A few good wins and a final lap in 2018

Although at a slow pace, inflation experienced a downward trend this year. The positive base effects against the monthly baskets in 2016 played a major role in the steady slowdown; improved fx liquidity also contributed and this was particularly visible in the trend of imported food prices. However, general food price inflation remained stubbornly high throughout the year, notably due to poor infrastructure, insecurity in the northeast and a pick-up in food exports.

A success story for which the CBN has been applauded is the boost in liquidity in the fx market. The CBN adopted a multiple currency practice (MCP) approach in Q1 2017. There are separate sales at different rates to banks (for invisibles for retail), to banks (for importers on a wholesale basis), to banks for portfolio investors and exporters (NAFEX), to SMEs and to bureaux de change (BdC). This approach is having far greater success than the market had anticipated.

Reserves have picked up significantly on the back of improved fx liquidity; the CBN’s MCP approach has brought with it an increase in reserves of US$4.65bn. However, the inflows are not all autonomous portfolio monies. Reserves at end-November covered 13.4 months’ merchandise imports.

On a sectorial basis, the Buhari-led government has recorded good successes in agriculture, power generation, mining, security and its social investment packages. The narrative on agriculture is gradually changing, and the sector can now plausibly be seen as the economy’s new backbone. Over the past eight quarters, agriculture has posted uninterrupted growth. In Q3 2017, it grew by 3.1% y/y. The FGN’s import substitution strategy and related incentives have produced some positive results, and the evidence can be seen in new investments in rice, sugar, fertiliser and cassava farming. However, the sector is not yet performing at its full potential.

Rice consumption has risen to 7.9 million metric tons per year (mmt/y) while production has risen to 5.8mmt from 5.5mmt. The increase in rice production is partly linked to the anchor borrowers programme (ABP) which is expected to empower over 10 million farmers. Under the programme, states such as Kaduna, Kebbi, Jigawa, Ebonyi and Cross River have been able to boost cultivation. Some new developments in the rice segment include the new WACOT rice mill located in Kebbi State with a milling capacity of 120,000mt. It is expected to engage at least 50,000 farmers over the next few years. Also worth mentioning is the inauguration of the Amarawa rice mill in Kano State with a capacity of 288mt per day.

Chinwe Egwim
Macro Economist & Fixed Income Analyst at FBNQuest Capital

Source: The Guardian, 25 December, 2017.
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