Nigeria Economic Outlook
- Nigeria has had sluggish economic growth since the end of 2015 with the rate dropping to an estimated 3.0% in December 2015, leading the authorities to adopt an expansionary 2016 budget that aims to stimulate the economy.
- Security, fighting corruption, and improving the social welfare of Nigerians are at the heart of the development policy of the new administration that was inaugurated on 29 May 2015.
- Nigeria has been rapidly urbanising and fast-growing cities such as Lagos and Kano face increasing unemployment and income inequality because of poor urban planning and weak links between structural transformation and urbanisation.
The Nigerian economy has been adversely affected by external shocks, in particular a fall in the global price of crude oil. Growth slowed sharply from 6.2% in 2014 to an estimated 3.0% in 2015. Inflation increased from 7.8% to an estimated 9.0%. The sluggish growth is mainly attributed to a slowdown in economic activity which has been adversely impacted by the inadequate supply of foreign exchange and aggravated by the foreign exchange restrictions targeted at a list of 41 imports, some of which are inputs for manufacturing and agro-industry. This has resulted in cuts in production and shedding of labour in some sectors. However, with the increasing policy concern over the decline in growth, the central bank has moved to reduce the cost of borrowing for government and the private sector to stimulate the economy.
The 2016 outlook is for slow economic recovery as some of the reforms begin to take effect and measures to boost the economy, such as increased spending on infrastructure, are implemented. Some specific reforms pursued by the new administration to lay a foundation for renewed growth are commendable. The key reforms include the rationalisation of the public sector in order to cut the cost of governance; enforcement of the single treasury account to block financial leakages; renewed efforts at enforcement of tax compliance; preparation for zero-budgeting starting in 2016; and increasing the ratio of capital to recurrent expenditure to 30:70.
Security remains a major challenge, in the northeast in particular. While the military has stepped up the fight against the Boko Haram insurgency the humanitarian situation has continued to deteriorate. The number of internally displaced persons is estimated at over 2 million, located mainly in the cities where conditions are safer. Both the government and development partners continue to explore additional ways of improving the situation.
Sustainable cities can only be driven by structural transformation if there is an integrated approach to urban planning. It is expected that the Federal Ministry of Power, Works and Housing will review the urban development policy and work with other line ministries to improve service delivery and chart a way forward for tapping into the opportunities provided by the growth of cities in Nigeria. Lagos is one of the seven mega-cities in Africa and has a high potential for innovation and job creation opportunities in sectors such as construction, information communications and technology (ICT) and retail trade.