Macroeconomic Report & Economic Updates

According to the CBN, crude oil price has risen to $42.94per barrel, a 33 percent rise compared to $32.25 per barrel in the previous month.[i] The rise comes just as many economies are reopening, recording a marginal increase in demand. However, world oil demand is still expected to drop by 9.1 million barrels per dollar.[ii]  OPEC and its member countries have agreed to drop oil production in order to control market supply and consequently price. With this agreement, the revenue gains from increasing oil price for Nigeria could be marginal as the country is expected to cut production by about 22 percent to 1.4 million barrels per day which may also hinder the realization of the revised 2020 budget considering that the crude oil production estimate is 1.7 million barrels per day. To ensure performance of the 2020 budget, concerted efforts must be in place to ensure optimum collection of non-oil revenues by blocking leakages and non-remittances through improved administrative and monitoring mechanisms.

Total trade declined by 17.94 percent to ₦8.304 billion in Q12020 compared to Q42019¹. The decline was driven by a drop in both total imports and export value which fell by 21.08 percent and 14.42 percent quarter on quarter, recording a deficit of ₦138.98 billion. A decline in total trade was recorded in energy and manufactured goods. While the value of agricultural goods exported grew by 85.36 percent quarter on quarter, and the value of agricultural imports by 12.02 percent concurrently. Trade in Q12020, although marginally higher than Q12019 total trade, reflects the lower economic activity experienced during the quarter. The volume of trade is expected to continue to decline as economies across the world turn inwards due the pandemic. However, the private sector can leverage on the pandemic to boost trade in services such as ICT services, as well as professional, scientific, and technical services which is more resistant to political and economic forces that threaten trade in goods. Given the large wage differentials in the service industry across countries, Nigeria stands to benefit from a service-based global integration.

A recently released CBN report indicates a weakened business outlook of -66.2 points for the month of May. The agriculture and service sectors are the worst hit, recording a decline in activity of -37.7 index point for May. According to the survey the pessimism is maintained in June as businesses expect an economic outlook of -4.2². The employment outlook is pessimistic across the construction, manufacturing, agriculture, and service sectors as employment is expected to decline by -18.5, -10.9, and -4.1 points respectively. The weakened outlook towards the macroeconomy results from limited economic activity with businesses that are import and/or export-oriented and those that are neither import nor export-oriented expressing pessimism. Considering that the factors that constrain business activity including power supply insufficiencies, access to finance and credit, high-interest rate, and insufficient demand are still present, the business outlook in the coming months is expected to continue to weaken considerably.

Foreign capital imported into Nigeria increased by 53.97 percent from US$3.8 billion in the fourth quarter of 2019 to US$5.85 billion in the first quarter of 2020. This rise was largely driven by an increase in portfolio investments which grew 128.78 percent to US$4.3 billion, accounting for 73.61 percent of total capital importation. Other components such as foreign direct investment (-16.7 percent) and other investment (-19.9 percent) declined compared to the previous quarter¹. The rise indicates a renewed interest from investors in local money market instruments, which had been on the decline since Q12019. This capital inflow would benefit the limited national foreign reserves. As the government shifts away from foreign debt and seeks to borrow US$4.34 billion from the domestic market, the associated increase in yields will attract foreign investors and is likely to further increase foreign portfolio investment in the coming months. However, caution should be taken as sudden increases in the FPI outflows will have a negative impact on the foreign exchange market and the overall economy.

A recently released NBS report indicated a 20.92% rise in Internally Generated Revenue (IGR) in 2019. The year on year rise saw total IGR hit ₦1.33 trillion. The rise was largely driven by revenue generated from income tax which accounted for 60.7% of IGR. Lagos state as the highest contributor with ₦398.73 billion accounted for 29.88% of total revenue generated².  On the other hand, Taraba state was the lowest contributor with ₦53.04 billion. The improvement in tax compliance stands to make provision for state-level fiscal sustainability as well as a continued increase in total IGR. State governments can leverage on the fall in demand for oil to identify innovations and muster the political will required to expand their IGR base.