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Nigeria Economic Outlook

Macroeconomic performance and outlook

Real GDP growth was estimated at 2.3% in 2019, marginally higher than 1.9% in 2018. Growth was mainly in transport, an improved oil sector, and information and communications technology. Agriculture was hurt by sporadic flooding and by conflicts between herdsmen and local farmers. Manufacturing continues to suffer from a lack of financing. Final household consumption was the key driver of growth in 2019, reinforcing its 1.1% contribution to real GDP growth in 2018.

The effort to lower inflation to the 6%–9% range faced structural and macroeconomic constraints, including rising food prices and arrears payments, resulting in a rate estimated at 11.3% for 2019.

With fiscal revenues below 7% of GDP, increased public spending widened the deficit, financed mainly by borrowing. At the end of June 2019, total public debt was $83.9 billion—14.6% higher than the year before. That debt represented 20.1% of GDP, up from 17.5% in 2018. Domestic public debt amounted to $56.7 billion, and external public debt $27.2 billion. The share of bilateral debt in total debt was estimated at 12.1%, and that of eurobonds at 40.8%. High debt service payments, estimated at more than half of federally collected revenues, created fiscal risks.

The current account surplus sharply declined due to increased imports, lower oil revenues, and a smaller than expected improvement in capital flows.

Poverty remains widespread. The poverty rate in over half Nigeria’s 36 states is above the national average of 69%. High poverty reflects rising unemployment, estimated at 23.1% in 2018, up from 14.2% in 2016. Low skills limit opportunities for employment in the formal economy. Government social programs—N-Power and other youth empowerment schemes—are meant to address unemployment.

Tailwinds and headwinds

Real GDP growth is projected to rise to 2.9% in 2020 and 3.3% in 2021. It depends on implementing the Economic Recovery and Growth Plan (2017–20), which emphasizes economic diversification. The central bank of Nigeria’s recent decree that banks hold loan–deposit ratios of 60% bodes well for increasing lending to the real sector. Simultaneously, the retrenchment of government borrowing and easing of the risks of lending to small business could lower interest rates and unlock bank lending to the private sector.

An increase in the value-added tax from 5% to 7.5% to shore up domestic nonoil revenues is welcome, though organized labor and businesses have raised concerns of a potential rise in costs. The government also plans to revisit investment tax breaks.

Oil exports have improved, driving up foreign exchange reserves and creating an impetus for the central bank to intervene in the foreign exchange market. The current account is projected to remain in surplus in 2020, benefiting from improved oil revenues.

Nigeria has many opportunities to transform its economy, particularly in agroprocessing. Special agroprocessing zones could promote agroindustrial development and employment.

But insecurity could deter foreign investors, shrivel the domestic economy, and ultimately dampen prospects for economic growth. High unemployment could create social tensions. Rising public debt and associated funding costs could pose fiscal risks if proposed adjustments are not implemented.

Nigeria’s oil exports could be affected by developments in the Middle East. Trade tensions between the United States and China could weaken global growth and lower demand for Nigeria’s products, including oil. Protracted delays in concluding the Brexit deal could accentuate investors’ aversion to emerging markets, including Nigeria, reversing the current upward trend in foreign portfolio flows. Prolonged closure of borders by Nigeria to curb smuggling may affect trade with other countries in West Africa and raise the prices of imported products, especially rice. These risks underscore the need to accelerate structural reforms to promote economic diversification and industrialization to minimize vulnerability to external shocks.