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The growing importance of services has bolstered growth in the economy. The sector accounts for about half of GDP, dwarfing the 10% from oil and 22% from agriculture. Real GDP growth was an estimated 1.9% in 2018, reflecting a recovery in services and industry— particularly mining, quarrying, and manufacturing. The recovery benefited from greater availability of foreign exchange. Growth in agriculture was lackluster, due partly to clashes between farmers and herders coupled with flooding in key middle-belt regions and continued insurgency in the northeast.
On the macroeconomic front, the delay by parliament in approving the 2018 budget affected implementation and increased fiscal uncertainty by pushing the bulk of spending to the second half of the year. But thanks to oil revenues, a value added tax on luxury items, and a tax amnesty, the fiscal deficit narrowed in 2018, financed mainly by public debt.
By June 2018, the stock of public debt stood at $73.2 billion, up from $71.0 billion in 2017, representing 17.5% of GDP. Despite the increase, Nigeria remained at moderate risk of debt distress. In November 2018, the government issued a Eurobond of $2.9 billion, which reflects its new debt management strategy of prioritizing foreign debt to mitigate the high financing costs of domestic borrowing. Furthermore, relatively strong oil receipts solidified the current account surplus to an estimated 3.7% and bolstered improvements in the terms of trade by about 13% in 2018 alone.
Real GDP is projected to grow by 2.3% in 2019 and 2.4% in 2020 as implementation of the Economic Recovery and Growth Plan gains pace. However, the slide in oil prices from late 2018 coupled with an output cut imposed by the Organization of the Petroleum Exporting Countries poses a downside risk to the economic outlook. Parliament’s approval of the 8.83 trillion naira 2019 “budget of continuity” may also be delayed due to presidential elections scheduled for February 2019.
The outlook depends on the pace of implementing the Economic Recovery and Growth Plan, which anchors Nigeria’s industrialization by establishing industrial clusters and staple crop processing zones to give firms a competitive edge through access to raw materials, skilled labor, technology, and materials.
The Power Sector Reform Program, if effectively implemented, could attract private investment. It targets 10 gigawatts of operational capacity by 2020. But Nigeria needs to reorient its federal budget, currently dominated by recurrent spending, toward more capital expenditure and accumulating savings to sustain social spending.
The federal government has made strides with institutional and governance reforms, including implementation of the Integrated Financial Management and Information System and the Integrated Payroll and Personnel Information System. The enactment of the Secured Transactions in Movable Assets Act 2017 has institutionalized and widened coverage of collateral to stimulate lending to small and medium enterprises. Although Nigeria has a relatively low debt-to-GDP ratio, there is need for fiscal prudence to avoid a debt trap, especially as global interest rates start to rise. Therefore, contraction of new external debt should balance spending needs with capacity to improve the economy’s competitiveness and stimulate growth.
Nigeria accounts for nearly 20% of continental GDP and about 75% of the West Africa economy. Despite this dominance, its exports to rest of Africa are estimated at 12.7%, and only 3.7% of total trade is within the Economic Community of West African States. Nigeria has yet to ratify the Continental Free Trade Agreement, pending the outcome of broad consultations with captains of industry and other stakeholders.