccine
to boost global
travel with
significant gains
at the end of
2021
Cargo activities
to recover to
pre-pandemic
levels in 2021
Several airlines will
survive on existing
reserves, but many
may run out of cash
before vaccine is
widely distributed
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Risk Footprints Financial risk
• Sharp fall in oil prices to limit fiscal and external
revenue accretion • Higher oil prices feeding
into PMS price
Debt Crisis•Debt service risk due to
higher interest rates
Default Risk
COVID-19 outbreak
Resurgence of wide scale protest
•Protest of EndSARS, MEND, GhanaMustGo
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Conclusion & Forecasts 2021The year will start off difficult and challenged
The first vaccines will come to Nigeria in Q2
The economic recovery will continue but positive growth will be in
Q2 & Q3
Tough policy decisions will be made in Q1
This will include further liberalization of forex market and flexible
exchange rates
As oil prices increase also will the pump price of petrol
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Conclusion & Forecasts 2021Inflation, which could climb to 16% in January, will decelerate
in Q3 towards 11%
T/bill interest rates will begin climbing in Q1 and could
increase towards 5%-6% by Q2 & Q3
Stock market rally will fizzle as interest rates spike
Stocks in some sectors, principally telcos , insurance and
construction, will maintain their rally
Banking stocks will differentiate between those with low cost-
to-income ratios and the others
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Conclusion & Forecasts 2021Naira will oscillate between N450/$ and N470/$ in the parallel
market
At the I & E window the rates will trade N440/$ - N450/$
Lagos- Ibadan railway will be a major game changer
Retail and shopping malls will start to experience foot traffic
but not to pre pandemic levels
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Corporate Humour The world is the best of all possible worlds, and everything in it is a
necessary evil.
– F. H. Bradley
Life is first boredom, then fear.
– Philip Larkin
Those who stand for nothing fall for anything
– Alex Hamilton
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Corporate Humour It takes two to speak the truth – one to speak and another to hear
– Henry David Thorean
At 20 years of age, the WILL reigns, at 30 years the WIT reigns and
at 40 years of age the Judgement reigns
– Benjamin Franklin
Always do it right. It will gratify half of mankind and astound the
other
– Mark Twain
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Corporate Humour My mother said that there are only two types of men – Nice men
who did things for you and bad men who did things to you.
– Margaret Atwood
The average girl would rather have beauty than brains because
she knows the average man can see much better than he can think
– Anonymous
If maternity is a matter of fact, paternity is a matter of opinion
– Walter Bagehot
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Corporate Humour The struggle ends when the gratitude begins
– Neale Donald Walsch
When some things go wrong, take a moment to be thankful for the
things still going right
– Anonymous
Life is short smile while you still have teeth.
– Mallory Hopkins
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Corporate Humour For every dark night there is a brighter day.
– Tu Pac
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Thank you!
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Bismarck J. Rewane, MD/CEO Financial Derivatives Company Ltd.
Lagos, Nigeria01-7739889
© 2018. “This publication is for private circulation only. Any other use or publication without the prior express consent of Financial Derivatives Company Limited is prohibited.”
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