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Inflation rate decreased for the second consecutive month in May 2021. More specifically, inflation rate fell to 17.93 percent in May 2021, 0.19 percent lower than the 18.12 percent recorded in April 2021.¹ The decrease was driven by the food component of inflation which fell to 22.28 percent from 22.72 percent in the preceding month. By contrast, core component of inflation increased by 0.41 percent to 13.15 percent in the review period. The marginal decrease in food inflation could be linked to improved security in food-producing regions in the past weeks. On the basis of improved security, the prices of food could continue to fall leading to a decline in overall inflation. The Central Bank of Nigeria can increase the Monetary Policy Rate (MPR) which should reflect in the interest rates offered by commercial banks and decrease bond prices to reduce the money supply and address the persistent rise in prices.

According to the World Bank, 7.2 million Nigerians could be pushed into poverty due to higher inflation rate and fall in purchasing power in 2020. Inflation rate rose every month in 2020 to reach a peak of 15.75 percent in December 2020.³ There are 86.8 million Nigerians currently living in poverty, and the economic situation in Nigeria means that the country may not be able to push households and individuals out of poverty in the nearest future. Food inflation is at an unprecedented level of 22.28 percent, unemployment and underemployment remains high and GDP growth rate in Q1 2021 stood at 0.51 percent in a country with a population growth rate of more than 2.5 percent. Ensuring inclusive growth process and empowering the poor, providing social protection for the poor and vulnerable, encouraging small and medium scale enterprises, and a sustained investment in education and health would alleviate poverty in Nigeria.

China’s investment in African infrastructure as part of its Belt and Road Initiative has proven to be both transformative and controversial. While investment projects are helping Africa to close its infrastructure gap, they have also raised fears of runaway debt levels. Overall, more research is needed on the development impact of Chinese investment activities on the continent, including the financial implications thereof. This report aims to address this knowledge gap. Drawing on diverse datasets, it examines Chinese infrastructure projects in three countries: Ethiopia, Kenya and Nigeria. A key result of the study is that while many of these projects are still under way, they are likely to have a positive impact in the future. In particular, they will boost trade and development in the commodities and services sectors. Nevertheless, the benefits of the Belt and Road Initiative will not be evenly distributed in Africa. Top commodity producers and exporters will continue to benefit more than some other African countries. Countries should take cognisance of and mitigate the downside risks associated with Chinese interventions in Africa, including growing their debt loads and minimising the negative effects on the environment.

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The value of total merchandise trade increased by 6.99 percent to N9,757.87 billion in the first quarter of 2021 when compared to the value recorded in preceding quarter.¹ The increase can be attributed to 15.61 percent increase in import and an 8.99 percent decrease in export resulting to a trade deficit of N3,943.45 billion within the review period. Furthermore, export accounted for 29.79 percent while import accounted for 70.21 percent of total trade. Major import partners were China (29.34 percent), Netherlands (10.60 percent) and United States of America (8.88 percent). Major export partners include India (16.79 percent), Spain (9.88 percent), and China (6.54 percent). The economic implication of the trade deficit implies that there is an additional pressure on the naira, leading to situations that propel currency depreciation which is inflationary. The CBN would need to put more effort in defending the naira in the foreign exchange market.

Economic development is linked with increased state capacity including the ability to mobilise domestic tax resources. For many developing countries, high levels of informality are a major constraint in this regard. Yet, economic incentives like changing the tax rate or increasing the filling and audit rate can be ineffective in a highly informal economic structure.

In this paper, we explore possible roles for behavioural interventions such as sharing information about peers’ tax behaviour to engineer higher tax compliance. Based on an artefactual field experiment among own account workers in Nigeria, we find that information interventions can play an important role in ensuring tax compliance.

Specifically, targeting information around what people can directly observe can be a way to improve tax compliance. Providing information on punishment or good practices that appeal to feelings of morality yields higher tax compliance.

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The Monetary Policy Committee (MPC) voted to retain the Monetary Policy Rate (MPR) at 11.5 percent.¹ The Monetary Policy Rate (MPR) has remained at 11.5 percent since September 2020. The committee also decided to retain the Cash Reserve Ratio (CRR) at 27.5 percent, liquidity ratio at 30 percent and the asymmetric corridor of +100/-700 basis points around the MPR. The committee’s decision to take a holding position is already being supplemented by various ongoing government intervention programmes. These programs are intended to facilitate employment generation and stimulate recovery/growth in various sectors of the economy post-pandemic particularly the agriculture and services sectors. While this decision might be suitable for now, it is important for the MPC to closely monitor the evolving economic situation in the country, especially in view of rising inflation rate and the currency devaluation.

Consumer prices decreased for the first time since August 2019, though marginally. Inflation rates decrease from 18.17 percent in March 2021 to 18.12 percent in April 2021.² The decrease in inflation rate is driven by a reduction in food component of inflation from 22.95 percent to 22.72 percent which outweighed a 0.07 percent increase in core inflation within the review period. While the decline in inflation is a good development, inflation rate in Nigeria is still on a high, and double digit which remains counterproductive for economic stability. The Nigeria’s inflation problem is primarily driven by low levels of aggregate supply due to poor productivity levels, and the volatility of the Nigerian Naira emanating majorly from the shocks in crude oil prices. The need to boost productivity remains a priority for a decline in price level. Factors that aid the increase in aggregate supply should be identified and prioritized as well.

Based on recent estimates by the World Bank, a total of $17.2 billion diaspora remittances flowed into Nigeria in the year 2020¹. This represents a decline by 27.7 percent when compared to the previous year. The decrease can be attributed to restriction of movement, lull in business activities and employment uncertainties in host countries occasioned by the COVID-19 pandemic. Also, the decrease was driven by a high premium on the Naira/USD exchange rate in informal markets, coupled with an unexpected policy directive that required agent banks of money transfer operators to effect pay-outs in US Dollars rather than the Naira. Going forward, we envisage that remittance inflows into Nigeria would improve in 2021 since host countries’ economies have begun to recover from the COVID-19 shock. Ongoing policies introduced by the central bank could also encourage increased remittances.

Data from the National Bureau of Statistics shows that Value Added Tax (VAT) revenue for the first quarter of 2021 (Q1 2021) stood at N496.39 billion. This represents 9.17 percent and 52.93 percent increase relative to the previous quarter and corresponding quarter of 2020, respectively¹. Further disaggregation shows that the following sectors generated the highest VAT: other manufacturing sector - N49.41 billon and professional services - N42.50 billion. Mining sector and textile/garment sector contributed the least to VAT collections during the period under review. The sectorial distribution of VAT revenue is an indication of the importance of the manufacturing and service sectors to the Nigerian economy. It is therefore important to continuously improve the business climate in the country to enhance the growth potential of these sectors as they are yet to reach their optimal levels. Enhancing overall business climate would also attract investments in other less-performing sectors of the economy, which should ultimately lead to more tax revenues to fund much-needed infrastructural projects in the country.