Outline

Section 1 Executive Summary 05

Section 2 Global Macroeconomic and Socio-Political Review and Outlook 18

 COVID-19 Weighs on Global Growth 19

 Global Trade Suffers amid the Pandemic 20

 Global Monetary Policy: Accommodative Monetary Policy to the Rescue 21

 Global Financial Markets: Global Recession but Surprisingly Buoyant Market Returns 22

Section 3 Domestic Macroeconomic Review and Outlook 23

 Nigeria amid COVID-19… A Devastating Setback 24

 Weak Institutional Capacity and Policy Response to the COVID-19 Pandemic 24

 Real GDP: Coronavirus Compels Unprecedented Moderation 26

 Outlook: Increased Activities to Drive Real GDP Growth in 2021 26

 Inflation: Pressures to Persist in 2021 27

 External Balance: Worsens Amidst the Great Lockdown 28

 Foreign Capital… Evaporates on Pandemic Woes 29

 Monetary Policy Review and Outlook 30

 Exchange Rate… A Repeat of 2016 Crisis 31

 Monetary Policy Environment in 2020…Unprecedented Shocks Drive Easing 31

 Monetary Policy Prognosis for 2021… Easing in a Penalty Box 32

 Fiscal Year Review and 2021 Budget Analysis: 2020 Budget Review… COVID-19
Necessitates Salient Adjustments 33

 2021 Appropriation Bill… Burgeoning Expenditure Ambitions, Weak Revenues 33

 2020 Finance Act… Government Revenues to Decline 36

 Socio-Political Review and Outlook: Worsened Poverty and Insecurity Challenges

due to the Pandemic 36

Section 4 Equities Market Review and Outlook 38

 Equities Market in 2020… Search for Alpha Buoys Performance 39

 Nigerian Market Enjoys Attractive Valuation 39

 Activity level… Local Investors Takeover 40

 Sector Performance… ICT Sector Emerges as the Best 41

 2021 Themes and Crystal Ball 42

 Equities Investment Strategy for 2021… The Search for Value Continues 44

Section 5 Fixed Income Market Review and Outlook 46

 Fixed Income Market Review 47

 Nigerian Fixed Income Market Review… CBN Maintains Control of Liquidity 47

 Money Market Segmentation… The New Norm? 48

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 Outline

 Activity Level in the Nigerian Fixed Income Market 48

 Eurobonds Market… Early Jitters Waning Off 49

 Nigerian Fixed Income Market Outlook… Will Yields Remain Subdued? 49

 More Commercial Papers in 2021 50

 Investment Strategy Review and Outlook 50

Section 6 List of Charts, Tables and Figures 52

Section 7 Afrinvest (West Africa) Limited 54

 Contact 55

 Disclaimer 56

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 Section One
Executive Summary

Nigerian Economic & Financial Market Outlook | 2020 Review and 2021 Outlook Page 5
 Executive Summary

The World Bank revised its global growth estimate for 2020 downward to -4.3%
in its Global Economic Prospects January 2021 Outlook, a less severe contraction
than the June forecast and significantly below the 2.3% growth recorded in The World Bank revised
2019. This indicates that the global economy plunged into its worst recession its global growth
since the 2008 financial crisis (-2.0%). This negative performance was driven by estimate for 2020
the outbreak of the novel coronavirus (COVID-19) that led governments over the downward to -4.3% in
world to impose lockdown measures to curtail the spread. The lockdown its Global Economic
adversely affected trade and services, disrupted supply chains, increased Prospects January 2021
unemployment and weakened economic activities.
Outlook, a less severe
According to the World Bank, global growth is projected to expand by 4.0% in contraction than the
2021 given that the spread of COVID-19 is limited through effective vaccination June forecast and
and proper pandemic management, economies are reopened, oil prices and significantly below the
demand rise, as well as continued monetary policy accommodation accompanied
2.3% growth recorded
by diminishing fiscal support. In AEs, growth is expected to recover to 3.3% in
in 2019.
2021 due to the mass distribution of vaccines, and sustained accommodative
monetary policy with the proposed $1.9tn stimulus from Biden’s administration.
The US and Euro Area are expected to grow at 3.5% and 3.6% respectively
underpinned by improved COVID-19 management, an initial vaccine rollout, and
rising external demand. Meanwhile, EMDEs are projected to expand at a faster
pace of 5.0% based on firming external demand and better management of the
pandemic, aided by vaccine rollouts. However, the growth primarily reflects
China’s expected rebound of 7.9%, without which recovery across EMDEs is In a similar fashion to
anticipated to be muted as the lingering effects of the pandemic is expected to 2019, the monetary
weigh on consumption and investment. SSA economies are expected to recover policy direction in 2020
at 2.7%, driven by a fast-pace recovery of 3.3% in South Africa. The increasing was largely dovish with
divided in the access to vaccines globally between rich and poor nations dent global systemically
recovery expectations with diplomacy playing a key role in determining which important central banks
developing nation gets access as China and Russia continue to advance their
implementing
interests within developing countries.
accommodative
monetary policy
measures. This was due
to the economic
In a similar fashion to 2019, the monetary policy direction in 2020 was largely
downturn resulting from
dovish with global systemically important central banks implementing
accommodative monetary policy measures. This was due to the economic lockdown measures,
downturn resulting from lockdown measures, which significantly affected which significantly
income levels, disrupted global manufacturing & trade activities, increased affected income levels,
unemployment, weakened investment confidence and consumer spending. Thus, disrupted global
it became imperative for monetary authorities to support growth through manufacturing & trade
reduction in policy rates and the application of other unconventional monetary activities, increased
easing techniques. unemployment,
In the AEs, the US Fed lowered its benchmark rate by 150bps to 0 – 0.25% in weakened investment
March and maintained this throughout the year to support the economy amid confidence and
the pandemic. Additionally, the Fed expanded overnight and term repos, consumer spending.
lowered cost of discount window lending, reduced existing cost of swap lines
with major central banks and extended the maturity of FX operations. In the
European Union (EU), the ECB maintained its interest rate on the main

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 Executive Summary

refinancing operations, marginal lending facility and deposit facility at 0.0%,

0.25% and -0.50% respectively until inflation level sufficiently reaches 2.0%
within the projected horizon. Also, the ECB decided to increase the envelope of
the pandemic emergency purchase programme (PEPP) by € 500.0bn to a total of
€ 1.9tn. The Bank of England reduced its interest rate by 65bps to 0.1% and With the outbreak of
expanded its holding of UK government bonds and non-financial corporate the pandemic, the path
bonds by £450.0bn in three tranches announced in March, June and November. to resetting the
economy became
murkier. The health crisis
and the ensuing security
In our 2020 Outlook report, titled Nigeria in the New Decade: Nothing Ventured; and poverty challenges
Nothing Gained, we had reviewed the performance of the Nigerian economy have further exposed
over the last decade and highlighted critical imperatives necessary to restore the decades of neglect for
nation on the path of prosperity in the new decade. We noted that while human capital
economic performance in the last decade was a tale of two halves with GDP
development.
growth averaging 3.7%, the new decade promises to be better given the
commencement of a reset in the economy and consolidation of reforms across
key sectors. True to this, the decade commenced with traction from the
leadership of the country in favour of curbing subsidies, embracing trade, and
embarking on business friendly reforms. However, there has been no meaningful
traction in restoring fiscal discipline, embracing market approach and raising
agriculture productivity in an era when the world is increasingly transitioning to
a post-carbon economy.

With the outbreak of the pandemic, the path to resetting the economy became
murkier. The health crisis and the ensuing security and poverty challenges have
further exposed decades of neglect for human capital development. We believe
the impact of this pandemic would reverse the marginal gains recorded since the
2016 economic recession, thereby hurting businesses and households. Nigeria
now faces the need to accelerate development in healthcare and education but
We believe the
weak government capacity and lack of policy makes this difficult. Major
economies in the world are queued for vaccines. At $8/person, about $1.7tn challenges of the past
would be needed to vaccinate Nigeria’s estimated 211m people. A sum of would continue to haunt
₦400bn was reported for the vaccination of 70% of Nigerians over 2022 – the Nigerian economy,
representing more than 2 times of the 2021 healthcare capital budget. especially in the near-
Notwithstanding, we believe the pandemic presents an opportunity for the
term if the leadership
leadership of the nation to make choices that would help the economy reset. fails to make the right
The cycle of poor investments in human capital development has to end. In the choices. The inability of
face of severe resource shortages, the fiscal discipline to channel government the government to make
resources to the most critical sectors such as education, healthcare and these choices leave the
infrastructure remains missing. The running costs of the government formed nation on a blurry path
86.1% of revenue in 2010 and was still elevated at 81.8% in the 2021 budget. to recovery.
This also meant that the resources available to invest in priority sectors are
scarce. Also, the present approach to resolving insecurity has not led to
significant improvements across the country while it continues to deter
investments in the agriculture value chain, leaving the nation stuck to
perennially weak growth in the sector. We believe the challenges of the past
would continue to haunt the Nigerian economy, especially in the near-term if
the leadership fails to make the right choices. The inability of the government to
make these choices leave the nation on a blurry path to recovery.

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While Nigeria maintained a slow paced economic growth prior to 2020, the
unexpected impact of the pandemic pushed back the recovery of the economy as
Nigeria went into a recession for the second time in five years. In Q1:2020, GDP
growth slowed to 1.9% y/y, representing the weakest growth since Q3:2018. The
slower growth was due to the partial impact of the pandemic during the latter
part of the quarter. The oil sector expanded 5.1% y/y while the non-oil sector
advanced 1.6% y/y.

Following the gradual reopening of the economy in the third quarter, the pace While Nigeria
of contraction slowed with GDP declining by 3.6% y/y (vs. 6.5% growth in maintained a slow paced
Q3:2019). The non-oil sector fell by 2.5% y/y (vs. 1.9% y/y in Q3:2019) in Q3:2020, economic growth prior
an improvement from the 6.1% contraction in Q2:2020. On the other hand,
to 2020, the unexpected
there was a sharper decline for the oil sector, as it dropped by 13.9% y/y (vs.
impact of the pandemic
6.5% y/y growth in Q3:2019) in Q3:2020 compared to the 6.6% y/y decline in
Q2:2020. The contraction was on the back of the OPEC+ output cut agreement
pushed back the
with the penalty for not complying fully on the initial quota. recovery of the economy
as Nigeria went into a
Given the continued reopening of the economy in the third quarter, we believe
recession for the second
that the worst is over. Consequently, we expect to see better performance in the
time in five years.
fourth quarter. Overall, we anticipate a GDP contraction of 2.9% in FY:2020.
Also, the timely distribution of the COVID-19 vaccine would support a recovery
to positive growth in 2021.
In our view, the
emergence of COVID-19
and the measures which
Since the border closure in mid-2019, FX constraints and supply chain disruptions were implemented in
amid the COVID-19 have seen inflation maintained an upward trend. Headline Q2:2020 added further
inflation advanced for the 17th consecutive month from 11.0% in August 2019 inflationary pressures.
to 15.8% in December 2020, reflecting the increase in food inflation from 13.5% The sharp contraction in
to 19.6% within the same period. In line with the trend, the core inflation also the demand for oil
climbed to 11.4% in December 2020 compared to 8.7% in August 2019. which led to several
In our view, the emergence of COVID-19 and the measures which were adjustment in exchange
implemented in Q2:2020 added further inflationary pressures. The sharp rate, the COVID-19
contraction in the demand for oil which led to several adjustment in exchange disruptions on major
rate, the COVID-19 disruptions on major economic activities such as agricultural economic activities such
sector and the removal of energy subsidies were major catalysts for inflationary as agricultural sector
pressures.
and the removal of
energy subsidies were
major catalysts for
inflationary pressures.
Prior to the emergence of COVID-19 in Nigeria, the country’s external position
was already in a fragile state. In Q4:2019, the current account balance fell to -
$7.0bn (5.4% of GDP), the sharpest contraction on record. This was on the back
of increased capital goods importation from India while exports dropped. The
current account balance also declined in Q1:2020, falling to -$4.9bn (5.0% of
GDP) as import dropped. We note that all the components of the current
account balance remained in deficit, albeit with an improvement, save current
transfers which fell by 12.7% q/q to $6.1bn as remittances decreased 5.0% q/q.

In Q4:2019, the trade balance fell to a deficit of ₦579.1bn, representing the first

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 Executive Summary

deficit since Q3:2016. This trend continued in Q1:2020, although moderating to a

deficit of ₦421.3bn. Import fell 15.8% q/q but improved 21.6% y/y to ₦4.0tn
while export decreased 14.4% q/q and 10.0% y/y to ₦4.1tn as a result of weaker
oil price despite improvement in oil output.

In Q2:2020, trade deficit worsened to ₦1.8tn as export decreased by 45.6% q/q to

₦2.2tn, with demand for oil plummeting to a record low. On the other hand,
import remained strong, though it fell 10.7% q/q to ₦4.0tn partially due to the
devaluation of naira by 15.0% to ₦361.00/$1.00. As COVID-19 measures were
eased in Q3:2020, trade deficit worsened to ₦2.4tn given the 33.8% q/q increase
in import size to ₦5.4tn while export, though climbed by 34.8% q/q to ₦3.0tn, Prior to 2020, foreign
was weak. capital flows rose
sharply by 42.7% y/y to
$24.0bn in 2019, with FPI
accounting for 68.2%
Prior to 2020, foreign capital flows rose sharply by 42.7% y/y to $24.0bn in 2019, (70.2% in 2018)ꟷthough
with foreign portfolio investment (FPI) accounting for 68.2% (70.2% in 2018) the quarterly trend had
ꟷthough the quarterly trend had begun to slow. Capital flows in Q3 and Q4 begun to slow. Capital
contracted 7.0% and 32.4% respectively to $5.6bn and $3.8bn due to falling flows in Q3 and Q4
yields, currency pressures and weakened investors’ confidence. In 2020, capital contracted 7.0% and
flows fell to a 5-year low of $9.7bn (-59.7% y/y) from $24.0bn in 2019 due to the
32.4% respectively to
pandemic and the precarious state of the Naira. FPI, which usually is the largest
$5.6bn and $3.8bn due
component fell (-68.6% y/y) to its lowest of $5.1bn in 5 years as inflows into
money market instrument dried-up by 69.1% y/y to $4.2bn. Foreign Direct
to falling yields, currency
Investment (FDI) inflow was the only bright spot as it increased 10.1% y/y, pressures and weakened
though still below 2014 level. The consistent weakness in FDI reflects the volatile investors’ confidence.
macroeconomic environment and weak medium to long-term economic
prospects.

While the CBN was able

to achieve policy easing
Over 2020, the CBN’s monetary policy stance assumed a dovish disposition in line
for the economy, the
with global trends given the need to avoid a brewing pandemic-induced
currency market which
financial crisis. As the pandemic elevated risks to macroeconomic stability,
development financing was ramped up to support businesses in critical sectors of had been stable since
the economy while interest rates (yields inclusive) were cut to historic lows to the launch of the
support growth. Meanwhile, the CBN’s inflation target remained unmet, outside Investors and
the 6-9.0% target. Exporters’ (I&E) window
While the CBN was able to achieve policy easing for the economy, the currency
in April 2017 was
market which had been stable since the launch of the Investors and disrupted from April
Exporters’ (I&E) window in April 2017 was disrupted from April 2020. The sharp 2020.
fall in oil price to a decade low increased the risk of sizeable foreign portfolio
outflows given huge offshore OMO holdings. This prompted rate adjustments
which were too marginal to restore confidence. Subsequently, inflows to the I&E
window dried up, with the CBN accounting for an outsized share of 69.3% in
March-April 2020 from 21.1% since the inception of the window.

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In our January 2020 outlook, we posited that “We believe the dark clouds are
gathering, indicating further currency pressures and an imminent devaluation.”
Our hunch was premised on weak oil prices and capital flows, which are
fundamental drivers of currency movements, and the aggressive liquidity build-
up in the economy. True to this, oil prices fell to a decade low in March and
capital flows dried-up while system liquidity was robust. Indeed, COVID-19
struck, compelling faster adjustments to the Naira as it dealt a devastating blow
to the economy.

In 2021, a combination of weak external position, fragile capital flows and sticky In 2021, a combination
oil prices, would continue to hurt the Naira. Demand for imports is expected to of weak external
increase as economic activities resume. The restriction on activities due to the
position, fragile capital
pandemic masked the pressure on FX from imports. We expect this to reverse
flows and sticky oil
given the wall of liquidity in the system which could chase after imports.
Conversely, $1.5bn facility from the World Bank (which was approved in
prices, would continue
December 2020) would provide succor to FX reserves. Global yield environment is to hurt the Naira.
friendly for external borrowing and would further support the reserve if Demand for imports is
accessed by the DMO. The commitment of the CBN to the unification of FX rates expected to increase as
would be critical in restoring the battered investor confidence. Ideally, we would economic activities
expect to see the gap between the NAFEX and parallel market rates contract resume. The restriction
significantly. However, with the expectation that demand for imports would on activities due to the
begin to rise as more segments of the economy reopen, while the outlook for
pandemic masked the
crude remains weak, the CBN may find it tough achieving the unification
pressure on FX from
objective. We expect exchange adjustment to around ₦420.00/$1.00 to help aid
imports.
marginal improvement in the balance of payment.

The unprecedented shocks from the pandemic, drove a significant shift to easy The unprecedented
policy stance in 2020. The MPR was reduced to 12.5% in May and 11.5% in shocks from the
September (after 14 consecutive months of tightening at 13.5%). Whilst the pandemic, drove a
negative economic fallout of COVID-19 drove the cuts, we partly believe the significant shift to easy
reductions signalled some sort of convergence as the MPR had been
policy stance in 2020.
disconnected from real interest rate conditions. Prior to the cuts, the CBN started
The MPR was reduced to
the year by raising CRR by 500bps to 27.5% in its January Monetary Policy
Committee (MPC) meeting. To our mind, this initial decision was driven by the
12.5% in May and 11.5%
need to tighten liquidity following pressure on the Naira. However, as the in September (after 14
pandemic dealt a blow, the CBN embarked on a round of stimulus measures for consecutive months of
the economic. These measures include the creation of a ₦50.0bn targeted credit tightening at 13.5%).
facility to support households and SMEs while intervention funds of ₦1.0tn and
₦100.0bn were created to support the manufacturing and healthcare sectors
respectively. In addition, interest rate on all CBN intervention facilities was
reduced to 5.0% from 9.0% with a one-year moratorium. Meanwhile,
commercial banks were granted regulatory forbearance in the restructuring of
loans.

Overall, monetary policy in 2020 was accommodative as the need to avert a

brewing economic and financial crisis became compelling. The MPR which had
become a lagging indicator prior to the pandemic was realigned with market
rates though the cuts (200bps) had negligible impacts on yields and system wide

Page 10 Nigerian Economy & Financial Market Outlook | 2020 Review and 2021 Outlook
 Executive Summary

interest rates. The stimulus support from the CBN was relatively small given the
size of the economy. The Banks pro-growth stance was inconsistent with the
high effective CRR reported to be north of 50% aimed at tightening elevated
system liquidity from OMO maturities as auctions thinned out. The breakdown in
the FX market and weak external conditions made capital flow retention
impossible for the CBN.

For 2021, advancement in the mass distribution of vaccines would increase the
pace of economic recovery globally. As a result, we expect the CBN would sustain
For 2021, advancement
its current policies in H1:2021 to reasonably accelerate economic recovery. The
in the mass distribution
quality of the recovery over Q4:2020 to Q1:2021 and the development with
of vaccines would
liquidity and exchange rate would shape policy direction in H2:2021. While we
think the CBN may be tempted to switch to contractionary measures in H2:2021, increase the pace of
the fragility of the recovery should discourage this. economic recovery
globally. As a result, we
For the CBN, monetary policy would continue to be shaped by the need to
expect the CBN would
support growth while sacrificing its price stability objective. The land border
reopening and a 2020 base effect would be inconsequential to tapering inflation sustain its current
which the CBN believes is driven by supply-side disruptions. In our view, inflation policies in H1:2021 to
remains impacted by a balance of demand and supply side pressures. reasonably accelerate
Consequently, we expect the CBN to sustain its mixed hawkish undertone within economic recovery.
the banking system to keep liquidity in-check, thus conflicting pro-growth
measures.

Prior to 2019, the CBN relied on unorthodox policy measures which have been a
mixed bag. To our mind, the pandemic presents an opportunity for the CBN to Amid the current
realign monetary policy measures to orthodox style. This would reduce
economic crisis owing to
contradictions and uncertainties for the markets.
the pandemic, incessant
security disruptions and
increase in poverty
became a front burner
in 2020. Nigeria’s
Amid the current economic crisis owing to the pandemic, incessant security insecurity challenges is
disruptions and increase in poverty became a front burner in 2020. Nigeria’s
not only caused by
insecurity challenges is not only caused by institutional rot, but by poor
institutional rot, but by
economic outcomes that have increased poverty. Currently, the poverty rate in
poor economic
Nigeria is 40.1% with over 82.0 million poor Nigerians, unemployment is high at
27.1%, and inflation rate averaged 13.2% in 2020 while economic growth has outcomes that have
been below population growth of 2.7% since 2015. These indicators show the increased poverty.
worsening welfare of people and the lack of economic opportunities. Paul
Collier’s work on poverty and conflict appropriately captures the Nigerian
situation as it shows that weak economic growth, low income and high
dependence on natural resources are strong predictors of civil violence.
According to the Brookings Institution in a 2006 report about the nexus between
poverty and insecurity, poverty was described as both a cause and consequence
of insecurity.

While funding to the security ministry has been strong, the Federal Government
of Nigeria (FGN) has experienced difficulty in tackling insecurity. However, the
situation requires more urgency as progress has been limited between 2017 and

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2020. Perhaps, exploring more useful approaches beyond funding could yield
better results. We note that in the latest plan put forward by the FG to
accelerate recovery from the current COVID-19 induced crisis, there were no
initiatives on the security front. As such, we expect sustained security risk in the
macroeconomic environment, with knock-on effects on consumer purchasing
power, investments and ultimately growth. In our view, plans that do not
recognise elevated insecurity as a threat to development and provide solutions
would deliver less impact than expected. The mass looting of private and public
properties following the #EndSARS protests is a strong wake-up call for the
government to accelerate the implementation of poverty elevation programs
that would significantly lift the living conditions of Nigerians. Additionally, there In our view, plans that
must be renewed focus on human capital development to help unleash the do not recognise
potentials in the Nigerian people. These would contain possible civil unrest in elevated insecurity as a
the future.
threat to development
and provide solutions
would deliver less
impact than expected.

In 2020, we saw a revision of the fiscal budget in line with the current realities
brought about by the pandemic. The double-whammy of oil price shocks caused
by reduced demand for oil and reduced production as agreed by OPEC+ to
contain prices dampened economic prospects for the Nigerian economy which
was still struggling with sub-par post-recession growth. The lockdown In 2020, we saw a
implemented in the major cities also dampened prospects for non-oil revenue.
revision of the fiscal
The key assumptions in the 2020 budget were subsequently revised; oil price
budget in line with the
benchmark was lowered to $28/bbl (vs $57/bbl), oil production levels was also
current realities brought
reduced to 1.8mb/d (vs 2.18mb/d). The domestic currency was also devalued by
15.0% to ₦360.00/$, no thanks to worsening external accounts and declining about by the pandemic.
reserves. This resulted in an upward revision of the benchmark exchange rate in The double-whammy of
the budget to ₦360.00/$ from ₦306.00/$ and provided some reprieve for oil price shocks caused
government revenue. Given the revisions, projected revenue for 2020 was by reduced demand for
estimated at ₦5.4tn with 20.4% of total revenue expected from oil & gas (2019: oil and reduced
47.6%) while revenue from other sources including independent revenue, stamp production as agreed by
duty and grant & donor funding was expected to contribute 31.9% of total OPEC+ to contain prices
projected revenue.
dampened economic
As at December 2020, the budget implementation report revealed that the FG prospects for the
had realised 73.4% (or ₦3.9tn) of its budgeted revenue of ₦5.4tn for the year. Nigerian economy which
Although actual revenues lagged budgeted values, we note a higher realisation was still struggling with
rate compared to average of 55.4% in the past 3 years. Revenue was dragged by sub-par post-recession
underwhelming non-oil revenue which fell below expectations by 21.5% to
growth.
₦1.3tn as income from CIT, VAT and customs revenue all underperformed. On
the other hand, oil revenue outperformed by 150.1% at ₦1.5tn as oil traded at a
higher average of $43.2/bbl during the year compared to the revised benchmark
of $28/bbl.

In December 2020, the National Assembly approved the 2021 budget of ₦13.6tn,
which is themed ‘the budget of resilience and economic recovery’ and was

Page 12 Nigerian Economy & Financial Market Outlook | 2020 Review and 2021 Outlook
 Executive Summary

subsequently signed by the president. We applaud the conservative revenue

assumptions with oil price benchmark at $40/bbl, oil production (including
condensates) at 1.86mb/d in line with OPEC supply cuts and a more reflective
exchange rate of ₦379/$. Economic growth assumption of 3.0% also appears
achievable especially given the low base from 2020 however, the inflation
assumption of 11.95% appears overly optimistic in the light of current realities
and given average inflation of 13.3% for 2020.

Overall, revenues are expected to print at ₦7.99tn with ₦2.0tn projected from oil
receipts. We believe the devaluation of the naira and improving global demand
for oil would support oil revenues going forward. For non-oil revenue, FG
We believe the
expects to collect ₦1.5tn in 2021 which, although seems conservative, may be a
tall order given the weakness in the non-oil economy and the likelihood of
devaluation of the naira
continued disruptions to some sectors of the economy that are unable to resume and improving global
activity due to the new strain of the virus & surging numbers of infected people. demand for oil would
It is pertinent to note that revenues from oil and non-oil sources are estimated support oil revenues
to account for 43.8% of total revenues in 2021 as the government included going forward. It is
revenues of 60 Government-owned Enterprises (GOEs). We note that the pertinent to note that
inclusion of other unsustainable revenue sources such as Grants & Aids, signature revenues from oil and
bonus & renewals and stamp duty may fuel a disappointing outcome in 2021.
non-oil sources are
estimated to account for
43.8% of total revenues
in 2021 as the
The 2021 Appropriation Bill was accompanied by the Finance Act 2020 which was
government included
also signed by the National Assembly and the President. The Finance Act amends
revenues of 60
some of the key provisions of Capital Gains Tax Act, Personal Income Tax Act,
and Fiscal Responsibility Act among others. Some of the key provisions of the Act Government-owned
includes exemption of small companies with less than ₦25million turnover from Enterprises (GOEs).
payment of tertiary education tax, granting of tax relief to companies that
donated to the COVID-19 relief fund under the Private Sector Coalition against
COVID, reduction in the rate of import duties payable on tractors and motor While we applaud the
vehicles to 10% and 5%, respectively and 50% reduction in minimum tax rate thoughtfulness of some
from 0.5% to 0.25% of gross turnover for financial years ending between 1st of these provisions, we
January 2020 and 31st December 2021. believe those provisions
While we applaud the thoughtfulness of some of these provisions, we believe relating to reduction in
those provisions relating to reduction in taxes and levies would lower taxes and levies would
government revenue in 2021 especially income from CIT, VAT and custom levies. lower government
Already, the 2021 Appropriation Bill already reveals expected respective declines revenue in 2021
in income from CIT and VAT by 17.0% and 16.1% in 2021 from the revised 2020
especially income from
budget numbers while custom levy is projected to grow by 12.8% in 2021. We
CIT, VAT and custom
expect actual revenue from these sources to underperform budgeted numbers
levies.
due to structural weakness in the non-oil economy which is being magnified by
the pandemic. Hence, fiscal deficit would further widen.

The local bourse in 2020 was a tale of two halves, the first clouded with
uncertainties and sell pressures while the second was characterised by a strong
rally. Although the year started off with a bit of optimism as investors scouted

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 Executive Summary

for high dividend-yielding stocks amid unappealing fixed income yields, the
outbreak of COVID-19 dampened this optimism. The pandemic coupled with low
crude oil prices, FX illiquidity and waning macroeconomic conditions tampered
sentiment thus market returned a loss of 9.1% and 18.8% in February and
March, after a 7.5% gain in January. There was a glimpse of hope in April
(+8.1%) and May (+9.8%) following the gradual easing of lockdown and the
recovery in crude oil price to $35.33/bbl. in May from a low of $19.33/bbl. in
April. However, this recovery waned in June as the benchmark index fell 3.1%
due to weak investor sentiment as the case count from the pandemic continued
to rise. The reopening of economic activities, fiscal and monetary stimulus and
better-than-expected corporate earnings drove positive sentiments in H2:2020. The local bourse in 2020
Additionally, CBN’s easing of interest rates drove fixed income yields to historic was a tale of two halves,
lows which prompted higher asset allocation into equities. PFA asset allocation the first clouded with
to domestic equities increased to 6.4% in November from a low of 4.3% in
uncertainties and sell
March. On the back of this, the benchmark index closed the year at 40,270.72
pressures while the
points, delivering a 50.0% YTD return, the best performance in 12 years.
second was
Market valuation rebounded in 2020 having priced at an average P/E of 9.4x characterised by a strong
compared to 8.5x in 2019, driven by the sharp recovery in equities prices and
rally.
decent earnings growth. Notwithstanding, the NSE ASI remains undervalued
relative to the MSCI Frontier index (13.1x) and the BRICS market ex. Russia RTS
index (8.1x). In contrast to previous year’s trend, local investors dictated the tone
of the market due to high liquidity levels, limited investable assets and low fixed
income yields thus increasing their stake to 65.3% from 51.1% in 2019. On the Market performance in
other hand, foreign investors’ participation remained subdued owing largely to 2021 is expected to be
FX issues and pandemic-induced uncertainties, which prompted a decline in their
shaped by global and
stake to 34.7% from 48.9% in 2019. For the year, activity level improved as
domestic
average volume and value rose 23.5% and 14.8% to 382.1m units and ₦4.1bn
macroeconomic
respectively from 309.4m units and ₦3.6bn in 2019. Particularly, the highest
trades were recorded in November (₦7.1bn) and December (₦6.0bn). Sector
developments, increased
performance was in synchronisation with GDP performance of key sectors in the global vaccine
economy as investors threw their weight on sectors that showed resilience to the distribution, low fixed
devastating impact of the pandemic. Through the two consecutive quarters of income yields, high
negative growth, the ICT, Financial services and Agriculture sectors recorded liquidity, local investor
positive GDP growth (14.6%, 3.2% and 13.5% respectively in Q3:2020). participation and
Consequently, the ICT sector (proxied by the AFR-ICT index) outperformed peers, corporate earnings
delivering 116.7%, the Industrial Goods index trailed, adding 90.8%.
evolution.

Market performance in 2021 is expected to be shaped by global and domestic

macroeconomic developments, increased global vaccine distribution, low fixed
income yields, high liquidity, local investor participation and corporate earnings
evolution. Based on the direction of these drivers, we expect a positive
performance in 2021. We expect global monetary policy to remain dovish and
sustained economic stimulus. To this end, we anticipate an elevated level of
liquidity globally which would be a big boost to the equities markets although
Nigeria may not attract a significant share due to unresolved FX conundrum. On
the anticipation that the CBN would maintain its accommodative policies to
support economic recovery, combined with high system liquidity with limited
investment options, equities in poised to attract strong flows in our view. We

Page 14 Nigerian Economy & Financial Market Outlook | 2020 Review and 2021 Outlook
 Executive Summary

anticipate that resilient corporates earnings performance would remain a key

catalyst to local equities. The telecommunication, industrial goods and banking
sectors are expected to sustain strong earnings growth just as recovery in oil
prices should drive performance of the oil & gas companies. Meanwhile, we have
a moderate growth outlook for the insurance and the consumer goods sectors.
We anticipate sustained local participation as the yield environment remains
depressed with limited investable options. Foreign investor participation is not
expected to recover soon given the weak external conditions and FX
uncertainties. A key downside risk to this outlook is the possibility of a sudden
and too-early policy reversal by the CBN which may drive a recovery in the yield
environment due to better-than-expected economic recovery. Our 2020 investment
strategy was formulated
around four key
portfolios which were
Our 2020 investment strategy was formulated around four key portfolios which constructed based on
were constructed based on our expectation that there would be a bullish our expectation that
performance on the back off strong corporate performances and increased local
there would be a bullish
participation. The portfolios (Value +30.9%, Growth 14.8%, Banking Quality
performance on the
+11.0% and Dividend Income +38.3%) returned positive with all constituents
back off strong
recording gains excluding ACCESS (-15.5%) though, the market outperformed
the strategy recommendations. For 2021, we expect market to return positive corporate performances
with an 18.5% base case projection (bear 8.5% and bull case of 29.7%). While and increased local
we maintain our four strategic portfolio recommendation, we recommend that participation.
investors take position in stocks with strong earnings potential and consistent
dividend pay-out and sectors that have potential to deliver fast paced growth
ahead of the economy.

Although economic
activities have since
resumed at a gradual
In the year 2020, globally systemically important central banks sustained
accommodative monetary policy to prevent the global health crisis from
pace, commodity prices
prompting a financial crisis. Asides reduction in policy rates in major countries, recovered and vaccines
countries rolled out several funds and programs to lessen the impact of the are being distributed
pandemic on the economy. The US Fed led other monetary authorities by albeit at a slow pace, the
reducing its policy rate to a range of 0% - 0.25% amidst other quantitative new strain of the virus
easing programs. In the developed markets, treasury yields declined as investors pose a significant risk to
‘flew’ to safer assets and this induced huge withdrawals from emerging market EMs.
assets. The Institute of International Finance (IIF) reported outflows of $83.0bn
from Emerging Markets (Ems) in March, more than 3x the outflows recorded
during the Great Financial Crisis of 2008.

Although economic activities have since resumed at a gradual pace, commodity

prices recovered and vaccines are being distributed albeit at a slow pace, the
new strain of the virus pose a significant risk to EMs. There has been episodes of
fresh lockdowns in Advanced Economies (AEs) and this would deeply depress
remittances and investment flows to EMs. The trajectory in the development and
distribution of vaccines, especially to combat the new strain, would determine
the timing of full resumption of economic activities and improving demand &
employment.

Afrinvest West Africa Page 15

 Executive Summary

2020 reflected the full effects of the multiple regulations from the CBN in the
later part of 2019 in the Nigerian fixed income market. The huge wall of liquidity
stemming from maturing OMO instruments with limited investment
opportunities crashed yields in the Treasury Bills market to an average of 0.5%
by the end of 2020 from 12.8% as at when the regulation was issued in October
2019. Bond yields were no exception as the average yield on FG bonds dwindled
to 6.0% by the close of 2020 from 14.1% in October 2019. With the pandemic
ravaging the fragile Nigerian economy, the CBN swung into a full spree easing
mode with a 200bps reduction in the policy rate to 11.5% by the monetary policy
committee. Several other measures were implemented to stimulate the economy
The huge wall of
and lessen the economic effect of the pandemic and these featured reduction of liquidity stemming from
interest rates on intervention loans, moratoria and other regulatory forbearance. maturing OMO
We saw significant outflows at the peak of the pandemic in March 2020 as instruments with limited
foreign investors exited the Nigerian market in troops, hence, effecting further investment
pressures on the currency. CBN therefore adjusted the currency to ₦360.00/$ opportunities crashed
from ₦306.00/$ (and later, to ₦379/$ in August) and also implemented capital yields in the Treasury
controls to stem outflows.
Bills market to an
As yields on OMO instruments trended downwards in line with monetary policy average of 0.5% by the
actions, foreign investors’ holdings in money market instruments declined to end of 2020 from 12.8%
$363.2 by Q3:2020 from $3,438.5 in Q1:2020. as at when the
regulation was issued in
October 2019.

In our 2020 outlook, we had anticipated that the current dichotomy in the
money market between treasury bills and OMO instruments would be temporary
and expected a reversal by Q3:2020 as CBN would enjoin local players back into
the OMO market and avoid a devaluation. Our expectation was influenced by While the CBN’s course
initial investor apathy and dwindling foreign reserves. We also believed the of action regarding the
ratings downgrade the country suffered from the major agencies towards the bifurcation is unclear,
end of 2019 would discourage foreign borrowings and switch the focus on we believe a reversal of
domestic borrowings, hence, yields should rise. Contrary to our presupposition, the policy is necessary as
the market remains segmented with yields retreating to all-time lows and the
FPIs are majorly vested
currency was devalued twice in 2020. For emphasis, the DMO borrowed ₦1.9tn
in the OMO market and
on behalf of the FG and the subscription-to-offer rate rose to 3.7x compared to
this short-term
1.6x in 2019. Despite these developments, yields remained downtrend in the face
of surging inflation and deepening negative real return. While the CBN’s course concentration may
of action regarding the bifurcation is unclear, we believe a reversal of the policy constrain the CBN’s
is necessary as FPIs are majorly vested in the OMO market and this short-term ability to attract long-
concentration may constrain the CBN’s ability to attract long-term foreign term foreign investment
investment flows should the apex bank reverse course this year. flows should the apex
bank reverse course this
year.

In our opinion, the direction of yields in 2021 will remain a liquidity and
monetary policy play. As the huge liquidity flows from OMO maturities are
thinning out and the ₦5.7tn expected from OMO assets this year (2020: ₦12.3tn)
reside mainly with banks and FPIs, we believe there would be less pressure on
yields from OMO maturities. A clearer picture however emerges when all

Page 16 Nigerian Economy & Financial Market Outlook | 2020 Review and 2021 Outlook
 Executive Summary

maturities are compared with expected issuances for the year. Estimated
maturities totaling ₦10.3tn from OMO (₦5.tn), Treasury bills (₦2.6tn) and Bonds
(₦2.0tn) are far less from the expected issuances of ₦4.8tn from Bonds (₦2.2tn)
and Treasury bills (₦2.6tn). On the bright side, the ₦4.1tn special bills launched
by the CBN late last year in a bid to return the excess CRR held in its vaults
should help stow liquidity away from the market and support improvement in
yields, although it is short-dated.

For monetary policy guidance, the CBN’s dovish stance in 2020 was mainly to
support economic growth and that was at the expense of spiraling inflation
growth. Given stable oil prices, government revenues and improving economic
Given stable oil prices,
activities and considering the low-base effect of 2020, economic performance
should improve in 2021. This, coupled with surging inflationary pressures, may
government revenues
cause the CBN to change gear and increase focus on price stability. In the same and improving economic
vein, the full resumption of activities especially trade and travels would impose activities and
intense pressure on the currency and increase the desire to attract FPIs, considering the low-base
supporting the case for monetary policy reversal. We expect yields to inch effect of 2020, economic
slightly higher in 2021 based on the highlighted factors and we project short and performance should
long-term yields to rise by at least 200bps and 150bps respectively. improve in 2021.

At the start of the year, we had expected accommodative monetary policy in AEs
to see funds flow to EMs assets in search of yields. However, with the outbreak At the start of the year,
of COVID-19, investors initially panicked and retrieve funds from EMs to safety, we had expected
resulting in massive rise in yields. On the back of gradual resumption of accommodative
economic activities, we have seen investors return to EMs assets as yields remain monetary policy in AEs
attractive. A review of the performance of the portfolios we recommended for to see funds flow to EMs
2020 reveals significant of our fixed income portfolio at an average of 12.2% assets in search of yields.
return during the year. Our Modified Duration Portfolio returned the highest in However, with the
2020 with an average return of 27.8%, although it lagged the benchmark - S&P/
outbreak of COVID-19,
FMDQ Nigerian Bond Index - which returned 39.1%. The effect of the pandemic
investors initially
was mostly felt in our Smart Eurobond Portfolio which returned 1.4%,
underperforming the Blomberg Barclays EM Total Return Index return of 6.5% as panicked and retrieve
2 corporate instruments recorded losses during this year. On the other hand, our funds from EMs to
passive bond portfolio consisting of local corporate bonds returned 9.7%. safety, resulting in
massive rise in yields.
For 2021, uncertainties cloud our outlook especially for the domestic market. For
the domestic market, we would advise a short-term play especially in H1 as the
investment terrain remains unclear. Hence, our modified duration portfolio has
been reshuffled to include more short-term instruments. For the Eurobonds
market, we believe the performance of the market would be positive as inflows
from AEs would boost performance and drive gains in the market. However, SSA
countries’ participation in the rally expected in EMs will be highly dependent on
vaccine distribution and infection management. The passive bond portfolio
remains attractive for buy-and-hold strategy.

Afrinvest West Africa Page 17

 Section Two
Global Macroeconomic Review and
Outlook

Nigerian Economic & Financial Market Outlook | 2020 Review and 2021 Outlook Page 18
 Global Macroeconomic Review and Outlook

South African economy (-7.8%).

According to the World Bank, global growth is projected

to expand by 4.0% in 2021 given that the spread of
COVID-19 is limited through effective vaccination and
The World Bank revised its global growth estimate for
proper pandemic management, economies are reopened,
2020 downward to -4.3% in its Global Economic Prospects
oil prices and demand rise, as well as continued
January 2021 Outlook, a less severe contraction than the
accommodative monetary policy accompanied by
June forecast and significantly below the 2.3% growth
diminishing fiscal support. In AEs, growth is expected to
recorded in 2019. This indicates that the global economy
recover to 3.3% in 2021 due to the mass distribution of
plunged into its worst recession since the 2008 financial
vaccines, and sustained accommodative monetary policy
crisis. This negative performance was driven by the
with the proposed $1.9tn stimulus from Biden’s
outbreak of the novel coronavirus (COVID-19) that led
administration. The US and Euro Area are expected to
governments over the world to impose lockdown
grow at 3.5% and 3.6% respectively underpinned by
measures to curtail the spread. The lockdown adversely
improved COVID-19 management, an initial vaccine
affected trade and services, disrupted supply chains,
rollout, and rising external demand. Meanwhile, EMDEs
increased unemployment and weakened economic
are projected to expand at a faster pace of 5.0% based
activities.
on firming external demand and better management of
In Advanced Economies (AEs), there was an estimated the pandemic, aided by vaccine rollouts. However, the
contraction of 5.4% – a 1.6ppts lower than the June growth primarily reflects China’s expected rebound of
forecast of -7.0% – from a growth of 1.6% in 2019. 7.9%, without which recovery across EMDEs is anticipated
Although, the contraction was less severe than to be muted as the lingering effects of the pandemic is
anticipated, the ensuing recovery has been dampened by expected to weigh on consumption and investment. SSA
a substantial resurgence of COVID19 cases. The United economies are expected to recover at 2.7%, driven by a
States (US) economy is projected to contract by 3.6%. A fast-pace recovery of 3.3% in South Africa.
deeper contraction of 7.4% is estimated for the Euro
The downside risks to the projections include the second
Area, reflecting a sharper downturn than in the US. In
wave of the virus, slow distribution and potency of the
Emerging & Developing Economies (EMDEs), there is an
vaccine and early reversal of monetary and fiscal support,
estimated contraction of 2.6% in 2020 from a 3.6%
which could dampen recovery prospects in 2021. The re-
growth in 2019. With the exception of China whose
escalation of trade disputes between US-China, US-EU
growth is estimated at 2.0%, majority of the EMDEs were
and the BREXIT trade deal negotiations could also
severely affected by the pandemic. In Sub-Saharan Africa
hamper recovery. Growing number of cases in South
(SSA), growth is expected to contract by 3.7%, mainly
Africa and poor distribution of vaccines are major risks to
driven by the devastating effect of the pandemic on the
Chart 1: COVID-19 Cases by Region

Source: WHO, Afrinvest Research

Afrinvest West Africa Page 19

 Global Macroeconomic Review and Outlook
Chart 2: Global Economic Growth Forecast across Major Regions 2019 - 2021F
Source: World Bank, Afrinvest Research
the recovery in SSA.
The economic and social turbulence induced by the great
lockdown slowed global manufacturing and service
activities, thus disrupting the flow of international trade.
In Q1:2020, global trade fell by 6.0% reflecting a
slowdown prior to the pandemic and existing trade
restrictions. Already on a downward trajectory, global
trade took a sharp downturn in Q2:2020 contracting by
about 19.0% from a growth of 1.9% in Q2:2019, and
worse than the 12.2% contraction recorded at the peak
of the financial crisis in 2008. The decline was premised
on the impact of strict border controls globally,
Chart 3: Global Trade Growth (2016 – 2021F)
Source: UNCTAD, IMF, Afrinvest Research
Page 20 Nigerian Economy & Financial Market Outlook | 2020 Review and 2021 Outlook
disruptions to global production and supply chains, and
international travel restrictions. Additionally, the demand
for major commodities declined due to reduced economic
activities. However, the fall in trade would have been
steeper without the relaxation of social distancing and
restrictions on travel and transport that were in full
effect in March, April and May.
Indications based on monthly trade data reveal that the
weakness in global trade in Q2:2020 is widespread.
According to the United Nations Conference on Trade
and Development (UNCTAD), monthly data for Q2
revealed a collapse in trade for both developed and
developing countries when most countries had stringent
COVID-19 containment measures in place. However,
strong trade performance in June and July brought some
 Global Macroeconomic Review and Outlook
signs of optimism for overall trade growth in 2020. In
Q3:2020, preliminary data from the UNCTAD suggest
that, while rebounding from Q2, global trade growth
contracted by about 4.5% y/y.
In the October 2020 update of IMF's World Economic
Outlook (WEO), projections were revised downwards,
indicating significant deterioration in trade volumes due
to COVID-19 and a slower global economic recovery.
Global trade is expected to contract sharply by 11.9% in
2020, reflecting considerably weaker demand for goods
and services. In 2021, growth in global trade is expected
to rebound to 8.0% on the back of widespread vaccine
deployment and relaxed lockdown measures plus
reintroduced trade friendly policies by major economies.
However, a key downside risk is that of a prolonged
second wave especially in highly affected regions such as
US, India, Brazil and Russia, and the possibility that mass
distribution of vaccine is slow-paced. Another threat to
growth in global trade is the rise of protectionism in AEs,
particularly the US-China trade war. From a cautiously
optimistic outlook in January due to the signing of the
Phase 1 deal, the relationship between US and China has
soured over differences bordering on COVID-19, China's
security legislation in Hong Kong and the tussle on
technology and intellectual property. In Europe, the
recently announced Brexit deal between the United
Kingdom and the European Union is likely to contribute
to a further decline in trade uncertainty.
In a similar fashion to 2019, the monetary policy direction
in 2020 was largely dovish with global systemically
important central banks implementing accommodative
monetary policy measures. This was due to the economic
downturn resulting from lockdown measures, which
significantly affected income levels, disrupted global
manufacturing & trade activities, increased
unemployment, weakened investment confidence and
consumer spending. Thus, it became imperative for
monetary authorities to support growth through
reduction in policy rates and the application of other
unconventional monetary easing techniques.
In the AEs, the US Fed lowered its benchmark rate by
150bps to 0 – 0.25% in March and maintained this
throughout the year to support the economy amid the
pandemic. Additionally, the Fed expanded overnight and
term repos, lowered cost of discount window lending,
reduced existing cost of swap lines with major central
Afrinvest West Africa
banks and extended the maturity of FX operations. In the
European Union (EU), the ECB maintained its interest rate
on the main refinancing operations, marginal lending
facility and deposit facility at 0.0%, 0.25% and -0.50%
respectively until inflation level sufficiently reaches 2.0%
within the projected horizon. Also, the ECB decided to
increase the envelope of the pandemic emergency
purchase programme (PEPP) by € 500.0bn to a total of €
1.9tn. The Bank of England reduced its interest rate by
65bps to 0.1% and expanded its holding of UK
government bonds and non-financial corporate bonds by
£450.0bn in three tranches announced in March, June
and November.
For countries across the BRICS region, the Brazilian
central bank lowered its interest rate by 225bps since mid
-February to a historical low of 2.0% and implemented
measures to increase liquidity in the financial system
through reduction of reserve requirements and capital
buffers. Russia’s Central Bank cut interest rate by 200bps
to 4.25%, the lowest since the fall of the Soviet Union.
Following the fall in oil prices below the reference price
under the fiscal rule, the Central Bank of Russia (CBR)
began selling FX reserves from the National Welfare Fund
on March 10. The Bank also increased the limit on its FX
swap operations while introducing a long-term
refinancing instrument (one month and one year repos).
In India, the Reserve Bank of India (RBI) lowered the repo
and reverse repo rates by 115bps and 155bps respectively
to 4.0% and 3.4%, and announced liquidity measures
across three measures comprising Long Term Repo
Operations (LTROs), a cash reserve ratio (CRR) cut of 100
bps, and an increase in marginal standing facility (MSF) to
3.0% of the Statutory Liquidity Ratio (SLR). In China, the
People's Bank of China (PBC) provided monetary policy
support, ensuring liquidity for banks through Open
Market Operations (reverse repos and medium-term
lending facility).
In Sub-Saharan Africa, the central bank in Egypt
implemented a 300bps rate cut at the peak of the
pandemic and further reduced the policy rate by 100bps.
As Egypt mainly relies on the tourism, agriculture,
industry and construction sectors, interest rate on loans
to these sectors has been reduced from 10.0% to 8.0%.
Meanwhile in Nigeria, the Central Bank of Nigeria (CBN)
cut monetary policy rate by 100bps in May and further
reduced it by 100bps in September to 11.5% while
expanding liquidity available for nonbank financial
institutions, leading to significant lowering of yield on
government securities. The South African Reserve Bank
(SARB) lowered policy rate by 275bps progressively
Page 21
 Global Macroeconomic Review and Outlook

during the pandemic to 3.5%.
Going into 2021, we expect lockdown measures to ease
across regions following widespread vaccination, and
monetary policies would have to shift towards facilitating
full economic recovery.
markets in the first half of 2021. In emerging and frontier
markets, we expect the flow of foreign capital to support
equities due to the low yield environment in the fixed
income space and dovish policies. The downside risks to
our expectations are escalating cases of COVID-19, early
reversal of monetary and fiscal support and deterioration
in global geo-political relations.

Despite the recession that enveloped the world due to

the lockdown measures imposed to curtail the pandemic,
global markets ended 2020 on a positive note. Equities in
advanced markets posted a positive performance of
14.1% in 2020 as measured by the benchmark MSCI
World Index, though lower than 25.2% in 2019. The
positive performance in equities was driven by a dovish
global monetary policy, fiscal support, better-than-
expected corporate earnings results and low yield
environment in the fixed income space. Bulk of the
returns from the MSCI World Index was by Denmark
(+42.1%), Sweden (+22.6%), Netherlands (+22.5%) and
US equities market (+19.2%). In EMDEs, the MSCI EM
(Emerging Markets) index returned 15.8%,
outperforming the World Index, while the MSCI FM
(Frontier Markets) posted a negative performance of
2.4%. The performance in MSCI EM was supported by
gains in China (+27.3%) and India (+14.1%). Performance
in MSCI FM was dragged majorly by Jordan (-48.3%),
Mauritius (-34.0%) and Jamaica (-31.5%).

Given our expectation of a sustained dovish stance by

systemically important banks due to the second wave of
pandemic, we anticipate continued rally in the developed

Chart 4: Global Equities Performance in 2020

Source: MSCI, Bloomberg, Afrinvest Research

Page 22 Nigerian Economy & Financial Market Outlook | 2020 Review and 2021 Outlook
 Section Three
Domestic Macroeconomic Review
and Outlook

Nigerian Economic & Financial Market Outlook | 2020 Review and 2021 Outlook Page 23
 Domestic Macroeconomic Review and Outlook

measure the impact of the pandemic on the local

economy, about 43.0% of respondents reported losing
jobs, over 50.0% found it difficult to support household
In our outlook at the beginning of the year, we noted consumption and social protection has been inadequate.
that the second term of President Muhammadu Buhari
In our opinion, even though we admit that there is no
began with fiscal reforms as the Finance Act and the
escaping the devastating impact of COVID-19, decades of
amended PSC (Production Sharing Contract) Act were
poor policy choices have elevated risks in Nigeria. The
signed into law in H2:2019. While we considered the
continued reliance on oil for FX receipts and government
Finance Act to be mostly positive, the PSC Act was
revenues, together with poor investment in the
concerning given the likely negative impact on
healthcare sector weakened the resilience of the
investment in the Oil & Gas sector. As the economy was
economy. We believe the impact of this pandemic would
yet to fully recover from the 2016 economic recession, we
reverse the marginal gains recorded since the 2016
highlighted that the FG needed to mobilise more
economic recession, thereby hurting businesses and
resources and attract investments in support of areas such
households. Beyond the initial response of removing fuel
as infrastructure and human capital development. With
subsidies to support revenues, the upside is new priorities
the 2020 fiscal strategy unconvincing in these areas, we
for the FG in the areas we have highlighted in the
forecasted the economy to grow by 2.4% from 2.3% in
medium-term. The anti-trade disposition of the FG should
2019.
also be reviewed to benefit from regional synergies as
Then COVID-19 struck, causing severe and extensive the diversification of supply chains from Asia creates
damage to the local economy, through the transmission opportunities.
of external shocks and local containment measures. The
ensuing risks to health systems and the economy was
unprecedented, with the downside economic shock Weak Institutional Capacity and Policy Response to the
worse than the 2008/9 global financial recession while COVID-19 Pandemic
the health risks have been described as the worst since
Nigeria confirmed its first case of COVID-19 on February
the Spanish Flu of 1918. COVID-19 has only further
27, 2020, in Lagos State. Since then, the number of
exposed the Nigeria’s structural weakness given economic
confirmed cases has risen exponentially, with the
and health system vulnerabilities prior to the pandemic.
pandemic spreading across all states. As at 24th January
The sharp fall in oil prices to a 20-year low of $19.33/bbl.
2021, the total number of confirmed cases stood at
in April 2020, following the contraction in global oil
121,566 with 97,228 recoveries and 1,504 deaths. In terms
demand, led to weaker government revenues and export
of readiness, Nigeria was unprepared to deal with the
earnings. Accordingly, there was a downward revision of
outbreak of COVID-19. There were only 350 intensive
37.2% to FG’s 2020 revenue target to ₦5.3tn while the
care unit (ICU) bed spaces (South Africa: 3,450) to
currency was devalued to enable the economy cope with
manage intensive care patients across the country. Only
external account pressures.
five laboratories across four states could test for the virus,
The heightened risks spooked investors, resulting in with initial testing capacity of less than 1,000 tests per
sizable foreign portfolio flow reversals that have only day. There was also a shortage of medical personnel and
been limited by crippling capital controls. Unlike in supplies, with the former at 3.81 doctors per 10,000
previous episodes of economic shocks when remittances population (South Africa: 9.05).
supported foreign exchange (FX) receipts, there is little
At the onset of the pandemic, following the challenges
reprieve as the World Bank projected a 20.0%
that ensued, Nigeria adopted a similar strategy as most
contraction in global remittances in 2020. Similarly, the
of the world to avoid overwhelming the healthcare
health risks were significant and affected Nigeria’s
system and to contain the spread of COVID-19. President
response as lockdowns were implemented to avoid
Muhammadu Buhari announced an initial two weeks
overwhelming the healthcare system. Prior to the
lockdown of economic activities in Lagos, Abuja and
pandemic, the country was already a hotbed of several
Ogun State from March 30, 2020. There was soon a
health diseases that have stretched health systems thin.
phased, gradual easing of the lockdown from May 4,
The lockdown implemented to combat the virus in the
2020, which we suspect was due to the growing cost of
major commercial cities of Lagos, Abuja, Port-Harcourt
the lockdown on households and businesses. Also, in line
and Kano dealt a blow to economic activities. In a survey
with the standards set by the World Health Organisation
conducted by National Bureau of Statistics (NBS) to

Page 24 Nigerian Economy & Financial Market Outlook | 2020 Review and 2021 Outlook
 Domestic Macroeconomic Review and Outlook
(WHO), Nigeria adopted social distancing, isolation and
case management as well as other measures to limit the
spread of the virus. On June 29, the FG extended the
second phase of the eased lockdown by 4 weeks and
approved interstate movement outside curfew hours
with effect from July 1, 2020. As at August 6, the FG
through the secretary to the Government of the
Federation (SGF) and Chairman of the Presidential Task
Force (PTF) on COVID-19 announced the extension of
the second phase of eased lockdown by another four
weeks.
The early reopening of the commercial cities that were
under lockdown was in spite of weak testing, tracing
and isolation of cases, which made lockdowns
ineffective. We believe the FG eased as sustaining the
lockdown under such conditions would have amounted
to more economic costs. Accordingly, cases exploded
from an average of 53.2 per day in April to 262.2, 509.3
and 577.6 in May, June and July 2020 respectively.
However, in August, there was a slowdown in the
average number of cases per day to 360.5. In Q2:2020,
Nigeria expanded its testing capacity by increasing
laboratories to 53 and testing rose from 0.02 per
thousand in April to 1.0 in July 2020. However, this is
below testing levels in peer countries such as South
Africa (40.0 tests/thousand people) and Ghana (11 tests/
thousand people) in testing. While cases grew at a
remarkable pace, reported deaths grew slower with a
case fatality rate of 1.2% as at 24th January 2021 vs.
1.8% in 23rd October 2020. However, we believe cases
have been underreported both by the lack of disclosure
and transparency by many states as well as weak
capacity to test.
To support the economy in line with the global
response, the CBN rolled out various measures beyond
its core mandate to assist the real sector. Some of the
measures adopted by the apex bank include the
creation of a ₦50.0bn targeted credit facility to support
households and SMEs while intervention funds of
₦1.0tn and ₦100.0bn were created to support the
manufacturing and healthcare sectors respectively. In
addition, interest rate on all CBN intervention facilities
was reduced to 5.0% from 9.0% with a one-year
moratorium. The apex bank also announced a private
sector coalition against COVID- 19 (CACOVID) – which
raised ₦27.1bn – to support the FG in procuring medical
supplies to contain the pandemic. Meanwhile,
commercial banks were granted regulatory forbearance
in the restructuring of loans. To further support the
economy amid dwindling oil prices and rising currency
Afrinvest West Africa
pressures, the official exchange rate was adjusted by
15.3% to ₦360.00/$1.00 and the rate at the I&E window by
5.3% to ₦386.00/$1.00.
On the fiscal side, the 2020 budget and its assumptions
were adjusted to reflect current economic realities.
Revenue projections for 2020 were cut by 37.3% while
there was a provision of around ₦200.0bn made for
COVID-19 support. With government’s finances stretched
thin even prior to the pandemic, there was weak capacity
to sustain lockdowns given the need to support
households and businesses. Overall, the total fiscal
support is estimated at ₦500.bn so far, representing a
negligible 0.3% of GDP. However, the FG established the
Economic Sustainability Committee (ESC) in April 2020
with the mandate to prepare an all-inclusive Economic
Sustainability Plan (ESP) to deal with the economic and
health impacts of the pandemic. The ESC estimated that
₦2.3tn is needed to fund initiatives that would accelerate
a quick economic recovery. In an earlier move by the FG,
an 'Emergency Economic Stimulus Bill 2020' to support
households and corporates was passed as a temporary
measure to cushion the effects of COVID-19 spillovers and
is expected to have elapsed in December 2020. The Bill
provides for a 50.0% rebate on corporate taxes and the
imposition of new moratorium on mortgage obligations.
We note that the relief to the formal sector will support
businesses, but this exempts the informal sector which
accounts for around 50-60.0% of economic activities. Also,
the Bill introduced import and stamp duty waivers for the
importation of essential medical supplies required to fight
the pandemic. Additionally, the FG announced conditional
cash transfers to vulnerable households as well as a three
months moratorium for repayment of all government
funded loans.
The weak capacity to deal with the pandemic follows
from a history of unsustainable fiscal policies that reduced
the scope for fiscal intervention during crises. This was the
case during the oil price crash between 2014 and 2016
which led to a recession, compared with huge fiscal
savings that protected growth during the 2008/9 global
financial crisis. The strong growth of recurrent spending
and subsidies over the past decade reduced the resources
available for spending on critical areas such as healthcare
and education. The expansion in recurrent expenditure
drove higher fiscal deficits which had to be financed with
expensive debt. The consequences have been huge amid
COVID-19, with debt servicing costs at 72.2% of revenues
between January and May 2020. Going forward, it
becomes urgent for fiscal policymakers to implement
strategies that create the space for government spending
Page 25
 Domestic Macroeconomic Review and Outlook
to prevent deep recessions and support quicker recoveries.
While Nigeria maintained a slow paced economic growth
prior to 2020, the unexpected impact of the pandemic
pushed back the recovery of the economy as Nigeria went
into a recession for the second time in five years. In
Q1:2020, GDP growth slowed to 1.9% y/y, representing
the weakest growth since Q3:2018. The slower growth
was due to the partial impact of the pandemic during the
latter part of the quarter. The oil sector expanded 5.1% y/
y while the non-oil sector advanced 1.6% y/y.
In the second quarter, Nigeria witnessed the full impact of
the pandemic as lockdown measures implemented to halt
the spread of the virus disrupted major economic
activities. Consequently, GDP plunged by 6.1% y/y in
Q2:2020, representing the worst contraction on record.
The lockdown also compelled a 6.1% contraction (vs. 1.6%
y/y growth in Q1:2020) in the non-oil sector as activities in
the manufacturing, trade and real estate sectors were
greatly affected. Similarly, the oil sector slipped 6.6% y/y
(vs. 5.1% y/y expansion in Q1:2020) in Q2:2020 largely due
to a partial compliance with the OPEC+ output cut
agreement as oil output fell to 1.86mb/d, down from
2.0mb/d in Q2:2019 and 2.1mb/d in Q1:2020.
Following the gradual reopening of the economy in the
third quarter, the pace of contraction slowed with GDP
declining by 3.6% y/y (vs. 6.5% growth in Q3:2019). The
non-oil sector fell by 2.5% y/y (vs. 1.9% y/y in Q3:2019) in
Q3:2020, an improvement from the 6.1% contraction in
Q2:2020. On the other hand, there was a sharper decline
Chart 5: Quarterly Real GDP Growth (2019-2020)
Source: NBS, Afrinvest Research
Page 26 Nigerian Economy & Financial Market Outlook | 2020 Review and 2021 Outlook
for the oil sector, as it dropped by 13.9% y/y (vs. 6.5% y/y
growth in Q3:2019) in Q3:2020 compared to the 6.6% y/y
decline in Q2:2020. The contraction was on the back of
the OPEC+ output cut agreement with the penalty for not
complying fully on the initial quota.
Given the continued reopening of the economy in the
third quarter, we believe that the worst is over.
Consequently, we expect to see better performance in the
fourth quarter. Overall, we anticipate a GDP contraction
of 2.9% in FY:2020. Also, the timely distribution of the
COVID-19 vaccine would support a recovery to positive
growth in 2021.
Earlier in 2020 we projected 2.4%y/y growth in the real
GDP as we anticipated improvement in both the oil and
non-oil sectors. Nonetheless, we adjusted our outlook to a
contraction of 6.2% in H1:2020 following the
unanticipated disruption imposed by the pandemic.
Following the relaxation of the containment measures in
major cities across Nigeria and the reopening of the major
economies around the world, economic activities
continued to improve. We anticipate further weakening in
oil output through the fourth quarter due to compliance
with OPEC+ alliance production quota. In the non-oil
sector we expect slower contraction in Q4:2020 following
the reopening of key sectors which are expected to
support recovery.
In 2021, we project a recovery of 2.5% in real GDP to be
driven by increased economic activities in the non-oil
sector as the impact of the earlier monetary and fiscal
 Domestic Macroeconomic Review and Outlook
Chart 6: Real GDP Growth (2016-2021F)
Source: NBS, Afrinvest Research
stimulus takes full effect and reduction in external
shocks. Growth in the Agriculture sector is expected to
remain resilient as supply chain for sourcing inputs for
planting activities and distribution of harvests recovers.
The reduction of import duty on farm tractors from
35% to 5% and trucks from 35% to 10% in the 2020
Finance Act should support private investments in
agriculture. However, incessant insecurity in the key
farming regions is a downside risk to this outlook. In
the manufacturing and services sectors, further
reopening of sub-sectors would provide much needed
boost to growth while trade should receive support
from the land borders reopening. Notwithstanding, we
are not optimistic of an outperformance given weak
demand and challenges related to FX devaluation and
illiquidity and sustained FX restrictions. The downside
risks to our forecast include a worse-than-anticipated
second wave of COVID-19 cases, weaker than expected
oil price and production and further FX devaluation.
The stability and further recovery in oil prices is
expected to be a major buffer for the oil sector as oil
production remains sticky at about 1.86mbd (2021
budgeted vs. 2020 actual of 1.79mbd) as Nigeria is
committed to the OPEC+ output cut deal.
Since the border closure in mid-2019, FX constraints and
supply chain disruptions amid the COVID-19 have seen
inflation maintained an upward trend. Headline
inflation advanced for the 17th consecutive month from
11.0% in August 2019 to 15.8% in December 2020,
reflecting the increase in food inflation from 13.5% to
Afrinvest West Africa
19.6% within the same period. In line with the trend, the
core inflation also climbed to 11.4% in December 2020
compared to 8.7% in August 2019.
In our view, the emergence of COVID-19 and the measures
which were implemented in Q2:2020 added further
inflationary pressures. The sharp contraction in the
demand for oil which led to several adjustment in
exchange rate, the COVID-19 disruptions on major
economic activities such as agricultural sector and the
removal of energy subsidies were major catalysts for
inflationary pressures.
During our half year review in 2020, we revised our
monthly average forecast for inflation to 12.8% from the
13.7% due to the delayed implementation of the increase
in VAT and electricity tariff. Furthermore, we anticipated
a devaluation of the naira in Q4:2020 and weaker harvest
of agricultural produce. As inflationary pressure
intensified in 2020, the federal government announced
the reopening of 4 major borders to neighbouring
countries on 17th December 2020. This was followed by
an upward review of electricity tariff on 5th January 2021.
In 2021, we project that inflation would remain elevated
at an average of 14.1% due to mixed factors. The
continued scarcity of FX with the possibility of another
devaluation in 2021, structural challenges in the non-oil
economy and higher energy prices, are major pressure
points for inflation. On the other hand, the land border
reopening and high base effect from 2020 would
potentially cap a faster increase in inflation.
Page 27
 Domestic Macroeconomic Review and Outlook

Chart 7: Average Monthly Inflation (2016-2021F)

Source: NBS, Afrinvest Research

to a deficit of ₦421.3bn. Import fell 15.8% q/q but

Prior to the emergence of COVID-19 in Nigeria, the
country’s external position was already in a fragile
state. In Q4:2019, the current account balance fell to -
$7.0bn (5.4% of GDP), the sharpest contraction on
record. This was on the back of increased capital goods
importation from India while exports dropped. The
current account balance also declined in Q1:2020,
falling to -$4.9bn (5.0% of GDP) as import dropped. We
note that all the components of the current account
balance remained in deficit, albeit with an
improvement, save current transfers which fell by 12.7%
q/q to $6.1bn as remittances decreased 5.0% q/q.
In Q4:2019, the trade balance fell to a deficit of
₦579.1bn, representing the first deficit since Q3:2016.
This trend continued in Q1:2020, although moderating
Chart 8: Trade Balance (2019 - 2020)
improved 21.6% y/y to ₦4.0tn while export decreased
14.4% q/q and 10.0% y/y to ₦4.1tn as a result of weaker
oil price despite improvement in oil output.
As a result of COVID-19 measures in the second quarter,
Nigeria’s external position worsened, extending its
weakness for nine consecutive quarters – the poorest on
record. In Q3:2020, current account deficit contracted to
$3.3bn (-3.2% of GDP) from $7.0bn (-5.4 of GDP) in
Q4:2019, aided by a faster moderation in services’ deficit
to $1.8bn (vs. $9.3bn in Q4:2019). The improvement in
services deficit was on the back of lower demand for
international travels. The trade component, which has
been historically positive, fell to $4.9bn deficit from -
$1.5bn in Q4:2019, depressed by the sharp drop in exports
to $8.0bn ($15.7bn in Q4:2019). Deficit on the income

Source: NBS, Afrinvest Research

Page 28 Nigerian Economy & Financial Market Outlook | 2020 Review and 2021 Outlook
 Domestic Macroeconomic Review and Outlook

Chart 9: Current Account Balance

Source: CBN, Afrinvest Research

balance fell to $0.9bn from -$4.2bn (10-year quarterly
average). Transfer component, which historically averaged
$5.5bn (10-year quarterly data), fell to $3.9bn in Q2:2020
before improving to $4.4bn in Q3:2020 as remittances
from abroad fell 34.7% to $3.9bn from $5.9bn in Q4:2019
(vs. $5.3bn 10-year quarterly average). This was due to the
wide premium (₦30-106/$) between the I&E window and
the parallel market rate as Nigerian’s shun the official
transfer channels occasioned by conflicting policies from
the CBN.
In Q2:2020, trade deficit worsened to ₦1.8tn as export
decreased by 45.6% q/q to ₦2.2tn, with demand for oil
plummeting to a record low. On the other hand, import
remained strong, though it fell 10.7% q/q to ₦4.0tn
partially due to the devaluation of naira by 15.0% to
₦361.00/$1.00. As COVID-19 measures were eased in
Q3:2020, trade deficit worsened to ₦2.4tn given the 33.8%
q/q increase in import size to ₦5.4tn while export, though
climbed by 34.8% q/q to ₦3.0tn, was weak.
Prior to 2020, foreign capital flows rose sharply by 42.7%
y/y to $24.0bn in 2019, with foreign portfolio investment
(FPI) accounting for 68.2% (70.2% in 2018) ꟷthough the
quarterly trend had begun to slow. Capital flows in Q3
and Q4 contracted 7.0% and 32.4% respectively to $5.6bn
and $3.8bn due to falling yields, currency pressures and
weakened investors’ confidence. In 2020, capital flows fell
to a 5-year low of $9.7bn (-59.7% y/y) from $24.0bn in

Chart 10: Foreign Investment Trends - $’bn (2014 – 2020)

30.0
Foreign Direct Investment Portfolio Investment Other Investment
25.0

20.0 6.7
3.6

15.0 3.8

10.0 14.9 3.9

2.2 16.4
11.8 3.5
5.0 6.0 7.3
2.3 5.1
2.3
1.8
- 1.4 1.0 1.0 1.2 0.9 1.0
2014 2015 2016 2017 2018 2019 2020

Source: NBS, Afrinvest Research

Afrinvest West Africa Page 29

 Domestic Macroeconomic Review and Outlook
2019 due to the pandemic and the precarious state of the
Naira. FPI, which usually is the largest component fell (-
68.6% y/y) to its lowest of $5.1bn in 5 years as inflows
into money market instrument dried-up by 69.1% y/y to
$4.2bn. Foreign Direct Investment (FDI) inflow was the
only bright spot as it increased 10.1% y/y, though still
below 2014 level. The consistent weakness in FDI reflects
the volatile macroeconomic environment and weak
medium to long-term economic prospects.
Though capital flows in Q1:2020 was robust at $5.9bn (up
54.0% q/q), it decelerated to $1.3bn, $1.5bn and $1.1bn in
Q2, Q3 and Q4 respectively. Whilst the growth in Q1 was
supported by the relatively attractive yields as FPI inflows
grew by 128.8% to $4.3bn, concerns over weak external
conditions as the pandemic struck drove the contraction
in Q2 through to Q4. Total FPI was $407.3m and 35.2m in
Q3 and Q4:2020, its lowest in more than 7 years.
Investments in the money market was the main driver as
foreign investors shun the Nigerian market with equity
and money market investments shrinking to $18.1m and
$17.1m in Q4:2020 respectively. FDI, which historically has
been a small share of total capital import, plunged to
$148.6m in Q2 before improving to $251.3m in Q4:2020
lower than $414.8m in Q3:2020.
Looking ahead, we anticipate a marginal recovery in
Nigeria’s external position. As oil prices continue to
consolidate amid mass vaccine distribution, we expect
gradual recovery in exports though low oil supply may
offset this outlook if the OPEC+ output cuts were
extended. Meanwhile, a fast-paced global economic
reopening, would drive pick-up in imports though limited
access to FX would be a challenge. Conversely, we
Chart 11: Historical Market Foreign Exchange Rate (2017-2020)
Source: CBN, Bloomberg, Afrinvest Research
Page 30 Nigerian Economy & Financial Market Outlook | 2020 Review and 2021 Outlook
anticipate a sustained downtrend in capital flows as
foreign investors would be reluctant to hold Naira assets
following prolonged capital controls by the CBN and the
low yield environment. Remittances which has consistently
supported Nigeria’s external balance would remain weak
until the FX market becomes saner and economic fortunes
of source countries such as the US, UK and the Euro Area
improves.
Over 2020, the CBN’s monetary policy stance assumed a
dovish disposition in line with global trends given the
need to avoid a brewing pandemic-induced financial crisis.
As the pandemic elevated risks to macroeconomic
stability, development financing was ramped up to
support businesses in critical sectors of the economy while
interest rates (yields inclusive) were cut to historic lows to
support growth. Meanwhile, the CBN’s inflation target
remained unmet, outside the 6-9.0% target.
While the CBN was able to achieve policy easing for the
economy, the currency market which had been stable
since the launch of the Investors and Exporters’ (I&E)
window in April 2017 was disrupted from April 2020. The
sharp fall in oil price to a decade low increased the risk of
sizeable foreign portfolio outflows given huge offshore
OMO holdings. This prompted rate adjustments which
were too marginal to restore confidence. Subsequently,
inflows to the I&E window dried up, with the CBN
accounting for an outsized share of 69.3% in March-April
2020 from 21.1% since the inception of the window.
 Domestic Macroeconomic Review and Outlook

Chart 12: Foreign Reserves and Crude Oil Prices (2017-2020)

Source: CBN, Bloomberg, Afrinvest Research

Exchange Rate… A Repeat of 2016 Crisis weak foreign investments, despite the inflow of $3.4bn in
April 2020 from the IMF’s Rapid Financing Instrument (RFI)
In our January 2020 outlook, we posited that “We
disbursement. The official, NAFEX and parallel market
believe the dark clouds are gathering, indicating further
rates closed at ₦379.00/$1.00, ₦410.25/$1.00 and ₦470.00/
currency pressures and an imminent devaluation.” Our
$1.00 respectively.
hunch was premised on weak oil prices and capital flows,
which are fundamental drivers of currency movements, In 2021, a combination of weak external position, fragile
and the aggressive liquidity build-up in the economy. capital flows and sticky oil prices, would continue to hurt
True to this, oil prices fell to a decade low in March and the Naira. Demand for imports is expected to increase as
capital flows dried-up while system liquidity was robust. economic activities resume. The restriction on activities
Indeed, COVID-19 struck, compelling faster adjustments due to the pandemic masked the pressure on FX from
to the Naira as it dealt a devastating blow to the imports. We expect this to reverse given the wall of
economy. liquidity in the system which could chase after imports.
Conversely, $1.5bn facility from the World Bank (which
In two episodes, the CBN adjusted the official rate in
was approved in December 2020) would provide succor to
2020 by 19.5% to ₦379.00/$1.00 from ₦306.00/$1.00
FX reserves. Global yield environment is friendly for
while FX rate at the I&E FX window the naira fell by
external borrowing and would further support the reserve
11.1% to ₦410.25/$1.00 as at December 31, 2020. The
if accessed by the DMO. The commitment of the CBN to
March episode (15.3% adjustment) was driven by decline
the unification of FX rates would be critical in restoring
in the external reserves (down 6.2%as at 2019 year-end)
the battered investor confidence. Ideally, we would expect
to $35.7bn, occasioned by foreign portfolio outflows. As
to see the gap between the NAFEX and parallel market
oil prices fell to a decade low of $19.33/bbl. in April, the
rates contract significantly. However, with the expectation
CBN imposed capital controls by halting the sale of FX to
that demand for imports would begin to rise as more
the I&E window, hence trapping foreign investors. This
segments of the economy reopen, while the outlook for
marked a repeat of the 2015-2017 currency crisis which
crude remains weak, the CBN may find it tough achieving
led to a deterioration in investor confidence and the
the unification objective. We expect exchange adjustment
exclusion of Nigerian assets from global tracking indices.
to around ₦420.00/$1.00 to help aid marginal
The sharp drop in supply drove premium between
improvement in the balance of payment.
parallel and I&E window to widen to ₦30-95/$. This,
layered with the deterioration in Nigeria’s external
position drove the August devaluation episode of 5.0%
Monetary Policy Environment in 2020…Unprecedented
to ₦379/$1.00. We had expected a sharper adjustment to
Shocks Drive Easing
the currency to save the nation a repeat of the 2016
agonies. By December 2020, the external reserves had The unprecedented shocks from the pandemic, drove a
lost 8.3% to $35.4bn due to sustained trade deficits and significant shift to easy policy stance in 2020. The MPR was

Afrinvest West Africa Page 31

 Domestic Macroeconomic Review and Outlook
Chart 13: Trajectory of Monetary Policy Rate and Market Rates
Source: CBN, FMDQ, Afrinvest Research
reduced to 12.5% in May and 11.5% in September (after
14 consecutive months of tightening at 13.5%). Whilst the
negative economic fallout of COVID-19 drove the cuts, we
partly believe the reductions signalled some sort of
convergence as the MPR had been disconnected from real
interest rate conditions. Prior to the cuts, the CBN started
the year by raising CRR by 500bps to 27.5% in its January
Monetary Policy Committee (MPC) meeting. To our mind,
this initial decision was driven by the need to tighten
liquidity following pressure on the Naira. However, as the
pandemic dealt a blow, the CBN embarked on a round of
stimulus measures for the economic. These measures
include the creation of a ₦50.0bn targeted credit facility
to support households and SMEs while intervention funds
of ₦1.0tn and ₦100.0bn were created to support the
manufacturing and healthcare sectors respectively. In
addition, interest rate on all CBN intervention facilities
was reduced to 5.0% from 9.0% with a one-year
moratorium. Meanwhile, commercial banks were granted
regulatory forbearance in the restructuring of loans.
Overall, monetary policy in 2020 was accommodative as
the need to avert a brewing economic and financial crisis
became compelling. The MPR which had become a
lagging indicator prior to the pandemic was realigned
with market rates though the cuts (200bps) had negligible
impacts on yields and system wide interest rates. The
stimulus support from the CBN was relatively small given
the size of the economy. The Banks pro-growth stance was
inconsistent with the high effective CRR reported to be
north of 50% aimed at tightening elevated system
liquidity from OMO maturities as auctions thinned out.
The breakdown in the FX market and weak external
conditions made capital flow retention impossible for the
CBN.
Page 32 Nigerian Economy & Financial Market Outlook | 2020 Review and 2021 Outlook
Monetary Policy Prognosis for 2021… Easing in a Penalty
Box
For 2021, advancement in the mass distribution of vaccines
would increase the pace of economic recovery globally. As
a result, we expect the CBN would sustain its current
policies in H1:2021 to reasonably accelerate economic
recovery. The quality of the recovery over Q4:2020 to
Q1:2021 and the development with liquidity and
exchange rate would shape policy direction in H2:2021.
While we think the CBN may be tempted to switch to
contractionary measures in H2:2021, the fragility of the
recovery should discourage this.
For the CBN, monetary policy would continue to be
shaped by the need to support growth while sacrificing its
price stability objective. The land border reopening and a
2020 base effect would be inconsequential to tapering
inflation which the CBN believes is driven by supply-side
disruptions. In our view, inflation remains impacted by a
balance of demand and supply side pressures.
Consequently, we expect the CBN to sustain its mixed
hawkish undertone within the banking system to keep
liquidity in-check, thus conflicting pro-growth measures.
Conversely, continued FX instability would torment the
Bank’s policy actions in 2021. The inability of the CBN to
communicate FX policies through its MPC meetings leave
little clarity for the market. That said, with the disruption
in the FX market during the lockdown, the job of
restoring foreign investor confidence in 2021 would be
tough. To achieve this, external conditions must improve,
yields recover to pre-COVID levels, and the CBN would
have to clear the 2020 FX backlog. Using monetary policy
to achieve this, the CBN would have to become hawkish in
 Domestic Macroeconomic Review and Outlook
H2:2021.
Prior to 2019, the CBN relied on unorthodox policy
measures which have been a mixed bag. To our mind, the
pandemic presents an opportunity for the CBN to realign
monetary policy measures to orthodox style. This would
reduce contradictions and uncertainties for the markets.
In 2020, we saw a revision of the fiscal budget in line with
the current realities brought about by the pandemic. The
double-whammy of oil price shocks caused by reduced
demand for oil and reduced production as agreed by
OPEC+ to contain prices dampened economic prospects for
the Nigerian economy which was still struggling with sub-
par post-recession growth. The lockdown implemented in
the major cities also dampened prospects for non-oil
revenue. The key assumptions in the 2020 budget were
subsequently revised; oil price benchmark was lowered to
$28/bbl (vs $57/bbl), oil production levels was also reduced
to 1.8mb/d (vs 2.18mb/d). The domestic currency was also
devalued by 15.0% to ₦360.00/$, no thanks to worsening
external accounts and declining reserves. This resulted in
an upward revision of the benchmark exchange rate in
the budget to ₦360.00/$ from ₦306.00/$ and provided
some reprieve for government revenue. Given the
revisions, projected revenue for 2020 was estimated at
₦5.4tn with 20.4% of total revenue expected from oil &
gas (2019: 47.6%) while revenue from other sources
including independent revenue, stamp duty and grant &
donor funding was expected to contribute 31.9% of total
projected revenue.
As at December 2020, the budget implementation report
revealed that the FG had realised 73.4% (or ₦3.9tn) of its
budgeted revenue of ₦5.4tn for the year. Although actual
revenues lagged budgeted values, we note a higher
realisation rate compared to average of 55.4% in the past
3 years. Revenue was dragged by underwhelming non-oil
revenue which fell below expectations by 21.5% to ₦1.3tn
as income from CIT, VAT and customs revenue all
underperformed. On the other hand, oil revenue
outperformed by 150.1% at ₦1.5tn as oil traded at a
higher average of $43.2/bbl during the year compared to
the revised benchmark of $28/bbl.
On the expenditure side, actual expenditure exceeded the
budgeted figures at 101.1% with total disbursed amount
at ₦10.1tn despite underwhelming revenue collection.
Afrinvest West Africa
Interestingly, actual capital expenditure stood at ₦1.7tn
as 89.0% of the budgeted funds was released for capital
projects. It is worthy of note, however, that ₦118.4bn of
the actual capital expenditure was for COVID-19 related
expenditure. Recurrent expenditure maintained the
spotlight with ₦7.9tn actual expenditure compared with
budgeted amounts of ₦7.6tn.
Total fiscal deficit widened to ₦6.1tn in 2020 from the
proposed ₦4.6tn due to the shortfall in revenue. The
deficit was plugged through a mix of domestic
borrowing, foreign debts (loans from IMF and the World
Bank) and Ways & Means financing by the CBN totaling
₦2.9tn. Debt service-to-revenue spiked to 82.9% as a total
of ₦3.3tn was expended in servicing debts, reflecting
worsening debt sustainability.
In December 2020, the National Assembly approved the
2021 budget of ₦13.6tn, which is themed ‘the budget of
resilience and economic recovery’ and was subsequently
signed by the president. We applaud the conservative
revenue assumptions with oil price benchmark at $40/bbl,
oil production (including condensates) at 1.86mb/d in line
with OPEC supply cuts and a more reflective exchange
rate of ₦379/$. Economic growth assumption of 3.0% also
appears achievable especially given the low base from
2020 however, the inflation assumption of 11.95%
appears overly optimistic in the light of current realities
and given average inflation of 13.3% for 2020.
Overall, revenues are expected to print at ₦7.99tn with
₦2.0tn projected from oil receipts. We believe the
devaluation of the naira and improving global demand
for oil would support oil revenues going forward. For non
-oil revenue, FG expects to collect ₦1.5tn in 2021 which,
although seems conservative, may be a tall order given
the weakness in the non-oil economy and the likelihood
of continued disruptions to some sectors of the economy
that are unable to resume activity due to the new strain
of the virus & surging numbers of infected people. It is
pertinent to note that revenues from oil and non-oil
sources are estimated to account for 43.8% of total
revenues in 2021 as the government included revenues of
60 Government-owned Enterprises (GOEs). We note that
the inclusion of other unsustainable revenue sources such
as Grants & Aids, signature bonus & renewals and stamp
duty may fuel a disappointing outcome in 2021.
FG’s planned expenditure remain on the rise, surging to
₦13.6tn (inclusive of expenditure for the included GOEs)
Page 33
 Domestic Macroeconomic Review and Outlook

Chart 14: FGN Budget (2020-2021)

Source: Budget Office, Afrinvest Research

Page 34 Nigerian Economy & Financial Market Outlook | 2020 Review and 2021 Outlook
 Domestic Macroeconomic Review and Outlook

Chart 15: FGN Revenue (2017-2021F)

Source: Budget Office, Afrinvest Research

in 2021. Capital expenditure budget ticked higher by
62.9% y/y to ₦4.4tn, representing a higher proportion
of the expenditure budget at 32.2% compared with
24.8% in 2020. The president highlighted that the
capital budget would be geared towards the
completion of the numerous ongoing projects rather
than the commencement of new ones. Recurrent
expenditure would still command the larger share of
the budget in 2021 at 69.6% of total expenditure and
specifically, budgeted non-debt recurrent expenditure
ticked higher as the minister for finance, budget and
national planning hinted at increase in salaries and
subsequently, personnel costs.
For debt service, FG budgeted ₦3.1tn to service
obligations in 2021 which is lower compared to the
₦3.3tn expended (budgeted: ₦2.4tn) for the same
purpose in 2020. The weakness in the currency largely
contributed to the increase in debt service costs and with
the FG’s foreign borrowing plans in 2021, actual costs
should be higher. Elsewhere, we expect domestic yields to
tick upwards in 2021, further imposing upward pressure
on debt service costs.
Budgeted deficit for 2021 stands at ₦5.6tn, although
history suggests a higher actual deficit. Our model reveals
actual revenues would come in at ₦4.9tn or 61.6% of
budget in line with historical performance and
uncertainties associated with the year. Lower revenues
and expanding expenditure would continue to widen the
fiscal deficit. Already, the proposed deficit represents
3.9% of GDP and exceeds the allowable limit of 3.0% by
the Fiscal Responsibility Act, the revenue-expenditure
disparity would further worsen the situation. Finally, we
expect debt service-to-revenue for 2021 to remain
elevated as we expect FG to return to the Eurobonds

Chart 16: FGN Expenditure and Fiscal Deficit (2017-2021F)

Source: Budget Office, Afrinvest Research

Afrinvest West Africa Page 35

 Domestic Macroeconomic Review and Outlook
market to plug its fiscal deficit. The 2021 budget
provides for foreign borrowings of ₦2.3tn ($6.2bn).
There is a greater need for FG to take advantage of the
crisis to eliminate inefficiencies and tame expenditure.
Although energy sector subsidies have been removed
and should raise oil revenues, poor revenue collection
remains a bane to FG’s fiscal profile. Similarly, Ways &
Means funding of the FG by the CBN keeps soaring,
constantly exceeding the limit of 5% of previous year’s
revenue and 3% of GDP. This reflects poor fiscal
management and could restrict monetary policy
implementation and impose further pressure on the
currency.
The 2021 Appropriation Bill was accompanied by the
Finance Act 2020 which was also signed by the National
Assembly and the President. The Finance Act amends
some of the key provisions of Capital Gains Tax Act,
Personal Income Tax Act, and Fiscal Responsibility Act
among others. Some of the key provisions of the Act
includes exemption of small companies with less than
₦25million turnover from payment of tertiary education
tax, granting of tax relief to companies that donated to
the COVID-19 relief fund under the Private Sector
Coalition against COVID, reduction in the rate of import
duties payable on tractors and motor vehicles to 10%
and 5%, respectively and 50% reduction in minimum
tax rate from 0.5% to 0.25% of gross turnover for
financial years ending between 1st January 2020 and
31st December 2021.
While we applaud the thoughtfulness of some of these
provisions, we believe those provisions relating to
reduction in taxes and levies would lower government
revenue in 2021 especially income from CIT, VAT and
custom levies. Already, the 2021 Appropriation Bill
already reveals expected respective declines in income
from CIT and VAT by 17.0% and 16.1% in 2021 from the
revised 2020 budget numbers while custom levy is
projected to grow by 12.8% in 2021. We expect actual
revenue from these sources to underperform budgeted
numbers due to structural weakness in the non-oil
economy which is being magnified by the pandemic.
Hence, fiscal deficit would further widen.
Page 36 Nigerian Economy & Financial Market Outlook | 2020 Review and 2021 Outlook
Amid the current economic crisis owing to the pandemic,
incessant security disruptions and increase in poverty
became a front burner in 2020. Nigeria’s insecurity
challenges is not only caused by institutional rot, but by
poor economic outcomes that have increased poverty.
Currently, the poverty rate in Nigeria is 40.1% with over
82.0 million poor Nigerians, unemployment is high at
27.1%, and inflation rate averaged 13.2% in 2020 while
economic growth has been below population growth of
2.7% since 2015. These indicators show the worsening
welfare of people and the lack of economic opportunities.
Paul Collier’s work on poverty and conflict appropriately
captures the Nigerian situation as it shows that weak
economic growth, low income and high dependence on
natural resources are strong predictors of civil violence.
According to the Brookings Institution in a 2006 report
about the nexus between poverty and insecurity, poverty
was described as both a cause and consequence of
insecurity.
In the Niger-Delta, the system of resource allocation
whereby resources exploited have degraded the
environment and reduced economic opportunities with
little investment in host communities, has led to militancy.
High level of poverty in the North has also made it easier
to recruit members into terrorist groups. Meanwhile, the
October 2020 outbreak of civil disturbances in the form of
looting also point to high poverty levels. Also, while there
is the temptation to focus more on the death toll,
insecurity has wrought more damage to private property,
businesses and public infrastructure. These have negative
implications for the business environment and attracting
investment as investors are not attracted to hostile
environments.
A climate of instability reduces confidence in the economy
and socio-political environment, leading to slower
investment and development outcomes in affected areas.
Northern Nigeria has been the region most susceptible to
the risk of insecurity, with this having disproportionate
impact on development given the high incidence of
poverty. Insecurity is also widespread in other regions,
including high incidence of kidnapping in the South and
the attack on oil infrastructure and oil theft in the Niger-
Delta. From a sectorial point of view, agriculture continues
to be affected by insecurity, leading to food shortages.
High food prices are devastating given that 56.6% of
household consumption spending is on food.
 Domestic Macroeconomic Review and Outlook
Additionally, the majority of households who rely on
agriculture, especially in the North-East, have either been
displaced or suffered crop losses. Without economic
means and limited social protection, these households are
more vulnerable to poverty. As the majority of food
supplies emerge from the North, the entire economy is
also at risk from insecurity. The security challenges faced
in the Niger-Delta also reduce the potential oil revenues
accruing to the government. Without sufficient resources,
government’s spending on public goods would remain
inadequate.
Afrinvest West Africa
While funding to the security ministry has been strong,
the Federal Government of Nigeria (FGN) has experienced
difficulty in tackling insecurity. However, the situation
requires more urgency as progress has been limited
between 2017 and 2020. Perhaps, exploring more useful
approaches beyond funding could yield better results. We
note that in the latest plan put forward by the FG to
accelerate recovery from the current COVID-19 induced
crisis, there were no initiatives on the security front. As
such, we expect sustained security risk in the
macroeconomic environment, with knock-on effects on
Page 37
 Section Four
Equities Market Review and
Outlook

Nigerian Economic & Financial Market Outlook | 2020 Review and 2021 Outlook Page 38
 Equities Market Review and Outlook

return, the best performance in 12 years.

In addition to the identified drivers of the market,

corporate actions also contributed to this stellar
performance. Notably, the Exchange continued its
The local bourse in 2020 was a tale of two halves, the first
demutualisation process in a bid to align with global
clouded with uncertainties and sell pressures while the
practice whilst making the market more efficient and
second was characterised by a strong rally. Although the
competitive. There were several corporate acquisitions,
year started off with a bit of optimism as investors
divestment and restructuring during the year, majorly by
scouted for high dividend-yielding stocks amid
players in the Insurance and Banking sectors. Few of
unappealing fixed income yields, the outbreak of COVID-
these include acquisition of Law Union & Rock by Verod
19 dampened this optimism. The pandemic coupled with
Capital Management and AIICO Pension by FCMB Ltd.
low crude oil prices, FX illiquidity and waning
AXA Mansard Insurance and other minority shareholders
macroeconomic conditions tampered sentiment thus
also divested 100% stake in AXA Mansard Pensions to
market returned a loss of 9.1% and 18.8% in February
Eustacia Limited while BOC Holdings sold 60% stake in
and March, after a 7.5% gain in January. There was a
BOC Gases to TY Holdings Limited. The announcement of
glimpse of hope in April (+8.1%) and May (+9.8%)
acquisition plans of Cavmont Bank Limited Zambia,
following the gradual easing of lockdown and the
African Banking Corporation Mozambique and Grobank
recovery in crude oil price to $35.33/bbl. in May from a
Limited South Africa by Access Bank Plc through its
low of $19.33/bbl. in April. However, this recovery waned
subsidiaries contributed to performance. ACCESS,
in June as the benchmark index fell 3.1% due to weak
GUARANTY and STERLING also declared intentions to
investor sentiment as the case count from the pandemic
restructure into holding companies. DANGCEM
continued to rise.
announced a share buy-back programme not exceeding
The reopening of economic activities, fiscal and monetary 10% of its issued share capital (1,704, 050,740 shares),
stimulus and better-than-expected corporate earnings which would be done in tranches. For entry and exit from
drove positive sentiments in H2:2020. Additionally, CBN’s the exchange, BUACEMENT was the only new listing
easing of interest rates drove fixed income yields to while Law Union & Rock Insurance, Continental
historic lows which prompted higher asset allocation into Reinsurance and A.G. Leventis Plc voluntarily delisted.
equities. PFA asset allocation to domestic equities
increased to 6.4% in November from a low of 4.3% in
March. On the back of this, the benchmark index closed
the year at 40,270.72 points, delivering a 50.0% YTD
Market valuation rebounded in 2020 having priced at an

Chart 17: Nigerian Equities Market Performance

Source: NSE, Afrinvest Research

Afrinvest West Africa Page 39

 Equities Market Review and Outlook
Chart 18: Average P/E Multiple for NSE ASI vs. MSCI Frontier Market Index vs BRICS Markets in 2020
Source: Bloomberg, Afrinvest Research
average P/E of 9.4x compared to 8.5x in 2019, driven by
the sharp recovery in equities prices and decent earnings
growth. Notwithstanding, the NSE ASI remains
undervalued relative to the MSCI Frontier index (13.1x)
and the BRICS market ex. Russia RTS index (8.1x). Given,
the continued challenges with FX liquidity, we expect
Nigerian equities to see less inflows from foreign
investors relative to other emerging markets despite the
attractive valuation. Interestingly, local investors are
poised to fill the vacuum as the low yield environment
may linger for an extended period.
In contrast to previous year’s trend, local investors
dictated the tone of the market due to high liquidity
levels, limited investable assets and low fixed income
Chart 19: Foreign vs Domestic Investors Transactions
Source: NSE, Afrinvest Research
Page 40 Nigerian Economy & Financial Market Outlook | 2020 Review and 2021 Outlook
yields thus increasing their stake to 65.3% from 51.1% in
2019. On the other hand, foreign investors’ participation
remained subdued owing largely to FX issues and
pandemic-induced uncertainties, which prompted a
decline in their stake to 34.7% from 48.9% in 2019. The
increased participation by domestic investors supported
investment into the bourse as total inflow amounted to
₦1.9tn (Domestic: ₦1.2tn vs Foreign: ₦659.3bn) as at
November relative to ₦1.8tn (Domestic: ₦920.7bn vs
Foreign: ₦879.4bn) in prior period. For the year, activity
level improved as average volume and value rose 23.5%
and 14.8% to 382.1m units and ₦4.1bn respectively from
309.4m units and ₦3.6bn in 2019. Particularly, the highest
trades were recorded in November (₦7.1bn) and
December (₦6.0bn), propelled by the rally.
 Equities Market Review and Outlook
Chart 20: Daily Volume and Value Traded in 2020
Source: NSE, Afrinvest Research
Sector performance was in synchronisation with GDP
performance of key sectors in the economy as investors
threw their weight on sectors that showed resilience to
the devastating impact of the pandemic. Through the
two consecutive quarters of negative growth, the ICT,
Financial services and Agriculture sectors recorded
positive GDP growth (14.6%, 3.2% and 13.5%
respectively in Q3:2020). Consequently, the ICT sector
(proxied by the AFR-ICT index) outperformed peers,
delivering 116.7% returns with AIRTELAFR (+185.0%),
and MTNN (+61.8%) as the major drivers just as
ETRANZACT (+14.8%) supported. The interest in
AIRTELAFR was buoyed by its strategic partnership with
Moneygram and Standard Chartered Bank to increase
access to mobile financial services across key markets in
Chart 21: Sector Indices Performance in 2020
Source: NSE, Afrinvest Research
Afrinvest West Africa
Africa. Increased use of voice and data services to support
the new norm and strategic investments in mobile money
drives our continued positive outlook for the sector.
Trailing on the sector performance chart, the Industrial
Goods index rose 90.8% following price upticks in
BUACEMENT (+80.0%), CUTIX (+72.9%) and DANGCEM
(+72.5%). Capacity expansion in BUACEMENT and
DANGCEM coupled with the latter’s share buy-back
programme spurred the buying interest. Improved
earnings outlook underpinned by strong demand from
an expected increase in construction activities and land
borders reopening are key drivers to our buoyant outlook
for the sector.
In the financial services sector, the insurance sector
outperformed the banks. The Insurance index advanced
50.6% amid improved performance and speculated
Page 41
 Equities Market Review and Outlook
Chart 22: Top 10 Gainers and Losers in 2020
Source: Bloomberg, NSE, Afrinvest Research
recapitalisation in the sector. SUNUASSURE (+400.0%)
recorded massive gains following its capital
reconstruction plans while AIICO (+145.7%) and
MANSARD (+81.0%) also posted big returns. The
uncertainty around the insurance sector recapitalization
puts a dent on its prospect although some corporates are
poised for growth and would enjoy investors’ interest.
Price upticks in ZENITH (+33.3%), FIDELITY (+22.9%) and
UBA (+21.0%) resulted in a 10.1% upside in the Banking
index. The sector enjoyed the most activity during the
year following better-than-expected earnings by most
banks and high dividend yield. Notwithstanding, stocks
like ACCESS (-15.5%), UBN (-10.8%), ETI (-7.7%) lost.
Following the resilience of the sector to the pandemic,
this positive momentum is expected to linger despite
worsening operating terrain and stiff regulation.
Conversely, sell-offs in SEPLAT (-38.8%), ARDOVA (-
25.1%) and MRSOIL (-36.2%) dragged the Oil & Gas index
down by 13.8% despite gains in TOTAL (+17.2%), MOBIL
(+54.2%) and CONOIL (+12.7%). The sector continues to
suffer from low oil prices and structural flaws in the
downstream sector. We expect the passage of the long
awaited Petroleum Industry Bill to improve sentiment
and investment in the sector however exposure to shocks,
unstable oil demand and price diminishes growth
prospect.
The Consumer Goods index also waned 3.3% due to price
declines in INTBREW (-37.4%), GUINNESS (-36.8%),
UNILEVER (-36.8%), CADBURY (-14.7%), CHAMPION (-
9.5%), PZ (-6.2%) and NIGERIAN BREWERIES (-5.1%). The
Page 42 Nigerian Economy & Financial Market Outlook | 2020 Review and 2021 Outlook
brewery tickers continued to daunt overall sector
performance following weak earnings and high tariff.
Also, weak consumer spending and inflationary pressures
suppressed earnings potentials of corporates. However,
NNFM (+56.7%), FLOURMILL (+32.0%), DANGSUGAR
(+29.4%) and HONYFLOUR (+21.2%) returned positive
due to improved earnings after the land border closure.
Downside risks to improved performance for the sector
remains strong in the short to medium term.
Market performance in 2021 is expected to be shaped by
global and domestic macroeconomic developments,
increased vaccine distribution, fixed income yields,
liquidity, local investor participation and corporate
earnings evolution. Based on the direction of these
drivers, we expect a positive performance in 2021.
1.
Dovish monetary policies and fiscal stimuli were major
boost to global equities in 2020. We expect global central
banks to sustain this trend in 2021, at least for most part
of the first half. We anticipate an elevated level in
liquidity globally driven by additional fiscal stimulus
which should be a big boost to the equities markets
although Nigeria may not attract a significant share due
to unresolved FX conundrum. On the anticipation that
the CBN would maintain its accommodative policies to
support economic recovery in line with global
trend, combined with high system liquidity with limited
 Equities Market Review and Outlook

investment options, equities can attract more local
inflows in our view. A sudden and too-early policy
reversal by the CBN which may be driven by better-than-
expected economic recovery is a downside risk to this
outlook.
industrial goods and banking sectors are expected to
sustain strong earnings growth while we have a
moderate growth outlook for the insurance sector.
Meanwhile the earnings outlook for the consumer goods
and oil & gas sectors remains weak.

2. 4.

As at the time of writing, only Pfizer’s vaccine has been We expect positive equities performance to be sustained
approved by WHO with Moderna and Astrazeneza by an improved local participation as the yield
vaccines approval underway although there are other environment remains depressed with limited investable
unregulated vaccines from China and Russia. In addition, options. Foreign investor participation is anticipated to
about 64 million doses have been administered which is a remain low given the weak external conditions and FX
baby step in vaccinating almost 7.8 billion people uncertainties.
globally. For context, vaccination is administered majorly
In our H2:2020 outlook report, we revised our 3-case
in rich countries leaving out middle and low-income
scenario projection lower to a Base case return of -2.8%,
countries. In Africa, vaccine distribution is as good as
Bear: -11.8% and Bull: +6.2% due to changes to our key
inexistent with no clear horizon on an efficient
assumptions. At the end of 2020 trading session, our
distribution due to hoarding by wealthier nations,
prognosis missed the actual market return performance
funding and supply chain issues. A continued strain on
of 50.0% (40,270.72 points). Our 2021 crystal ball projects
the vaccine distribution would deter the little success
a positive performance in the local bourse. This is
achieved in combating COVID-19 and consequently lead
premised on our expectation of continued easy policy
to a slower-than-expected recovery. The increased
direction, little or no increase in fixed income yield,
distribution of the COVID-19 vaccine to curb a second
dominance by local investors and impressive corporate
wave with new variants is crucial to driving positive
earnings. Consequently, we forecast a base case return of
sentiment in the equities market.
18.5%, translating into an ASI index points of 47,720.60,
3. pessimistic: -8.5% (ASI index: 36,846.28 points) and
optimistic: 29.7% (ASI index: 52,213.29 points). The CBN
Corporates were resilient amid weaker economic
holds the wildcard which can cause major changes to our
environment caused by the pandemic as most companies
expectation of low fixed income yield and easy policy in
reported positive earnings in 2020. Although,
H1:2021, thus constitutes a key downside risk to our
performance and growth varied across sectors with some
projection.
sectors being badly hit. As the broader economy recovers,
corporate earnings are also expected to improve and
should enjoy investors’ interest. The telecommunication,

Chart 23: One-year Trajectory of Index YTD Return vs. Afrinvest Forecast

Source: NSE, Afrinvest Research

Afrinvest West Africa Page 43

 Equities Market Review and Outlook

Chart 24: Afrinvest Equity Market Projection Scenarios 2021

Source: Afrinvest Research

Banking and Dividend Yield Portfolios).

Our 2020 investment strategy was formulated around

four key portfolios which were constructed based on our
expectation that there would be a bullish performance This portfolio was designed to capture relatively
on the back off strong corporate performances and undervalued stocks with strong earnings fundamentals
increased local participation. The portfolios (Value based on a 5-year above industry average ROE, dividend
+30.9%, Growth 14.8%, Banking Quality +11.0% and yield and earnings yield above market average in 4 of 8
Dividend Income +38.3%) returned positive with all most recent quarters.
constituents recording gains excluding ACCESS (-15.5%)
though, the market outperformed the strategy
recommendations. The growth portfolio is constructed for investors with
long-term prospect with preference for stocks with high
For 2021, we estimate that the market would return
income potentials. Constituents of the portfolio were
positive with an 18.5% base case projection (bear 8.5%
screened based on positive 5-year EPS CAGR, ROE and
and bull case of 29.7%). Although there is room for high
dividend yield above industry average as well as positive
return, cautious optimism clouds the market. Thus, we
P/E growth. Although *BUACEMENT and ARDOVA lack
recommend that investors take position in stocks with
sufficient history to meet the portfolio constraints, our
strong earnings potential, consistent dividend pay-out
perception of high growth prospects drove their
and sectors that have potential to deliver fast paced
inclusion.
growth ahead of the economy. Given this sentiment, we
maintain our four strategic portfolios (Value, Growth,

Chart 25: Performance of 2021 Investment Strategy Portfolios

Source: Afrinvest Research

Page 44 Nigerian Economy & Financial Market Outlook | 2020 Review and 2021 Outlook
 Equities Market Review and Outlook

Chart 26: Afrinvest Equity Strategy Portfolios

Source: Afrinvest Research

higher than industry average in at least 8 of the last 16

quarters or stocks that meet earnings yield, dividend yield
Dividend yield portfolio shops for short-term investors
and book value to price yield higher than industry
seeking dividend payments. For this portfolio, the criteria
average in at least 4 of the last 8 quarters. Also, liquidity
for selection was strong earnings growth, minimum of 4
was screened using average traded value ratio (ATVR)
years dividend payment history, dividend yields above
and stocks greater than 2.5% were chosen.
market average for a minimum of 4 of 6 years and strong
liquidity level.

Our banking value portfolio constituents remained

unchanged after considering banking stocks with ROEs

Afrinvest West Africa Page 45

 Section Five
Fixed Income Market Review and
Outlook

Nigerian Economic & Financial Market Outlook | 2020 Review and 2021 Outlook Page 46
 Fixed Income Market Review and Outlook
In the year 2020, globally systemically important central
banks sustained accommodative monetary policy to
prevent the global health crisis from prompting a
financial crisis. Asides reduction in policy rates in major
countries, countries rolled out several funds and
programs to lessen the impact of the pandemic on the
economy. The US Fed led other monetary authorities by
reducing its policy rate to a range of 0% - 0.25% amidst
other quantitative easing programs. In the developed
markets, treasury yields declined as investors ‘flew’ to
safer assets and this induced huge withdrawals from
emerging market assets. The Institute of International
Finance (IIF) reported outflows of $83.0bn from Emerging
Markets (Ems) in March, more than 3x the outflows
recorded during the Great Financial Crisis of 2008.
Although economic activities have since resumed at a
gradual pace, commodity prices recovered and vaccines
are being distributed albeit at a slow pace, the new strain
of the virus pose a significant risk to EMs. There has been
episodes of fresh lockdowns in Advanced Economies (AEs)
and this would deeply depress remittances and
investment flows to EMs. The trajectory in the
development and distribution of vaccines, especially to
combat the new strain, would determine the timing of
full resumption of economic activities and improving
demand & employment.
2020 reflected the full effects of the multiple regulations
Chart 27: Average Yield on Sovereign Bonds vs S&P/FMDQ Bond Index
S&P/FMDQ Bond Index
800.0
700.0
600.0
500.0
400.0
Source: Bloomberg, FMDQ, Afrinvest Research
Afrinvest West Africa
from the CBN in the later part of 2019 in the Nigerian
fixed income market. The huge wall of liquidity
stemming from maturing OMO instruments with limited
investment opportunities crashed yields in the Treasury
Bills market to an average of 0.5% by the end of 2020
from 12.8% as at when the regulation was issued in
October 2019. Bond yields were no exception as the
average yield on FG bonds dwindled to 6.0% by the close
of 2020 from 14.1% in October 2019. With the pandemic
ravaging the fragile Nigerian economy, the CBN swung
into a full spree easing mode with a 200bps reduction in
the policy rate to 11.5% by the monetary policy
committee. Several other measures were implemented to
stimulate the economy and lessen the economic effect of
the pandemic and these featured reduction of interest
rates on intervention loans, moratoria and other
regulatory forbearance. We saw significant outflows at
the peak of the pandemic in March 2020 as foreign
investors exited the Nigerian market in troops, hence,
effecting further pressures on the currency. CBN
therefore adjusted the currency to ₦360.00/$ from
₦306.00/$ (and later, to ₦379/$ in August) and also
implemented capital controls to stem outflows.
Compared to 2019, activity level in the fixed income
market varied in 2020 with OMO sales down 57.2% y/y to
₦6.5tn. The frequency of OMO auctions also declined to
40 relative to 62 in 2019 as local corporates could no
longer access the market, foreign investors avoided the
market at the peak of the pandemic and CRR debits on
the banks by the CBN provided a cheaper liquidity
management system. The increasing outflows from OMO
maturities without attractive investment outlets fueled a
rise in activity in the treasury bills and bonds market,
Average Bond Yield
15.0%
12.0%
9.0%
6.0%
3.0%
0.0%
Page 47
 Fixed Income Market Review and Outlook
hence, treasury bills and Bonds sales at the auctions rose
22.3% and 7.9% y/y respectively to ₦3.4tn and ₦1.9tn in
2020.
As yields on OMO instruments trended downwards in line
with monetary policy actions, foreign investors’ holdings
in money market instruments declined by 98.9% y/y to
$17.1m in Q4:2020.
In our 2020 outlook, we had anticipated that the current
dichotomy in the money market between treasury bills
and OMO instruments would be temporary and expected
a reversal by Q3:2020 as CBN would enjoin local players
back into the OMO market and avoid a devaluation. Our
expectation was influenced by initial investor apathy and
dwindling foreign reserves. We also believed the ratings
downgrade the country suffered from the major agencies
towards the end of 2019 would discourage foreign
borrowings and switch the focus on domestic borrowings,
hence, yields should rise. Contrary to our presupposition,
the market remains segmented with yields retreating to
all-time lows and the currency was devalued twice in
2020. For emphasis, the DMO borrowed ₦1.9tn on behalf
of the FG and the subscription-to-offer rate rose to 3.7x
compared to 1.6x in 2019. Despite these developments,
yields remained downtrend in the face of surging
inflation and deepening negative real return. While the
CBN’s course of action regarding the bifurcation is
unclear, we believe a reversal of the policy is necessary as
FPIs are majorly vested in the OMO market and this short-
term concentration may constrain the CBN’s ability to
Chart 28: Nigeria Sovereign Bonds, Treasury Bills and OMO Auctions Summary for 2020 vs 2019
Source: CBN, DMO, Afrinvest Research
Page 48 Nigerian Economy & Financial Market Outlook | 2020 Review and 2021 Outlook
attract long-term foreign investment flows should the
apex bank reverse course this year.
Activity Level in the Nigerian Fixed Income Market
The DMO issued bonds worth ₦1.9tn in 2020 at a lower
average marginal rate of 9.4%, compared to 14.1% in
2019 with subscription levels surging to 3.7x as the system
remained awash with net inflows from OMO assets
(₦12.3tn). In the OMO primary market, activity waned as
the market is now accessible to only banks & FPIs, hence,
sales volume declined to ₦6.5tn in 2020 from ₦15.2tn in
2019 and marginal rate declined to 7.7% from 12.4%
recorded in the previous year.
Sub-nationals and corporates issues flooded the market
as we envisaged at the beginning of the year.
Commercial paper issuances in 2020 spiked to ₦663.6bn
at an average yield of 6.5%, lower than the prime
lending rate of 11.4%. The Lagos state government also
tapped the market to raise ₦100.0bn through a bond
issuance at a coupon rate of 12.3%, lower compared with
the average rate of 16.4% on the existing Lagos state
bonds. Corporates also issued bonds in 2020, chief of
which were issued by Dangote Cement and Flour Mills.
Eurobonds Market… Early Jitters Waning Off
Global systemic central banks maintained easy monetary
policy in 2020 and treasury yields in AEs declined
subsequently, making EM assets appear attractive.
However, as the pandemic disrupted supply chains and oil
 Fixed Income Market Review and Outlook

Chart 29: Corporate and Sub-national Issuances in 2020

Source: FMDQ, Afrinvest Research

prices crashed, investors sought capital preservation and already, currency devaluation have dealt most of these
withdrew funds from EMs (evident in the FPI outflows of countries a huge blow especially with regards to
$83.0bn in March). Average yields across SSA Eurobonds Eurobonds debt-servicing costs. The region is projected to
surged to 14.6% in March but retreated to 7.6% by the rebound from its record recession in 2020, however, the
close of the year as economic activities resumed and oil new wave of the pandemic could weigh substantially on
prices improved. growth given weak healthcare systems. Despite the
attractiveness of yields in EMs, SSA countries may be
During the year, SSA shelved borrowing plans due to
excluded from foreign inflows due to weak growth,
widening spreads and falling commodities prices. Instead,
fragile fiscal position, weaker currencies, potentially
SSA countries sought funding from multilateral
lower remittances and uncertainties around commodity
organisations to settle pandemic-related expenditures
demand & prices.
and plug fiscal deficits which had widened significantly as
commodity prices slowed. For context, about 34 SSA
countries got $16.3bn from the IMF in 2020, hence, the
only issuances recorded in 2020 were from Ghana
($3.0bn) and Gabon ($1.0bn) which had been issued early
in Q1 before the sell-offs began. In our opinion, the direction of yields in 2021 will remain
a liquidity and monetary policy play. As the huge liquidity
In 2021, a number of factors guide our outlook for
flows from OMO maturities are thinning out and the
Eurobonds in SSA countries. Although yields have
₦5.7tn expected from OMO assets this year (2020:
retreated, yields are yet to touch their January 2020 levels
₦12.3tn) reside mainly with banks and FPIs, we believe
thereby providing attractive carry-trade opportunities for
there would be less pressure on yields from OMO
FPIs on one hand. On the other hand, the slightly higher
maturities. A clearer picture however emerges when all
yields implies increased borrowing costs for issuers and
Chart 30: Average Yield on SSA Sovereign Bonds vs SSA Corporate Bonds

Average SSA Sovereign Eurobond Yield Average SSA Corporate Eurobond Yield

14.0%

12.0%

10.0%

8.0%

6.0%

4.0%

Source: Bloomberg, Afrinvest Research

Afrinvest West Africa Page 49

 Fixed Income Market Review and Outlook

Chart 31: Quarterly Nigerian Sovereign Bonds Yield Curve (2019 - 2020)

Q1 2020 Q2 2020 Q3:2020 Q4:2020

16.0%

14.0%
12.7% 12.9%
11.8%
12.0%
11.0% 11.1%
10.0%
7.9% 9.4%
8.0% 7.1%
7.3% 7.4%
6.0%
5.4%
3.9%
4.0%
4.2%
2.1%
2.0%
0.4%
0.0%
3M

6M

7Y
1Y

2Y

3Y

4Y

5Y

6Y

8Y

9Y

10Y

11Y

15Y

17Y

18Y

30Y
Source: Bloomberg, Afrinvest Research

maturities are compared with expected issuances for the
year. Estimated maturities totaling ₦10.3tn from OMO
(₦5.tn), Treasury bills (₦2.6tn) and Bonds (₦2.0tn) are far
less from the expected issuances of ₦4.8tn from Bonds
(₦2.2tn) and Treasury bills (₦2.6tn). On the bright side, the
₦4.1tn special bills launched by the CBN late last year in a
bid to return the excess CRR held in its vaults should help
stow liquidity away from the market and support
improvement in yields, although it is short-dated.
For monetary policy guidance, the CBN’s dovish stance in
2020 was mainly to support economic growth and that was
at the expense of spiraling inflation growth. Given stable
oil prices, government revenues and improving economic
activities and considering the low-base effect of 2020,
economic performance should improve in 2021. This,
coupled with surging inflationary pressures, may cause the
CBN to change gear and increase focus on price stability. In
the same vein, the full resumption of activities especially
trade and travels would impose intense pressure on the
currency and increase the desire to attract FPIs, supporting
the case for monetary policy reversal. We expect yields to
inch slightly higher in 2021 based on the highlighted
factors and we project short and long-term yields to rise
by at least 200bps and 150bps respectively.
We saw a proliferation of commercial papers in 2020 as
corporates feasted on the low yield environment and
raised funds at ultra-low rates. We expect that this would
continue in 2021 especially in H1 as yields remain low.
Although we are optimistic of a rise in yields this year, we
do not expect the high double-digit yields the market was
accustomed to.
At the start of the year, we had expected accommodative
monetary policy in AEs to see funds flow to EMs assets in
search of yields. However, with the outbreak of COVID-19,
investors initially panicked and retrieve funds from EMs to
safety, resulting in massive rise in yields`. On the back of

Chart 32: Performance of Portfolios in 2020 Investment Strategy

Source: Bloomberg, Afrinvest Research

Page 50 Nigerian Economy & Financial Market Outlook | 2020 Review and 2021 Outlook
 Fixed Income Market Review and Outlook

Chart 33: Fixed Income Portfolios for 2021

Source: Bloomberg, Afrinvest Research

gradual resumption of economic activities, we have seen

investors return to EMs assets as yields remain attractive. A
review of the performance of the portfolios we
recommended for 2020 reveals significant of our fixed
income portfolio at an average of 12.2% return during the
year. Our Modified Duration Portfolio returned the highest
in 2020 with an average return of 27.8%, although it
lagged the benchmark - S&P/FMDQ Nigerian Bond Index -
which returned 39.1%. The effect of the pandemic was
mostly felt in our Smart Eurobond Portfolio which returned
1.4%, underperforming the Blomberg Barclays EM Total
Return Index return of 6.5% as 2 corporate instruments
recorded losses during this year. On the other hand, our
passive bond portfolio consisting of local corporate bonds
returned 9.7%.

For 2021, uncertainties cloud our outlook especially for the

domestic market. For the domestic market, we would
advise a short-term play especially in H1 as the investment
terrain remains unclear. Hence, our modified duration
portfolio has been reshuffled to include more short-term
instruments. For the Eurobonds market, we believe the
performance of the market would be positive as inflows
from AEs would boost performance and drive gains in the
market. However, SSA countries’ participation in the rally
expected in EMs will be highly dependent on vaccine
distribution and infection management. The passive bond
portfolio remains attractive for buy-and-hold strategy.

Afrinvest West Africa Page 51

 Section Six
List of Charts, Tables and Figures

Nigerian Economic & Financial Market Outlook | 2020 Review and 2021 Outlook Page 52
 List of Charts

Chart 1: COVID-19 Infection by Region

Chart 2: Global Economic Growth Forecast across Major Regions 2019 - 2021F

Chart 3: Global Trade Growth (2016 – 2021F)

Chart 4: Global Equities Performance in 2020

Chart 5: Quarterly Real GDP Growth (2019-2020)

Chart 6: Real GDP Growth (2016-2021F)

Chart 7: Average Monthly Inflation (2016-2021F)

Chart 8: Trade Balance (2019 - 2020)

Chart 9: Current Account Balance

Chart 10: Foreign Investment Trends - $’bn (2014 – 2020)

Chart 11: Historical Market Foreign Exchange Rate (2017-2020)

Chart 12: Foreign Reserves and Crude Oil Prices (2017-2020)

Chart 13: Trajectory of Monetary Policy Rate and Market Rates

Chart 14: FGN Budget (2020-2021)

Chart 15: FGN Revenue (2017-2021F)

Chart 16: FGN Expenditure and Fiscal Deficit (2017-2021F)

Chart 17: Nigerian Equities Market Performance

Chart 18: Average P/E Multiple for NSE ASI vs. MSCI Frontier Market Index vs BRICS Markets in 2020

Chart 19: Foreign vs Domestic Investors Transactions

Chart 20: Daily Volume and Value Traded in 2020

Chart 21: Sector Indices Performance in 2020

Chart 22: Top 10 Gainers and Losers in 2020

Chart 23: One-year Trajectory of Index YTD Return vs. Afrinvest Forecast

Chart 24: Afrinvest Equity Market Projection Scenarios 2021

Chart 25: Performance of 2021 Investment Strategy Portfolios

Chart 26: Afrinvest Equity Strategy Portfolios

Chart 27: Average Yield on Sovereign Bonds vs S&P/FMDQ Bond Index

Chart 28: Nigeria Sovereign Bonds, Treasury Bills and OMO Auctions Summary for 2020 vs 2019

Chart 29: Corporate and Sub-national Issuances in 2020

Chart 30: Average Yield on SSA Sovereign Bonds vs SSA Corporate Bonds

Chart 31: Quarterly Nigerian Sovereign Bonds Yield Curve (2019 - 2020)

Chart 32: Performance of Portfolios in 2020 Investment Strategy

Chart 33: Fixed Income Portfolios for 2021

Afrinvest West Africa Page 53

 Section Seven
Afrinvest (West Africa) Limited

Nigerian Economic & Financial Market Outlook | 2020 Review and 2021 Outlook Page 54
 About US

Afrinvest (West Africa) Limited (“Afrinvest”or the “Company”) is a leading independent investment banking firm with a
focus on West Africa and active in four principal areas: investment banking, securities trading, asset management, and
investment research. The Company was originally founded in 1995 as Securities Transaction and Trust Company Limited
(“SecTrust”) which grew to become a respected research, brokerage and asset management firm. Afrinvest (West Africa)
Limited is licensed by the Nigerian Securities and Exchange Commission (“SEC”) as an issuing house and underwriter. We
provide financial advisory services as well as innovative capital raising solutions to High Net-worth Individuals (“HNIs”),
corporations, and governments. Afrinvest is a leading provider of research content on the Nigerian market as well as a
leading adviser to blue chip companies across West Africa on M&A and international capital market transactions. The
company maintains three offices in Lagos, Abuja and Port-Harcourt.

Afrinvest Securities Limited (“ASL”) is licensed by the Nigerian SEC as a broker dealer and is authorized by the Nigerian
Stock Exchange (“NSE”) as a dealing member. ASL acts as a distribution channel for often exclusive investment products
originated by Afrinvest and AAML as well as unique value secondary market trading opportunities in equity, debt,
money market and currency instruments.

Afrinvest Asset Management Limited (“AAML”) is licensed by the Nigerian SEC as a portfolio manager. AAML delivers
world class asset management services to a range of mass affluent and high net worth individual clients. AAML offers
investors direct professionally managed access to the Nigerian capital markets through equity focused, debt focused and
hybrid unit trust investment schemes amongst which are the Nigeria International Debt Fund (NIDF), Afrinvest Equity
Fund (AEF), Balance Growth Portfolio (BGP), Ethical Investment Portfolio (EIP) and Guaranteed Income Portfolio (GIP).
Contacts
Investment Research
Abiodun Keripe akeripe@afrinvest.com +234 1 270 1680 ext. 314
Aminat Ibidun aibidun@afrinvest.com +234 1 270 1680 ext. 313
Benedict Egwuchukwu begwuchukwu@afrinvest.com +234 1 270 1680 ext. 317
Oluwadara Olunuga oolunuga@afrinvest.com +234 1 270 1680 ext. 319

Institutional Sale and Marketing

Adedoyin Allen aallen@afrinvest.com +234 1 270 1680 ext. 237
Taiwo Ogundipe togundipe@afrinvest.com +234 1 270 1680 ext. 601
Investment Banking
Jessica Essien jessien@afrinvest.com +234 1 270 1680 ext. 171
Olanrewaju Ogunlana oogunlana@afrinvest.com +234 1 270 1680 ext. 178
Asset Management
Robert Omotunde romotunde@afrinvest.com +234 1 270 1680 ext. 281
Christopher Omoh cmoh@afrinvest.com +234 1 270 1680 ext. 505

For further information, please contact:

Afrinvest West Africa Limited (AWA)

27,Gerrard Road
Ikoyi, Lagos
Nigeria
Tel: +234 1270 1680 | +234 1 270 1689 www.afrinvest.com

Afrinvest West Africa Page 55

 DISCLAIMER

This report has been issued and approved by Afrinvest Securities Limited (“Afrinvest”). This report is based on information
from various sources that we believe are reliable; however, no, representation is made that it is accurate or complete. While
reasonable care has been taken in preparing this document, no responsibility or liability is accepted for errors or fact or for
any opinion expressed herein. This document is for information purposes only. It does not constitute any offer or solicitation
to any person to enter into any trading transaction. Any investment discussed may not be suitable for all investors. This
report is provided solely for the information of clients of Afrinvest who are expected to make their own investment
decisions. Afrinvest conducts designated investment business with market counter parties and intermediate customers and
this document is directed only at such persons. Other persons should not rely on this document. Afrinvest accepts no liability
whatsoever for any direct or consequential loss arising from any use of this report or its contents. This report is for private
circulation only. This report may not be reproduced distributed or published by any recipient for any purpose without prior
express consent of Afrinvest. Investments can fluctuate in price and value and the investor might get back less than was
originally invested. Past performance is not necessarily a guide to future performance. It may be difficult for the investor to
realize an investment. Afrinvest and/or a connected company may have a position in any of the instruments mentioned in
this document. Afrinvest and/or a connected company may or may not have in the future a relationship with any of the
entities mentioned in this document for which it has received or may receive in the future fees or other compensation.
Afrinvest is a member of The Nigerian Stock Exchange and is regulated by the Securities and Exchange Commission to
conduct investment business in Nigeria.

Page 56 Nigerian Economy & Financial Market Outlook | 2020 Review and 2021 Outlook