Macroeconomic Report & Economic Updates

Data from the International Monetary Fund (IMF) shows that real GDP is projected to contract by 3.25 percent at the end of 2020 due to the negative impact of the COVID-19 pandemic.¹ The economy is expected to recover with minimal growth of 1.5 percent in 2021 with output returning to its pre-pandemic level by the year 2022. Fiscal deficits are expected to remain elevated as revenue collections have significantly dropped. Inflation is also expected to increase, which places the economy in a very vulnerable state. The IMF suggests that major policy adjustments such as exchange rate and monetary policy reforms, increased revenue mobilization and structural reforms need be implemented to achieve economic recovery and growth. The removal of fuel subsidy as well as the devaluation of the naira signals adequate political will in embarking on bold reforms. However, future economic reforms need to be proactive rather than reactionary, and wholistic rather than in parts. Furthermore, the government should leverage on high level public officials that have demonstrated the will for achieving structural change, technical assistance from external development institutions, and the experience of best practice countries.

According to the National bureau of Statistics¹, total value of Nigeria’s merchandise trade grew to N8,374.4 billion in Q3 2020, representing a 34.15% increase when compared to the previous quarter. The bulk of the country’s trade for the period comprises imports, which accounted for 64% while exports formed 36% of total trade (majorly from sale of crude oil produce). Further disaggregation of the data shows that while the value of export is gradually rising (34.85% more than Q2 2020) due to relative increase in economic activities, it remains significantly less by 43.41% in Q3 2019. Whereas imports continue to soar high, thereby worsening the widening trade deficit. It is therefore critical for government to intensify its efforts towards economic diversification, and implement better policies/ strategies to support non-oil exports, in order to curtail this negative trend.

The Central Bank of Nigeria (CBN) is taking critical steps in efforts to close the 8.5 percent gender financial inclusion gap and achieve 95 percent financial inclusion by 2024. 34,000 women have accessed 62 percent of the Micro, Small and Medium Enterprises Development Fund (MSMEDF) while over N9.5 billion has been disbursed to over 3,600 women through the Agribusiness Small and Medium Enterprises Equity Investment Scheme (AGSMEIS). Women have also significantly benefitted from other interventions such as the Textile Sector Intervention Facility, Real Sector Support Facility, and Commercial Agriculture Credit Scheme¹. In order to ensure gender parity in financial inclusion, women should be incorporated into high wage sectors and become better educated to enable them earn sufficient income and access the financial services available.

Nigeria has slipped into a recession after recording two consecutive quarters of negative growth rate. Gross Domestic Product (GDP) grew by –3.62 percent in the third quarter of 2020 from -6.1 percent in the second quarter of 2020. The negative growth can be attributed to the decline in growth recorded in both the oil and non-oil sectors.¹ Growth rate of the non-oil sector which contributes 91.3 percent to GDP stood at -2.51 percent while the growth rate of the oil sector stood at -13.89 percent. Further disaggregation of the data shows that an average of 1.67 million barrels of oil was produced daily in the third quarter of 2020 which was lower than the production in the same quarter of 2019 and in the second quarter of the 2020 by 0.37 million barrels and 0.14 million barrels respectively. Economic recovery will be largely dependent on the complete implementation of the 2020 budget as well as the Economic Sustainability Plan (ESP). However, availability of finance could pose a problem given that the key financing sources are loans from official creditors which are not as easy to obtain in these climes. Nevertheless, the increased availability of finance to the private sector such as the Youth Investment Fund and SME finance is likely to improve the economic prospects in the near term.

Data from the National Bureau of Statistics (NBS) shows that the average price paid for premium motor spirit (petrol) by consumers increased by 10.79 percent year-on-year to N161.17 in October 2020 from N145.48 in October 2019.¹ This increase can be attributed to the removal of fuel subsidy which is driven by the government’s inability to generate sufficient revenue to fund the subsidy.² Going forward, pump price is expected to be market-determined, as pump prices will no longer be fixed. From an environmentally sustainable perspective, the subsidy removal is a commendable development in disincentivizing the use of fossil fuel and incentivizing the use of renewable energy while reducing the crowding out of public revenue. However, the subsidy reform is being introduced in a worsening economic climate with implications on the living standard of most citizens. The government can leverage on the opportunity presented by the pandemic to introduce additional structural reforms such as streamlining government Ministries, Departments, and Agencies (MDAs) in order to make resources available for development spending.