Macroeconomic Report & Economic Updates

Consumer prices for the month of December 2019 increased by 0.13 percentage points from the preceding month which stood at 11.85% 1. As such, inflation has increased for four consecutive months and the current rate is 0.54% percentage points higher than the inflation rate in December 2018. The rise in inflation was driven by a rise across all components, with the core sub-index growing by 0.34% to 9.33% and food sub-index by 0.19% to 14.67% over a month. The rising inflation is underscored by an increase in access to credit, as indicated in the Central Bank of Nigeria Credit Condition Survey. The survey conducted notes that there was an increase in supply of secured loans to households which was expected to increase in Q1 2020 as well as a rise in overall credit supply to the corporate sector2. In addition, the closure of the Nigeria-Benin border is likely to have driven food prices up due to a reduced supply of staple foods including rice and frozen food. Going forward, we expect a continuous rise in inflation as government directives to close the border and increase lending to the private sector are in effect

Recently, oil price surpassed US$70 per barrel due to the heightened threat to energy facilities in the Middle East. As the tension between the United States and Iran increases with the US threatening to attack Iran’s oil installations, there has been a significant rise in oil prices from US$64 to US$72 between December 2019 and January 20203. Given that Nigeria’s oil price benchmark for the 2020 budget is US$57 per barrel, there are likely to be significant gains into the Excess Crude Account in the first quarter. Although the government will benefit from the rise in oil prices in the form of increased oil revenue and foreign exchange reserves, the cost of petrol subsidy will also increase. In order to take advantage of the price increase, the government should ramp up local production and begin the process of fuel subsidy removal.   

The 2020 global gender gap report released by the World Economic Forum (WEF) shows that Nigeria ranks 128 out of 153 countries, indicating a 5-point increase from the 2018 ranking and consequently narrowing the gender gap. This rise towards gender parity was driven by improved economic participation and opportunities for females. Nigeria has so far closed 63.5% of its gender gap 4 but still stands to improve its efforts in balancing education, health, political and income disparities. This is as the nation continues to underperform against contemporaries within the region like Ghana. An increase in the economic engagement of women has the potential to not only increase household income but also induce stronger economic growth. To further narrow the gender gap, backward religious, cultural and social norms that limit the participation of women in the economy, and hinder girls from accessing education should be eliminated.

The total value of Nigeria’s merchandise trade grew in 2019Q3 by 6.8% to ₦9,187 billion, when compared to 2019Q2. The growth translated to a 1.33% rise relative to 2018Q3. Exports grew quarter-on-quarter by 15% to ₦5,288.5 billion, contrastingly imports decreased by 2.70% to ₦3,899.1 billion3. The imports decline was driven by a fall in the value of imported agricultural products (-4.01%), raw material imports ( -4.64%), and solid material import (-31.73%) while the export growth was largely driven by a rise in manufactured goods (839.44%). The increase in balance of trade surplus could be linked to the government’s policies: Nigeria-Benin border closure; prohibition of imports and ineligibility for foreign exchange at CBN’s official window; and enforcing the patronage of Made in Nigeria products. This trade surplus implies that there is surplus foreign exchange which could improve the value of the Naira in the global markets and there is a higher demand for local goods which should increase domestic employment. However, improvements in the competitiveness of export sectors, through improving infrastructure, curbing multiple taxation, and cutting down on bureaucratic bottlenecks, will lead to a less artificial and more sustainable increase in the balance of trade surplus.

The ECOWAS single currency proposed to take off in January 2020 seems unlikely1. This is partly due to the failure of member states to meet all the preliminary requirements in the original treaty. Countries like Guinea Bissau and Togo are the ones to meet the primary conditions of a budget deficit of 3% or less, an annual inflation of less than 10%, as well as a gross reserve significant enough to finance at least three months of imports2. Togo is the sole country to satisfy the second criteria of debt/Gross Domestic Product of less than 70%; central bank financing of budget deficit of 10% or less of previous year’s tax revenue; and nominal exchange rate variation of plus or minus 10%. Nigeria has achieved the budget deficit requirement with 2.8% as at 2018 and has currently grown its reserve. However, with the inflation level of 11.6%, the nation is yet to satisfy preliminary requirements for the ‘Eco’ currency. This implies a possible extension on the initiation date. Going forward, member states should make concerted efforts to strengthen domestic macroeconomic frameworks and reduce bureaucratic delays that severely constrain exports and imports at the border, among others, prior to the inception of the Eco single currency.