Macroeconomic Report & Economic Updates

A total of ₦342.6 billion was generated internally as revenue by 35 states and the FCT in 2018Q4¹. The figure indicates a growth rate of 22.8% compared to ₦264.3 billion generated in the previous quarter. For the fiscal year, 2018, total IGR rose by 24.8% to ₦1.17 trillion, from ₦936.5 billion recorded in 2017. While only five states recorded a decline in the review quarter, 31 states recorded IGR growth. The overall IGR growth emanated from improvements in tax revenue as total tax revenue accounted for 77% of total IGR. By states, Lagos state led the pack with ₦382.2 billion at full year – representing 33% of all states’ IGR. Rivers followed closely with ₦112.8 billion, Ogun ₦84.6 billion, Delta ₦58.4 billion, and Kano with ₦44.1 billion. The growth in IGR implies more autonomy and less reliance on FAAC allocations, as well as a larger pool of funds for development needs. Efforts towards sub-national specialization and spatial integration that encourage economic specialization in states as well as  inter-state trade such as building connective infrastructure and establishing special economic zones will prove useful in enhancing the IGR

According to the UNFPA, Nigeria’s population increased from 195.9 million in 2017 to 201 million in 2018¹ – representing an annual increase of about 2.6%. The age composition of Nigeria’s population indicated that 54% Nigerians fall between ages 15-64, 44% between 0-14, and a paltry 3% between 65 and above. Two demographic dimensions are visible in the rising population: while the youth population continues to expand due to limited progress in reducing fertility rate and family planning (fertility rate reduced by only 1.1% in 50 years), the older population continues to shrink. The latter is congruent with the low life expectancy in Nigeria; which at 55 years, is one of the lowest in the world and accounts for the low percentage of the population within 65 and above. Life expectancy in Nigeria is often shortened by deaths caused by various diseases and other health related cases - a situation that is worsened by the country’s dilapidated health care system. Given the growing youth population, job creation should be a priority in the national agenda to prevent an escalation of security, health and livelihood crisis in the country. In addition,   creating  awareness and subsidizing  family planning solutions is also essential

Nigeria’s new national minimum wage bill recently received the President’s assent and was signed into law, subsisting as an Act of Parliament effective from April 18, 2019¹. The act provides that ₦30,000 be paid as the new minimum wage to Nigerian workers; representing a 67% increase from the ₦18,000 formerly stipulated and paid as minimum wage since 2011. The wage increase emanated from concerns of inflationary effects on the real value of the previous minimum wage, and series of trade and labour union agitations for the government to increase purchasing power and welfare of its members. While delivering more income to workers’ coffers and increasing their welfare, the new minimum wage would also place strains on federal government finances and particularly on state governments that are largely in debt. Ensuring higher worker productivity and widening the tax net can help to minimize business and fiscal strains from the new policy.

Nigeria became the largest remittance-recipient country in sub-Saharan Africa and the sixth largest among low-middle income countries in 2018. The country’s official remittances amounted to $24.3billion in 2018,¹ a 10.5% increase from the 2017 remittances received and accounts for 6.1% of GDP. Along with the strong economic conditions in high-income countries, the year-on-year acceleration in remittance flows is not unconnected to a slight declining trend that has been observed in remittance costs since the beginning of 2018.² Although currently at an average of 9%, these remittance costs remain above the global average of 7% and far from the SDG target of 3%. Given the relatively strong economic and employment situation in high-income countries, and the growth in emigration in Nigeria, we expect that remittance flows to Nigeria will continue to rise.  Addressing the regulatory barriers to entry in order to allow for more money transfer operators, particularly digital operators will drive the cost of remittance down and increase inflows. For instance, the N2 billion capital threshold mandated by CBN for domestic companies (compared with the N50 million for foreign companies) could be reviewed to allow companies lacking the financial clout to meet up.

Nigeria’s officially recorded debt obligation reached a record high of N24.39 trillion in 2018 relative to the N21.73 trillion in 2017²¹, according to the DMO’s latest debt report. This represents a year-on-year 12.2% growth or N2.66 trillion². Further decomposition of the data shows that both domestic and external components experienced increments: while domestic debt rose from N15.94 trillion to N16.63 trillion, external debt increased from N5.79 trillion to N7.76 trillion. However, the external debt component saw a higher increment implying that progress has been made towards achieving the 60:40 target of domestic-external debt stock mix. The share of domestic debt fell from 73.4% in 2017 to 68.2% in 2018 producing a total debt mix of 68.2% (domestic) and 31.8% (external). The review year saw the DMO make use of relatively cheaper and longer tenured external funds (Eurobonds) to achieve the debt stock mix objectives which also includes creating more space for other borrowers in the domestic market.³ With the growth in the issuance of Eurobonds, DMO should internalize the costs and risks of these changes such as currency and refinancing risk. This could limit the frequency of public borrowing.