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The Nigerian Economy and Policy Environment



  • The Nigerian Economy and Policy Environment

Recently released data from the National Bureau Statistics (NBS) confirmed that Nigeria experienced a full year recession in 2016 with the economy contracting by 1.51%. The fourth quarter 2016 GDP came in negative at -1.3%, after the three earlier quarters had also recorded negative growth of -0.36%, -2.06% and -2.24% respectively. In the whole of 2016, the oil sector contracted by 13.65% while non-oil activities shrunk by 0.22%.

These data merely confirm what Nigerian businesses, consumers and households experienced in the prior year and re-emphasize the urgency of action from government and other stakeholders to ameliorate the situation. At this point, it is important to acknowledge that the Federal Government of Nigeria through the Ministry of Budget and Planning released the much expected Economic Recovery and Growth Plan (ERGP) on March 7, 2017. I will discuss our initial impressions of the plan later on in this press conference.

NBS data confirmed that by the end of 2016, the crude, petroleum and gas sector represented only 8.42% of Nigerian GDP once again reminding us of the urgent imperative of diversifying government revenue and the sources of our exports. We call again on government to aggressively provide incentives and support for non-oil exporters so that a sector that represents less than 9% of economic output will no longer provide virtually all our foreign exchange income, thus leading to the kind of FX constraints that the whole nation faced in 2016 and still faces.

Note that the manufacturing sector with 9.27% of GDP in fact contributed more to GDP in 2016 than oil (8.42%) and if along with the rest of our non-oil economy, it receives appropriate support to make it more globally competitive, should be able to contribute more to our exports and foreign currency revenue than it currently does. Policy makers must focus on reversing the anomaly in which oil which is 8.42% of GDP provides 95% of export revenue, while the entire non-oil economy (including manufacturing, agriculture, trade, telecommunications, real estate, finance and insurance etc.) which collectively represents 91.58% of GDP provide about 5% of exports!

In terms of sectoral performance, most domestic economic sectors similarly performed poorly in terms of growth in 2016 – manufacturing (-4.32%), construction (-5.95%), Trade (-0.24%), transport (0.39%), information and communication, including telecommunications (1.95%), hotels and restaurants (-5.32%), professional, scientific and technical services (0.80%), finance and insurance (-4.54%), real estate (-6.86%), education (1.35%), health (-1.79%) government (-4.58%) and arts, entertainment and recreation (3.72%).

Other macroeconomic indices also remain problematic. Inflation has reached 18.7% as at January 2017 and capital market performance was and remains dismal, by all parameters.

Fortunately, however, there have been some recent positives – oil prices have risen to an average of $55 per barrel post the OPEC oil production cut-backs allowing the Central Bank of Nigeria to accumulate increased foreign reserves. We have also had a successful $1Billion Eurobond offer which may signpost modest improvement in foreign investor confidence in the Nigerian economy. We however, have concerns about the relatively high cost of the Eurobond offer and the rising debt service obligations of the country compared to our revenue profile.


The Federal Government should be commended for releasing the Economic Recovery and Growth Plan (ERGP) which should provide some degree of policy certainty to domestic and foreign stakeholders on the policy direction of the Nigerian government for our economy. We appreciate the fact that the ERGP was produced through a process that involved consultations with the private sector and hope such consultative posture would be sustained. We share in the broad principles behind the plan – tackling constraints to growth, particularly fuel, power, unfriendly regulations, and foreign currency; leveraging the power of the private sector, promoting national cohesion and social inclusion and allowing markets to work. We also support some specific initiatives and targets stated in the document including the desire to increase oil production to 2.5million barrels per day by 2020; privatisation of specific enterprises and assets; reducing petrol importation by 60%; building a globally competitive economy; and improving infrastructure and the overall business environment.

We urge government to ensure a focused, concerted and effective implementation of all the actions and initiatives contained in the ERGP so that the benefits may quickly accrue to the economy, businesses and citizens, and the nation as a whole.


The part of my address is based on a comparative analysis of seven (7) countries benchmarked against Nigeria with the objective of drawing economic policy implications that may inform policy options Nigeria may consider as it seeks to exit economic recession and return to the path of economic growth and development. The comparator countries are carefully selected for relevance:-

Country Policy Reviews

Ghana: Its major exports are gold, cocoa and oil. The country’s economic performance deteriorated in the last few years, due to the decline in commodity prices. It should be noted that Ghana still imports crude oil and refined petroleum products to supplement local production.

In April 2015, Ghana signed a 3-year $920million facility with the IMF to stabilise its balance of payments. Ghana’s main responses to its economic challenges have been currency devaluation and the IMF facility. These responses have ensured resumed GDP growth estimated at 4.7% as at Q3 2016

Saudi Arabia: This is a leading OPEC member with vast oil reserves, a modest population and huge FX reserves. In spite of its fundamentally stronger position, relative to say Nigeria (with large population, lower oil reserves and low FX savings), Saudi Arabia embraced an aggressive policy response to decline of oil prices, with a strategy focused on diversification from oil:-

In December 2015, McKinsey working for the Kingdom published “Saudi Arabia beyond Oil : The Investment and Productivity Transformation.” In April 2016, the country still working with McKinsey published a new Vision 2030 also anchored on diversification from oil. The final policy culmination was the “National Transformation Plan” announced in June 2016 which aims to balance the budget, create jobs, reduce subsidies, diversify the economy and develop the private sector.

A key element of Saudi Arabia’s policy response is a privatisation of 5% the national oil company, Aramco slated for 2017/18 that may raise up to $100bn. The country aims to triple non-oil revenue, increase non-oil exports and secure $4Trillion investment from private sources in non-oil sector to create 6 million jobs. It will also establish a sovereign wealth fund.

Norway: The significance of Norway is how as a large oil producer, it has secured relative immunity from oil price savings by institutionalising sovereign savings through a sovereign wealth fund. The country has also achieved relative export diversification with exports of fisheries and shipping in addition to petroleum and hydroelectric power. Per capita income in Norway is over $65,000! Norway’s Government Pension Fund-Global with $850bn is ranked 3rd largest in the world behind US and Japan according to Sovereign Wealth Fund Institute.

Egypt: On November 3, 2016, Egypt announced it would float the Egyptian Pound (devaluation). It also announced a fiscal reform programme. Egypt also entered into a deal with the IMF based on a 3 year plan. These measures led to the massive re-entry of foreign investors who had fled the Egyptian economy due to its political and economic problems. The result was that Egypt’s $4bn Eurobond offer secured multiple over-subscription. By 2015, Egypt’s GDP growth reached 4.2%. Its exchange rate having depreciated post-floating has recently strengthened validating its floating currency system and economic reform programme.

Russia: It suffered severe economic problems due to its dependence on oil and gas exports, as well as Western sanctions due to its actions in Crimea, Ukraine and Syria. As a result, the Russian economy went into recession in 2015 (-3.7% contraction). The saving grace of economic policy in Russia is that it allowed its currency to devalue consequent on economic crisis, which enabled a “natural” market adjustment and preserved Russia’s FX Reserves of almost $400bn. In 2016, the contraction reduced to -0.6% and the Russian economy is expected to grow in 2017. The Russian stock market recovered in 2016, growing by over 40% and foreign investors are returning, especially for oil and gas plays.

Indonesia: This is the world’s 16th largest economy by nominal GDP (approx. $940bn in 2016 and $3bn by PPP). The country’s GDP continued on an average 5% growth through 2014-2016 in spite of being a very large OPEC oil exporter and GDP per capita is around $11, 700.00. The country’s poverty and unemployment rates relative to Nigeria are fair, at 11.3% and 6.3% respectively.

Indonesia’s relative macroeconomic stability and superior performance in comparison to Nigeria is because it has substantially diversified its economy, especially exports, selling not just oil and gas, but also cement, food, electrical appliances, construction, plywood, textiles and rubber to the world.

The country’s FX reserves were estimated at over $116bn at December 2016 and its key policies centre around privatisation/private capital, FDI, industrialisation and economic diversification.

Angola: Its recent economic performance has been dismal as a result of falling oil prices, spiralling inflation and rising public debt, in many ways a mirror image of Nigeria! Poverty affects 40.5% of the population, Yet Angola has managed to continue to grow its GDP (4% in 2015) and its GDP per capita at over $5,000.00 is better than Nigeria’s. With 85% of its population engaged in agriculture, the country has not structurally reformed its economy and remains dependent on oil and commodity exports.

Policy Implications and Recommendations

Proactive Policy Response: The experience of Saudi Arabia illustrates the need for a proactive, strong and concerted policy response as oil prices began to fall. Unlike the Saudis, Nigeria is yet to articulate and communicate a coherent policy agenda in response to the oil crises. While we note positively that government has now formulated an Economic Recovery and Growth Plan (ERGP) in consultation with all stakeholders and with assistance from McKinsey, this step is perhaps two years late and should be implemented forthwith. We expect ERGP implementation to be based on a strong agenda to diversify exports and government revenue sources; promotion of private capital and investment; deregulation of downstream petroleum; as well as an effective flexible exchange rate system.

Floating Exchange Rate System: The evidence from other economies is clear and compelling to the effect that floating exchange rate systems enables economies respond best to declines in the value of their exports and provide a natural adjustment mechanism to preserve FX reserves and change incentives and behaviour of economic actors. Nigeria’s attempt at a fixed exchange rate system and administrative controls or rationing of scarce foreign currency has clearly failed and produced FX market arbitrage and “round-tripping”; corruption, multiple exchange rates and acted as a deterrence to investment. We commend the recent reforms adopted by the CBN based on the recommendation of the Acting President/National Economic Council and urge the CBN to take these reforms to the logical conclusion-a floating exchange rate system.

Private Capital and Investments: One of the major deficiencies of current policy is the “body language” that suggests an aversion for private capital and investment and a seeming preference for government control of the economy. The evidence from most of the countries examined, especially Saudi Arabia, Egypt, Indonesia and even Russia, however indicates the opposite-most oil dependent economies have anchored their post-oil strategies on private capital and investment in oil and non-oil activities. Most investors are interested in the Nigerian economy, but they have been deterred by lack of policy clarity and the confusion over FX. We understand that ERGP articulates a clear policy preference for private capital and expect government to implement clear strategies for promoting such.

The Imperative of Sovereign Savings: Nigeria missed the opportunity of high oil prices between 2010 and 2014 failing to accumulate sufficient sovereign savings to provide a buffer against oil price shocks. We did not learn the lesson that one major reason Nigeria avoided more severe consequences of the Global Financial Crisis and Recession in 2008-2009 was because of the over $65bn accumulated in both foreign reserves and “excess crude account” in that period. This failure to save was in spite of the fact that the nation had created a Sovereign Wealth Fund through legislation. Going forward we must ensure that we save a portion of our commodity-related revenues in view of the inevitability of future declines.

The Case for Targeted Privatisation or “Asset Sales”: The issue of privatisation or “asset sales” has been controversial based on legitimate concerns that such policy may provide an avenue for persons or groups to “corner” precious national assets and further the entrenchment of monopolies and oligopolies in our national economy. In spite of these concerns, which we share, we cannot refuse to examine asset sales as an option in funding the economy in this recession. In particular, we believe government may consider some specific sales of assets such as Conversion of the upstream oil sector JVs into incorporated JVs with the government reducing its share in those IJVs as a means of improving governance and raising resources for infrastructure.

We support full privatisation of government-owned refineries and privatisation or long concessions of all federal government-owned airports. Government may also consider selling not more than 20% of its holding in NLNG to the current private investors in the company. Government should use these processes to expand the capital market through listing of privatised assets on the NSE and also encourage/guarantee host community participation.

Nigeria appears to have peremptorily ruled out an IMF facility as an option in resolving our balance of payments problem, unlike Ghana and Egypt both of which appear to have benefitted from facilities from the fund. While we are not in a position to determine whether or not the country should obtain such a facility, we advise that no policy option should be dispensed with merely on populist considerations. Nigeria needs injection of foreign currency on the best terms possible and should consider all options based on their relative merits and demerits.

One consequence of the monetary authorities fixation on maintaining an artificial fixed exchange rate has been the high interest rate regime. The CBN has maintained monetary policy rate at 14% in spite of the economic recession which would have suggested a different policy response-lowering interest rates to stimulate economic activity. We believe that within the context of our previous preference for a floating exchange rate system as the ideal policy response in our circumstances, that it is time for CBN to abandon its monetary tightening posture and move towards a monetary easing and a lower interest rate regime in order to boost productive activities in the economy.

Nigeria’s domestic and external debts have risen significantly since 2014, and particularly in 2015 and 2016. Our domestic borrowing has risen from N577bn in 2013 to N1.18Trillion by 2016 while total borrowing (external and domestic) has grown from just N614bn in 2014 to N1.8Trillion in 2016 and a projected level of N2.3Trillion under the 2017 budget!

More worrying is the fact that debt servicing obligation now represent about 35% of total budgeted revenue in both 2016 and 2017 suggesting that Nigerian government borrowing is probably unsustainable. We also note that while the successful and multiple oversubscribed $1billion Eurobon represents a vote of confidence in Nigeria’s economy, at over 7% coupon, it was highly priced.

The sustainable funding strategy for the Nigerian economy should focus on private investment/FDI rather than concentrating on unsustainable borrowings. Government may also have to review its tax policy.

Tax Policy: We conducted a comprehensive benchmarking of company income tax, personal income and VAT/sales tax rates of 30 global economies.

We believe on the evidence that Nigeria’s CIT rate of 30% (plus 2% education tax) lies on the upper threshold and should be reviewed downwards to 20-25%. We find that Ghana, Cote D’Ivoire, China, Malaysia and Indonesia all tax corporate profits at 25% while UK, Saudi Arabia and Russia use 20%. Countries in-between include Portugal (21%), Botswana (22%) and Egypt (22.5%) while South Africa’s rate is 28%.

On the other hand, it is incontrovertible that Nigeria’s 5% VAT rate is far below that of comparator countries and at an appropriate time may be increased to 10%.

Minimum Wage: Given the depreciation in the value of the Naira as well as inflation currently at 18.6%, a strong case can be made for raising Nigeria’s minimum wage. However, we counsel that, such a step be preceded by a comprehensive review and restructuring of the public services of the federal, states and local governments. Given that such restructuring may not be expedient in this period of recession and rising unemployment, our recommendation is that a review of the minimum wage should be deferred until the economy has resumed strong growth and public sector finances have improved.

Power Sector Issues: One of the problems that continue to plague the Nigerian productive sector and businesses generally is the continuing acute electricity supply deficits in the country. While we do not support a reversal of the power sector privatisation, we believe government must hold the “discos” and “gencos” to their obligations and promises before assuming ownership of these entities. We also believe government must demonstrate good faith by paying up all its debts to the power distribution companies and continue to invest in the transmission system to improve transmission capacity.

Finally government should sustain and accelerate efforts to reach a political settlement in the Niger-Delta to put an end to sabotage of oil, gas and power infrastructure. Nigerian individuals, households and businesses have experienced a tough time in the last two years. We hope that all stakeholders, particularly government will put all hands on deck to ensure an end to recession, the resumption of growth and indeed accelerated economic development in this nation. We urge government to focus on clinical and swift implementation of the initiatives and actions included in the ERGP as well as other ideas presented to them by the OPS, including the recommendations I have just made in this address. On our part, as NECA and OPS, we stand ready to do our utmost best to ensure sustained and inclusive growth and development in the Nigerian economy.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and, with over a decade experience in the global financial markets.

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IMF Staff Completes Virtual Mission to Lesotho




Lesotho has been struggling with the fallout from the pandemic and a sharp decline in revenues from the Southern African Customs Union (SACU); The authorities and the mission team made significant progress in their discussions on policies that could be supported by the IMF under a financial arrangement.

A team from the International Monetary Fund (IMF), led by Mr. Aqib Aslam, conducted a series of virtual missions, most recently from September 7 to October 15, 2021, to discuss the authorities’ economic and financial program and their request for IMF financial support.

The authorities and the mission team had productive discussions on policies that could be supported by the IMF under a financial arrangement. The program under discussion would aim to support a durable post-pandemic recovery, restore fiscal sustainability, strengthen public financial management, and ensure the protection of the most vulnerable. Other key structural reforms to be implemented include strengthening governance and fostering private sector investment to spur inclusive growth and employment over the medium term.

At the end of the visit, Mr. Aslam issued the following statement:

“Lesotho has been experiencing twin economic shocks resulting from the pandemic and a decline in revenues from the Southern African Customs Union (SACU) that have proved to be highly volatile. Public expenditures have been increasing while SACU revenues were buoyant but have not adapted to their decline and the limited growth in other revenue sources. At the same time, the economy has been in recession since 2017. The resulting fiscal and external imbalances, if left unaddressed, would continue to put pressure on international reserves and lead to government payment arrears.

“Discussions emphasized the need to support a robust and inclusive post-pandemic recovery. To this end, the mission discussed with the authorities a number of options for containing the fiscal deficit to a level that is sustainable and can be fully financed. The team noted that the adjustment should be focused on expenditure measures while boosting poverty-reducing social spending to protect the most vulnerable. Complementary actions include efforts to broaden financial access and inclusion; strengthen financial supervision; modernize the legal frameworks for bank lending, business rescue, and restructuring, and digitalize payment systems.

“On the fiscal front, efforts should focus on addressing the public sector wage bill, which is one of the largest in the world compared to the size of the economy; saving on public sector and official allowances; better targeting education loans; streamlining the capital budget and initiating gender-responsive budgeting. Discussions also considered measures to modernize tax policy and improve domestic revenue mobilization. The mission noted the need to address long-standing PFM issues to ensure the provision of reliable fiscal data, the integrity of government systems, and the sound use of public resources.

“Significant progress was made during the visit, and discussions will continue in the coming weeks. If agreement is reached on policy measures in support of the reform program, an arrangement to support Lesotho’s economic program would be proposed for the IMF Executive Board’s consideration.

“The IMF team thanks the authorities for their hospitality and constructive discussions.”

The IMF mission met with Prime Minister Majoro, Minister of Finance Sophonea, Central Bank Governor Matlanyane, and other senior government officials. The team also met with representatives of the diplomatic community, private sector, civil society, and multilateral development partners.

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Nigeria’s Inflation: Prices Increase at Slower Pace in September 2021



Consumer Confidence

Prices of goods and services moderated further in Africa’s largest economy, Nigeria in the month of September 2021, the latest report from the National Bureau of Statistics (NBS) has revealed.

Consumer Price Index (CPI), which measures the inflation rate, grew at 16.63 percent year-on-year in September, slower than the 17.01 percent rate achieved in the month of August.

On a monthly basis, inflation rose by 1.15 percent in September 2021, representing an increase of 0.13 percent from 1.02 percent filed in August 2021.

Food Index that gauges price of food items grew at 19.57 percent rate in the month, below the 20.30 percent rate recorded in August 2021.

The increase in the food index was caused by increases in prices of oils and fats, bread and cereals, food product N.E.C., fish, coffee, tea and cocoa, potatoes, yam and other tuber and milk, cheese and egg.

However, on a monthly basis, the price of food index rose by 0.20 percent from 1.06 percent filed in August 2021 to 1.26 percent in September 2021.

The more stable twelve months average ending in September 2021 revealed that prices of food items grew by 0.21 percent from 20.50 percent in August to 20.71 percent in September.

Prices of goods and services have been on the decline in Nigeria in recent months, according to the NBS. However. on masses are complaining of the persistent rise in prices of goods and services across the nation.

Some experts attributed the increase to Nigeria’s weak foreign exchange rate given it is largely an import-dependent economy.


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Global Debt Rises by $27 Trillion to $226 Trillion in 2020 – IMF



IMF - Investors King

The pandemic has led to an unprecedented increase in debt—issued by governments, nonfinancial corporations, and households the IMF estimated in the latest Fiscal Monitor report. In 2020 global debt reached $226 trillion and increased by $27 trillion, the IMF estimated Wednesday  (October 13) in Washington, DC.

High and growing levels of public and private debt are associated with risks to financial stability and public finances, said Vitor Gaspar, Director of the IMF’s Fiscal Affairs Department.

“According to preliminary estimates from the Global Debt Database, global debt by governments, households, and non-financial corporations reached $226 trillion. That represents an increase of $27 trillion relative to 2019. Both the level and the pace of increase are record highs. We know that high and rising debts increase risks to financial stability and public finances,” Gaspar said ahead of the Fiscal Monitor release.

Gaspar emphasized that countries with a high credibility fiscal framework benefit from better bond market access. They also experience lower interest rates on sovereign bonds.

“A strong message from the fiscal monitor is that fiscal credibility pays off. Countries that have credible fiscal frameworks benefit from better and cheaper access to bond markets. That’s a precious asset to have in an uncertain and difficult times like COVID 19. Fiscal credibility pays off!,” added Gaspar.

He also recognized that while the international community has provided critical support to alleviate fiscal vulnerabilities in low-income countries, still more is needed.

“In 2020, the IMF’s rapid financing and the G20 Debt Service Suspension Initiative contribute to make resources available to the countries that need it the most. But more is needed. With a general allocation of SDRs of $650 billion, liquidity has been provided, but much more could be achieved if rich countries would make part of their resources available to the developing world. By doing so, donors would be contributing to fighting the pandemic and to the achievement of sustainable and inclusive growth,” said Gaspar

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