Macroeconomic Report & Economic Updates

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.

In August 2019, the Nigerian government closed all land borders to check the smuggling of products, especially rice and petroleum products, and other illicit cross-border activities. In December 2020, sixteen months after the closure, the government began the phased reopening of land borders and started with four borders - Illela, Maigatari, Mfun, and Seme. Sequel to the phased approach, on April 23rd, 2022, four additional borders – Idiroko, Jibiya, Kamba, and Ikon were opened.¹ The closure of the borders contradicts the principle guiding the African Continental Free Trade Agreement (AfCFTA), to which Nigeria is a signatory. The agreement seeks to ensure people's free movement and transfer of goods, technology, and knowledge within the continent, fostering intra-Africa trade. Therefore, the reopening of the borders indicates Nigeria's readiness and commitment to the regional free trade agreement. Nigeria has a lot to benefit from AfCFTA, but the benefit depends on several factors, including infrastructure, security, cost of doing business, and skills. Deliberate government efforts at improving security and infrastructure, especially electricity, roads linking Nigeria to other African countries, and the port conditions would increase the country's gains from the agreement. Also, there is a need for the government to address the porous state of our borders, thereby ensuring that they are not routes for the smuggling of arms, harmful substances, petroleum products, and agricultural products.

According to the Organization of Petroleum Exporting Countries (OPEC) May 2022 oil report, Nigeria’s oil production fell in April 2022.¹ The report shows that Nigeria produced an average of 1.22 million barrels per day (mb/d) of crude oil in April 2022. This production level is approximately 18,000 barrels per day (b/d) lower than 1.24 mb/d recorded in March 2022. In addition, total production is about 500,000 b/d lower than 1.74 mb/d OPEC assigned quota for the country. At US$ 100 per barrel, which is lower than the prevailing market price, the shortfall in production results in a loss of crude oil export earnings valued at over US$ 50 million per day, which also indicates a shortfall in Government revenue from crude oil royalty. These findings indicate that Nigeria is not maximising additional oil revenue associated with the surge in crude oil prices in the international market since Russia’s invasion of Ukraine. Nigeria’s declining crude oil production is due to low investment and other factors, including persistent oil theft and pipeline vandalism. For Nigeria to achieve the OPEC crude oil production quota, a result-oriented collaboration between the government and the private sector is required. The collaboration would lead to policies that eliminate bottlenecks hindering investment in the oil and gas sector. The collaboration would also ensure increased uptake of digital technologies in protecting the pipelines and the fast-track implementation of the revised PIA.