After some contraction in 2020, the economy is projected to return to full-year growth of 1.4% YOY in 2021. However, the recovery will be mild and fragile. Public sector demand will be constrained in 2021, resulting from the pandemic-led plunge in oil revenues and swelling in government spending last year. Meanwhile, after intensifying last year, FX shortages are expected to improve moderately, supported by a modest rebound in exports and anticipated devaluations of the naira through the year. Businesses should position themselves to compete for the gains of a soft private sector recovery in 2021, driven by Nigeria’s flourishing tech space, buoyant performances of fast-moving consumer goods and agriculture, and the gradual normalization of manufacturing. 

Nigeria’s unexpected exit from recession in the fourth 2020 is the start of a tepid recovery in 2021 

An earlier-than-anticipated exit from recession in the fourth quarter of 2020 led the economy to outperform expectations for the year. Still, a slow recovery and rising prices and costs mean that businesses will face a highly competitive environment. This will push them to review their product offerings, ensuring they are able to demonstrate their value to customers, or seek to expand their client base (with a particular focus on resilient customer segments). 

Recent weakening of the Nigerian Autonomous Foreign Exchange Rate is expected to continue this year 

The Central Bank of Nigeria allowed the NAFEX to weaken in February, as external trade trends continued to pressure the naira and FX reserves fell further. The NAFEX is expected to remain the de facto exchange rate for businesses, despite the acute FX shortages at this rate in 2020. 

Blavatnik School of Government COVID-19 Stringency Index 

We classify the federal government’s approach as virus tolerance, as it aims to maintain commercial activity and limit negative economic outcomes of the pandemic. Restriction measures are unlikely to revert to the heavily commercially disruptive style used in March 2020. However, state governments may tighten restrictions on an ad hoc basis, causing some travel disruption. Businesses should monitor trends and announcements in locations relevant to their operations and sales. 

Actions for Business Professionals: 

  • Incentivize your local partners to monitor demand trends and identify pockets of resilient demand. 
  • Include naira weakening into your scenario planning and consider FX risks, such as currency hedging or pricing in hard currency, where possible. 
  • Where possible, prioritize customers in the rapidly growing IT & telecom sector and the resilient agricultural sector. Also, seek opportunities to supply manufacturing firms as you compete to benefit from a modest recovery in the sector. 

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