Nigeria macro-indices tops among SSA peers

Nigeria has emerged tops in a macro-economic index ranking report by investment firm Renaissance Capital.

The Rencap macro-meter evaluates the relative macro health of seven coverage countries, with the top countries being Nigeria, Rwanda, Zambia, Tanzania, Kenya, Zimbabwe and Ghana, respectively.

“Nigeria ranks far ahead of its peers on our macro-meter which ranks countries based on their macro credentials. Ghana comes in at the very bottom, which is not unexpected,” said Rencap analysts led by Yvonne Mhango, an economist at the firm.

“The surprise may be Kenya ranking lower than Rwanda and Zambia. We think this ranking will become more relevant in 2015, when the external environment becomes less accommodative.”

The ranking was compiled by selecting variables that reflect the countries’ external and fiscal positions, strength of economic activity, and the degree of macro stability in 2014 year end.

Nigeria performs well in most of these variables.

A recovery in oil production has led to stronger growth, with GDP expanding by 6.54 percent in the second quarter of 2014, compared to 5.4 percent a year earlier, according to bureau of statistics (NBS) data.

The Federal Budget deficit as a percentage of GDP should slow to -1.4 percent of GDP in FY 2014, compared to -1.8 percent in 2013, while public debt as a percentage of GDP is a manageable 12.9 percent.

Nigeria’s current account surplus will rise to 4.4 percent of GDP in 2014, compared to a deficit of – 7.7 percent in Kenya and – 10.8 percent in Ghana, according to Rencap estimates.

The naira, which has remained firm recently, with interbank USD-NGN trading in a tight 161-163 range since early July, should finish the year at NGN165.9/$1 compared to NGN172/$1 previously forecast by Rencap.

“The exchange rate’s trajectory in recent months suggests that our econometric naira model’s projections may be bearish. We think a firmer currency will help, dissipate inflationary pressures and improve the likelihood of rate cuts,” said Mhango.

Any interest rate cut by the CBN should be positive for equities, the banks and consumers.

Nigerian stocks have underperformed peers this year with the NSE-ASI down -1.38 percent Ytd (Sept. 11), compared to an 18 percent gain in the MSCI Frontier markets index.

Nigerian equities currently trade at a valuation discount to Kenya. On a 12-month forward price to earnings (P/E) basis, Nigeria trades on 9.5 xs compared to Kenya on 12.5x and MSCI Frontier on 10.1 xs.

Investors should position in consumer companies like Nestle Foods, as well as lenders such as Zenith and Access Bank, ahead of elections due in February, says Rencap.

The biggest risk to the outlook is a fall in oil prices and production and its negative impact on consumer spending. Rencap is projecting Nigerian output of 2.2-2.3Mb/d and price of $100-105/barrel in 2015.

“The ramping up of oil output in the US has placed downward pressure on the international oil price. And a strengthening dollar, owing to prospects of higher US interest rates, implies downside risk to commodity prices,” Mhango said.

“A fall in oil production would undermine aggregate demand via imports, as lower FX earnings reduce Nigerian consumers’ purchasing power. Higher inflation and less accommodative US monetary policy imply some upside risk to local interest rates. This would be negative for the fraction of consumers that have access to credit, and for consumers of price inelastic goods and services, as companies can pass on their higher cost of capital.”http://ezeigbouche.com/2014/09/16/nigeria-macro-indices-tops-among-ssa-peers/