The World Bank’s recent Africa Pulse publication reveals a revised 2018 growth rate forecast for Nigeria from the earlier projected 2.1 percent to 1.9 percent1 – representing a slight downward review. The revision was premised around what the institution termed “sluggish growth” amid rising debts, and a myriad of factors including declining oil production, disruptions in agricultural activities occasioned by the incessant herdsmen and farmers clashes, and effects of climate change. The contraction in the agricultural sector stalled crop production and dampened prospects of increased non-oil growth, all of which stunted economic recovery2. With the continued implementation of the Economic Recovery and Growth Plan (2017-2020), there are strong possibilities that the economy may benefit from revenue sources other than oil in the near future.
Macroeconomic Report & Economic Updates
Recent data from the National Bureau of Statistics (NBS) show that total capital importation in 2015 fell steeply by 53.5 per cent from $20,750.76 million in 2014 to $9,643.01 million in 20152. This decline was largely driven by a substantial drop in portfolio investment (the largest component of Capital Inflows), which fell by 59.74 percent. The exclusion of Nigeria from the JP Morgan EM Bond index, the slump in crude oil prices, the decision of the US Federal Reserve to raise interest rates and the capital control measures imposed by the Central Bank of Nigeria (CBN) are the notable drivers of the reduced inflow of capital. Going forward, improving the business environment, especially easing foreign exchange controls, would determine the extent to which the economy can attract increased capital inflows.
The naira/dollar exchange rate remained largely stable at the parallel market at ?320/$ during the period7, albeit slight fluctuations on February 29, 2016 (?325/$) and March 2, 2016 (?328/$). The decline in the hoarding of foreign currency as well as the substantial reduction in the speculative demand for dollars were the two key factors responsible for the ease of fluctuations in the forex market8. With the slight increase in the price of crude oil, Nigerias foreign reserve slightly grew by $56 million, from 27.81 billion to $27.84 billion9. With the continued increase in the price of crude oil, a modest build-up of foreign reserve to guard against unfavourable commodity price movements is expected in the near term.
The Naira sustained its appreciation trajectory at the parallel market in the review week. Precisely, naira gained 13.3 percent (Week-on-Week) to exchange at N390/$ on March 24, 2017. Reduced pressure on the naira followed moderation in speculative activities as a result of increased forex sales and intervention by the CBN (daily intervention of $1.5 million at the interbank market.) The aim of CBN interventions (narrowing the gap between interbank and parallel market rates) seems to be on course with the continued appreciation of the naira at alternative markets. While current approach of the apex bank proves effective in improving international value of naira in the short term, however, it is expedient that the bank articulates clear and credible flexible exchange rate policy to sustain the momentum and enhance confidence in the forex market in the medium term. Nonetheless, the sustainability of the exchange rate gains is partly dependent on the prospect of crude oil price and production which is outside the purview of the monetary authorities.