Macroeconomic Report & Economic Updates

In line with the provisions of the Petroleum Industry Act (PIA), the Nigerian National Petroleum Corporation (NNPC) on July 16 was transformed into a new entity and regulated under the provision of the Companies and Allied Matters Act (CAMA).² As a result, NNPC was transited to Nigerian National Petroleum Company Limited (NNPC Limited) as a private entity without government interferences and free from regulations such as the Treasury Single Account (TSA), public procurement, and Fiscal Responsibility Act. The transition seeks to strengthen the capacity and market relevance of the country’s oil industry. Although, the transition promises to enable optimal performance of the country’s entire petroleum industry, concerns still hover as there are seemingly no defined strategies on how the new structure intends to deal with the industry’s legacy issues that include extant liability, compulsory commitment to frontier exploration, political interferences (especially as the Ministry of Finance and the Ministry of Petroleum Resources remain key shareholders), and loss-making subsidiaries. Under this new framework, there is a need for NNPC Limited to have robust funding and operating strategies necessary to compete favourably with domestic and global energy industries

The data from the June 2022 Money and Credit Statistics published by the Central Bank of Nigeria (CBN) shows that the net credit to the economy rose to N57.3 trillion at the end of June 2022 from N48.5 trillion at the end of December 2021, indicating an 18.02 percent increase in the first half of 2022 (H1 ’22).³ Credit to the government accounts for about 31.4 percent of total credit, while the private sector received the remaining. The banking sector credit to the government grew by 35.04 percent from N13.3 trillion as of December 2021 to N18.0 trillion at the end of June 2022. Further, the credit to the private sector grew by 11.58 percent from N35.2 trillion as of December 2021 to N39.3 trillion at the end of June 2022. This suggests that banking sector credit to the government grew at a higher rate compared to the private sector. The rise in credit to the government is consistent with the rise in government debt, which raises a concern about the crowding out effect of government borrowing in the domestic financial market on the ability of the private firms to secure funding for productive investments. Consequently, there is a need for the government to boost revenue collection and promote the use of innovative financing options to effectively fund the rising expenditure and curtail the rate of borrowing in the domestic financial market. In addition, there is a need for the government to prevent the mismanagement of borrowed funds by strengthening transparency in the debt management process. 

According to the latest transport fare watch by the National Bureau of Statistics (NBS), the average cost of air transport was N55,906.86 in May 2022, an increase of 52.95 percent from N36,552.70 paid in May 2021.⁴ Similarly, the cost of an inter-city bus journey stood at N3,668.64, suggesting an increase of 47.3 percent from N2,490.60 a year ago. The rise in transport costs is partly due to the hike in energy prices, the short supply of petroleum products and currency depreciation. The rising cost of transportation would feed into general price increases, lowering people’s purchasing power and eroding their standard of living. In the interim, there is a need for the government to dialogue with the private sector in designing frameworks that would improve the supply of petroleum products. In the medium term, the government should prioritise implementing the Petroleum Industry Act (PIA) to attract investors to invest in new refineries to increase the supply of refined petroleum products, thereby reducing the country’s reliance on other countries for its energy products. This intervention would minimise the effects of currency depreciation on energy prices.

Data from the Central Bank of Nigeria (CBN) shows that at the end of the first half of 2022 (H1 2022), Nigeria's external reserves stood at US$39.16 billion.3 This indicates th at the external reserves grew by 1.8 percent from US$38.48 billion at the beginning of the month (June 1). At mid-year, the external reserve is 3.3 percent lower than the US$40.52 billion recorded at the beginning of the year (Ja n uary 2022). The half-year decline in the external reserves despite rising oil prices is partly due to low crude oil production and CBN intervention in the foreign exchange market. To increase external reserves, the government needs to implement reforms that would increase non-oil exporting firms' productivity and competitiveness in the international market. Thus, increasing export earnings. With increased export earnings, the need for the CBN to intervene in the foreign exchange market to stabilise the domestic currency would be minimal.

Data from the National Bureau of Statistics (NBS) show that in the first quarter of 2022, Nigeria’s value-added tax (VAT) collected by the Federal Inland Revenue Service (FIRS) stood at N588.6 billion, representing an 18.6 percent increase compared to the N496.5 billion collected in Q1 2021.³ Decomposing the aggregate VAT revenue by classification indicates that local non-import VAT accounted for about 58.5 percent of total VAT in the period under review. Nigeria Customs Service (NCS) – import VAT accounted for 21.5 percent of total VAT, and Foreign non-import VAT accounted for 20 percent. Further analysis of the local non-import VAT shows that the manufacturing, information and communications (ICTs), and mining and quarrying sectors had the highest contributions, accounting for 32.8 percent, 17.1 percent, and 11.9 percent, respectively. While the increased VAT collection is a welcome development, considering the revenue projection of the government and rising expenditure in the post-COVID economy, the government needs to optimise all available revenue sources, including VAT. Consequently, there is a need for the government to frequently evaluate the tax automation strategies to identify areas for improvement to reduce tax evasion and ensure greater compliance by the companies.