- 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.”
More Stimulus is Welcomed – But What’s Needed is Smarter Stimulus
Stock markets are cautiously upbeat that a stimulus package can be agreed in the U.S. before the November 3 election – but even if it does happen, it’s likely to be a “short-lived sticking plaster” that masks the major long-term issue: unemployment.
This is the warning from Nigel Green, CEO and founder of deVere Group, one of the world’s largest independent financial advisory and fintech organizations.
It comes as House Speaker Nancy Pelosi and Secretary Steven Mnuchin spoke again on Tuesday – the deadline imposed by the Speaker – as the two sides try and strike a deal over another significant fiscal stimulus package ahead of the election.
Earlier this month, Republican senators slammed a $1.8 trillion offer made by the Trump administration to the Democrats as too big, an offer Ms Pelosi dismissed as “insufficient.”
Discussions are due to continue on Wednesday upon the Secretary’s return to Washington.
Nigel Green warns: “No doubt, a breakthrough of the deadlock that would allow for more stimulus would provide a lifeline to millions and millions of Americans.
“U.S. and global markets are, generally, cautiously optimistic that a deal can be agreed by the two sides.
“There’s a sentiment that something will have to materialize – and this is fueling markets.
“However, the window of opportunity is closing and it is not yet a done deal.
“If talks collapse, the markets will inevitably be disappointed and there’s likely to be a short-lived sell-off.”
He continues: “Even if Pelosi and Mnuchin can get another massive stimulus package agreed, and U.S. and global markets rise, this is likely to serve only as a sticking plaster.
“A market rally is going to be difficult to be sustained due to the enormous uncertainty created by other factors including the presidential election, a possible looming constitutional crisis in the world’s largest economy, and the growing Covid-19 infections in America and other major economies.”
The deVere CEO goes on to add: “Getting over the political impasse would help boost the economy and deliver much-needed money to Americans, but the major, lasting issue triggered by the pandemic remains: mass unemployment, which will hit demand, growth and investment.
“As such, a swift rebound for the U.S. economy is doubtful as unemployment claims continue to rise.
“That V-shaped recovery talked about by so many? That will be impossible with so many millions facing long-term unemployment.”
Whilst it is certainly positive that unemployment has fallen from 15% in the U.S. to 11% in recent weeks, it should be remembered that this is still at the same rate of the 2008 crash.
In addition, a second wave of soaring unemployment could hit imminently as some support measures wind-down and business’ and households’ savings and resources have been already run-down.
Mr Green concludes: “Near-term support for sure, but a long-term strategy – a multi-year vision – for growth and investment is essential.
“What’s needed is not just more stimulus, but smarter stimulus.”
The Highest Corporation Taxes Around the World and the Main Drivers Behind them
Taxes Pay by Corporation Around the World and the Main Drivers Behind them
While corporation tax rates are influenced by the country’s definition, there’s clearly a pattern with developing countries and emerging economies paying higher rates to sustain the country.
The top five richest countries in the world’s corporation tax are relatively varied, with Luxemburg standing at 27.08%, Norway at 22%, Iceland at 20%, Switzerland at 18% and Ireland at 12.5%. It would appear that some countries’ cultures factor into how much tax they pay. For example, Scandinavian countries are proud to pay higher taxes to contribute to social welfare.
On average, Africa has the highest corporation tax rate throughout the world’s continents at 28.45% and South America, the second highest with an average rate of 27.63%. However, Europe stands at the lowest rate of 20.27%. Does this contradict the claim that developed countries pay higher tax?
OECD explained that corporation tax plays a key part in government revenue. This is particularly true in developing countries, despite the global trend of falling rates since the 1980s. Let’s take a closer look at two continents, South America and Africa, paying the highest corporation tax rates in the world.
South America has most countries in highest corporation tax top 10
According to data analysed, Brazil and Venezuela have the highest corporation tax at 34%, followed closely by Colombia at 33%, and Argentina at 30%, making South America the continent with the most countries in the top 10 who pay the highest corporation tax.
It is unclear whether South America, as an emerging continent, is charging higher taxes in order to raise government revenue or to benefit from businesses that are looking to expand internationally and enter new markets. According to research, South America is becoming a popular choice for business to enter, with strong trade links and an advantageous geographic location. Indeed, South America is a large continent where some countries are business friendly and others are harder to penetrate.
Africa: the continent with the highest average corporation tax
Being the poorest continent in the world, Africa unsurprisingly has the highest average corporation tax at 28.45%. With the highest in this data being Zambia at 35% and the lowest being Libya and Madagascar at 20%, South Africa stands roughly in the middle at 28%, slightly above average for Africa overall. Does this mean that South Africa is the safest bet for business?
South Africa is one of Africa’s largest economies, with 54 diverse countries in terms of political stability, development, growth, and population. As South Africa has been a relatively slow growth area over the years, corporation tax dropped from 34.55% in 2012 to the current rate — but was this effective? GDP in South Africa has fluctuated quite dramatically since the 1960s. Business favours countries with political stability, which is something South Africa doesn’t currently have. Furthermore, South Africa’s government debt to GDP sits roughly in the middle of the continent’s countries — is this influencing their corporate tax rate?
|Puerto Rico||North America||37.5|
|Sri Lanka||Asia Pacific||28|
|New Zealand||Asia Pacific||28|
|South Korea||Asia Pacific||25|
|United States||North America||21|
|Saudi Arabia||Middle East||20|
|Hong Kong||Asia Pacific||16.5|
Lucy Desai is a content writer at QuickBooks, a global company offering the world’s leading accountancy software.
Nigeria’s Crude Oil Production Declined to 1.31mbpd in September
Nigeria’s Crude Oil Output Declined from 1.37mbpd in August to 1.31mbpd in September
The Organisation of the Petroleum Exporting Countries (OPEC) reported that Nigeria’s crude oil production declined by 58,000 barrels per day in the Month of September when compared to the nation’s oil production of August.
In its latest oil market report, the cartel said Nigeria produced 1.37 million barrels per day in the month of August but that number declined by 58,000 to 1.31 million barrels per day in September. Bringing the total decline for the 30 days of september to 1.74 million barrels.
On oil price movement in September, the organisation said prices settled lower in the month under review after four consecutive months of gains.
OPEC Reference Basket declined by 8.1 percent or $3.65 in September to $41.54 per barrel, while it moderated to $40.62 per barrel from the year-to-date.
Commenting on the recent changed in Nigeria’s monetary policy rate, the oil cartel said “the recent cut is a part of the policy to continue supporting the economy that plunged 6.1 per cent in the second quarter hit by the global pandemic.
“Nevertheless, Nigeria’s annual inflation rate surged to the highest rate since March 2018 in August 2020, as it rose to 13.22 per cent year-on-year from 12.82 per in in July.”
Oil prices sustained bullish trend on Thursday after data showed U.S oil inventories declined last week.
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