Macroeconomic Report & Economic Updates

According to the latest transport fare watch by the National Bureau of Statistics (NBS), the average cost of air transport was N55,906.86 in May 2022, an increase of 52.95 percent from N36,552.70 paid in May 2021.⁴ Similarly, the cost of an inter-city bus journey stood at N3,668.64, suggesting an increase of 47.3 percent from N2,490.60 a year ago. The rise in transport costs is partly due to the hike in energy prices, the short supply of petroleum products and currency depreciation. The rising cost of transportation would feed into general price increases, lowering people’s purchasing power and eroding their standard of living. In the interim, there is a need for the government to dialogue with the private sector in designing frameworks that would improve the supply of petroleum products. In the medium term, the government should prioritise implementing the Petroleum Industry Act (PIA) to attract investors to invest in new refineries to increase the supply of refined petroleum products, thereby reducing the country’s reliance on other countries for its energy products. This intervention would minimise the effects of currency depreciation on energy prices.

Data from the Central Bank of Nigeria (CBN) shows that at the end of the first half of 2022 (H1 2022), Nigeria's external reserves stood at US$39.16 billion.3 This indicates th at the external reserves grew by 1.8 percent from US$38.48 billion at the beginning of the month (June 1). At mid-year, the external reserve is 3.3 percent lower than the US$40.52 billion recorded at the beginning of the year (Ja n uary 2022). The half-year decline in the external reserves despite rising oil prices is partly due to low crude oil production and CBN intervention in the foreign exchange market. To increase external reserves, the government needs to implement reforms that would increase non-oil exporting firms' productivity and competitiveness in the international market. Thus, increasing export earnings. With increased export earnings, the need for the CBN to intervene in the foreign exchange market to stabilise the domestic currency would be minimal.

Data from the National Bureau of Statistics (NBS) show that in the first quarter of 2022, Nigeria’s value-added tax (VAT) collected by the Federal Inland Revenue Service (FIRS) stood at N588.6 billion, representing an 18.6 percent increase compared to the N496.5 billion collected in Q1 2021.³ Decomposing the aggregate VAT revenue by classification indicates that local non-import VAT accounted for about 58.5 percent of total VAT in the period under review. Nigeria Customs Service (NCS) – import VAT accounted for 21.5 percent of total VAT, and Foreign non-import VAT accounted for 20 percent. Further analysis of the local non-import VAT shows that the manufacturing, information and communications (ICTs), and mining and quarrying sectors had the highest contributions, accounting for 32.8 percent, 17.1 percent, and 11.9 percent, respectively. While the increased VAT collection is a welcome development, considering the revenue projection of the government and rising expenditure in the post-COVID economy, the government needs to optimise all available revenue sources, including VAT. Consequently, there is a need for the government to frequently evaluate the tax automation strategies to identify areas for improvement to reduce tax evasion and ensure greater compliance by the companies. 

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.