The National Bureau of Statistics (NBS) has reported a contraction in Nigeria’s Gross Domestic Product (GDP) in the second quarter of 2020.1 The report stated a contraction of -6.10% in comparison to the 1.87% growth that was recorded in the first quarter of the year. This contraction is attributed to the COVID-19 pandemic, the consequential decline of output and the crashing of oil prices. Nigeria slowly recovered from recession in 2017 and has been on a gradual path towards growth. However, the current GDP contractions indicate that a second recession could be approaching. Steep declines in GDP growth calls for the diversification of the economy to stimulate growth in various areas including agriculture and agribusiness, manufacturing, and real estate. In addition, overreliance on global value chains particularly in the manufacturing sector should be curbed in order to improve resilience.
September 28, 2020
Nigeria Economic Update (Issue 36)
The naira depreciated by 8.2 percent from N305/$ on February 5th, to N330/ $ on February 12th 20166. The apex body identified the increased domestic demand for forex to pay for foreign medical treatments and schools fees (15 percent of total demand) 7 as the main drivers. As a result, the apex bank is considering to discontinue the provision of forex for payment of medical bills and school fees abroad and to re-channel the forex towards the manufacturing sector of the economy. With the continuous depreciation of the naira, and the CBNs resistance from calls to devalue the currency, the options for alternatives measures seem to be diminishing.
Business activities in Africa slightly improved in February 2017 albeit at a slow rate. Sales Managers Index (SMI) for Africa an assessment of business condition in Pan-African Economy increased by 0.4 index points from 52.2 points in January 2017 to 52.6 points in February 2017. Sub-Saharan African countries experienced better business activities than North Africa in the review period. The two largest economies in the region, Nigeria (48.5 index points) and South Africa (49.2 Index points) registered contraction in the review period as Nigeria remained in recession while high unemployment remained a problem in South Africa. The growth in SMI recorded in the review period is driven by improvement in business confidence and sales price which outweighed the fall in other components market growth, sales output and staffing level.
The naira depreciated by 4.3 percent to a record low of N313/$ at the interbank market segment on July 29, 2016.Precisely, the lack of liquidity in all FX market segments continues to weaken the naira. In order to increase FOREX liquidity, moderate inflationary pressures, encourage capital inflows and support the naira, the CBN may need to increase the supply of FOREX in the interbank market while simultaneously mopping up idle funds through the sale of securities.