…We expect the troika impact of elevated interest rates in the environment, the removal of the standing deposit facility (SDF) limit by the Central Bank of Nigeria (CBN), and higher yields in the fixed-income market, to limit risk asset creation.
FRI, DEC 29 2023-theGBJournal|While we expect the growth in the Services sector to remain positive through 2024FY, we believe the expected growth rate will be moderate relative to 2023FY, given potential headwinds surrounding currency pressures, higher taxes, and low credit creation.
On the sector growth drivers, we expect the activities in the ICT, Trade, Transportation, and Financial Institutions sub-sectors to spur the anticipated growth in the forecasted period.
On the one hand, we believe the ICT sub-sector will maintain its growth momentum supported by continuous accretion across telecommunication companies’ subscriber bases, acceleration of payment service banks (PSB) activities, rising penetration of smartphones, and investments in all networks to drive data revenue.
In addition, we foresee the sector benefiting from the government’s suspension of the 5.0% excise duty on telecom operations across networks.
Although the government is yet to communicate the effective date of the end of this suspension, we understand that the Nigerian Communications Commission (NCC) is currently in discussions with the authorities to remove this excise duty on telecom operations completely.
However, we still see currency pressures and the effect of the 2023 Finance Act as downside risks for the sector.
Elsewhere, the reopening of the land borders poses a positive catalyst for growth in the Trade sub-sector, although we acknowledge that the closure of the Nigeria-Niger border may likely limit the sector’s growth.
The preceding, in addition to weak demand and exchange rate pressures, informs our slow growth expectation for the sector in 2024FY (+2.07% y/y) relative to 2023FY (+2.53% y/y).
Furthermore, we believe that the growth catalysts for the Financial Institutions sub-sector have normalised, more so that 2023FY growth levels will serve as a high base for 2024FY.
Notably, relative to 2023FY, we expect the growth in this sub-sector to be slower against the backdrop of a likely moderation in loan creation restricted by tighter monetary conditions.
In simpler terms, we expect the troika impact of elevated interest rates in the environment, the removal of the standing deposit facility (SDF) limit by the Central Bank of Nigeria (CBN), and higher yields in the fixed-income market, to limit risk asset creation.
Thus, on a balance of factors, we expect the Service sector to grow by 3.77% y/y in 2024FY (2023FY: +4.09% y/y).-With Cordros Research
X-@theGBJournal|Facebook-the Government and Business Journal|email:gbj@govbusinessjournal.com|govandbusinessj@gmail.com
