What factors affect the respective performances of non-oil economic sectors?
ASHADE: The performance of the non-oil economy remains closely linked to hydrocarbons, particularly through foreign exchange, given that oil exports account for the bulk of dollar earnings and the economy remains hugely import-dependent. The performance of the these sectors also relies heavily on public policy that is conducive to enabling businesses to thrive. For example, agricultural strategies, such as the Anchor Borrowers’ Programme and the Presidential Fertiliser Initiative, have paid off. As a result, agriculture has remained resilient, growing by an average of 3.7% between 2016 and 2017, despite a contraction in the broader economy. Clearly, deeper reform across the non-oil sector is required to accelerate growth.
How can local firms raise debt and equity capital?
ASHADE: Broadly speaking, the economy is in a recovery stage, and many corporations are trying to bounce back in terms of revenue growth, investments and stabilising their bottom lines; hence, they need financing. As a result, we have seen companies take advantage of lower interest rates to borrow short-term funds to finance working capital, while others consider corporate bonds. With regard to debt, we should acknowledge that the administration’s weaker appetite for domestic debt has made space in the market for corporate issuers. By the end of the first half of 2018 the market had seen blocks of commercial paper issuances. Even though election activities and policy normalisation in advanced economies point to relatively higher yields in the second half of the year, the central bank’s willingness to buy commercial papers to keep borrowing costs low is a factor to consider. In 2017 corporations raised more than N190bn ($614.3m) of equity due to the high cost of debt. However, lower interest rates and risk-averse sentiment have muted activities in the primary segment of the equity market during the first three quarters of 2018.
How will increased foreign debt issuance impact domestic private sector funding?
ASHADE: In 2017 the administration embarked on a massive spree of eurobond issuances to raise the $4.5bn needed to finance capital expenditure and check the sharp rise in the cost of debt servicing, which was mainly driven by the higher cost of local debt. In 2018, the Ministry of Finance issued another $2.5bn, bringing the total value of eurobonds issued between 2017 and 2018 to $7bn. The government is planning to raise another $2.8bn before 2019 to cover the 2018 budget deficit. If successful, it will tip the debt mix to 62:38, which is very close to the 2019 fiscal target of 60:40; this bodes well for firms that were once crowded out from the domestic debt market.
What reforms could boost infrastructure funding?
ASHADE: A lot of work is needed to unlock the potential of Nigeria’s infrastructure. The announcement of the Economic Recovery and Growth Plan (ERGP) in 2017 was a positive step in this direction, given its focus on investments in energy and transport projects, as well as its building on the work of the National Integrated Infrastructure Master Plan to further open the sector to private spending. Still, a significant amount of political capital is needed to realise the ambitious investment and reform plans set out in the ERGP. The administration has made a lot of effort in this regard as it strives to stabilise the macroeconomic environment and battle insecurity across the country. To help the private sector drive broader growth, the EP stipulated the securitisation of infrastructure spending. This will accommodate the national pension fund, which is growing exponentially with near-zero exposure to such investment. Moreover, we can look to the public-private partnership model adopted by Lagos State.
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