Macroeconomic Report & Economic Updates

The 2020 global gender gap report released by the World Economic Forum (WEF) shows that Nigeria ranks 128 out of 153 countries, indicating a 5-point increase from the 2018 ranking and consequently narrowing the gender gap. This rise towards gender parity was driven by improved economic participation and opportunities for females. Nigeria has so far closed 63.5% of its gender gap 4 but still stands to improve its efforts in balancing education, health, political and income disparities. This is as the nation continues to underperform against contemporaries within the region like Ghana. An increase in the economic engagement of women has the potential to not only increase household income but also induce stronger economic growth. To further narrow the gender gap, backward religious, cultural and social norms that limit the participation of women in the economy, and hinder girls from accessing education should be eliminated.

The total value of Nigeria’s merchandise trade grew in 2019Q3 by 6.8% to ₦9,187 billion, when compared to 2019Q2. The growth translated to a 1.33% rise relative to 2018Q3. Exports grew quarter-on-quarter by 15% to ₦5,288.5 billion, contrastingly imports decreased by 2.70% to ₦3,899.1 billion3. The imports decline was driven by a fall in the value of imported agricultural products (-4.01%), raw material imports ( -4.64%), and solid material import (-31.73%) while the export growth was largely driven by a rise in manufactured goods (839.44%). The increase in balance of trade surplus could be linked to the government’s policies: Nigeria-Benin border closure; prohibition of imports and ineligibility for foreign exchange at CBN’s official window; and enforcing the patronage of Made in Nigeria products. This trade surplus implies that there is surplus foreign exchange which could improve the value of the Naira in the global markets and there is a higher demand for local goods which should increase domestic employment. However, improvements in the competitiveness of export sectors, through improving infrastructure, curbing multiple taxation, and cutting down on bureaucratic bottlenecks, will lead to a less artificial and more sustainable increase in the balance of trade surplus.

The ECOWAS single currency proposed to take off in January 2020 seems unlikely1. This is partly due to the failure of member states to meet all the preliminary requirements in the original treaty. Countries like Guinea Bissau and Togo are the ones to meet the primary conditions of a budget deficit of 3% or less, an annual inflation of less than 10%, as well as a gross reserve significant enough to finance at least three months of imports2. Togo is the sole country to satisfy the second criteria of debt/Gross Domestic Product of less than 70%; central bank financing of budget deficit of 10% or less of previous year’s tax revenue; and nominal exchange rate variation of plus or minus 10%. Nigeria has achieved the budget deficit requirement with 2.8% as at 2018 and has currently grown its reserve. However, with the inflation level of 11.6%, the nation is yet to satisfy preliminary requirements for the ‘Eco’ currency. This implies a possible extension on the initiation date. Going forward, member states should make concerted efforts to strengthen domestic macroeconomic frameworks and reduce bureaucratic delays that severely constrain exports and imports at the border, among others, prior to the inception of the Eco single currency.

The federal government has finally approved the proposed increase of Value Added Tax (VAT), from the current 5% to 7.5%1. The increment was passed in the recent 2019 financial bill and included exemptions for food items (agro- and aqua-based stable foods) as well as services rendered by microfinance banks. The bill included a new VAT Company Compliance threshold, exempting  companies with an annual turnover of N25 million or less from filling obligations2. However, the current rate is marginal when compared to the VAT rate in other lower middle-income African countries like Cote d’Ivoire, Senegal and Lesotho with VAT rates of 20%, 18% and 15% respectively. Given that VAT is a consumption tax placed on goods and services, the increase stands to weigh heavily on Nigerians. The negative effect on Nigerian consumers becomes particularly more apparent considering that the government intends to reintroduce tolls to federal roads; imposes steep fines on companies such as MTN, Stanbic IBTC bank (whose customers will bear the brunt); and has recently proposed a 5% online VAT purchase tax. While raising public revenue is critical, it is imperative that the welfare of Nigerians is not negatively affected. Alternatively, other financing options can be explored such as the use of diaspora bonds and remittances.

The latest GDP report released by the National Bureau of Statistics for the third quarter of 2019, indicated a 2.28% year-on-year growth from 2018Q3. Between 2019Q2 and Q3, the GDP also grew by 0.17%1. The growth was predominantly driven by the oil sector which recorded the highest daily oil production in 3 years of 2.04 million barrels-per-day1. This indicated the oil sector real growth rate rise (year-on-year) to 6.49%2.  Meanwhile, the non-oil sector contracted to a 1.85% growth rate when compared to the 2018Q3 of 2.33%, however this indicated a Quarter-on-Quarter rise of 0.2%. The heavy reliance on crude oil is an underlying factor in the country’s flat economic growth. Ensuring that the performance of the non-oil sectors of the economy such as manufacturing and agriculture improves and becomes globally competitive is crucial in not only increasing the national output, but also expanding the foreign currency earnings and the government’s income.