Macroeconomic Report & Economic Updates

Nigeria’s new national minimum wage bill recently received the President’s assent and was signed into law, subsisting as an Act of Parliament effective from April 18, 2019¹. The act provides that ₦30,000 be paid as the new minimum wage to Nigerian workers; representing a 67% increase from the ₦18,000 formerly stipulated and paid as minimum wage since 2011. The wage increase emanated from concerns of inflationary effects on the real value of the previous minimum wage, and series of trade and labour union agitations for the government to increase purchasing power and welfare of its members. While delivering more income to workers’ coffers and increasing their welfare, the new minimum wage would also place strains on federal government finances and particularly on state governments that are largely in debt. Ensuring higher worker productivity and widening the tax net can help to minimize business and fiscal strains from the new policy.

Nigeria became the largest remittance-recipient country in sub-Saharan Africa and the sixth largest among low-middle income countries in 2018. The country’s official remittances amounted to $24.3billion in 2018,¹ a 10.5% increase from the 2017 remittances received and accounts for 6.1% of GDP. Along with the strong economic conditions in high-income countries, the year-on-year acceleration in remittance flows is not unconnected to a slight declining trend that has been observed in remittance costs since the beginning of 2018.² Although currently at an average of 9%, these remittance costs remain above the global average of 7% and far from the SDG target of 3%. Given the relatively strong economic and employment situation in high-income countries, and the growth in emigration in Nigeria, we expect that remittance flows to Nigeria will continue to rise.  Addressing the regulatory barriers to entry in order to allow for more money transfer operators, particularly digital operators will drive the cost of remittance down and increase inflows. For instance, the N2 billion capital threshold mandated by CBN for domestic companies (compared with the N50 million for foreign companies) could be reviewed to allow companies lacking the financial clout to meet up.

Nigeria’s officially recorded debt obligation reached a record high of N24.39 trillion in 2018 relative to the N21.73 trillion in 2017²¹, according to the DMO’s latest debt report. This represents a year-on-year 12.2% growth or N2.66 trillion². Further decomposition of the data shows that both domestic and external components experienced increments: while domestic debt rose from N15.94 trillion to N16.63 trillion, external debt increased from N5.79 trillion to N7.76 trillion. However, the external debt component saw a higher increment implying that progress has been made towards achieving the 60:40 target of domestic-external debt stock mix. The share of domestic debt fell from 73.4% in 2017 to 68.2% in 2018 producing a total debt mix of 68.2% (domestic) and 31.8% (external). The review year saw the DMO make use of relatively cheaper and longer tenured external funds (Eurobonds) to achieve the debt stock mix objectives which also includes creating more space for other borrowers in the domestic market.³ With the growth in the issuance of Eurobonds, DMO should internalize the costs and risks of these changes such as currency and refinancing risk. This could limit the frequency of public borrowing.

The CBN Monetary Policy Committee (MPC) switched its policy stance to ‘easing’ at the last MPC held on March 25-26, 2019. While holding other policy parameters at previous levels, the Monetary Policy Rate (MPR) was cut by 50bps to 13.5%¹ following a retaining policy stance of 14% that lasted for more than two years (since July 2016). The justification for the rate cut is linked to the following: the relative moderation in the exchange rate, continued deceleration of inflation rate, and the gradual renaissance of investment flows. Although the economy has welcomed improvements in economic indicators such as the GDP growth rate, the policy decision was primarily anchored on the need to further stimulate the economy. The rate cut could reduce the cost of borrowing while encouraging credit flows to productive sectors of the economy.² In the coming months, we expect that the 13.5% MPR will be sustained as the transmission lags of the new rate on other economic variables will be expected to fully manifest before further changes are made.

The Nigerian mining and quarrying sector recorded growth in the production of solid minerals in 2018. The total quantity of solid minerals produced rose from 45.7 million tons in 2017, to 55.9 million tons in 2018¹ – representing a 22% increase. Disaggregated by type of solid mineral, Limestone was the most produced - production grew by 95% to 27.2 million tons in 2018, and accounted for about 49% of the total tons of minerals produced. The growth witnessed in the sector may have emerged from the government’s efforts and incentives to develop the sector and also in a bid to diversify the economy. The government had offered mining companies a three to five year “tax holiday”, duty and tax-free importation of equipment, full ownership of their businesses and the ability to take profits out of the country². In addition, the government committed about $100 million intervention fund for the sector and awarded mining contracts to ten exploration and consulting firms, in 2018³. In addition to ongoing interventions, there is need to minimize the indiscriminate export of mineral commodities especially gold, tin and lead-zinc to foreign smelters, as formalizing these activities offers great potential for a significant source of revenue for Nigeria, away from oil.