Macroeconomic Report & Economic Updates

Nigeria has slipped into a recession after recording two consecutive quarters of negative growth rate. Gross Domestic Product (GDP) grew by –3.62 percent in the third quarter of 2020 from -6.1 percent in the second quarter of 2020. The negative growth can be attributed to the decline in growth recorded in both the oil and non-oil sectors.¹ Growth rate of the non-oil sector which contributes 91.3 percent to GDP stood at -2.51 percent while the growth rate of the oil sector stood at -13.89 percent. Further disaggregation of the data shows that an average of 1.67 million barrels of oil was produced daily in the third quarter of 2020 which was lower than the production in the same quarter of 2019 and in the second quarter of the 2020 by 0.37 million barrels and 0.14 million barrels respectively. Economic recovery will be largely dependent on the complete implementation of the 2020 budget as well as the Economic Sustainability Plan (ESP). However, availability of finance could pose a problem given that the key financing sources are loans from official creditors which are not as easy to obtain in these climes. Nevertheless, the increased availability of finance to the private sector such as the Youth Investment Fund and SME finance is likely to improve the economic prospects in the near term.

Data from the National Bureau of Statistics (NBS) shows that the average price paid for premium motor spirit (petrol) by consumers increased by 10.79 percent year-on-year to N161.17 in October 2020 from N145.48 in October 2019.¹ This increase can be attributed to the removal of fuel subsidy which is driven by the government’s inability to generate sufficient revenue to fund the subsidy.² Going forward, pump price is expected to be market-determined, as pump prices will no longer be fixed. From an environmentally sustainable perspective, the subsidy removal is a commendable development in disincentivizing the use of fossil fuel and incentivizing the use of renewable energy while reducing the crowding out of public revenue. However, the subsidy reform is being introduced in a worsening economic climate with implications on the living standard of most citizens. The government can leverage on the opportunity presented by the pandemic to introduce additional structural reforms such as streamlining government Ministries, Departments, and Agencies (MDAs) in order to make resources available for development spending.

The Federal Executive Council has ratified Nigeria’s membership of the African Continental Free Trade Area (AfCFTA) agreement ahead of the December 5, 2020 deadline.¹ The AfCFTA, which comes into effect on the 1st of January 2021, aims to create a single market for goods and services in Africa that can potentially increase consumer and business spending to over $6.7 trillion by 2030.² Nigeria with its substantial market, large labour force and the economy is likely to be a major beneficiary of the agreement. However, the Nigerian government in some instances has taken an anti-trade policy stance such as the closure of land borders with Benin, Niger, and Cameroon in order to curb the smuggling of food products, and the new import prohibition on Maize. As such, the government will have to improve its preparedness towards implementing the AfCFTA by identifying and achieving quick wins to enhance trade across borders. Another important policy objective is increasing the awareness of the AfCFTA among local businesses in order that they leverage on the increased market access.

The manufacturing and non-manufacturing Purchasing Managers’ Index (PMI) for the month of October showed a slowing contraction relative to previous months, making it the 7^th consecutive month both indices have been below the 50-index point benchmark.¹ Manufacturing PMI increased from 46.9 index points to 49.4 index points while non-manufacturing increased from 41.9 index points to 46.8 index points, but still below the 50-index point benchmark. However, 6 out of 14 subsectors in the manufacturing sector recorded an expansion relative to the previous month. In the non-manufacturing sector, only 3 out of the 7 sub sectors recorded growth relative to the previous month. Production is expected to improve significantly as the economy rebounds and the festive season approaches, thus both manufacturing and non-manufacturing PMI are expected to advance towards the 50-index point benchmark. However, the increase in PMI, as a result of increased demand, is likely to be associated with rising inflation. As such, the Central Bank of Nigeria (CBN) should increase efforts towards addressing the rapid increase in the price of commodities.

The International Monetary Fund (IMF) has projected that the GDP growth for Nigeria will shrink to -4.3 percent at the end of 2020 from 2.2 percent in 2019.¹  The negative growth forecast is attributed to fall in oil prices, coupled with a reduction in crude oil production due to production cut agreement by Organization of Petroleum Exporting Countries and other major oil producers (OPEC+). Also, the decline in domestic demand owing to the lockdown is another driver of the negative outlook. Growth is however projected to rebound in 2021 at 1.7 percent, when crude oil price and production increases. The pandemic has exposed the vulnerabilities of Nigeria’s mono-product economy and emphasized the need for diversifying the revenue base of the economy. Efforts towards boosting the performance of non-oil sectors such as agriculture, mining and entertainment should be increased and time-sensitive.