Vetiva Research has predicted that the Nigerian economy will rebound by 3.1 percent in 2021.
In its second half (H2) 2021 macroeconomic outlook for the Nigerian economy, titled, “On the cusp of recovery,” the Lagos-based firm appraised developments on the global, continental and domestic scenes.
On the global scene, the analysts reviewed the COVID-19 virus and vaccine developments, the global recovery trajectory, and the build-up in global inflation.
Vetiva’s Economist, Ibukun Omoyeni, noted that economic indicators suggest advanced economies could rebound faster than emerging economies, in contrast with the expectations of the International Monetary Fund (IMF).
“This is because sustained policy support and strong vaccination drive in advanced economies could place them ahead of emerging economies, which are reeling from resurging outbreaks of infectious variants,” he said.
Omoyeni identified five key global macroeconomic themes which could gain traction in the second half of the year.
This borders around vaccine diplomacy, geopolitics, de-dollarisation & digital currencies, commodity super-cycle, and a global minimum tax.
In Sub-Saharan Africa, he attributed the mild contraction in the region to the slower spread of the virus, low death rates, the dominance of the agricultural sector and rebound in commodity prices.
According to the report, the region may not recover as fast as other regions due to limited fiscal space and emerging inflationary threats.
“However, economies with tolerable inflation outcomes could dish out rate cuts to support their respective economies. For many others, high and rising inflation amid health risks could cause many central banks to hang their monetary policy tools. While a hawkish rendition has supported Mozambican Metical, the surge in commodity prices, robust remittance inflows, and fundraise from the international debt market have supported some other Sub-Sahara Africa (SSA) currencies,” the report said.
On the domestic scene, a panoramic view of the Nigerian economy was carried out. After articulating the drivers of growth in major sectors of the economy, Vetiva’s economist estimated that the Nigerian economy could grow by 3.1 percent in 2021.
On inflation, the report envisaged a tussle between FX pressures and high base effects in the H2 of the year. While base effects are expected to influence a moderation in inflation, the economist noted an average inflation expectation of 17.34 percent for 2021.
Amid the moderation in inflation, Omoyeni expects the CBN to maintain MPR at 11.5 percent while noting the possibility of further dovish moves as inflation decelerates.
“Given the transition to a post-pandemic environment, we do not see scope for rate hikes in 2021, as investors are more concerned with FX unification efforts and the CBN with economic recovery,” he said.
On the fiscal sector, Vetiva’s economist noted that the resurfacing of subsidies could result in a higher fiscal deficit. On the fiscal sustainability of the states, the report noted that “only two states and the Federal Capital Territory generated 50 percent of its revenue internally…this poses a major medium-term risk should there be an earlier-than-anticipated shift to cleaner forms of energy, especially as global warming remains a hot topic in global parlance.”
Thus, Vetiva advocated for the implementation of incentives to attract foreign direct investment in line with the framework laid down by the Nigerian Investment Promotion Council (NIPC) and the Presidential Economic Advisory Council (PEAC).
Nigeria Records Trade Deficit of 8.9 Trillion in Nine Months
The National Bureau of Statistics (NBS) released a report that showed that Nigeria recorded a trade deficit of 8.9 Trillion Naira between January and September 2021.
A trade deficit occurs when a country’s imports exceed its exports over a period. Within the period, foreign trade was 35.09 Trillion Naira which comprised imports of 22 Trillion Naira and exports of 13.1 Trillion which led to an 8.9 Trillion trade deficit.
A breakdown of the data by quarters shows that trade stood at 9.76 Trillion Naira in the first quarter, which represented imports of 6.85 Trillion Naira and exports of 2.91 Trillion Naira, this resulted in a trade deficit of 3.94 Trillion during the period.
The data went on to show that the majority of the goods imported in the first quarter were from China (valued at 2 Trillion), the Netherlands (valued at 726.09 Billion) the United States (valued at 608.12 Billion), India (valued at 589.1 Billion), and Belgium (valued at 238.5 Billion) while the majority of exports were to India (valued at 488.1 Billion), Spain (valued at 287.2 Billion), China (190.1 Billion), the Netherlands (160.0 Billion) and France (133 Billion).
In the third quarter, Crude oil dominated exports with 78.47% of exports, this was followed by natural gas with 9.5%. Imports were mainly motor spirit with 12.91% of imports, Durum wheat with 3.87%, gas oil with 2.77%, and used vehicles with 2.27%.
A renowned economist, Pat Utomi said the country’s huge appetite for imports was because of insufficient domestic production which is driven by worsening insecurity and stringent government regulations. He went on to say that although there were interventions introduced by the Government and the Central Bank of Nigeria to reduce imports and increase exports, the initiatives are fraught with inconsistencies and corrupt practices that prevent any real impact.
He went on to say that it was scandalous that Nigeria’s top imports were food products and motor spirits as those are products the country should be exporting because Nigeria is a food-producing nation and has oil in abundance.
World Bank Calls on Nigeria to Impose Special Taxes on Alcohol and Tobacco
The World Bank Group has made a call to the Federal Government of Nigeria, urging the government to impose special taxes on alcohol, cigarettes and beverages that are highly sweetened in order to improve primary healthcare conditions in the country.
Shubham Chaudhuri, who is the Country Director for Nigeria in the World Bank Group, said that an improvement in healthcare in Nigeria will come by taxing the things that are “killing us.” He said that the economic rationale for the action is quite strong if lives are to be saved and a healthier Nigeria achieved.
Chaudhuri made the call on Friday, at a special National Council on Health meeting which was organized by the Federal Ministry of Health in Abuja. Chaudhuri stated that placing special taxes on tobacco, sweetened beverages and alcohol would reduce the health risks which come with their consumption and expand the fiscal space for universal health coverage after COVID 19.
The country director also said that investing in stronger health systems for all would make significant contributions to the fight against inequality and the rising poverty situation in the country. He went on to add that increasing health tax would provide an extra advantage of reducing healthcare cost in the future, by hindering the growth of the diseases which are caused by tobacco, alcohol and sugar-sweetened beverages.
The representative of the WHO in Nigeria, Dr Walter Mulombo said that he could confirm the large health needs of Nigerians, as well as the efforts being made to meet those needs. He said this was based on the fact that he had been to over half of Nigeria’s states in less than two years of being in the country.
Mulombo then noted that although the coronavirus exposed weaknesses in the global economy (not excluding health), it could be considered as a unique opportunity for a thorough examination of existing resources and mechanisms to prepare for a more resilient future.
Nigeria’s VAT Revenue Falls to N500 Billion in Q3 2021, Manufacturing Sector in the Lead
In the third quarter of 2021, Nigeria generated a total sum of N500.49 billion as value-added tax which represents a 2.3% decline when compared to the N512.25 billion recorded in the second quarter of the year.
This is as seen in the VAT report which was recently released by the National Bureau of Statistics (NBS). The report revealed that the manufacturing sector was in the lead as it remitted a total of N91.2 billion, representing about 30% of the total local non-import value added taxes in that period.
In spite of the quarter-on-quarter decline of VAT collections in the reviewed period, it grew by a further 17.8% when compared to N424.7 billion generated in the same period of the previous year. The report also shows that an amount of N1.5 trillion has been generated from value added taxes from January 2021 to September 2021.
That is 40.2% higher than the N1.08 trillion recorded in the same period of 2020, and 72.3% higher than what was recorded in the same period of 2019.
To break it down, the Value Added Tax collected in the first, second and third quarter of 2021 was recorded at N496.39 billion, N512.25 billion and N500.49 billion respectively. It is higher than the corresponding figures of 2020, which sat at N324.58 billion, N327.20 billion and N424.71 billion for the first, second and third quarters respectively.
In the third quarter of 2021, the Manufacturing activity accounted for the largest share of total revenue collected across sectors, with a huge 30.87% (N91.2 billion) coming from that sector. The Information & Communication sector came in second with 20.05% (N53.9 billion) contributed, while the Mining & Quarrying sector came in third with 9.62% (N28.4 billion).
Nigeria has continued to ramp up its efforts to increase revenue from non-oil sectors by increasing its tax collection rates, which has recorded largely significant growth since the federal government increased the VAT rate from 5% to 7.5% in the 2019 Finance Act, which was signed and made effective in 2020.
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