Macroeconomic Report & Economic Updates

Data from the National Bureau of Statistics (NBS) shows that the average retail price of Automotive Gas Oil (Diesel) paid by consumers in Nigeria increased by 181 percent from N238.82 in May 2021 to N671.08 recorded in May 2022.⁴ On a month-on-month basis, the average retail price increased from N654.46 in April 2022, indicating a rise of 2.54 percent compared to the average retail price paid in May 2022. The rising cost of diesel is partly due to the Russia-Ukraine conflict. The economic sanctions imposed on Russia, a leading oil producer, in the international market have disrupted the global distribution chain for crude oil. As a result, diesel produced from crude oil is currently in low supply, resulting in a hike in its price. With the poor power supply in the country, most businesses depend on diesel-powered generators for electricity to carry out their production and other activities. The rising cost of diesel has increased the costs of businesses and put them at risk as their costs have increased significantly. The impact of the increase in diesel on business cost of operation is due to the country’s poor power situation and the reliance on the importation of diesel. In the short run, the government could support businesses by providing financial support to SMEs to survive the current high operating cost induced by high diesel prices. In the medium and long run, the government needs to focus on the power and refinery production capacity. An improvement in the power situation would reduce businesses’ reliance on diesel to power their operation. Also, the government needs to intensity efforts to increase the number of functioning refineries in the country thereby increasing domestic production of refined petroleum products, including diesel. Improvement in the power situation and an increase in domestic diesel production would reduce the businesses expenditure on diesel and reduce their overall cost of operation.

The June edition of the Monthly Oil Market Report (MOMR) of the Organization of Petroleum Exporting Countries (OPEC) shows that Nigeria produced an average of 1,262 million barrels per day (mbpd) in May 2022.² This indicates a 3.45 percent decline from 1,306 mbpd produced in the preceding month, April. The continuous decline in production is partly due to poor oil sector management, theft, and ageing production facilities. The report also noted that the price of the OPEC reference basket of crude oil rose to $113.87 per barrel over the same period. As an oil-producing nation, the rising crude oil price should serve as a revenue windfall. However, Nigeria is unlikely to experience a wholesome benefit due to the following factors – low oil production, continued petroleum subsidy regime, and increased importation of refined petroleum products. In Nigeria, crude oil accounted for 79.2 percent of total exports in Q1 2022, suggesting that crude oil is still the most significant source of foreign exchange.³ Therefore, the continuous decline in crude oil production indicates a loss of foreign exchange earnings that could have helped bolster the country's foreign reserves and reduce the pressure on the domestic currency. Consequently, the government is encouraged to intensify efforts at replacing ageing infrastructure and providing immediate and lasting solutions to the insecurity in oil-producing areas. These interventions are essential in ensuring that the country reverses the declining trend of crude oil production and experiences maximum earnings gain associated with the current high crude oil prices.

The value of capital importation into Nigeria in the first quarter of 2022 (Q1 2022) decreased to US$1.57 billion from US$2.19 billion recorded in the preceding quarter.¹ When compared on a year-on-year basis to Q1 2021, capital importation decreased by 17.46 percent from US$1.91 billion. The largest inflow of capital importation by type was Portfolio Investment, accounting for $957.58 million (60.87 percent), followed by other claims and Loans (Other Investments), which amounted to US$460.59 million (29.28 percent), and Foreign Direct Investment (FDI), which accounted for $154.97 million (9.85 percent). The data shows that Lagos (71.16 percent) and Abuja (28.40 percent) are Nigeria's leading capital inflow destinations. Despite successive GDP growth, the decrease in total capital importation is related to the perceived high political risk and restrictive foreign exchange policy. Consequently, to encourage foreign investments in Nigeria, the Federal Government should move toward a more flexible exchange policy that would place fewer restrictions on the repatriation of capital and profit by investors. In addition, the government should aim to reduce political risk by institutionalizing frameworks that would ensure that political activities do not hinder the implementation of planned reforms to attract investments. Also, there is a need for learning tours at the sub-national level. Underperforming states need to go to states with significant capital inflows to understand how they could reposition their states to attract investments.

The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) met on the 23rd and 24th of May 2022 to deliberate on local and global economic development. At the end of the meeting, the MPC increased the Monetary Policy Rate (MPR) by 150 basis points to 13 percent from 11.5 percent¹. However, the MPC retained the Cash Reserve Ratio (CRR) at 27.5 percent and the Liquidity Ratio at 30 percent. The committee noted that even though the economy has been experiencing growth for six consecutive quarters, inflationary pressures persist. As a result, the MPC thinks that increasing the MPR will reduce the inflation levels in the economy. While the increase in MPR is likely to signal to investors the Bank’s readiness to reduce the inflation rate, there is a need for complementary fiscal policy to ensure that the economy is not severally affected. An increase in MPR is likely to increase the cost of borrowing, which might slow down business activities. Apart from the high cost of borrowing, insecurity, poor transport system, and erratic power supply contribute to the high cost of doing business in Nigeria. A steady power supply, an efficient transport system, and improved security achieved through complementary fiscal policies would reduce the cost of business and contribute to achieving low inflation.

Data from the National Bureau of Statistics (NBS) shows that Nigeria’s economy grew in real terms by 3.11 percent in Q1 2022.¹ The growth rate is 2.6 percent points higher than the 0.51 percent growth rate recorded in Q1 2021 but 0.88 percent points lower than the 3.98 percent recorded in Q42021. Although there was a marginal decrease in real output growth, the quarter growth made it the sixth quarter of uninterrupted positive growth since the country exited the COVID-19 induced recession in Q4 2020. The non-oil sector grew by 6.08 percent and contributed about 93.37 percent of total output in the period under review. However, the oil sector contracted by 26.04 percent, and its share dipped to 6.63 percent in Q1 2022 from 9.25 percent in 2021. Persistent vandalism and illegal refineries are partly responsible for the declining contribution of the oil sector. Also, the electricity sector contracted by 11.2 percent, partly due to the frequent collapse of the transmission network in the period under review. For the Nigerian economy to have high and sustainable growth, the non-oil sector growth will need to be sustained to compensate for the contraction in the oil sector. Also, the country’s electricity generation and distribution need to be improved. The unreliable electricity situation partly contributes to the high cost of doing business and indirectly hinders growth.