The Nigerian economy faced a severe setback in the second quarter of 2023, with losses exceeding N1 trillion.
This alarming decline was unveiled following a breakdown of Gross Domestic Product data released by the Nigerian Bureau of Statistics.
An astonishing total of twenty-six sectors witnessed a contraction during this period, collectively hemorrhaging a staggering N1.16 trillion from their economic value.
The real Gross Domestic Product slumped from N7.69 trillion in the first quarter to a disconcerting N6.54 trillion.
Among the industries that struggled to stay afloat in Q2 2023 were fishing, crude petroleum and natural gas, cement, food, beverage, and tobacco, textile, apparel, and footwear, wood and wood products, pulp, paper, and paper products, non-metallic products, basic metal, iron and steel, motor vehicles and assembly, other manufacturing, construction, accommodation and food services, road transport, and air transport.
Further adding to the economic distress were sectors like post and courier services, publishing, motion pictures, sound recording and music production, arts, entertainment, and recreation, financial institutions, real estate, professional, scientific, and technical services, education, other services, metal ores, and plastic and rubber products.
Recent GDP results from the NBS offered a sliver of hope, with real GDP experiencing a marginal uptick of 0.20 percentage points, reaching 2.51 percent in Q2, 2023, compared to the 2.31 percent recorded in Q1, 2023.
The NBS attributed this modest growth to the persistent economic challenges facing the nation.
However, this resurgence was not enough to erase the scars of the previous quarter when the economy contracted sharply from 3.52 percent in Q4, 2022, to 2.31 percent in Q1, 2023, due to cash shortages.
Also, inflation continued its relentless ascent, reaching a disconcerting 22.79 percent in June, eroding the purchasing power of Nigerians.
Despite these challenges, Nigeria’s GDP growth remains below the International Monetary Fund’s projections of a 3.2 percent growth rate for 2023.
The economic downturn has been attributed to recent reforms, including the removal of fuel subsidies and the unification of exchange rates, which have imposed hardships on businesses.
The Manufacturers Association of Nigeria reported job cuts and reduced productivity, underscoring the ramifications of these changes on the workforce and output.
Speaking on the situation, Segun Kuti-George, the National Vice Chairman of the Nigerian Association of Small-Scale Industrialists, said, “If the GDP decreases, it can trigger job losses. It means that our output is on the decline. It means there is reduced productivity.”
Musa Yusuf, the Chief Executive Officer of the Centre for the Promotion of Private Enterprise, echoed these concerns, stating that economic reforms have cast a shadow over GDP growth.
The road to economic recovery appears challenging, with the nation grappling with a multitude of obstacles that must be surmounted for sustained growth and prosperity.
FG Pays N169.4 Billion for Subsidy in August to Keep Pump Price at N620/Litre
Amidst President Bola Ahmed Tinubu’s repeated assurances of subsidy removal, it has come to light that the Federal Government disbursed N169.4 billion as subsidy payments in August to maintain the pump price of petrol at N620 per litre.
This revelation has raised eyebrows and ignited discussions about the future of fuel subsidies in Nigeria.
Investigation, backed by a document from the Federal Account Allocation Committee (FAAC), reveals that the Nigerian Liquefied Natural Gas (NLNG) paid $275 million as dividends to Nigeria through NNPC Limited. Out of this, NNPC Limited allocated $220 million (equivalent to N169.4 billion at N770/$) to cover the Petroleum Motor Spirit (PMS) subsidy, keeping it artificially low.
This move effectively indicates a resurrection of the subsidy system, which the government had promised to eliminate.
Under former President Buhari’s administration, Nigeria saw record-high spending on petrol subsidies. Reports from the Nigeria Extractive Industries Transparency Initiative (NEITI) show that subsidies cost N1.99 trillion from 2015 to 2020.
In 2021 alone, NNPC reported a subsidy cost of N1.57 trillion, with an additional N1.27 trillion from January to May 2022. The government had allocated N3 trillion in the budget to cover subsidy costs from June 2022 to June 2023, amounting to N7.83 trillion spent on subsidies during Buhari’s tenure.
Global oil market dynamics are further complicating the subsidy issue. Brent crude prices exceeded $95 per barrel, while the naira depreciated against the US dollar, undermining Nigeria’s pledge to remove petrol subsidies.
Despite higher international crude prices and exchange rate pressures, the government has held the pump price at N620/litre.
The situation has also strained petroleum marketers, who face rising international prices, a weakening naira, and government-mandated price caps. International petrol prices, exchange rates, and additional costs have collectively driven up the landing cost of PMS to about N728.64 per litre.
The government’s strategy to sustain the N620 per litre price involved a $3 billion crude repayment loan with Afrexim Bank to bolster the naira. However, this loan has reportedly stalled due to the withdrawal of other lenders.
While the government claims the subsidy is a temporary measure to ease the economic burden on Nigerians, experts argue that it highlights the need for a functional refinery and currency stability.
Without these factors in place, petrol prices will remain susceptible to fluctuations in global oil markets and exchange rates, potentially impacting the masses.
The Federal Inland Revenue Service (FIRS) Reports Significant Growth in Nigeria’s Tax-to-GDP Ratio
The Federal Inland Revenue Service (FIRS) announced that it successfully increased Nigeria’s tax-to-Gross Domestic Product (GDP) ratio from 6.0 percent to 10.86 percent in 2022.
The revelation came during a sensitization program held yesterday in Lagos by the Director of Taxpayer Services at FIRS, Mrs. Saidatu Yero.
Mrs. Yero conveyed the agency’s commitment to further enhancing the nation’s tax-to-GDP ratio, with ambitious targets of 16.5 percent, aligning with the African average and subsequently aiming for 18 percent within the next three years.
Mrs. Yero proudly stated, “The FIRS Management has executed commendable reforms that have fundamentally transformed the landscape of tax administration in Nigeria, leading to a substantial increase in revenue collection for the government.”
The agency reported that its innovative measures have already culminated in the generation of N8.5 trillion as of September 14, 2023, demonstrating its unwavering commitment to achieving N12 trillion in revenue for the year 2023.
Elaborating further, Mrs. Yero said, “One of the primary objectives of the FIRS Management is to prioritize a ‘customer-centric’ approach, recognizing taxpayers as our key stakeholders within the tax ecosystem. To ensure that taxpayers comprehend their tax responsibilities and rights, it is imperative that we continuously inform, sensitize, engage, and educate them, facilitating their compliance without any hindrance.”
Addressing the event’s theme, “The Finance Act as an Innovation in the Nigerian Tax System,” Mr. Temitayo Orebajo, the Director of the Tax Policy and Advisory Department at FIRS, said that the 2023 Finance Act introduced substantial amendments to seven tax laws, four non-tax laws, and a total of 30 sections, signifying a significant leap forward in the country’s tax framework.
Euro-Area Inflation Eases, Fueling Debate on ECB’s Rate Hike Course
Revised Data Shows Modest Slowdown, But ECB Officials Divided on Further Hikes
In a surprising turn of events, revised data released today has revealed that inflation in the Eurozone moderated slightly in August, offering fresh fodder for the ongoing debate within the European Central Bank (ECB) on the necessity of further interest-rate hikes.
The latest figures show that consumer prices increased by 5.2% in August, down marginally from the initial reading of 5.3% while core inflation, excluding volatile elements like food and energy remained stable at 5.3%.
While the ECB recently raised the borrowing costs for the tenth consecutive time to 4%, the new data is reigniting discussions on whether this tightening cycle has concluded.
ECB Vice President Luis de Guindos, along with Madis Muller of Estonia and Peter Kazimir of Slovakia, have expressed their belief that the latest data supports the idea that no more interest-rate hikes are needed.
However, President Christine Lagarde has pushed back against such assumptions, and other hawkish officials from Austria, Latvia, and Slovenia argue that further moves may still be required to combat inflation effectively.
Economists, including Maeva Cousin of Bloomberg Economics, anticipate a marked deceleration in both headline and core inflation for September, potentially offering the ECB’s Governing Council the reassurance needed to assess whether the hiking cycle should indeed come to an end.
As Bank of France Governor Francois Villeroy de Galhau noted, the current rate is a “plateau,” and decisions will hinge on how inflation evolves as the economic “illness” diminishes.
In the face of these ongoing debates, patience remains key, with the ECB closely monitoring economic developments to determine the appropriate course of action for monetary policy.
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