Macroeconomic Report & Economic Updates

Recent reports suggest that a forex restriction on food imports into Nigeria will be implemented in the coming months¹. The Apex bank had enlisted, in 2015, 41 items as invalid for foreign exchange at the Nigerian forex markets. This list is set to increase if the recent directive to ban forex for imported food items materializes. Although the key motivations behind the forex control measure include to boost local production, sustain forex stability, and conserve the foreign exchange, many underlying factors have been overlooked. Nigeria relies heavily on imported food items to meet demands of its over 180 million people, given the insufficient local food production capacity (the nation spends almost $4 billion annually to cover the food import bill²). Essentially, the current shortage in domestic food supply capacity cannot immediately replace the restricted imports. Also, the lack of structure and infrastructure for local food production sufficiency could create artificial supply gaps that are incentives to smuggling food into the country and shooting up prices and inflation. A rapid transition from smallholder farming to mechanised farming is required to stem the expected rise in food prices. While the Government promotes mechanisation through the private tractor-hiring enterprise, the programme has remained unprofitable to tractor owners as most clients are smallholder farmers. The tractor-hiring enterprise presents an entry point for international and local donor organizations active in the agriculture sector.

The importation of petroleum products into Nigeria continues to expand. In 2019Q2, imports totaled 5.61 billion litres of Premium Motor Spirit (PMS) or petrol, 1.38 billion litres of Automotive Gas Oil (AGO) or diesel, and 12.22 million litres of Household kerosene (HHK)¹. Although, there were moderations in the importation of kerosene, petrol and diesel imports for the review quarter represented 15.2% and 14% QOQ increases respectively, and reflected the rising need for fuel consumption in Nigeria. While the increase in fuel imports is imperative to satisfy growing domestic demands, the path towards fuel self-sufficiency in Nigeria is becoming far-fetched. The NNPC had marked 2019 as the year for fuel independence; however, with the increasing fuel importation exacerbated by insufficient refining capacity and the lack of political will, the year 2019 may end without considerable achievement. While the recent licensing of modular refineries is a step towards meeting local demand, the full removal of subsidy will lead to cost-reflective pricing of petroleum products, thus incentivizing private investors into the upstream petroleum sector.

The 2019 Global Innovation Index (GII) depicts that out of 129 economies surveyed; Nigeria ranked 114 in terms of innovation performance¹. While this position is four places up from Nigeria’s 118^th position in 2018 (due to commendable performance in medical innovation), Nigeria still features as one of the lower-middle income countries whose overall innovation performance falls below expectation for the level of development. This is far below countries like Kenya, Rwanda, Mozambique, Malawi, and Madagascar who stand out for being innovation achievers. Nigeria’s weak performance may have portrayed a shifted focus to innovation quantity than to quality. This reflected in the GII measure of innovation quality as Nigeria ranked low in Research and Development, knowledge impact and diffusion, creative outputs, ICT and general infrastructure. The implication of not being an innovation-driven economy is that businesses become uncompetitive thus affecting exports and increasing vulnerability to business cycle fluctuations. As such, increasing the R&D expenditure as a share of GDP from the current 0.22%, by both private and public sectors, is an important step towards enhancing innovation.

Figures from NNPC’s latest performance report show that the corporation spent ₦206.6 billion on subsidizing fuel in two months –January and February 2019⁴. This amount increased by over ₦190 billion, from the ₦16.2 billion spent in the previous two months – November and December 2018. Classified as under-recovery costs by the NNPC, the huge two-month spending on fuel subsidy is only partially due to increased importation of petrol during the review period. Volume of petrol imported into Nigeria rose to 3.8 billion litres in both January and February 2019⁵, compared to the 3.4 billion litres imported in the previous two months. Most of the increase in under-recovery costs was due to low domestic crude payments in the review period, falling from ₦331.7 billion in November and December 2018 to ₦65.8 billion. Given that domestic refining capacity remains weak and the lack of political will to deregulate energy prices, substantial resources will continue to be gulped by fuel subsidy in subsequent periods. Going forward, NNPC will need to improve its domestic refining capacity to enhance its ability to meet payment obligation to the Federation Account on the 445,000 barrels/day allocated to the corporation.

Latest report from NBS shows that the Nigeria Immigration Service (NIS) generated ₦39.06 billion in 2018¹ as against ₦35.72 billion it generated as local revenue in 2017- representing a growth of 9.3%. Whereas the Combined Expatriate Residence Permit and Aliens Card (CERPAC) generated the highest revenue of ₦20.4 billion, the ECOWAS/African affairs revenue section recorded the largest growth. Specifically, revenue generated from ECOWAS travel documents increased by 93.3% YOY, from ₦65.3 million in 2017 to ₦126.1 million in 2018. This huge revenue increase is due to the increased number of ECOWAS residence cards produced and ECOWAS travel certificate issued by the NIS: demand for both documents increased YOY by 25.6% and 18.4% respectively. Evidence suggests that migration drives economic activity and supports the drive for domestic resource mobilization. Nigeria can leverage its dominant position in the region to drive regional economic activities inwards to exploit these gains.