BUSINESS OUTLOOK 2020

The start of a new year is usually heralded by optimism about the future. The new year seems full of possibilities and there are many plans and to-do’s ready to be executed.

As we wrap up festivities and we start the journey of a new year, it’s reasonable to keep in perspective the previous years and use that as a basis of forecasting the new year.

As is our custom, we now bring to you our analysis of major events that shaped business in 2019 and from which we make a rational forecast of what 2020 portends.

Introduction

On the world scene, 2019 seemed to be a year of disputes and protests, people from Latin America to the Middle East took to the street to protest the unequal spread of wealth and demand that governments end austerity; a trade war between the United States and China is reshaping globalisation; Looming Brexit took its toll on Europe; Tensions were at boiling point in the Persian Gulf and North Korea etc.

All of these impacted growth negatively in 2019 and in other to avoid a recession many central banks began to loosen monetary policy, with the USA and China providing additional stimulus as well.

On the African scene a new economic bloc was born when 54 nations came together to form the Africa Continental Free Trade Area (AfCFTA). The aim of the bloc is to increase trade between nations by tearing down trade barriers – in the hope of becoming the next European Union.

The AfCFTA comes into effect this year and could mean the dawn of new reality for the countries in the sub-region. It is expected that the fundamental weaknesses in intra-African trade as well as existing regional treaties and arrangement would challenge the success of the AfCFTA.

In Nigeria it was an election year which made things kick off rather slowly and the biggest news was the closure of Nigerian land borders to tackle illicit trade and strengthen security in the country.

Whilst the move has been widely condemned and described as a shortcoming to the ECOWAS and Africa trade pact, Nigeria said it raked in N5 billion daily as a result of the closure and insists on keeping it closed until its concerns are addressed.

SECTORAL ANALYSIS

Let us Examine how some selected sectors fared in 2019 and what the future holds

Banking Industry

From the Regulatory perspective the biggest news in 2019 was the CBN’s release of a circular mandating an increase in banks’ minimum Loan Deposit Ratio requirement to 65.0% from 60.0%, with a compliance deadline of 31 December 2019.

The directive is targeted at stimulating domestic economic growth by igniting bank lending and to underscore it seriousness the Apex Bank had gone ahead to penalize erring Banks.

The past year also witnessed explosive growth in the eight areas identified by the International Organisation of Securities Commissions (IOSCO) as constituting FINTECH: payments, insurance, planning, trading and investments, blockchain, lending/crowdfunding, data and analytics, and security

In recognition of the new reality of FINTECH, the CBN has issued a Draft of New CBN Licensing Regime for Payment Service Providers which proposes a licensing regime for Payment Service Providers and FinTech Companies.

It is reasonable to forecast that in 2020 the CBN directive on loans to deposit significantly increases credit to private sector, creating jobs, and spurring tax revenues. Also the opening of the banking space to FINTECH increases financial inclusion and reduces cost of doing business in Nigeria.

Agricultural Industry

Nigeria’s agricultural export sector experienced strong growth in 2019 according to reports by the National Bureau of Statistics (NBS) which shows that the various policies introduced by the current government, some of which were vigorously implemented last year have started yielding results.

Some of the policies which has started yielding benefits include:

Anchor Borrowers Scheme

The Anchor Borrowers’ Programme, which was launched on November 17, 2015, is a CBN driven initiative meant to drive self-sufficiency in major crops like rice and wheat. So far it has proved a successful model and has greatly increased Nigerian food production capacity  

Border Closure

On the 20^th of August 2019, Nigeria closed its land borders to tackle illicit trade and strengthen security in the country. Despite the wide criticism of the move, Nigerian Farmers are smiling to the Bank, this is especially true for Poultry and Rice Farmers.  

It is expected that sustained government intervention to make peace reign in some parts of the country especially in the North-East region, where agriculture is their main business will help boost domestic agriculture production and bridge the demand-supply gap in Nigeria in 2020. In addition, the various interventions on the part of the Central Bank of Nigeria (CBN) to enhance output in the agric sector is a major reason why experts believe that the sector will further boost GDP growth in the coming year.

Transportation

Part of the major policies that shaped the automobile industry last year was the closure of the land borders to avert the smuggling of goods, particularly used vehicles that has ultimately hurt the domestic automobile market.

Also important is the rise of the ride-hail market which saw a flurry of investment and expansion by industry players like Uber, Bolt and also saw the aggressive drive for market share by Oride, Gokada, Max etc

Another important factor is the gradual growth of rail infrastructure in Nigeria. With the planned completion of the Lagos-Ibadan standard gauge, Nigeria looks set to witness economic boom. Aside from massive movement of passengers, there would be movement of petroleum products and this would reduce the influx of articulated trucks across this economic corridor.

In 2020 the transportation sector looks set to witness a boom and revolution as Nigeria continues to march towards an efficient transportation system.

Real Estate

In 2019 limited growth was witnessed by the Real Estate Sector due to lack of liquidity in the market and the myriad of challenges affecting the sector e.g high cost of land registration and titling, knowledge gaps, cost of construction etc.

It is predicted that the Nigerian Real Estate Industry will continue to expand in 2020 with expected investment in infrastructure and housing projects continuing to drive growth. A lot of middle income projects were announced by developers and land values seems to have appreciated.

The Finance bill 2019, recently passed by the National Assembly would play a crucial role in the anticipated growth especially with the exemption of Small Medium Enterprises (SMEs) from the tax net and laws targeted in favour Real Estate Investment Trusts (REITs).

Also, the Ministry of Works and Housing is considering raising a ₦10 trillion National Infrastructure Bond, which is expected to bridge funding gaps for infrastructure and housing construction.

Mining

Despite the abundant solid mineral deposits in virtually every state of Nigeria, the contribution of the mining sector to the Gross Domestic Product is currently less than one per cent. One of the major problems is the small scale miners who often operate illegally and sell to foreign enablers. The combination of poor capacity on the part of the artisanal miners and weak regulations by the government had allowed these foreigners to purchase extracted solid minerals in the black market.

To change this narrative, in 2019 the Federal Government focused its attention on empowering artisanal or small-scale miners and also putting in place a new policy which would require exporters to obtain pre-shipment approvals before taking minerals out of the country.

In addition, the Federal Government has created an enabling environment for investors to come into the mining sector by rolling out a number of fiscal and investment incentives to woo prospective local and foreign investors. They include tax exemptions, duty drawbacks, subsidies, export expansion grants, double taxation reliefs, investment promotion and protection agreements, tax holidays, tax credits, and capital allowances, among others.

The Roadmap for the Growth & Development of the Nigerian Mining Industry 2016 projects an increase in the sector’s contribution to GDP to 10 per cent by 2020. It is our opinion that creating an enabling environment for the private sector would go a long way in achieving this objective.

ICT

2019 brought more global attention to Africa’s tech scene than perhaps any previous year. High-profile IPO, visits by Jack Ma (Alibaba) and Jack Dorsey (Twitter) energized the industry and points toward a lot of good things in the tech space in 2020.

Nigerian tech startups got $663.24 million out of the overall $1.34 billion raised in funding in Africa. The funding, which came in the form of equity, grants/prizes and debt financing, represents 50.5 percent of the total funds raised in the continent.

2019 was also the year when Chinese tech-entrepreneurs focused on the African digital market.  We saw Chinese-owned OPay, the FinTech platform from Opera, secure $120 million Series B investment from Chinese investors.; China’s Transsion which is the largest smartphone seller in Africa also invested $40 million in PalmPay, a relatively new mobile money transfer platform;

With 2020 declared by the International Telecommunications Union (ITU) as the year of 5G, subscribers experience will be a key determinant, and it is expected that the roll out of this technology would impact on the blooming ICT sector in Nigeria.

CONCLUSION

The growth trajectory of Nigeria looks uncertain but promising in this new year.

If Nigeria would achieve growth in 2020, the government would have to make hard, intelligent and far-reaching decisions and take decisive actions regardless of their popularity, or lack thereof.