- Policy Distortions, High Inflation, World Bank Cuts Nigeria’s Growth
The World Bank on Monday lowered Nigeria’s growth projection for 2019, citing stagnant crude oil production, high inflation rate and policy distortions.
Nigeria’s economy is now expected to grow at 2.1 percent in 2019, down from 2.2 percent previously projected.
The projection was released in the World Bank’s bi-annual analysis of the state of African economies, Africa’s Pulse.
The report read: “Growth in Nigeria is projected to rise from 1.9 percent in 2018 to 2.1 percent in 2019 (0.1 percentage point lower than last October’s forecast). This modest expansion reflects stagnant oil production, as regulatory uncertainty limits investment in the oil sector, while non-oil economic activity is held back by high inflation, policy distortions, and infrastructure constraints. Growth is projected to rise slightly to 2.2 percent in 2020 and reach 2.4 percent in 2021, as improving financing conditions help boost investment.”
Analysts at Investors King, however, sees better growth in 2019 given improved oil outlook and the likelihood of the two world’s largest economies to reach an agreement ahead of Trump’s second term campaign.
Nigeria is currently producing above OPEC’s reference level while Brent crude, Nigeria’s type of crude, has risen more than 40 percent this year and presently trading above $70.98 a barrel. Despite producing below 2018, higher oil prices in 2019 will compensate for the deficit in barrels.
Also, Nigeria’s foreign exchange reserves rose to a 5-month high of $44 billion in March, giving room for additional forex intervention by the Central Bank of Nigeria. This should enhance business confidence and boost economic growth in 2019.
Again, Excess Crude account will continue to improve in the near-term since oil benchmark was $60 a barrel in the 2019 proposed budget.
On the issue of high inflation, inflation has been on the decline in the last 24 months and stood at 11.31 percent in February. While this is still above CBN’s single-digit target, prices continue to moderate lower nevertheless and with positive macro fundamentals, this should continue in the second half of the year.
Still, President Muhammadu Buhari’s administration needs to be clear on economic policy as investors, especially those at the Nigerian Stock Exchange, are holding back due to uncertain economic path following the general elections.
The Nigerian Stock Exchange’s year-to-date return declined to -5.8 percent last week and if not checked, may drive investors further away from the economy as it is one of the key indicators of a healthy economy.
In a related report, the World Bank also reduced its projection for sub-Saharan Africa to 2.8 percent in 2019, down from 3.3 percent initially announced.
The report stated: “Growth in Sub-Saharan Africa is forecast to recover to 2.8 percent in 2019 from the slowdown to 2.3 percent in 2018 and rise to 3.3 percent in 2020. This upturn is supported, on the demand side, by exports and private consumption and, on the supply side, by a rebound in agriculture, an increase in mining production, and steady growth in the services sector in some countries. These forecasts are 0.5 and 0.3 percentage points lower than last October’s forecasts, respectively, reflecting slower growth in Nigeria and Angola, due to challenges in the oil sector, and subdued investment growth in South Africa, due to low business confidence. Regional growth is expected to improve slightly to 3.4 percent in 2021 as activity strengthens in the region’s three largest economies.
“The external environment for the region remains challenging, as global growth continues to decelerate, and global uncertainty related to trade disputes between the United States and China remains high. Although commodity prices improved in the first quarter of 2019 they are below their peak in 2018 and the oil market outlook remains highly uncertain.
“Despite the rebound, growth in the region will remain well below its long-term average. Per capita growth–projected to rise from -0.3 percent in 2018 to 0.7 percent in 2021–will be too low to achieve poverty reduction goals, particularly among oil-exporting countries and metals exporters. However, there is significant heterogeneity in growth performances, with over one-third of the countries expected to grow at more than 5 percent in 2019 to 2021.”
