Macroeconomic Report & Economic Updates

Between 2015 and 2021, Nigeria’s external debt from the World Bank and the African Development Bank nearly doubled, increasing from US$7.23 billion to US$14.35 billion. ¹ About US$11.097 billion was obtained from the World Bank’s International Development Association (IDA) which provides concessional loans at lower interest rates and longer maturity and grace periods. Other sources include the World Bank’s International Fund for Agricultural Development (IFAD), with a commitment of US$410.23 million. While debt is an important source of revenue for countries, excessive debt can hinder long run economic growth. More specifically, high debt service payments crowds out investment in critical sectors such as education, health, and social protection. Consequently, debt service management strategies such as debt for development swaps – that is the provision of debt relief in exchange for investments in key development sectors – should be considered by the government. In addition, the underlying revenue shortage problem should be addressed by mobilizing domestic resources through curbing tax evasion and avoidance.

According to the National Bureau of Statistics, the total value of capital importation declined by 54 percent from US$1,905.89 million in the first quarter of 2021 to US$875.62 million in the second quarter.⁴ Portfolio investments were the largest amount of capital importation accounting for 62.97 percent of total capital import and valued at US$551.37 million. Foreign Direct Investment accounted for only 8.9 percent of capital imports and valued at US$77.97 million in Q2 2021. The substantial decline in capital importation in Nigeria stems from both endogenous and exogenous factors amid the slow global recovery from the COVID-19 pandemic. Some of these endogenous factors include exchange rate volatility and the double-digit inflation rate which has amplified economic uncertainty, thus increasing pessimism among investors. In view of this, government policies should be tailored towards the reduction in the rate of inflation and stabilising the exchange rate through aggregate supply policies which can be done via boosting local productivity. Additionally, improving security would boost investors’ confidence which should enhance capital importation.

According to the World Bank, the participation in the Nigerian labour force has declined by about 20 million workers between 2018 and 2020.¹ Even for those within the labour force, the inactive population has increased from 29 to 52 million workers between 2014 and 2020. Consequently, unemployment is at record levels as the unemployment rate is 26.3 percent while youth unemployment is 42.5 percent. Owing to the country’s socio-economic challenges as well as high unemployment levels, there has been a rise in migration as young people seek asylum and refugee status in other countries. Going forward, the decline in labour force participation is likely to continue as more young people migrate for better opportunities. Similarly, unemployment is likely to worsen considering the youth bulge and the limitedness of labour-absorbing industries such as agriculture and manufacturing in creating large numbers of high value jobs. Consequently, the private sector which is an important contributor to job creation will have to develop and generate additional opportunities by addressing existing barriers including limited productivity and competitiveness, insufficient diversification, and lack of openness to international markets.

The Federal Government (FG) have announced plans to increase oil reserves by 40 billion barrels by the year 2030 with aim of dominating the West African oil and gas market.¹ Following this, oil production capacity is intended to rise to three million barrels per day. The Director of the Department of Petroleum Resources (DPR), Mr. Sarki Auwalu, stated at the AA Holdings’ 2021 Business Dinner of The Petroleum Club that Nigeria has vast oil and gas resources that can reverse the issue of resource curse syndrome that has plagued the country for decades. He pointed out that Nigeria is in a better position to achieve these objectives than any other West African country due to natural resources. Gas reserves are also intended to increase to 220 Trillion Cubic Feet (Tcf) by the year 2030. The effects of turning Nigeria into a gas-based economy would improve government revenue. However, this could undermine economic diversification policies and the national policy on climate change in Nigeria.

Within the period of January 1 and May 31, 2021, the Nigerian Communications Commission (NCC) recorded an increase of over 400 percent in revenue budget performance in respect of spectrum fees.¹ The NCC exceeded its N36 billion projected revenue with over N150 billion within the five months. This has been as a result of effective regulatory regimes effected over the years and a major contribution to the Federal Government’s revenue drive and generation. There have also been advancements in the nation’s telecoms industry and improved operations of licenses leading to expansion in economic output. Towards the end of 2020, the NCC announced that N344.71 billion was generated and remitted by the Commission, to the government’s Consolidated Revenue Fund (CRF) in the last five years. While the NCC stands out as a profitable government agency, careful consideration should be taken in order to avert the overregulation of telecom providers. Such excessive regulation could dissuade private investors from the sector and have adverse effects on the industry’s profits.