Macroeconomic Report & Economic Updates

The 2019 Global Innovation Index (GII) depicts that out of 129 economies surveyed; Nigeria ranked 114 in terms of innovation performance¹. While this position is four places up from Nigeria’s 118^th position in 2018 (due to commendable performance in medical innovation), Nigeria still features as one of the lower-middle income countries whose overall innovation performance falls below expectation for the level of development. This is far below countries like Kenya, Rwanda, Mozambique, Malawi, and Madagascar who stand out for being innovation achievers. Nigeria’s weak performance may have portrayed a shifted focus to innovation quantity than to quality. This reflected in the GII measure of innovation quality as Nigeria ranked low in Research and Development, knowledge impact and diffusion, creative outputs, ICT and general infrastructure. The implication of not being an innovation-driven economy is that businesses become uncompetitive thus affecting exports and increasing vulnerability to business cycle fluctuations. As such, increasing the R&D expenditure as a share of GDP from the current 0.22%, by both private and public sectors, is an important step towards enhancing innovation.

Figures from NNPC’s latest performance report show that the corporation spent ₦206.6 billion on subsidizing fuel in two months –January and February 2019⁴. This amount increased by over ₦190 billion, from the ₦16.2 billion spent in the previous two months – November and December 2018. Classified as under-recovery costs by the NNPC, the huge two-month spending on fuel subsidy is only partially due to increased importation of petrol during the review period. Volume of petrol imported into Nigeria rose to 3.8 billion litres in both January and February 2019⁵, compared to the 3.4 billion litres imported in the previous two months. Most of the increase in under-recovery costs was due to low domestic crude payments in the review period, falling from ₦331.7 billion in November and December 2018 to ₦65.8 billion. Given that domestic refining capacity remains weak and the lack of political will to deregulate energy prices, substantial resources will continue to be gulped by fuel subsidy in subsequent periods. Going forward, NNPC will need to improve its domestic refining capacity to enhance its ability to meet payment obligation to the Federation Account on the 445,000 barrels/day allocated to the corporation.

Latest report from NBS shows that the Nigeria Immigration Service (NIS) generated ₦39.06 billion in 2018¹ as against ₦35.72 billion it generated as local revenue in 2017- representing a growth of 9.3%. Whereas the Combined Expatriate Residence Permit and Aliens Card (CERPAC) generated the highest revenue of ₦20.4 billion, the ECOWAS/African affairs revenue section recorded the largest growth. Specifically, revenue generated from ECOWAS travel documents increased by 93.3% YOY, from ₦65.3 million in 2017 to ₦126.1 million in 2018. This huge revenue increase is due to the increased number of ECOWAS residence cards produced and ECOWAS travel certificate issued by the NIS: demand for both documents increased YOY by 25.6% and 18.4% respectively. Evidence suggests that migration drives economic activity and supports the drive for domestic resource mobilization. Nigeria can leverage its dominant position in the region to drive regional economic activities inwards to exploit these gains.

Nigeria’s Micro, Small and Medium Enterprises (MSME) sector showed noteworthy growth potentials between 2013 and 2017. A total number of 4.4 million MSMEs were established within the time period, increasing the sector’s economic participation to 41.5 million MSMEs¹. As an important backbone of economic growth and development, the MSMEs contribute to employment and job creation. About 18.1 million jobs were created in the time period, increasing the sector’s share of the labour force from 84% to 86.3% within the same time period. In addition, the sector’s contribution to GDP increased marginally to 49.8% in 2017. While a large MSME sector is characteristic of a growing economy, the slow/insufficient transition of MSMEs into large firms implies that the quality jobs available remains static. As such, there is a stagnation in wages paid and wage growth, which in turn deters high-skilled workers and limits the productivity growth of MSMEs. While pro-business policies are being put in place such as the recent (July 2019) CBN directive to banks to increase lending to the real sector, structural issues that hinder lending such as information asymmetries between banks and business owners will need to be addressed to encourage the implementation of these policies

On July 7, 2019, Nigeria signed the Africa Continental Free Trade Area (AfCFTA) agreement¹ – the world’s largest free trade area deal since the formation of the World Trade Organization. The AfCFTA aims to, among other cardinal objectives, boost intra-regional trade which stands in favour of Nigeria and improve its low bilateral trade with other African countries. According to the NBS, exports from Nigeria to the rest of Africa accounted for 13.2% of total exports in 2018², far below 43.9% and 27.9% to Europe and Asia respectively; also, imports from other African countries made up only 3.5% of total imports, unrivalled with 41% and 44% from Europe and Asia respectively.  By signing the AfCTA which removes the tariff on about 90% of the commodities produced within Africa, trade between Nigeria and other African countries could potentially increase to 52% by 2022. However, the extent to which Nigeria would reap the encompassing benefits of the CFTA depends strongly on the improvement in the efficiency of local firms and the development of continent-wide systems upon which trade can thrive.  To address the former, the inefficiency and opacity in border administration and the lack of connective infrastructure will need to be dealt with. Furthermore, the Nigerian government may strongly consider signing the Protocol on free movement of people, which stipulates visa-free entry for up to 30 days for African nationals and the introduction of an ‘African passport’ issued by member states, that opened up for signature in March 2018 and has been signed by 32 countries³.