Nigeria 2018 review and 2019 outlook

Nigeria’s 2018 Review and 2019 Outlook

2018 Global Political Economic Review- Key Denominators
Global Trade
Wars and
Protectionist
Policies
Global Oil
Production
Quota
Management
US Federal
Reserves
Tightening
Monetary
Policies
China’s
Economic
Growth
Slowdown
The
Strengthening
of the Dollar
Against Other
Currencies
• Emerging trade wars
and protectionist trade
policies in the global
trade market has led
to broad-based
downward revision of
global economic
growth projections for
both 2018 and 2019.
• Also the response
from the global market
has been bearish as
major exchanges and
market indicators
reacted negatively to
the instability in the
global trade space in
2018
• With the OPEC oil
cartel’s agreement in
December 2018 to cut
production by 800,000
barrels a day and Non-
OPEC members
including Russia,
Kazakhstan, Sudan
and Mexico agreement
to contribute a further
cut of 400,000 b/d in
total oil production
quota, oil prices may
dip below the $60
dollar mark in 2019
having witnessed
about 41% decline
since early October
2018
• The decision of the US
Federal Reserves to
increase interest and the
prospects of delivering a
better ROI to investors has
made investors reluctant
to take a bet on riskier
emerging markets.
• IMF projected that tighter
financial conditions in
advanced economies
could cause disruptive
portfolio adjustments,
sharp exchange rate
movements, and further
reductions in capital
inflows to emerging
markets, particularly those
with greater vulnerabilities
• With growth rates
averaging 10% over the
past 30 years China has
contributed 31% on
average between 2010 and
2013 to global economic
growth (IMF)
• In the light of the trade spat
with United State and
China's growing trade
account deficit, a slowdown
in Chinese economic
growth is already having a
knock-on effect on global
commodity prices as
China’s demand
decelerates to adjust to
macroeconomic
development
• By September 2018
the US dollar has
strengthened by about
6½ percent in real
effective terms since
February 2018. (IMF)
• This was against all
other major currencies
like the euro, the yen,
the pound sterling and
the renminbi
• The attendant impact
was depreciation of
other currencies
across the globe and
higher trade deficit for
many other nations
All these evolving factors kept the Global economic Growth Rate @ 3.5-3.7% in 2018 & steadied 2019 projections @ 3.7%Nigeria 2018 Review and 2019 Outlook 2

Review of Nigeria’s 2018 Political Economic Outcomes

Nigeria’s Key Political Economic Denominators in 2018
2019
Elections
Oil Prices &
Production
Oil & Non-Oil
Revenue
Non Oil
Sector
Economy
National
Debt Profile
Monetary
and
Financial
Policies
Infrastructure
Development
• Preparations
for 2019
elections &
aggressive
Politicking
were the key
political
highlights of
2018
• Governance
took a
backstage
as politicking
dominated.
• Global Oil price
fluctuations and
regimented oil
production
quotas
dominated the
oil sector.
• Nigeria’s
subsidy burden
increased &
challenging
prospects lies
ahead of the
sector
• Due to
declining oil
revenues
and deficit
budget
challenges,
revenue
generation
focus shifted
to the non-
oil revenues
sources and
agencies
• The
imperative for
diversification
of Nigeria’s
economy
from Non-Oil
sources
became a
national
development
and strategic
priority for the
government
• The many
years of
development
neglect created
a $3 trillion
infrastructure
deficit gap for
Nigeria that
has led to
stunted
economic
development &
growth
• The Monetary
& financial
policies of the
CBN were
aimed at
reflating &
growing the
economy
• The CBN was
successful in
stabilizing the
value of the
Naira
• The combination
of several years
of
mismanagement
of Nigeria’s
economy,
declining oil
revenues,
undiversified
economy and
deficit budget
position has led
to rising debt
profileNigeria 2018 Review and 2019 Outlook 4

Performance of Key Political Economic Denominators in 2018
2019 Elections
Oil Prices &
Production
Oil and Non- Oil
Revenue
Non Oil Sector
Economy
National Debt
Profile
Monetary and
Financial
Policy Impact
Infrastructure
Development
• About 79
Presidential
aspirants and
parties emerged
in 2018 to
contest the 2019
Presidential
Elections
• In addition 89
parties will be
fielding 1,803
candidates for
the 109
senatorial seats
& 4,548 for the
350 federal
constituencies.
• About 50% &
38% of house of
representative &
senate members
respectively are
not returning to
the legislative
houses
• The 2018 Budget
was set at $51
per barrel but
price averaged
$74 by Q3 2018
• Production target
was 2.3million
barrel per day
but actual
production by Q3
averaged
1.95millions bpd
• Higher Oil prices
meant the NNPC
had to subsidize
the prices of
petrol at the
pump by N623
Billion between
Jan-Nov 2018 to
maintain pump
regulated prices
of N145 at the
pump
• Oil Revenue was
N1.51 trillion by end
of Q3 2018 despite
Nigeria making
N7.308 trillion in
crude oil exports H1
2018 (NBS &
Economic Minister)
• As at end of Oct
2018, the Federal
Inland Revenue
Service (FIRS)
realized N4.3trillion
revenue (64% of
N6.7 trillion target for
2018)
• Nigerian Customs
Service realized N1.2
trillion revenue
against its N1.3trillion
target for 2018 and
N164.8 billion more
than the 2017
collection of NI.037
trillion (NCS)
• Nigeria made
N577.6bn from
non-oil exports in
Q1 2018 a paltry
12.3% of total
export earnings
of N4.69tn for the
quarter though an
improvement
over total non-oil
export value in
2017 of N714bn
or $2.34bn (NBS
& CBN)
• Agricultural
growth slowed to
1.2%
• The non-oil
industry &
services picked
up to 3.1% &
2.1% (World
Bank)
• The N2.7 trillion
spent by the FG
on infrastructure
development in
just two budget
cycles between
2016 and 2018,
has not
significantly
addressed the
N4.5trillon
annual
Infrastructural
deficit of Nigeria.
• The impact on
Nigeria’s
development is
humongous
manifesting in
economic losses
and stunted
economic
development &
growth
• Key monetary
and financial
policy rates of
the CBN at the
end of the year
include:
1. MPR at 14%
2. Cash Reserve
Requirement at
22.5%
3. Liquidity Ratio
at 30%
• Headline
inflation (YOY)
was11.26% in
Oct 2018
• Food inflation,
moderated to
13.28% in Oct
• Gross official
reserves was
US$41.53
billion on 16th
November,
2018.
• The country’s
total debt stock
(Federal &
States) at June
30, 2018 was
N22.38trillion
($73.21 billion)
based on Debt
Management
Office data
• FG accounts for
80.76% of the
total foreign debt
stock. The 36
states & the FCT
account for the
balance 19.24%
• 18 states in
Nigeria have debt
profiles that
exceeded their
statutory revenue
by more than 200
per cent
Nigeria 2018 Review and 2019 Outlook 5

A Transition Year with Global and Local Headwinds Ahead- A call For Strategic Caution

• The Global economy growth prognoses for 2019 are bearish, cautionary,
conservative and downgraded.
• There is concurrence on the likelihood of the Global economy signposted by the
American economy going into a tailspin in 2019!
• It is projected that negative growth in the US economy may inevitable trigger off a
global economic recession starting from late 2019!
Most Global Analysts Foresee Economic Growth Deceleration in 2019
Global growth is
expected to edge
down over the next
two years (2019-
2020), as global slack
dissipates, trade and
investment moderate
and financing
conditions tighten.
World Bank
JP Morgan
economists expect
economic growth in
the US to slow down
in 2019 to a pace of
1.9 percent for the
year.
JP Morgan
Goldman Sachs
economists also
forecast slower
growth for 2019 for
the US, with an
average 1.75 percent
in the second half
Goldman
Sachs
The Organization for
Economic Cooperation
and Development
(OECD) cut its 2019
global growth forecast
to 3.5 percent from 3.7
percent earlier
predicted
OECD
Markets could still go
up, but "at the end of
that run, run for cover.
U.S. could be headed
into "stagflation,"
characterized by high
inflation and high
unemployment such
as was seen in the
1970s
Alan
Greenspan

On the back of the 2019 budget estimates benchmarked on very
aggressively optimistic assumptions, there is need for the exercise of
caution as most political economic indicators are looking bearish in 2019!
• Whilst the Nigerian 2019 National Budget projects a very aggressively
optimistic economic growth rate of 3.01% based on the Economic Recovery
and Growth Plan implementation forecast, the International Monetary Fund
revised down its projections for the growth of the Nigerian economy from 2.1
per cent to about 1.9 per cent in 2018 and to 2.3% in 2019.
The Headwinds Ahead of Nigeria in 2019 Calls for Caution!

• Considering Nigeria’s debt profile and servicing requirements, including the funding demand
for a national deficit budget, the Nigerian Government economic growth projections are
more optimistic speculations rather than realistic objectives!
• Also the Nigerian 2019 budget assumption projects 9.98% inflation rate while the IMF has
projected 13.5 per cent in 2019 considering the different headwinds ahead of Nigeria in
2019.
• If the Government implements a N30,000 minimum wage in 2019 and economic growth
slows down, the IMF inflationary rate projection is the more realistic target. By and large, the
managers of Nigeria’s economy may struggle to implement the 2019 national budget.
The Headwinds ahead of Nigeria in 2019 Calls for Caution!

Source: Deloitte
Nigeria’s 2019 Budget Breakdown and Strategic Highlights

The 2019 National Budget Deficit Profile
Overall budget deficit of N1.859 trillion
in 2019 represents 1.33% of GDP.
Budget deficit is
to be financed
mainly by
borrowing
N1.649 trillion
Domestic
sources
N824.82
billion
*Foreign sources
(gradual shift away
from commercial to
more concessionary
financing)
*Foreign
sources
N824.82
billion

Seven Key Drivers of Nigeria’s Political Economic Outcomes in 2019
2019
Elections
Oil Prices
&
Production
Oil & Non-
Oil
Revenue
Non Oil
Export
Economy
National
Debt
Profile
Monetary
and
Financial
Policies
Impact
Infrastructure
Development
1 2 3 4 5 6 7

Elections are the Biggest Headliner Events in 2019!
• The Volatility, Uncertainty, Complexity and Ambiguity (VUCA) of the political and economic environment became more heightened
in 2018 and impacted investors confidence in the Nigerian market. Also politicking at the expense of governance took center stage.
• According to the data from the Nigerian Stock Exchange, a total of N435.41bn was withdrawn from the Nigerian Stock market from
January to July this year, compared to an outflow of N236.32bn in the same period in 2017. A key reason cited for these outflows
from the Nigerian stock exchange market is investors apprehensions about the 2019 elections.
• Low investors confidence in the Nigerian economy may persist until Q3 2019 as investors await the outcomes of 2019 elections.

Political Uncertainty and Transition will impact Nigeria in 2019
Post elections the VUCA scenario may not abate for the following reasons:
• The high turnover of political office holders at all levels of governance in terms of incumbents not
returning to office will affect government business continuity and policy direction in 2019.
• Some estimates say about 50% of current House of Reps members are not returning and some
estimates put it at 252 out of 360 members!
• The non returning estimates for the senate hovers around 20-42members. At 42 out of 109
members, about 38% of the current senators may not be returning. A slow momentum in
legislative business in both houses is expected as new members settle in and power tussle
dynamics for house leadership takes center stage! Not to talk about the lobbying for headship of
‘juicy committees’ in both houses. All of these will take its toll on governance in Q2-Q3 2019.
• Anticipate slow process of composition of new Kitchen cabinet and long settling in period of the
new administration (returning or new helmsmen). Also anticipate delay in execution of the 2019
budget on the back of the late passage of 2018 budget in mid year 2018 and against the backdrop
of 30% implementation status of the 2018 budget at the end of 2018.
• All of these will surely negatively impact legislative productivity and effectiveness, policy making
and governance stability in 2019.
• Nigerians and organizations should prepare for election forced public holidays in 2019.
• Bottom Line is that Nigeria’s economy may experience a
very slow take off in 2019!

Global Oil Prices and Production Will Have a Big Say!
• The combination of the unrelenting ramp up in US Shale Oil production, President Trump’s resolve to permanently
crash oil prices and break OPEC’s stranglehold control of oil prices , cut in production quota and local production
constraints that many producers like Nigeria may encounter will largely determine the prices of Crude Oil in 2019.
• And oil prices will have significant impact on Oil dependent economies like Nigeria and Angola who have failed to
achieve substantial diversification of their economies. Such nations will struggle with funding their national budgets
and economy in 2019. Nigeria 2018 Review and 2019 Outlook 15

Key Factors Driving Global Oil Prices & Global Oil Production Output in 2019
US Shale Oil
Production
OPEC Quota
Global Demand and
Supply
International
political Crisis
Local
Production
Dynamics
• Production averaged
9.4 million b/d in
2017 &10.9 million
b/d in 2018.
• The average is
expected to rise to a
record of 12.1
million b/d in 2019.
• Large traditional oil
enterprises have
stopped exploring
new reserves.
• Exxon-Mobil, BP,
Chevron, and Royal
Dutch Shell all now
play in the shale
market because it is
cheaper for them to
buy out shale oil as
they are profitable
even at $30 a
barrel
• Historically OPEC controlled
production to maintain a
$70/b price target.
Increased U.S. Shale oil
supply means it no longer
can do this exclusively
• The OPEC alliance agreed
2 years ago to keep 1.8
million bpd off the market
• There is a plan to set quotas
for Nigeria at 1.8 million b/d
and for Libya at one million
b/d.
• If this OPEC plan falls
apart, oil prices could
rapidly fall to $42 in 2019
• Also the need for most
OPEC members to
balance their budget in
2019 will put pressure on
compliance with the quota
• Global demand is driven by
China & rose to 93.3
million b/d in 2015, from
92.4 million b/d in 2014,
• According to the
International Energy
Agency the chunk of the
increase came from China,
which now consumes 12%
of global oil production.
• But China's economic
reforms and growth has
slowed down which has
also affected its demand.
• Global oil market faces a
glut in 2019 as demand
growth estimated at
1.3mbpd is short of supply
growth estimated to be
1.4mbpd
• The brewing
International
political crisis
between United
States, China,
Russia and Iran
have significant
role to play in the
evolution of oil
price movements
• Political influence
of the US over
Saudi Arabia will
also impact the
ability of Saudi led
OPEC cartel to
keep prices up
• International
political instability
will impact the
direction of oil
prices in 2019
• Whilst the 2018
National Budget was
based on a
production target of
2.3mbpd, Nigeria’s
production averaged
1.90 million bpd inn
2018 (NNPC)
• Data showed that
Nigeria on the
average consumed
up to 52.80 million
litres of petrol daily in
2018
• Local production
constraints including
stable conditions in
the Niger delta and
OPEC quota will
impact on Nigeria’s
2019 production
outputNigeria 2018 Review and 2019 Outlook 16

Key Oil Prices Forecast for 2019
Morgan
Stanley
$68.50 a barrel
Merrill
Lynch
$70 a barrel
U.S. Energy
Information
Administration
$61 a barrel
Nigeria
Budget
Office.
$60 a barrel
World Bank
$74 a barrel
Forecast
Average.
$66.8 a barrel
Despite the optimistic projections of stability around oil prices at the $60 mark, there still exist some valid concerns that
any slight change in the existing operating dynamics in the global market may drive prices south to below the $50 mark

So What About Global Oil Prices and Production Dynamics for Nigeria?
An Incontrovertible fact is that Government is still the largest business In Nigeria. Oil receipts drop will affect everyone in Nigeria !
Impact on Oil
Receipts and growth
National Revenue,
Budget Financing,
FAAC Purse and
Liquidity
External Reserve
Position and Non
Oil Revenue
Generation Drive
Subsidy Payment
and Policy
Impact on Financial
stability, general
liquidity and Cost of
Doing Business
• Performance of the
oil sector in the
period between
2015-2017 showed
negative growth.
• Every forecast
globally looks
bearish either with
total production
output or average
prices in 2019.
• Diminished Oil
receipts and under
revenue
achievement is
inevitable
• Nigeria's oil export revenue
dropped by N403bn in H1
2018, according to CBN
• In October 2018 actual oil
revenue was at N682.06
billion below the 2018
monthly budget estimate of
N1,107.12 billion.
• Oil revenue fall is expected
to continue to 2019 and this
has further increased the
size of the deficit in the
2019 national budget
• There will be attendant
effect on the Federal
Allocated Resources
available at the centre to
share to all states
• Government may have to
seek bailout loans to
augment State revenues
• Nigeria’s foreign reserves
was at $38.77bn at the
beginning of the year
2018
• It later rose to $47.49bn in
April 2018 but had
declined to $42.80bn as
at Dec 11, 2018 as the
FG continued its policy of
defending the Naira.
• There will be pressure on
the non-oil revenue
sources and we may see
FG resort to imposing
higher taxes in 2019 after
elections or selling
National assets to raise
funds and buoy up
government revenue
coffers
• NNPC became the sole
importer of petrol in October
2017 and imported
15,874,734.82 metric tons of
Premium Motor Spirit (PMS) in
2018
• Nigeria pays N2.4b on Oil
subsidy daily in May 2018 from
N774 million in March, 2018
• Nigeria currently pays a
subsidy of about N65.6k per
litre.
• N305 billion ($1 billion) has
been budgeted for under-
recoveries (subsidy) by NNPC
on premium motor spirit in
2019
• This is not sustainable and
expect a drastic government
policy after elections or with
the take off of Dangote
Refinery!
• According to NBS the
Non Performing Loans
(NPLs) in the third quarter
of 2018, increased by
N400 billion or 21 percent
to N2.3 trillion from N1.9
trillion in Q2’18
• The opportunities to
deploy dollars and earn
risk-adjusted returns have
reduced because lending
opportunities to the oil
and gas sector dried up
• MPR is still 14% and with
Treasury bills averaging
about 15%, the financial
and monetary policy
trends will continue to
2019

Nigeria’s New Minimum Wage is a Big Deal in 2019!
• The current agreed minimum wage of N30,000.00 is 67% increase on the
previous N18,000.00.With decreasing revenues from oil, Government will
struggle at all levels to implement a 67% rise in the current minimum wage
• And with Government (National and Sub- National) being the single largest
employer of Labour in Nigeria, the cost of governance on the recurrent budget
level will rise significantly.
• In 2018, Nigerian State Governments needed a N1.91trillion bailout from the
Federal Government to pay several months of worker salary arrears and even
after the bailout many are still owing many months of unpaid salaries and
pensions.
• Most Nigerian State Governments apart from Lagos and Rivers will struggle to
implement the new N30,000.00 minimum wage. And even for the two states, it
will stretch their recurrent expenditure line and put more pressure on their
internally generated revenue drive. Expect the state governments to institute
aggressive revenue generation policies to address the funding requirements
for implementation of the minimum wage and their 2019 deficit budgets.
• Implementation of the new minimum wage is expected to impact on inflation
and general prices of goods and commodities and by extension the cost of
living and even doing business in Nigeria.

• N4.04 trillion (50.31% of the 2019 Nigerian budget) has been earmarked
for recurrent expenditure an increase of 15% and N900 billion over 2018
budget to provide for the increase in minimum wage as agreed by the
federal government and Labour unions.
• Funding close to a trillion Naira increase in 2019 recurrent budget is a
major challenge that the managers of Nigeria economy will face
implementing the 2019 budget.
• Many Government employers may need to review workers compensation
and many may also have to ‘rightsize’ their workforce to pay the new
minimum wage
• It is estimated that the current inflation rate of 11.5% may jump to 13% in
2019 as a result of a combination of factors that include the increase in the
National minimum wage, anticipated upward review of electricity tariffs and
likely subsidy removal with attendant impact on pump prices of petroleum
products.!
• Certainly the average Nigerian is likely to pay more for goods and services
in 2019. Whether they will also earn more to do so is what is not so
certain.

• Without doubt the Nigerian Government will also spend more on its recurrent
budget line in 2019 but whether it will earn more to do so is very doubtful.
• The attendant effect is on the size of the 2019 deficit budget for government
at all levels especially the recurrent expenditure lines at the expense of their
capital expenditure budgets.
• Failure of Government to implement the agreed N30,000.00 will lead to fresh
Labour strikes and the resistance of many state governments to the new
minimum wage at the negotiation stage may have signposted the challenges
ahead for its implementation by states in 2019.
• And expect many more Labour union lock outs and strikes as many
professional Labour unions embark on Labour protest to domesticate the
implementation of the new minimum wage. The usual suspects include
academic, health care, oil and gas unions and other very well organized
Labour groups in the strategic sectors and exigent services of Nigerian
economy.
• The Labour union crisis in 2018 is the prelude to an Industrial-Labour relation
crisis that may envelope Nigeria in 2019 depending on how government and
organizations manage the fallouts from the new minimum wage.

Nigeria’s Increasing Debt Profile is a Ticking Economic Time Bomb!
• The increasing debt profile of Nigeria occasioned by the depletion of
the oil revenue base has multiple impacts on the Nigerian economy
in the short-long term.
• The Nigerian Government owes Oil marketing companies in Nigeria
over N800 billion in subsidy payments.
• The Debt Management Office (DMO) had put the country’s total debt
stock (Federal and States) at N22.38trillion ($73.21 billion as at June
30, 2018).
• Eighteen (18) states in Nigeria have debt profiles that exceeded their
statutory revenue by more than 200%.
• Nigeria’s debt to GDP ratio is about 19 percent in 2018 whilst it’s tax-
to-GDP ratio is 6 per cent – the lowest in Africa.
• The current debt service to revenue ratio which currently stands at
over 40 per cent is on the high side with the implication on the
country’s capacity to deliver infrastructure investment.

Increasing Debt Profile of Nigeria Will Put Pressure on the Economy!
• The relatively higher budget of N2.26 trillion provisioned for debt
servicing (which is 3% higher than 2018 figures) as against the
N2.031 (which is 29% lower than 2018 figures) trillion meant to be
expended on capital expenditure is a clear indication of the impact of
Nigeria’s debt on the local economy in 2019.
• Apart from the burden of inter-generational debt problem Nigeria’s rising
debt profile poses, the burden will additionally put pressure on
Government’s ability to even pay its local contractors and meet its
statutory budget financing obligations.
• There are huge implications for the private sector organizations that
services government or that are in Public Private Partnership agreement
as Government may struggle with meeting its obligations in 2019.
• The Private sector organizations in partnership or concession
agreement with the Government may have to look outside of
Government to finance their business development and growth plans.
• Partnerships and collaborations with local and international investors
may be the way to go for funding of Government obligations in PPP
arrangements in 2019.

Nigeria Non-Oil Economy Development and Growth
• The development of the Non-Oil sector revenue sources still
holds the best prospect for the deliverance of the Nigerian
economy from another round of economic recession.
• Nigeria’s economy recorded slow growth in Q2 of 2018 as the
oil sector contracted by 3.95% compared to 14.77% growth in
the first quarter and 3.53% year-on-year.
• For the first time since the exit from recession, growth was
driven by the non-oil sector which grew by 2.05%, the
strongest growth since the first quarter of 2015.
• The sector that contributed to this growth included
transportation (road, rail water and air), which grew by 21.76
per cent, followed by construction (7.66 per cent) and electricity
(7.59 per cent).
• Other non-oil sectors that drove growth in the second quarter
include telecommunications (11.51 per cent), water supply and
sewage (11.98 per cent) and broadcasting (21.92 per cent).

• The Federal Inland Revenue Service (FIRS) total revenue generation
through taxation in the first half of 2018 was N2.43 trillion. This was
against the backdrop of N5.085 trillion target set for 2018
• This was an increase of N499.2 billion in revenue collection
performance of the FIRS when compared to the total collection of
N1.94 trillion for the corresponding period last year.
• Whilst the growth is commendable, it is still insufficient to help fund the
humongous revenue drive of the Federal Government.
• The tax net of the FIRS will still need to be expanded to bring in
different taxable sources that are not covered. But the 2019 target will
face massive performance challenge from anticipated declining returns
in economic and business performance.
• The Non-Oil export sector therefore holds the brightest prospect for
growth within the Non-Oil sector revenue generators.
• Exports of agricultural products in the first quarter grew by 63.84 per
cent in 2019.

• The Nigerian Export Promotion Council (NEPC) has targeted a growth in the
Non Oil export revenues for Nigeria from $1.2bn in 2016 to $8bn in 2019 and
eventually $25bn by 2025.
• The NEPC intends to achieve this significant jump in Non-Oil revenues through
its signature Zero Oil strategy.
• Unfortunately the lofty and ambitious targets of the NEPC for Non-Oil exports
has not been matched with commensurate institutional zeal in the 2019 budget
going by the relatively frugal budgetary commitment to growing the Non Oil
economic sector in 2019.
• The 2019 budget has a paltry provision of N73.12billion to support the industry,
trade and investment sector when compared to the $1 billion provision made
for Oil subsidy. The breakdown of the N73billion planned budget is as follows;
N42 billion
for ongoing and planned
Special Economic Zone
Projects across the
geopolitical zones to
drive
manufacturing/exports
N15 billion
to support
Recapitalization of
Bank of Industry
(BOI) and Bank of
Agriculture (BoA)
N10 billion
provided as a grant
to BOI to subsidize
interest rate charged
on loans to SMEs
N5.12 billion
of tax credit to support
export via the Export
Expansion Grant
N1 billion
for Industrial Policy Reforms and
Enabling Business Environment

Macro and Micro Monetary and Financial Polices
• With a stable CBN MPR policy at 14% in 2018 the domestic
lending rate of Banks consequently hovered around 25-30% and
understandably such rates are unsupportive of efficient business
operations and growth. This trend will likely continue in 2019.
• Banks’ credit to the domestic economy declined marginally by
0.4 percent during the same period.
• CBN injected $26.765 billion into the interbank segment of the
foreign exchange (forex) market since it started its forays into
the market in February 2017.
• Keeping the current rate of the Naira to the dollar will be
seriously challenged as the CBN’s policy of using the reserves
to defend the Naira will be under massive scrutiny in the face of
depleting National reserves in 2019.
• Data from the National Bureau of Statistics (NBS) revealed that
value of Non Performing Loans (NPLs) in Q3’18, increased by
N400 billion or 21% to N2.3 trillion from N1.9 trillion in Q2’18.

• An emerging Human Capital and operational management trend in financial
services sector was the rise in the population of contingent (non full time) staff
employed by Banks in Nigeria in 2018.
• The number of banks’ contract staff according to NBS rose by 1.0 percent to
44,484 in Q3’18 from 43,955 in Q2’18 and up by 66 percent when compared to
27,032 in Q3’17.
• This trend may continue in 2019 with attendant implication for loss of full time
job roles as more banks explore cheaper contingency manpower resourcing
model to achieve operational and cost efficiency.
• The following two events in 2018 exceptionally sign posted the strategic
prognosis for the banking industry in Nigeria in 2019:
1. The first was the takeover of Skye Bank by AMCON and subsequent revocation
of its license and renaming as Polaris Bank
2. The second was the announcement of the merger of Access and Diamond Bank
late in 2018
• Many more banking operators may take a cue from the second event to
explore mergers and acquisitions growth strategies as operators leverage
opportunities to consolidate and control the financial services market share in
Nigeria.Nigeria 2018 Review and 2019 Outlook 28

• Also CBN’s decision to allow telecoms operators access the mobile money license in
Nigeria is a big game changer that will transform the financial services sector in
ways we have not seen.
• The big gainers are the Telcos who are desperate to explore new market niches to
address declining telecoms revenue growth challenges.
• It will also certainly improve the level of financial inclusion at the Base of the Pyramid
for the teeming population of financially excluded Nigerians as was the case with the
success story of mobile money operations in Kenya.
• It will be interesting to see strategic partnerships and alliances between Telcos and
banking operators to gain significant share of the mobile money market in 2019.
• The stock market lost 17.8% or 6,812.69 points as the benchmark market Index,
NSE ASI closed at 31.430.50 points on Monday December 31, 2018 from 38,243.19
points it closed on December 29, 2017.
• Stock market investors lost 13.9% or N1.9 trillion of their investment value,
represented by market capitalization which stood at N11.720 trillion at the close of
trading on December 31, 2018 from N13.609 trillion at the end of trading in
December 29, 2017.
• The dip in the stock market performance in 2018 may not abate in 2019!

Infrastructure Development Deficit Challenge will slow down Economic Growth in 2019
• Three key infrastructural development areas potentially can become the strategic
levers to catalyzing and facilitating the sustainable growth and development of the
Nigerian economy. For the Nigerian economy to thrive in 2019 and beyond the
following three areas that have suffered developmental neglect from successive
governments must receive priority focus from all institutional stakeholders:
1. The Port and Maritime sector
2. The Transportation sector (especially the Railways)
3. The Power sector.
• The Apapa Port gridlock and the carnage it has unleashed on the Nigerian economy
illustrates the social economic impact of infrastructural under development of the
Nigerian Port and Maritime sector. The Apapa Port is the first and biggest seaport in
Nigeria, sitting on about 200 hectares of land.
• Likewise the humongous transportation network and infrastructural challenge Nigeria
and Nigerians are faced with poses a huge challenge to economic activity and
productivity
• The Power sector fortunes are intricately linked to Nigeria’s economic fortunes and
attempts to fix Nigeria’s economy must focus on addressing the debilitating and
cataclysmic state of Nigeria Power sector and the infrastructural development deficit
challenge Nigeria faces to achieve a transformational turn around.

The Economic Hemorrhage and Carnage Caused By Apapa Port Gridlock
• The International Monetary Fund says that maritime operations
contribute 1.4 per cent to South Africa’s GDP, 3.0 per cent to
Kenya’s, but is just 0.05 per cent of Nigeria’s GDP.
• A Lagos Chamber of Commerce and Industry (LCCI) survey in
collaboration with the Nigerian Economic Summit Group and
Manufacturers Association of Nigeria revealed that Nigeria loses
“about N3.06 trillion or $10 billion (about a third of the 2019
budget) on non-oil export and about N2.5 trillion corporate
earnings across the sectors annually to the Apapa gridlock alone
• For instance, 25 per cent of perishable products like cashew,
which was being exported to Vietnam in 2017, rotted away after
overstaying for weeks at the ports.
• From exporting up to 1,700 tons per day, an exporter now exports
between 100 to 250 tons.
• The access roads to Apapa and Tin Can ports were originally
projected to give access to 1,500 trucks, but about 5,000 trucks
seek access to the ports every day now (LCCI).

• The Apapa Port has been listed as one of the most inefficient and
expensive ports in the world. Nigerian Business day citing analysis
done by moverdb.com 2018 showed that:
• Apapa port from New York is the most expensive destination among the
countries included in the analysis.
• For instance, it costs about $4, 982 to ship a 20 feet container from New
York to Apapa, which is about twice the amount to ship a container of the
same size to Cape Town, South Africa (at $2, 542).
• This is despite the fact that New York to Lagos is just 6,516 nautical
miles and takes approximately 27 days for a ship to sail the distance
while New York to Cape Town is 9,097 nautical miles and takes
approximately 38 days to sail.
• Also, the average turnaround time for ships at Apapa is estimated in
excess of 30 days as against just two days for the most efficient ports
globally.
• Interestingly the Apapa Port infrastructure rehabilitation has not
attracted prime policy attention as a priority capital project for 2019
and the nightmares of the gridlock will likely continue.
The Economic Hemorrhage and Carnage Caused By Apapa Port Gridlock

The Under Development Of The Power Sector Is A Draw Back To Nigeria’s Economy
• When the power sector privatization was done in Nigeria, the Government
under its Economic Transformation Agenda had targeted achieving the
generation of 40,000mw of power by year 2020.
• But years after setting the initial of 40,000mw target, the Federal Government
has reviewed and revised the target in its integrated energy mix strategy under
the Electricity Vision 30:30:30 which targets generation of 30 GW in 2030, with
30 per cent from renewable energy sources.
• Rather than achieve incremental progress towards this milestone, Nigeria’s
power supply performance has been abysmal and by the end of 2018 supply
averaged 3,453MW since privatization in November 2013 according to the
Association of Nigeria Electricity Distributors (the umbrella body of the Discos) .
• Nigeria’s privatized power sector lost a total of N487.504 billion in revenues
between January 1 and November 30, 2018 due to constraints which included
shortage of gas, grid unreliability and distribution limitations.
• Data for this period revealed that the average volume of electricity generated
and distributed daily to Nigerian homes and offices was 3,780 megawatts (MW)
per day, while an average of 3,041MW was constrained from getting to
consumers by these limitations.

The under development of the Power Sector is a draw back to Nigeria’s Economy
• These losses are despite over N2.9 trillion investment that has been
injected into the Nigerian Power sector from 2015 to date.
• The Federal Government’s claimed that the economy itself loses over
$29.3 billion yearly with attendant low capacity utilization among
companies due to lack of power. Companies also spend about 40% of
their production cost on generating electricity for themselves
• Another report revealed that power challenges and foreign exchange
difficulties were cited as major reasons 272 manufacturing firms shut
operations in Nigeria in 2016.
• There is no doubt that the Nigerian power sector still requires
substantial injection of Public Private Partnership investment to solve
the myriads of institutional infrastructural development challenges the
sector has faced.
• The sector needs N2.4trn ($8bn) to fix its decayed infrastructure and to
generate the graduated and reasonably achievable milestone of10,000
mega watts

The under development of the Power Sector is a draw back to Nigeria’s Economy
• Due to the massive financial investment outlay required for Power sector
infrastructure development project, the Public Private Partnership model has
been the dominant investment model adopted in funding projects in the
Power sector and will still be the preferable model going forward.
• Understandably the 2019 budget has offered little in terms of the planned
investment into the power sector going by the following budget allocation
lines meant to address Power projects in 2019:
1. N1.02 billion set aside as fund for the Mambilla Hydro Power project
2. N400 million for construction of 215MW LPFO/ Gas Power station
Kaduna
3. N388.5 million for Kashimbilla transmission
4. N398 million for Fast Power Programme Accelerated Gas and Solar
Power Generation
• But sadly the risk factors that have constrained the sector including and not
limited to gas shortages are still largely untamed and may persist to
hamstrung the performance of the sector in 2019. By and large Nigerians
may still have to invest in sourcing privately for their energy sources in
2019.

Reviving Rail Transportation System is Critical To Growing Nigeria’s Economy
• Nothing is more emblematic of the under development of the Nigerian
Transport System post independence than the Nigerian Railways.
• Currently accounting for less than 1 percent of transport services in the
country, rail passengers according to the African Development Bank
declined from 15 million in the mid 1980s to about 1.5 million by 2000 and
most likely about one million in 2007.
• Freight traffic declined from a high of three million tons in the mid-1960s
to 117 thousand tons in 2000. The amount of freight carried by the
railways in 2000 was equivalent to only 0.4 percent of the throughput of
the ports in 2000 and less than 0.1 percent of the throughput in 2010.
• The demise of the Railways has been attributively linked to the massive
destruction of Nigerian road networks due to the compensatory heavy
duty haulage activities through the roads rather than through the rail
tracks.
• The avoidable accident and loss of lives experienced on Nigerian roads
are also not unrelated to the increased vehicular and haulage traffic
through the road channels as the Railways system of transportation that
served Nigerians well totally collapsed.

• Not only are some of the existing rail tracks over 100 years old, most
of them are unsuitable to support a modernized railways system.
• Beyond the obsolete nature of existing infrastructure, it had also
suffered years of institutional neglect and was in a state of abject
disrepair.
• Whilst rail lines only account for 7% of Nigeria’s landmass, they
account for 19% of South Africa’s, allowing for 2.2 million South
Africans to take advantage of their country’s extensive commuter rail
net-work daily.
• The Nigerian government having realized the inclusive economic
development and growth impact transportation plays in the Supply
Value chain economy and especially the catalytic role of Railways in
jumpstarting economic renaissance has embarked on massive
infrastructural development of the Railways in Nigeria.
• Of particular interest to the Nigerian government is the coastal
railway project to link Lagos with Calabar, 1,402 km to the east,
which is expected to be financed with a $12bn Chinese loan.

• With the launch of the West Africa’s first light rail transit recently in
Abuja, connecting the city center to the Nnamdi Azikiwe International
Airport, there is great hope that many more planned projects will soon
be operationalized to open up Nigeria for business and efficient supply
chain management.
• The 2019 budget has a cheering silver lining for the development of the
Railways infrastructure in Nigeria and offers promise also for massive
job creation around the Railway capital projects earmarked for 2019
• The 2019 budget has allocated N80.22 billion for Counterpart funding of
different Railway projects across Nigeria including:
1. Lagos-Kano (Ongoing)
2. Calabar-Lagos (Ongoing)
3. Ajaokuta-Itakpe-Aladja (Warri ) (Ongoing)
4. Port Harcourt- Maiduguri (New)
5. Kano-Katsina-Jibiya-Maradi In Niger Republic (New)
6. Abuja-Itakpe and Aladja (Warri)-Warri Port And Refinery Including Warri New
Harbour (New)
7. Bonny Deep Sea Port & Port Harcourt and other Rail Projects

• In addition, the 2019 budget has allocated N27.12 billion for various
rehabilitation of railway tracks including:
1. Rehabilitation of track from Port-Harcourt to Makurdi
2. Maintenance of track (including emergency recovery, bridge and
culverts repair)
3. Procurement of spare parts (including lubricants) for the locomotives,
coaches and wagons.
4. Kuru to Maiduguri narrow gauge track rehabilitation project
5. Track rehabilitation from Makurdi to Jos to Kafanchan to Kaduna
junction
6. Procurement and rehabilitation of locomotives and rolling stock
Procurement of workshop equipment and rolling stocks
7. Design, manufacture, supply, installation, testing and commissioning
of electric overhead travelling cranes for carriage and wagons
workshop
8. Upgrading of signaling & telecom system on Eastern Line (Port
Harcourt, Maiduguri, etc) including revised estimated total cost for
extension to Western Line

2019 Outlook Impact on Organizational Performance & Effectiveness

2019 Outlook Impacts on Organizational Performance & Effectiveness
1. The expected lull in Oil revenues and decline in global oil prices may worsen the banking sector’s Oil sector
Non Performing Loans Profile and further weaken the operational efficiency and going concern capacity of
weakly capitalized banks in Nigeria. It will not be strange if we see more AMCON interventions in 2019.
2. There will be squeeze on liquidity and access to credit from deposit money banks which may lead to the
maintenance of the lending rates at current levels or its increase in the worst case scenario.
3. The cost of doing business and running organizations may also increase if inflation rises beyond the 2018
figures as predicted. The impending increase in the minimum wage will have a ripple effect on both national and
local cost of living.
4. The Government’s drive to increase non-oil revenues and to compensate revenues loss from oil receipts will
not relent in 2019. The successes recorded by FIRS in the VAIDS scheme and other tax amnesty programs in
2018 are signposts to trends that will continue in 2019 with both the Federal and State Tax authorities.

5. All of these will further increase the cost of doing business and put more pressure on the top and bottom line
performance of organizations.
6. Expect an attendant impact on the cost of goods and services in 2019 and when 2018 cost levels are
maintained, there may be a reduction in quality.
7. CEO’s and Executive Directors with accountability for Corporate performance will face more board scrutiny
and pressure as the demand for corporate performance and efficiency from the board and shareholders
heightens in 2019.
8. Many organizations will struggle with complying with extant corporate governance requirements and heavy
regulatory penalties for corporate malfeasance may increase in 2019.
9. The security challenges facing organizations and individuals may increase with the 2019 elections. This may
also impact on the security management capacity and budget of organizations and individuals.

9. Operating margins will thin out and organizations will seek more ingenious ways of achieving operational
and cost efficiency. The business competitive environment will become more red ocean in nature and
organizations with truly blue ocean strategies will be the winners at the end of 2019.
10. Corporates will struggle with raising money from Public offers and there may also be a dip in shareholder
returns in 2019.
11. Many more businesses may fold up in the course of the year and many investor funds dependent
organizations may struggle to maintain healthy cash flows and treasuries in 2019 due to limited investor
funding that may persist until Q3 2018.
12. The slow process of transition in governance post elections will have an attendant effect on the release of
funds from Government and will impact organizations and businesses who have heavy Government
patronage with the exception of the revenue generating agencies and arms of Government.

13. Also the level of indebtedness of Sub-National Government to businesses and organizations will increase in
2019 and organizations whose customer portfolio is heavily dependent on Government patronage may
have higher Trade Account Receivables balance in 2019.
14. Expect mergers and acquisitions especially in the financial services, downstream oil and gas and
telecommunications sector as organizations seek non-organic strategies to consolidate and grow their
market share.
15. In the downstream oil and gas sector, the sale of the majority stake in Forte’s oil and sale of some other
downstream assets by other downstream operators will reshape the competitive landscape in the sector.
16. Also the Access Bank and Diamond Bank proposed merger may also trigger other Merger and Acquisition
deals in the financial service sector in 2019. The financial services sector space is an interesting one to
watch!

Key Impacts on Human Capital Development & Management

Key Impacts on Human Capital Development and Management
1. Employee macro and micro demotivational and stress factors will increase due to the challenging
outcomes of the economy.
2. Increase in the cost of living will impoverish the economic capacity of the average employee and further
increase their debt burden. The IOU requests from employees to their employers will likely rise in 2019.
3. There will be an increase in employee mental health challenges as many employees struggle with
depressive and suicidal health challenges.
4. Many organizations may embrace cost cutting measures that impact on employees including but not
limited to rightsizing, contingency and project resourcing. Most HR departments may have to deal with
the challenge of improving employee motivation and cutting HR costs in 2019.

Key Impacts on Human Capital Development and Management
5. Labour relations and industrial harmony will be seriously challenged as public and private employers of
Labour struggle with meeting extant requirements on any approved minimum wage and in managing
business restructuring activities with employee severance outcomes.
6. There may be increase in substance abuse especially medically prescribed analgesics, anti
depressants and opioids by employees. The incidence may be higher in organizations with large
population of millennials and young adults as employees struggle to cope with social-economic stress
factors in 2019.
7. Likewise many organizations may also witness increased absenteeism or presenteeism and higher
cost of living not matched by employee economic capacity may lead to more incidence of sickness and
in the long run higher Health Insurance Utilization for many organizations and ultimately increase in
their health budget.

Human Capital and People Management Strategic Options for 2019

1. All organizations should conduct an extensive review of employee satisfaction and motivation to establish a
baseline for managing their people in 2019.
2. Organizations should conduct Cost of Living Adjustment (COLA) review or Compensation surveys to
determine equitable and competitive benchmarks for employee compensation.
3. Organizations should leverage Technology and smart working strategies to achieve operational and cost
efficiency in Human Capital development. These may include the use of E-learning employee development
strategies or deployment of open –free sourced development platforms like Coursera, EDX to drive
employee competence development.
4. Organizations should embrace flexi working strategies, contingent/project resourcing management options to
achieve workforce planning optimization and operational efficiency.

5. Organizations should develop the Mental Health Management capacity of all People Managers and equip
them to better manage workplace mental health issues.
6. Organizations should establish Employee Assistance Programs to deal with mental health issues in the
workplace.
7. Organizations should increase employee engagement, Internal communication and work life balance
initiatives to drive employee productivity and satisfaction.
8. Organizations should exploit innovative non-cash reward strategies to drive employee motivation,
empowerment, productivity and satisfaction.
9. Organizations should strengthen their welfare assistance programs to provide palliatives to employees and
defray their living costs in 2019.

1. 2019 Is A Transition Year For Nigeria And Many Indicators Suggest That It May
Be A Challenging One Economically Globally And For Nigeria.
2. What Does All Of These Mean For You And Your Organization In 2019?
3. What Are The Opportunities That 2019 Present To You?
4. What Threats And Challenges Does The Macro And Micro Social Economic
Environment Pose To Your Business In 2019?
5. What Are The Next Strategic Steps You Want To Take Hereafter?
Final Words
Dr. Olayiwola Oladapo is the Director of Strategy, Advocacy and Stakeholder Relations at Chartered Institute of Personnel Management (CIPM)
of Nigeria, the umbrella body that regulates Human Resources Profession and practice in Nigeria with over 12,000 members.
Contact:
Skype: olayiwola.Oladapo
Twitter: Drolayioladapo
Linkedin: https://bit.ly/2VyXKlo

Nigeria 2018 review and 2019 outlook

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