Macroeconomic Report & Economic Updates

A recently conducted study by the World Bank shows that the cost of mortality and morbidity due to air pollution from exposure to fine particulate matter (PM₂.₅) stood at $2.1 billion or N631 billion (0.5% of Nigeria’s GDP).² Lagos state has an exceedingly high concentration of PM₂.₅, at annual mean concentration  of levels of 68μg/m³ which exceed the World Health Organization (WHO)’s guideline for the annual mean PM₂.₅ level of 10μg/m³. Consequently, 11,200 people die from air pollution with 60 percent of the deaths under the age of 5. Sources of air pollution in the state include, road transport, heavy energy dependence on inefficient diesel and gasoline generators due to unreliable power, poor waste management, polluting fuel and stoves for household cooking etc. Air pollution is injurious to human health especially those that are already vulnerable – children, elderly, or people with existing health problems. In addition, it increases the rate of cardiovascular and respiratory ailments as well as mortality rates in the economy. Intrinsically, the life expectancy is reduced by air pollution. Therefore, to curtail these effects, low emission vehicles should be adopted and old generators should be discarded. Thus, they should be replaced with a better source of power such as renewable source of energy.

Total capital imported into Nigeria decreased by 77.88 percent from $5.85 billion to $1.29 billion between first quarter and second quarter of 2020.¹ A disaggregation of the data shows that Foreign Direct Investments (FDI) declined by 30.65 percent to $148.59 million, portfolio investment plummeted by 91.06 percent to $385.32m while other investments also decreased by 42.8 percent to $761.03m in the review period. The United Kingdom, South Africa and United Arab Emirate are the top sources of capital investment in Nigeria. By sectors, shares (35.9 percent), finance (23.9 percent) and banking (10.8 percent) accounted for the most capital inflow into the country. The decline was as a result of the uncertainty associated with the COVID-19 pandemic as investors seek safer assets. Considering that the decline in capital is occurring in a context of low oil prices, foreign exchange inflows will be significantly impaired with implications on the exchange rate. While the government has minimal influence over the trends in capital inflow, alternative sources of generating foreign exchange earnings should be developed in order to induce stability into the foreign exchange market.

The GDP growth rate in 2020Q2 was estimated to be -6.10%, the first negative growth since the recession in 2016/2017. The GDP declined by 8.22 percentage points from 1.87% to -6.10% between 2020Q1 and 2020Q2¹. The fall was largely driven by a slowdown in international and domestic activities occasioned by lockdown measures to prevent the spread of the coronavirus. Further disaggregation of the data shows that the non-oil sector GDP decreased by -6.05% (first negative decrease since 2017Q3). Also, the oil sector experienced a higher negative growth, declining by -6.63% within the same period. Contractions in growth were also recorded in the industry (-12.05%) and service sectors (-6.78%) while the growth rate in the agriculture sector remained positive (1.58%). Given that the strict lockdown measures were lifted at the end of the second quarter, and Nigeria’s major trading partners – Europe, the United States, and China – have reopened their economies, the GDP growth rate in 2020Q3 is expected to be more favourable than the preceding quarter. However, the coverage and targeting of the existing interventions for the vulnerable households and affected businesses should be improved in order to enhance their reach.

Nigeria’s unemployment rate increased from 23.1 percent in 2018Q3 to 27.1 percent in 2020Q2¹. Similarly, the underemployment rate increased from 20.1 percent to 28.6 percent in the same period. The rise in unemployment was driven by an increase in the labour force size alongside a poor performance in generating adequate jobs. Disparities exist among segments of the population as rural dwellers (28%) are more unemployed than those in urban areas (25.4%), young people (35%) compared to other age groups, and females (31.6%) more than males (22.9%). Even among the educated, those with a bachelor’s degree have the highest unemployment rate at 41% relative to those with a senior secondary school certificate (28.5%) or a post graduate degree (23%). Without adequate efforts to develop labour absorbing sectors, the unemployment rate is expected to continue to rise considering that Nigeria has a young population structure and as such, new entrants to the labour market are expected. Private and public investments in sectors capable of absorbing large numbers of people such as agro-processing (textiles, leather and leather products, and food processing) and horticulture should be accelerated.