Macroeconomic Report & Economic Updates

According to the National Bureau of Statistics (NBS) latest report on Value-Added Tax (VAT), there was a 17.8 percent year-on-year increase in VAT revenue in Q3 2021. However, on a quarter-on-quarter basis, there was a 2.3 percent decrease.¹ VAT collected in Q3 2021 was N500.4 billion. This was lower than the VAT revenue generated in Q2 2021 which stood at N512.3 billion. In Q3 2020, VAT was N424.7 billion. The quarter-on-quarter decline in VAT collection was mainly caused by the sharp decline in non-import (foreign) VAT, which contracted by 60.9 percent, thereby eroding the increase recorded in non-import (local) VAT and Nigeria Customs Service (NCS) Import VAT, which both grew by 57.6 percent and 5.7 percent, respectively. The increase in the non-import (local) VAT indicates that the recent debate on who has the constitutional right to collect VAT has minimal impact on total VAT collection. Further, the year-on-year increase in VAT also reflect a growth in economic activities. The current fiscal position of the government suggests that all available revenue sources are maximized. Therefore, in order to optimize revenue generated from VAT, it becomes imperative that the coordination issue associated with VAT collection is addressed.

The World Bank, at the launch of November 2021 edition of Nigeria’s Development Update discussed the state of Nigeria’s economy and made several policy recommendations. One of the notable suggestions was that of fixing the exchange rate policies in the country. According to the report, the existence of parallel rates in the foreign exchange market is one of the drivers of inflation in the country, which has pushed about 8 million Nigerians into poverty since 2020. The bank recommended that to curb inflation in the economy, exchange rate management ought to be predictable and flexible, thus, emphasise the need to have a uniform exchange rate. Given the administrative goal of lifting 100 million Nigerians out of poverty by 2030, it is imperative to address high inflation rate by introducing policies that would bring the rate below a single digit. The unification of the exchange rate might be important in achieving lower inflation by reducing arbitrage in the foreign exchange market. However, persistent shortage of foreign exchange due to low export earnings posits a challenge to effective management of the foreign exchange. Hence, there is a need for the government to support firms operating in the country in terms of simplifying export regulations and making credits available for firms to expand their scale of operation and the quality of their products to gain traction in the global market, thereby increasing export earnings. 

The Debt Management Office (DMO) is set to issue Sovereign Sukuk bond valued between N200 - N250 billion before the end of the year. The government stated that the fund would be used to finance critical road projects across the country.² The Sukuk is a strategic initiative designed to support the development of infrastructure, promote financial inclusion and deepen the domestic securities market. Subsequent to the debut Sovereign Sukuk in 2017, in which N100 billion was raised, two additional Sukuk bond had been raised, N100 billion in 2018 and N162.557 billion in 2020. Thus, a total of N362.577 billion has been issued between 2017 and 2020. The proposed new commitment would be devoted to road infrastructure, which is expected to improve road connectivity and reduce transport costs within and outside cities in Nigeria. While the use of Sukuk would expedite the completion of the designated projects, emphasis should be placed on effective evaluation and monitoring processes to ensure that the projects are not only completed, but also match sustainable standards, especially in terms of scope and durability. Furthermore, there is a need for the government to maintain the culture of transparency in the utilisation of the funds.  

Estimates from the Organization of Petroleum Exporting Countries (OPEC) show that Nigeria produced about 1.25 million barrels per day (mbpd) in October 2021. This is below the budgeted crude oil production level of 1.86 mbpd in the 2021 budget. Furthermore, crude oil production recorded a decrease of 9% year on year from 1.3 million in October 2020 to 1.2 mbpd in October 2021¹.Similarly, on a month-on-month basis, Nigeria’s total oil production decreased slightly from 1.25 mbpd, decreasing by about 200,000 bpd. The decrease in output is primarily due to vandalism and bunkering in oil-producing regions, which causes damage to oil installations. As oil production level falls, government revenue falls, thereby shrinking the fiscal space and leaving the government with the option of borrowing to invest in vital sectors of the economy. Further, the fall in oil output level puts pressure on the value of the naira, as crude oil remains Nigeria’s primary export. To actualise the revenue projection from the oil sector, the government in collaboration with security agencies should strengthen relations with host communities in securing oil installations. The government can also leverage on technology by utilising satellite with geo information system to effectively monitor pipelines

The Anchor Borrowers’ Programme (ABP) was established to create economic linkages between smallholder farmers (SHFs) and reputable companies (anchors) involved in the production and processing of key agricultural commodities. Its main goal is to provide loans to SHFs via these links in order to increase agricultural productivity, create jobs, cut food import bills, and conserve foreign reserves. As at September 2021, the CBN had disbursed a total of N798.09 billion to SHFs through the Programme since its inception in November 2015.³ However, current economic trends indicate that the established goals are not being accomplished, as food prices continue to rise, and farmers are defaulting their obligations. In view of these developments, the CBN has changed the program's guidelines to reflect contemporary realities and developments, as well as to promote best practices for program implementation.⁴ The new development seeks to sanction and blacklist from all CBN interventions any stakeholder found to be undermining the programme. Furthermore, the new guidelines have two windows: public sector- led and the private sector-led models, which in turn provides the state governments an opportunity to key into the programme through an Irrevocable Standing Payment Order (ISPO). Since most States prioritise agricultural sector in their agenda, this revision provides states with the opportunity to help their farmers gain access to finance provided by the Bank under the ABP.