Macroeconomic Report & Economic Updates

The CBN Monetary Policy Committee (MPC) switched its policy stance to ‘easing’ at the last MPC held on March 25-26, 2019. While holding other policy parameters at previous levels, the Monetary Policy Rate (MPR) was cut by 50bps to 13.5%¹ following a retaining policy stance of 14% that lasted for more than two years (since July 2016). The justification for the rate cut is linked to the following: the relative moderation in the exchange rate, continued deceleration of inflation rate, and the gradual renaissance of investment flows. Although the economy has welcomed improvements in economic indicators such as the GDP growth rate, the policy decision was primarily anchored on the need to further stimulate the economy. The rate cut could reduce the cost of borrowing while encouraging credit flows to productive sectors of the economy.² In the coming months, we expect that the 13.5% MPR will be sustained as the transmission lags of the new rate on other economic variables will be expected to fully manifest before further changes are made.

The Nigerian mining and quarrying sector recorded growth in the production of solid minerals in 2018. The total quantity of solid minerals produced rose from 45.7 million tons in 2017, to 55.9 million tons in 2018¹ – representing a 22% increase. Disaggregated by type of solid mineral, Limestone was the most produced - production grew by 95% to 27.2 million tons in 2018, and accounted for about 49% of the total tons of minerals produced. The growth witnessed in the sector may have emerged from the government’s efforts and incentives to develop the sector and also in a bid to diversify the economy. The government had offered mining companies a three to five year “tax holiday”, duty and tax-free importation of equipment, full ownership of their businesses and the ability to take profits out of the country². In addition, the government committed about $100 million intervention fund for the sector and awarded mining contracts to ten exploration and consulting firms, in 2018³. In addition to ongoing interventions, there is need to minimize the indiscriminate export of mineral commodities especially gold, tin and lead-zinc to foreign smelters, as formalizing these activities offers great potential for a significant source of revenue for Nigeria, away from oil.

Nigeria’s aviation sector witnessed substantial improvements in 2018 in both air passenger traffic and cargo movements. Figures from the Federal Airport Authorities of Nigeria show that the number of passengers through Nigerian airports stood at 15.2 million in 2018¹, about 13.4 percent increase from the 13.4 million passengers in 2017². The total cargo movement stood at 245.89 million kilograms compared to 161.80 million kilograms recorded in 2017. With improvements in infrastructure, launch of new aircrafts by air operators, full-capacity schedule flight services, improved regulation, and less inference from the government in 2018³, the sector attracted more customers and ultimately garnered more revenue from the sales of tickets. By implication, these improvements in the industry bolstered the remarkable sectoral annual real growth rate which grew from 1.83 percent in 2017 to 20.7 percent in 2018⁴. Despite the improvements, there is need to create tax incentives that can attract investors that would invest in airport infrastructure upgrade and continuous maintenance to help unlock the full potential of the Nigerian airline industry.

Nigeria’s balance of payment reversed into surplus in the fourth quarter of 2018, after a third-quarter negative period. As reported by the CBN balance of payment estimates showed significant improvements with surplus of $2.80 million in 2018Q4 as against previous quarter’s huge deficit of $4,542.1 million. The current account balance improved from a deficit of $1,544.41 million in Q3 2018 to a surplus of $1,104.57 million in Q4 2018 on account of improvements in goods account - slight increase in export earnings relative to imports. Also, the financial account showed net acquisition of assets of $2,327.91 million in the review period, as opposed to the financial liabilities incurred in the preceding period. To sustain growth in export earnings, there is need to address age-long challenges that inhibit non-oil export trade: particularly dealing with the inefficient and costly transport system as well as broadening the scope of export financing instruments.

By year-end 2018, the country recorded a total trade value of ₦32.3 trillion¹, representing 39.3% increase over the corresponding period in 2017. The volume of total merchandise trade in 2018 is noted to be the highest since 2014, nearly double pre-recession levels. Export component grew by approximately 41%, from ₦13.6 trillion in 2017 to ₦19.1 trillion in 2018. Oil (crude and non-crude) is responsible for the most part of export growth in the review year and accounts for about 94% of total exports. Agriculture and manufacturing sector exports also recorded a boost, rising to ₦302 billion and ₦645.7 billion respectively. Similarly, imports rose by 37.5% to ₦13.2 trillion. With exports exceeding imports, the current account balance of trade improved to ₦5.9 trillion in 2018. To further boost Nigeria’s current account position going forward, supply-side policies to improve the efficiency and competitiveness of domestic industries, and thus exports is crucial.