The naira has since strengthened on the parallel market. Given that most manufacturers depend upon a blended fx mix to secure their import needs, this clearly bodes well for them. The Manufacturers Association of Nigeria (MAN) has urged the CBN to sustain its recent boost to supply. In our view the circulars are not a step towards the modest devaluation that we expect later this year, and the naira appreciation observed in the parallel market will prove short-lived.
The output readings should be more consistent whenever the turnaround of the power sector gains greater momentum. According to one of several industry estimates in circulation, an annual investment of US$15bn for three years is required to lift generation to 8,000 megawatts (MW). The largest allocation for capital spending in the FGN’s budget proposals for 2017 is N529bn for power, works and housing but it nonetheless accounts for little more than 10% of the identified annual investment requirement.
In late February the CBN fuelled conversations around its exchange-rate policy with two circulars. They stated that the CBN would make additional fx available for school, medical and personal travel needs at no more than 20% above the prevailing interbank market rate. They also announced another forward sale of fx to reduce the backlog (of US$500m on a 60-day basis without sectoral preferences)
Based on recent data released by the National Bureau of Statistics (NBS), the allocation of credit to the manufacturing sector in Q4 2016 totalled N2.2trn (representing 15% of credit to the private sector.) The fragility of the macroeconomic environment and growing concerns around non-performing loans suggest that loan growth will be at best subdued in the near term.
This reading climbed steeply from 40 to 50. The improvement was seen across all company sizes, led by the large firms (with more than 200 employees).