Nigerian Export-Import Bank March 2015

Economic & Trade Trends

Manufacturing , Agriculture, Solid Minerals and Services Sectors

Global Developments

A slower Q1 growth in the US?

The IMF in its January World Economic Outlook report projected global

economic growth in 2015 at 3.5%, slightly higher than 3.3% in 2014, on

the back of improved consumer spending expected to be spurred by the

savings from lower oil prices. Growth was expected to be led by the US

economy. However, contrary to the IMF forecast, current trends have

shown continued cut back on purchases by households, especially in the

US, where consumers have shown more preference to save. Recent data

showed that US consumer spending, which accounts for more than two-

thirds of US economic activity, fell for a second straight month in Janu-

ary and factory activity and construction spending slowed in the first

two months of the year. This points to a slower Q1 growth with implica-

tions for overall global economic growth.

Contact: strategy@neximbank.com

Global Commodities

Oil prices which averaged $58.19/barrel in February ranged between

$49.08 and $62.21 per barrel, as against an average price of $49.52/

barrel and a range between $47.10 and $56.31 per barrel in January.

Brent Oil price which opened in February at $49.08/barrel, firmed up

amid fluctuations during the month to close at $60.61/barrel as de-

mand slightly rose along with slight improvements in OECD Americas.

We expect the price trend to continue in March.

Prices of most metals contracted in February. Base metals remained

depressed on a steep increase in inventories, especially Copper and

Iron Ore which experienced significant y-t-d price declines of –7.04%

and –12.12%, respectively. Although Gold and Silver declined slightly

on month on month basis, they remained firm year-to-date at 0.39%

and 3.75%, respectively. The precious metals are some of the dollar-

denominated commodities affected by the strengthening dollar which

has been soaring over concerns about the prospects of rising US inter-

est rates.

Most agriculture commodities in our basket had recorded negative

year to date growth with the exception of cocoa and cotton the prices

of which rose 3.41% and 4.90%, respectively. The worst price declines

were recorded by coffee and palm-oil at –11.87% and -11.22%, while

corn and sugar dropped by 7.1% and 3.7%, respectively. On a month on

month basis, all prices were relatively depressed compared to the

trend in January. Cocoa prices fell in the month due to expectations of

improved supply.

Selected Economies 2013(%) 2014 (%) 2015f (%)

World 3.3 3.3 3.5

United Sates 2.2 2.4 3.6

Euro Area -0.5 0.8 1.2

Japan 1.6 0.1 0.6

China 7.8 7.4 6.8

India 5 5.8 6.3

Brazil 2.5 0.1 0.3

Nigeria 5.4 6.1 4.8

South Africa 2.2 1.4 2.1

50

60

70

80

90

100

110

120

05

-Jan

-15

08

-Jan

-15

11

-Jan

-15

14

-Jan

-15

17

-Jan

-15

20

-Jan

-15

23

-Jan

-15

26

-Jan

-15

29

-Jan

-15

01

-Feb

-15

04

-Feb

-15

07

-Feb

-15

10

-Feb

-15

13

-Feb

-15

16

-Feb

-15

19

-Feb

-15

22

-Feb

-15

25

-Feb

-15

Brent Coal

30

50

70

90

110

130

05

-Jan

-15

08

-Jan

-15

11

-Jan

-15

14

-Jan

-15

17

-Jan

-15

20

-Jan

-15

23

-Jan

-15

26

-Jan

-15

29

-Jan

-15

01

-Feb

-15

04

-Feb

-15

07

-Feb

-15

10

-Feb

-15

13

-Feb

-15

16

-Feb

-15

19

-Feb

-15

22

-Feb

-15

25

-Feb

-15

31/12/13=100

Metals

Copper Lead Iron-Ore Gold Silver Tin

Energy Commodities

Agriculture Commodities

Metals Commodities

60

70

80

90

100

110

120

05

-Ja

n-1

5

09

-Ja

n-1

5

13

-Ja

n-1

5

17

-Ja

n-1

5

21

-Ja

n-1

5

25

-Ja

n-1

5

29

-Ja

n-1

5

02

-Fe

b-1

5

06

-Fe

b-1

5

10

-Fe

b-1

5

14

-Fe

b-1

5

18

-Fe

b-1

5

22

-Fe

b-1

5

31/12/14=100

Corn Cocoa Coffee Palm Oil Cotton Sugar

Budget 2015: Senate revises assumptions, to pass budget in March - On February 25, the Senate Committee on Appropriation says it has adopted a lower benchmark oil price of $52/barrel compared to $54/barrel by the House of Reps for the 2015 budget. The Senate also adopted an exchange rate of N190/$, as against $65/barrel and exchange rate of N160/$ earlier proposed by the executives in their last submission to the senate in December 2014. This is in light of the current trends in the oil and foreign exchange markets. The Senate is also set to reduce the recur-rent expenditure to allow an increase in capital expenditure. It is hoped that the Senate will pass the budget in the month of March.

Nigeria signs Article IV agreement with IMF - The IMF in its report released on 27 February commended the Nigerian authorities for the progress in promoting Nigeria’s economic diversifica-tion and for their macroeconomic response to collapsing export prices. They however noted that vulnerabilities remain high in view of the un-certainties about oil price, security concerns, and the political situation. It also agreed that additional policy adjustments and broader structural reforms will be necessary in the period ahead to reconstitute buffers, mitigate risks, and meet pressing development needs. While agreeing that tightening fiscal policy and allowing the exchange rate to depreciate while using some of the reserve buffer were appropriate responses to the recent fall in oil prices, the IMF emphasized that improved budgeting at the States and Local Government levels are critical to effective fiscal management. The report hinged Nigeria’s long term prospects on lower oil dependency and stronger private sector participation in economic activity. The IMF expects the economy to grow at 4.75% on the back of contraction in public investment and domestic demand. This growth pro-jection is however lower than the target of 5.5% in the 2015 FGN budget.

Output Growth Declines Further in Q4, 2014

Nigeria’s gross domestic product grew by 5.94% y/y in the fourth quarter of 2014, lower than 6.23% recorded in the previous quarter and 6.77% record-ed in the corresponding period of 2013. This brings GDP growth in 2014 to 6.22%, higher than 5.45% in 2013.

The non-oil sector remained the key driver of growth during the quarter, growing by 6.44% which is a decline against 7.51% in the preceding quar-ter and 6.71% in the corresponding period of 2013. Growth in the Oil sec-tor however rebounded, albeit slightly, to 1.18% from -3.60% in the pre-vious quarter and -9.36% in the corresponding period of 2013.

Services sector maintained its position as the leading contributor to GDP in Q4 with a contribution of 53.48%, as against 23.86% and 22.66% from agriculture and Industry. However, Industry sector grew faster than the other two sector groups at 7.96%, compared to growth rates of 6.15% in services and 3.64% in agriculture. Pharmaceuticals & Chemicals and Ce-ment were the fastest growing (y-o-y) sectors in Q4 at 32.92% and 32.01% respectively, while Oil refining recorded the worst performance at –25.15%.

Nigerian Export-Import Bank March 2015

Economic & Trade Trends

Manufacturing , Agriculture, Solid Minerals and Services

Domestic Economy

Contact: strategy@neximbank.com

FGN Budget Assumptions 2014 2015

Benchmark Oil Price (US$/Bl) 77.5 52

Crude Oil Production (mbpd) 2.3883 N/A

Average Exchange Rate 160.00 190

GDP Growth (%) 6.75 5.0

4.455.4 5.17

6.77 6.21 6.54 6.23 5.94

-11.4

-16.42-14.72

-9.36

-6.6

5.14

-3.6

1.18

7.44 8.88 8.46 8.788.21

6.71 7.516.44

-20.00

-15.00

-10.00

-5.00

0.00

5.00

10.00

15.00

Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14 Q3'14 Q4'14

Growth Trend: GDP, Oil & Non-Oil Sectors

GDP Growth (%) Oil Sector Growth (%)

Proposal of the Senate Committee on Appropriation

Agriculture, 23.86%

Industry,

22.66%

Services, 53.48%

Contribution to GDP

204.10

140

150

160

170

180

190

200

210

5-Ja

n-15

9-Ja

n-15

13-Ja

n-15

17-Ja

n-15

21-Ja

n-15

25-Ja

n-15

29-Ja

n-15

2-Fe

b-15

6-Fe

b-15

10-F

eb-1

5

14-F

eb-1

5

18-F

eb-1

5

22-F

eb-1

5

26-F

eb-1

5

CBN ($/N) NIGERIAN INTERBANK ($/N)

Inflation

The headline inflation rate in January increased to 8.2% from 8.0% in December

2014. The rise in the Consumer Price Index (CPI) was driven by a six-month high

spike in core inflation at 6.8% as against 6.2% in December, even as food inflation

remained unchanged from the 9.2% recorded in December. The increase is attribut-

able to the pass through effect of the first devaluation of the Naira in November

2014 and persistent volatility in the forex market. The decline in international food

prices however helped to moderate the aggregate price increase. The rate of infla-

tion is expected to remain elevated in the near term, especially in view of the sec-

ond adjustment to the Naira exchange rate value and continued volatility in the

forex market as electioneering progresses.

Money Market

Interest rates increased during the month, reflecting the impact of the liquidity tight-

ening measures undertaken by the monetary authorities. In this regard, overnight

rate grew to 93.13% from 9.25%, while 30, 60, and 90days grew from 13.73%,

15.09% and 16.10% to 15.4%, 16.29% and 17.13%, respectively. The liquidity squeeze

was further exacerbated by the increased outflow of funds as cover for foreign ex-

change. The delays in the passage of the 2015 budget will most likely affect govern-

ment spending and impact liquidity in the system, though increased spending for

political activities will likely mitigate this impact.

Nigerian Export-Import Bank March 2015

Economic & Trade Trends

Manufacturing , Agriculture, Solid Minerals and Services

Sources:: FMDQ, NEXIM SPD

Foreign Exchange Market

Amid higher demand, lower oil revenue and depleting oil reserves, the Central Bank of Nigeria, on 18 February, closed the official

Dutch Auction System (DAS) window, raising the official exchange rate by 18% to N198/$ from N168/$. By this move, the Naira has

lost 25% since the first devaluation in November 2014. According to the CBN, this was necessitated by the widening margin between

the interbank and the rDAS window rates which had engendered undesirable practices including round-tripping, speculative demand,

rent-seeking, spurious demand, and inefficient use of scarce foreign exchange resources by economic agents. Prior to the closure of

the rDAS window, the Naira had significantly depreciated at the interbank and BDC markets to as low as N205/$ and N211/$ respec-

tively by February 11, widening the difference against the official exchange rate by about N37/$. However, following the closure of

the rDAS window, the Naira has stabilized around N200/$ and N215/$ at the Interbank market and BDC markets. As a result, the

moderation in Nigeria’s foreign reserves continued in the month, dropping by 9% from $34.28 billion on January 31 to $31.36 billion

on February 27. The devaluation of the exchange rate has a positive effect in that it raises the value on export revenue and discour-

ages arbitrary importation of goods, however, its negative implication is that it may lead to higher costs, especially of foreign inputs

and raw materials which may put a lid on consumer expenditure. In addition, this may also impact foreign currency positions of finan-

cial institutions. We expect currency pressure to persist until after elections.

Inflation Trends

Contact: strategy@neximbank.com

65.96

93.13

10.920.0

20.0

40.0

60.0

80.0

100.0

31

-De

c-1

43

-Ja

n-1

56

-Ja

n-1

59

-Ja

n-1

51

2-J

an

-15

15

-Ja

n-1

51

8-J

an

-15

21

-Ja

n-1

52

4-J

an

-15

27

-Ja

n-1

53

0-J

an

-15

2-F

eb

-15

5-F

eb

-15

8-F

eb

-15

11

-Fe

b-1

51

4-F

eb

-15

17

-Fe

b-1

52

0-F

eb

-15

23

-Fe

b-1

52

6-F

eb

-15

%

O/N 30 DAYS 90 DAYS 180 DAYS

Nigeria Inter-Bank Offered Rate

The Domestic Economy

31.36

198

110.5

160.5

210.5

25.0

29.0

33.0

37.0

31-D

ec-1

403

-Ja

n-1

506

-Ja

n-1

509

-Ja

n-1

512

-Ja

n-1

515

-Ja

n-1

518

-Ja

n-1

521

-Ja

n-1

524

-Ja

n-1

527

-Ja

n-1

530

-Ja

n-1

502

-Feb

-15

05-F

eb-1

508

-Feb

-15

11-F

eb-1

514

-Feb

-15

17-F

eb-1

520

-Feb

-15

23-F

eb-1

526

-Feb

-15

$'Bn

Reserves Official Rate

Foreign Exchange Vs Reserves Movement

7.7 7.8 7.9 8 8.2 8.3 8.5 8.3 8.1 7.9 8 8.2

9.2 9.3 9.4 9.7 9.8 9.9 10 9.79.3 9.1 9.2 9.2

7.26.8

7.5 7.78.1

7.16.3 6.3 6.3 6.3 6.2

6.8

5.0

6.0

7.0

8.0

9.0

10.0

11.0

Feb

Ma

r

Ap

r

Ma

y

Jun

Jul

Au

g

Sep

Oct

No

v

De

c

Jan

%

Foreign Exchange Market Trend

Disclaimer Whilst reasonable care has been taken in preparing this document to ensure the accuracy of facts stated herein and that the information, estimates and opinions also contained herein are objective, reasonable and fair, no responsi-bility or liability is accepted either by NEXIM or any of its employees for any error of fact or opinion expressed herein. No reliance should be placed on the accuracy, fairness or completeness of the information contained in this report as it is based on secondary information. All information and opinions set forth in this document con-stitute the analyst(s) position as at the date of the report and may not necessarily be so after the report date as they are subject to change without notice. This document is for information purposes only and for private circulation. No portion of this document may be reprinted, sold or redistributed without the written consent of NEXIM BANK. The report is available primarily electronically.

March 2015

Contact: strategy@neximbank.com