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Presented by
Oscar N. Onyema (OON), CEO for
Annual Lagos Business School Alumni Conference
Lagos, Nigeria
November 20, 2014
THE NIGERIAN ECONOMY 2014 Trends & 2015 Outlook
Click to edit Master title style | Agenda
1 • Overview of the Nigerian Economy
2 • Our Global Economic Positioning
3 • The Oil Impact
5 • A More Robust Capital Market
6 • 2015 Economic Outlook
7 • The Road to Economic Empowerment
8 • Conclusion: NSE and the Economy
20/11/2014 The Nigerian Stock Exchange 2
Click to edit Master title style | The Nigerian Economy: A True Growth Story
Nigeria today…The largest economy in Africa and the 26th largest in
the world, with a GDP of $510 billion.
Only 14% of GDP is from the Oil sector, with retail and wholesale trade
being the biggest drivers of GDP growth.
Potential to achieve 7.1% annual GDP growth could make Nigeria a
top-20 economy in 2030, with GDP of more than $1.6 trillion.
Source: McKinsey Global Institute (MGI)
Click to edit Master title style |
-20
-15
-10
-5
0
5
10
15
20
25
30
35
1960 65 70 75 80 85 90 95 2000 05 2010
Nigeria’s Recent Stable Growth Environment
Nigeria’s Real GDP Growth1 (%) – 1960 to 2010
After decades of volatility, Nigeria’s economic growth has been more stable since the early 2000s.
Standard Deviation %
1960 – 2002 9%
2003 – 2010 2%
1 . Data are from prior to the rebasing exercise. Rebased data, available from 2010 onward, includes additional economic
sectors, making comparisons unreliable.
Stable GDP Growth Phase
20/11/2014 The Nigerian Stock Exchange 4
Sou
rce:
McK
inse
y G
lob
al In
stit
ute
(M
GI)
Click to edit Master title style | Nigeria’s GDP Rebasing at a Glance
• Following a recently concluded GDP rebasing exercise undertaken by the NBS, with the year 2010 selected as the new base year, the new GDP figures were published on April 6, 2014.
• Accordingly, the estimated size of the Nigerian economy is now at N80.22 trillion ($510 billion) for 2013 compared to N42.39 trillion (~$264 billion) reported pre-rebasing in the preceding year.
• This represents an 89% increase in the reported actual size of the economy as a result of the inclusion of sectors such as telecommunications, aviation, e-commerce and the film industry.
• The services sector has grown to represent approximately 50.2% of the economy, with agriculture’s share of GDP dropping from ~ 40% to ~ 20%.
• Additionally, six sub-sectors (crop production, trade, crude petroleum and natural gas, telecoms and information services, real estate and food, beverages and tobacco) are now responsible for 70% of the nation’s GDP.
• The rebasing dramatically lowers Nigeria’s already healthy debt-to-GDP ratio. Pre-rebasing, this was equivalent to about 22.2% of GDP, but with the new GDP figures, the ratio has fallen to 13.2%.
• The release of the new GDP figures shows that the economy is more resilient and will drive investments in sectors that have now been highlighted as key drivers of the Nigerian economy.
• Compared to South Africa’s market capitalization at 160% of GDP, there is a large upside potential and a lot of room for the growth of Nigeria’s capital market.
Effects of rebasing on Nigeria
20/11/2014 The Nigerian Stock Exchange 5
Click to edit Master title style | Market Cap Sector Gap Analysis - Post Rebasing
• Market cap as % of GDP (PPP) from ~ 40% to ~ 20% post rebasing. South Africa at 160% of market cap-to-GDP. • Immense gap in capital market as a reflection of the real economy.
Market Capitalisation as at 31th March 2014
11% 15% 3%
13% 14%
2%
4% 7%
31%
8%
11% 1% 4%
3% 30% 17%
17%
30%
2%
11%
2%
40% 22%
1%
Pre-Rebasing Post-Rebasing % of Equity Market Cap
100% 100% 100%
Sector Pre-Rebasing
% of GDP Post-Rebasing
% of GDP % of Equity Market Cap
AGRICULTURE
CONSTRUCTION/ REAL ESTATE
CONSUMER GOODS
FINANCIAL SERVICES ICT INDUSTRIAL GOODS
OIL AND GAS
ALL OTHERS SECTORS
20/11/2014 The Nigerian Stock Exchange 6
Click to edit Master title style | Nigeria’s Global Positioning – Post Rebasing
POPULATION 2013 (MM)
MIN
T A
ND
NEX
T 1
1
CURRENT GDP 2013 (USD BN) GDP PER CAPITA (USD) 2013 INFLATION (%) 2013
50.0
73.7
77.2
84.6
90.4
99.4
118.3
150.0
174.5
182.5
237.6
South Korea
Turkey
Iran
Egypt
Vietnam
Philippines
Mexico
Bangladesh
Nigeria
Pakistan
Indonesia
BR
ICIS
$153.6
$170.0
$236.5
$272.2
$275.7
$510.0
$548.6
$821.1
$867.5
$1,198.0
$1,327.0
Bangladesh
Vietnam
Pakistan
Philippines
Egypt
Nigeria
Iran
Turkey
Indonesia
South Korea
Mexico
$1,044
$1,295
$1,896
$2,792
$2,800
$3,213
$3,498
$7,207
$10,744
$11,224
$23,837
Bangladesh
Pakistan
Vietnam
Philippines
Nigeria
Egypt
Indonesia
Iran
Turkey
Mexico
South Korea
1.1
3.3
3.5
5.8
7.2
7.3
7.9
8.4
9.2
11.7
29.6
South Korea
Philippines
Mexico
Vietnam
Bangladesh
Turkey
Nigeria
Indonesia
Pakistan
Egypt
Iran
51.8
143.5
201.0
1,210.2
1,354.0
SouthAfrica
Russia
Brazil
India
China
$384.3
$1,824.8
$2,021.9
$2,695.9
$8,227.0
SouthAfrica
India
Russia
Brazil
China
$1,508
$6,076
$7,423
$13,409
$14,095
India
China
SouthAfrica
Brazil
Russia
2.5
5.3
5.8
6.5
9.9
China
SouthAfrica
Brazil
Russia
India
20/11/2014 The Nigerian Stock Exchange 7
Click to edit Master title style |
61 45 37
26 24 14 11 8 6 4
39 55 63
74 76 86 89 92 94 96
Kuwait SaudiaArabia
United ArabEmirates
Iran Venezuela Nigeria Russia Mexico China Brazil
Resources Others
Million Barrels of Oil Per Day (2012)
Leading Oil Producers – % of GDP for Resources vs. Others
Nigeria’s economy is relatively diversified when compared with other leading oil producers in developing and emerging economies
Nigeria’s Economic Diversification
20/11/2014 The Nigerian Stock Exchange 8
11.7 2.8 3.2 3.6 2.5 2.5 10.4 3.0 4.4 2.7
Source: McKinsey Global Institute (MGI): Nigeria resources refer to the oil sector.
Click to edit Master title style |
Oil Prices – 2007 to 2014
NSE ASI – 2007 to 2014
• Despite the country’s economic diversification away from oil sector, Nigeria remains highly dependent on oil.
• Approximately 75% of federal revenues comes from taxes on the oil and gas sector, and oil and gas makes up more than 90% of exports, providing the critical sources of foreign exchange to support Nigeria’s consumption of imports.
• Additionally, oil revenue ultimately ends up as earnings for individuals, so rising prices contribute to increased consumption and vice versa.
• As the charts on the right illustrate, the capital markets are closely tied to the price of oil.
• The recent downward trend in the NSE ASI in H2 ‘14 can be attributed to the decline in oil prices, amongst other factors.
$20$40$60$80
$100$120$140$160
Jan
-07
Jul-
07
Jan
-08
Jul-
08
Jan
-09
Jul-
09
Jan
-10
Jul-
10
Jan
-11
Jul-
11
Jan
-12
Jul-
12
Jan
-13
Jul-
13
Jan
-14
Jul-
14
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
Jan
-07
Jul-
07
Jan
-08
Jul-
08
Jan
-09
Jul-
09
Jan
-10
Jul-
10
Jan
-11
Jul-
11
Jan
-12
Jul-
12
Jan
-13
Jul-
13
Jan
-14
Jul-
14
Our Indirect Dependency on Oil
20/11/2014 The Nigerian Stock Exchange 9
Click to edit Master title style | Our Market is More Resilient
2005 Regulatory Innovation • Digital investor
services
• Easy access to loan facilities
2007 Modernization • Modern electronic
trading facilities
• Significant inflows into the capital market
2009 Crash • Macroeconomic
instability
• Low financial literacy and market discipline
• Inadequate regulatory framework
• Poor governance
• Lack of liquidity
• SEC intervention
2011 Reforms and Beyond • Greater regulatory
oversight
• Product diversification
• Investor education
• Technology
• Improved market structure
• Business development services
• Revised listing rules; amended issuer and broker/dealer rules and penalties
• Information and data
The recent down turn in the NSE ASI in H2 ‘14 cannot be compared with the Global Financial Crisis.
The Nigerian capital market has undergone a transformation of great proportions.
20/11/2014 The Nigerian Stock Exchange 10
Click to edit Master title style | 2015 Nigerian Economic Outlook
Economic Growth
• Projected GDP growth of above 7%, which is not far-off from historical growth patterns of the Nigerian economy over recent years.
• Oil production expected at 2.25 mbpd in 2015. • Positive Government initiatives to continue - increasing power generation, financial
inclusion, agricultural transformation, and strengthening fiscal discipline.
Election Season
• The International Monetary Fund, IMF, has said that increased focus on campaigns towards 2015 elections is one of the factors likely to divert the world’s attention from issues that would promote the growth of Nigeria’s economy.
Impact of Global Forces
• Retail investors to compose a higher percentage of trading activity on the NSE as smart money pulls out.
• Increased competition from LSE and JSE for Nigerian companies to list. • African exchanges index performance sustainability is in question due to declining
commodity prices, including gold and oil.
Fiscal Policy
• Continued improvement in the banking system may lead to increased lending to the real sector (SMEs).
• Government committed to maintaining fiscal stability. • External reserves expected to remain an issue as commodity prices fall, while the
CBN continues to support the naira.
20/11/2014 The Nigerian Stock Exchange 11
Click to edit Master title style | The 8 Necessities of Economic Empowerment
Basic Services
Food
Energy
Housing
Drinking water
Sanitation
Health care
Education
Socialsecurity
Insurance to cover income loss based on 2% premium-to-coverage ratio
Daily consumption of 2,100 calories for an adult urban male (2,400 for rural male)
Access to primary and secondary education (or vocational training)
Access to primary care, limited secondary care, and medication, including HIV/AIDS treatment
Improved sanitation facilities that are not shared with other families
60 (rural) or 120 (urban) liters per capita per day of piped water supply
Access to sustainable housing of solid construction
Access to clean cooking fuel, electricity for lighting, petroleum for transportation (in amounts to meet minimum consumption levels)
Nigeria will need to focus on specific areas of empowerment to reach its full economic potential.
20/11/2014 The Nigerian Stock Exchange 12
Sou
rce:
McK
inse
y G
lob
al In
stit
ute
(M
GI)
Click to edit Master title style | The Case for Large-Scale Impact In Nigeria
Agriculture
Power
Transportation
Housing
1.5 2.5
4.2 4.4 5.7
58 175
592 880 670
21
101
21 30 40
0.4
1.9
0.4
1.8
0.2
7 19
30 17
30
Key Metric Benchmarks
Maize yield, tonnes per hectare
Megawatt generation capacity per million people
Kilometres of road per 100 square km
Kilometres of rail per 100 square km
Houses per 100 people
Nigeria India Brazil South Africa
China
Nigeria has performance gaps relative to peer developing economies across major sectors. The country trails other countries on many performance metrics. In agriculture, for instance, yields are far below levels in benchmark countries, and Nigeria has one-third of India’s power generating capacity per million people and less than one-tenth of China’s.
20/11/2014 The Nigerian Stock Exchange 13
Source: McKinsey Global Institute (MGI)
Click to edit Master title style | An Opportunity for Growth Inclusiveness
0.52
0.32 0.30 0.30
0.25
0.15
0.05
0.00
0.10
0.20
0.30
0.40
0.50
0.60
Indonesia Botswana South Africa Mexico Ghana Brazil Nigeria
% Point Reduction in Poverty for Every % of GDP growth, 1999–2010
Other rapidly growing countries have successfully converted economic gains into lower poverty rates. Nigeria has a significant opportunity to increase growth inclusiveness as well.
20/11/2014 The Nigerian Stock Exchange 14
Source: McKinsey Global Institute (MGI)
Click to edit Master title style |
20/11/2014 The Nigerian Stock Exchange 15
Conclusion: Our Role in the Nigerian Economy
The NSE plays a vital role in the Nigerian economy by: • Providing a robust capital market infrastructure to enable savings to be funneled to investments; • Providing a price discovery mechanism between supply and demand for listed financial products; • Providing a platform for capital raising – for both expansion and exit opportunities; • Ensuring an orderly, fair and equitable marketplace, and protecting the integrity of the market
and investors; and • Providing an avenue for investors (retail, institutional, domestic, foreign) to create durable
wealth.
NSE TOTAL MARKET CAP
94.74
119.41 115.68
0.00
20.00
40.00
60.00
80.00
100.00
120.00
140.00
2012 2013 Q3 '14
USD
Bill
ion
s 5.20
6.09
4.27
0.00
2.00
4.00
6.00
8.00
2012 2013 Q2 '14
USD
Bill
ion
s
An
nu
alized
FPI
8.54
FPI MARKET ACTIVITY