Macroeconomic Report & Economic Updates

Data on rail transportation showed that a total of 565,385 passengers travelled via the rail system in Q2 2021. This figure, when compared to 108,238 passengers recorded in Q2 2020 and 424,460 in Q1 2021, represents 422 percent year-on-year and 33 percent quarter-on-quarter growth respectively.¹ A total volume of 42,782 tons of goods/cargo also travelled through the system in Q2 2021, which is a 392 percent growth over the 8,691 tons recorded in Q2 2020, and 307 percent increase over the 10,511 tons recorded in Q1 2021. The corresponding revenue generated from passengers in the period under review was put at N1 billion as against N893 million in Q1 2021; and the revenue generated from goods/cargo was put at N72 million as against N26 million in Q1 2021. The data indicates the growing demand for rail transportation in Nigeria post COVID-19 and the government’s efforts to revive the railway industry. The convenience, affordability, and safety of railway transportation implies that expanding coverage through public and private investment and partnership will promote economic activities and growth.

 Nigeria’s merchandise trade with the rest of the world grew by 23.23 percent between Q1 2021 and Q2 2021¹. Similarly, year-on -year merchandise trade increased by 88.71 percent between Q2 2020 and Q2 2021, largely as a result of increases in oil exports. Furthermore, disaggregated data shows that the value of imports rose by 67.47 percent between Q2 2020 and Q2 2021 while exports increased by 128.29 percent within the same period. However, the export value of manufactured goods declined by 16.7 percent between Q2 2020 and Q2 2021. The growth recorded in exports signifies an improvement in the economy which should also ease the pressure on the exchange rate. However, the decline in the export value of manufactured goods implies that the efforts on economic diversification has not yielded results. Consequently, there is an urgent need to implement policies which can boost manufacturing sector output in order to avoid economic uncertainties emanating from crude oil price volatility. More specifically, policies that reduce interest rates, encourage knowledge and technology spillovers, and the adoption of mechanized processes are likely to be beneficial for manufacturing sector productivity.

In the second quarter of 2021, the country’s Gross Domestic Product (GDP) grew by 5.01 percent (year-on-year) in real terms, marking three consecutive quarters of growth after the negative growth rates recorded in the second and third quarters of 2020.¹ The rise in real GDP saw the oil sector contributing 7.42 percent while 92.58 percent was contributed by the non-oil sector. The steady recovery of the Nigerian economy since the end of 2020 is attributed to the increase in economic activities relative to pre-COVID-19 levels, and the easing of travel restrictions both locally and internationally. However, further insights show that real GDP grew at -0.79% in Q2 2021 compared to Q1 2021, reflecting slightly slower economic activities than the preceding quarter due largely to seasonality. It is important that the government adopts a multi-pronged solution to consolidate the recovery of the economy. This should include improving the ease of doing business, implementing expansionary fiscal policies to improve economic infrastructure, as well as improving security to boost aggregate supply.

The Central Bank of Nigeria has cautioned Microfinance Banks (MFBs) against engaging in foreign exchange (forex) transactions and other prohibited activities including wholesale banking.¹ According to the circular issuing this warning, the apex bank has observed the activities of some MFBs that have gone beyond the scope of their operating license. Cautioning MFBs is aimed at protecting them from the dangers of such prohibited transactions, given the banks’ relatively low capitalization. The CBN has noted that it will continue to monitor developments among MFBs and apply severe sanctions for breaches of extant regulations, including revoking the license of MFBs that fail to comply with the 2012 Revised Regulatory and Supervisory Guidelines for MFBs. Monitoring the activities of MFBs would ensure overall financial stability which is a prerequisite for sound macroeconomic policies, In particular, ensuring that all players in the banking system act within the remit of their operations enables efficiency in the transmission mechanism of monetary policy.

According to the National Bureau of Statistics, the volume of Value-Added Tax (VAT) has risen from ₦496.39 billion to ₦512.25 billion between Q1 and Q2 2021, reflecting a 3.2 percent growth. This is the highest ever quarterly VAT amount generated and reflects a year-on-year 56.56 percent growth. VAT collections have continued to peak, following the increase in VAT rate from 5 percent to 7.5 percent in January 2020 by the federal government. In Q2 2021, the manufacturing sector and professional services sector accounted for 8.76 percent and 5.72 percent of VAT collections with a sum of ₦44.89 billion and ₦29.3 billion respectively. Further disaggregation shows that ₦187.43 billion was generated as non-import local VAT and ₦207.69 billion was generated from non-import foreign VAT. Meanwhile, the balance of ₦117.13 billion was generated from the Nigerian Custom Service import VAT. In light of the economic recovery, there are potentials for increased mobilisation of financial resources through VAT. This will improve the government’s fiscal space and provide funding for critical sectors of the economy such as infrastructure, health and education. It therefore becomes necessary that the government improve its tax administration structure and strengthen its anti-corruption policies to avoid tax evasion.