The Group Managing Director of Cowry Asset Management Limited, Johnson Chukwu, has projected that the Nigerian economy will witness a contraction of between two and three per cent this year.
This is contrary to the 5.4 per cent contraction forecasted by the International Monetary Fund.
He made the projection yesterday when he presented a paper entitled ‘The Nigerian Economy – Half Year Review: Expectations and Investments Strategies in H2 2020.’
Chukwu stated that the steep decline projected by the IMF would be moderated by the expected growth in the agricultural and Information and Communications Technology sectors, which account for 36 per cent of Nigeria’s GDP.
His words, “While we agree that the Nigerian economy will contract in 2020, we, however, believe that the contraction will not be as steep as the 5.4 per cent projected by the IMF.
“We expect the agriculture sector, which accounts for 22 per cent of the GDP, to remain resilient due principally to favourable weather condition this year. This is despite setbacks from highlighted insecurity in the northern part of the country.
“The ICT sector accounts for 14 per cent of the GDP and is expected to maintain its growth momentum in the remaining quarters of the year.”
In summary, according to him, robust growth in agriculture and the ICT, which combined account for 36 per cent of the GDP will have the effect of cushioning the rate of economic contraction.
He also projected a ‘V’ shaped economic recovery for Nigeria.
“Anyway you slice it, the Nigerian economy may only recover slowly in the aftermath of the pandemic. We expect that a weak Q2 and Q3 results will drive equity prices lower and despite Organisation of Petroleum Exporting Countries’ agreements and cuts, oil prices may not return to the nation’s comfort zone of $60 per barrel anytime soon,” he said.
Advising investors on the best investment strategy, he said, “Investors with long-term horizon may be facing the best of times. We advise focus on fundamentally strong companies with low P/E, high dividend yield and historically high return on equity.”
According to Chukwu, the agriculture, ICT, healthcare and financial services that are less affected by the pandemic disease would attract more investments.
He, however, advised fixed income investors to invest in short-term bonds and in fixed deposits to retain the ability to benefit from the expected upward shift in the yield curve.
Chukwu also projected that the economy would witness new corporate bond issue as firms position to take advantage of the low yield environment, even as the focus would be on, investment grade instruments with adequate risk premium.
“So far, the Central Bank of Nigeria has maintained relatively high Open Market Operation yield environment as 341 days OMO bills traded at 9.8 per cent as at June 18, 2020. An upward shift in the yield curve may be seen in Q4,” he added.
