BUSINESS OUTLOOK 2019: 6 SECTORS TO WATCH

Dear Subscriber,

The Year 2018 was quite eventful on the global scene, with the #MeToo Movement, historic meeting between Donald Trump and North Korea, Trade War with China, Brexit negotiations and Khashoggi murder dominating global discourse.

On the domestic scene, Nigeria’s rebound from the recession slowed down in the last quarter of 2018 based on dwindling revenues as well as late implementation of the budget. The imminent election dominated the news most of last year and it is expected that whilst the politicians continue to bicker in Q1 2019, the economy will suffer.

It is however not all gloomy for Nigeria in the year 2019, as the International Monetary Fund projects growth of 2.3% buoyed by expected stability in oil revenue.  As is our tradition, we now take a critical look at some important sectors of the economy and how they might fare in 2019.

AGRICULTURE

Agricultural activities in the North-Central and North-East of Nigeria continue to be disrupted by insecurity and displacement. Nearly two million people remained displaced in North-East Nigeria, and the recurring herdsmen crisis in the North- Central contributed to the sluggish growth of the agricultural sector in the year 2018.

However based on specific Government policies like the establishment of the Staple Crop Processing Zones Authorities, CBN’s Anchor Borrowers Program and Promotion of State Led Crop Specialization, Nigeria’s Agricultural Sector remained a key investment destination and this is expected to be sustained in 2019. Also contributing to increased investment in this sector are private driven initiatives like FarmCrowdy, Pork Money and many more, who with the aid of technological tools have been able to spike the interest of the young and upwardly mobile crowd in the Agricultural sector.

It is expected that Government intervention and support will be key to unlocking agricultural potential and eliminating the structural problems affecting the sector. It is also expected that this sector will see increased participation and investment in the New Year and looks promising to retain its position as a key driver of the economy.

OIL AND GAS

The failure to pass the Petroleum Industry Bill for the past 17 years remains one of the dominant reasons for the perpetual stagnation of this sector despite being the key revenue earner of the country. To aid the quick passage, the bill was split into four areas i.e fiscal, governance, revenue management and host community aspects but controversy has always dogged the law due to concerted efforts by various groups to preserve their interests.  The fiscal component of the bill was sent to the president in early 2018 but he withheld assent citing constitutional and legal concerns.

On a positive note Nigeria’s crude oil output was constant most of 2018 averaging 1.93 mb/d due majorly to reduced restiveness in the Niger Delta. Another positive news is the completion of the Egina FPSO which has a capacity of 200,000 barrels a day and is expected to commence operations in by Q4 2019. Engineering Procurement and Construction works also continue at a frenetic pace on the widely acclaimed Dangote Refinery which is expected to refine 650,000 barrels of crude oil per day. However unverified reports state that the projects much publicized completion date of 2020 is unrealistic and looking more like late 2022.

Investment in Nigeria’s oil and Gas Sector is expected to grow in 2019 but may be hampered by unstable oil price, heightened security risk, and legislative uncertainty.

MANUFACTURING

The Manufacturing sector experienced increased activity in the year 2018 majorly due to the stability of the exchange rate which was buoyed by the CBNs vigorous defence of the Naira. It is unclear if the apex Bank would be able to sustain this tempo in the year 2019 owing to dwindling oil revenues and the possible exit of the Central Bank Governor in July 2019 after completing his 5 year term.

Indicators point to higher inflation and exchange rate instability in 2019 and this will have a negative effect on the manufacturing sector. The outcome of the election and the fate of the CBN Governor will have a strong role to play in how this sector evolves in the year 2019. Also impactful will be the expected hike in wages which will increase the purchasing power of the citizenry and also spike inflation.

ICT SECTOR

Statistical reports show that Nigeria has a rapidly expanding youthful population of over 42 million youths and technology plays a significant role in their lives. The effect of this is that millions of Nigerian youths are beginning to deploy technology to solve everyday problems and this has positioned them for better opportunities.

This sector continues to transform lives and has contributed significantly to the GDP of the country and this is expected to be ramped up in the year 2019.  The world has also taken note of the activities going on in this sector and investors are currently vying to invest in Nigeria as witnessed with funding received by a host of tech companies in 2018 e.g Paga, Flutterwave Andela, etc The ICT space dominated in terms of FDI inflows in 2018 and this is expected to increase in 2019.  

FINANCIAL SECTOR

The implosion of Skye Bank in September 2018 and the acquisition of Diamond Bank by Access Bank in the last quarter sent shock waves across the Financial Sector in the midst of a turbulent year for most Financial Institutions. Whilst it is expected that the merger, which remains subject to shareholder and regulatory approvals, will create Nigeria and Africa’s largest retail bank by customers, the scenarios however starkly shows the fragile state of most Nigerian banks and investors are keenly watching to avoid surprises.

Good news is that the Naira remained stable most of the year due to CBN interventions amidst the turbulence that visited most emerging market currencies e.g.  Russian Rubble, South African rand Mexican Peso etc. This stability is however threatened by falling oil prices and a supply cap on the country’s oil production by the OPEC.

It is expected that the CBN continues its interventions in both Currency and Banking Regulatory fronts, as any failure would lead to a systemic crash which Nigeria cannot afford.

ENTERTAINMENT

2018 was an amazing year for the entertainment sector as it witnessed a 25.5 per cent growth amounting to $3.8 billion, many thanks to the growing smartphone and internet penetration in the country (PwC Report).

Several Nigerian movies earned blockbuster revenues in the year 2018 e.g Merry Men (N230 million), King of Boys (N100 million), The Ghost and the Tout (N80 million), Moms at War (N65 million) and Royal Hibiscus Hotel (N59 million).

The Nigerian music sector also experienced a boom as musicians made money from performing and hosting live gigs, brand endorsements, ring back tones, mobile streaming and music licensing. They have also made their way into the international music scene collaborating with some of the biggest names in the business.

As the country continues to battle the dwindling oil revenues, Nigeria’s entertainment sector is expected to become a very relevant piece of the country’s economic puzzle.

CONCLUSION

The potentials of Nigeria are boundless, there are challenges no doubt but the country cannot be ignored because of its mostly youthful population, land mass and natural resources. China and India are already onboard despite the apparent challenges and other investors are taking notice. Now is the time to make that foray before the competition gets stiff.