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Nigeria in Recession: What is the way out?



After months of denial, the Nigerian government through its Minister of Finance Kemi Adeosun, in July, finally announced that the country was officially in recession. The news did not come as a surprise to experts as some had predicted the crisis. The International Monetary Fund (IMF) projected the contraction of the Nigerian economy, cutting the country’s GDP growth forecast from 2.3% in April to –1.8%, the lowest in 29 years.

Minister of Finance, Kemi Adeosun

Sanusi Lamido Sanusi, during his tenure as governor of the Central Bank of Nigeria (CBN) reckoned that the country needed to preserve her balance sheet in order to prepare for any eventuality as she could not afford to keep paying ₦1trillion as subsidy funds to a select few, while heaping huge debt burden on the nation’s finances.

President Muhammadu Buhari

During the debate, he mentioned that a crash in crude oil price under the condition could lead to an economic crisis that would be comparable to Greece’s. “In 2008, the price of oil crashed from $147per barrel to $37per barrel and the only reason this economy continued growing was that we had reserves of $62billion which are now down to $30billion; that was the shock absorber,” he said.

Adding that if oil prices crashed again considering that the external reserves or shock absorber as he called it were depleted, the country would be plunged into a crisis such that salaries would be difficult to pay with inflation rising to about 18%.

This argument was made as far back as 2012. Four years on, crude oil prices have crashed from $114per barrel to as low as $27per barrel in January before rising to about $45per barrel – thereby battering government revenue and this was further affected by a reduction in daily crude oil production to 1.69 million barrels per day (down by 0.42 million barrels per day from the first quarter of 2016) due to the activities of the Niger Delta Avengers with foreign reserve at a meagre $27.86 billion.

The Nigerian economy contracted by about 2.1 percent in the second quarter, while inflation soared to 17.1 percent in July. The decline can be seen in other measures, too. International airlines have pulled out, Nigeria’s second largest commercial air fleet has shut down, industries are closing and 4.5 million people lost their jobs in a year.

President Muhammadu Buhari took office with a huge chunk of goodwill, but he has gradually expended that with his outdated thinking on the economy, open interference in monetary policies of the central bank and poor management of fiscal policies to stimulate the economy.

While capital fled the country, the Nigerian government fed uncertainty with its flipflops on foreign exchange and fiscal policy. The Nigerian currency has been devalued by more than 87 percent in the last year and the shortage of foreign exchange reserves threatens businesses.

Nigeria’s Oil and gas Industry

In Nigeria’s states, there is a grimmer crisis as most of them can’t pay salaries, paralyzing money supply and commerce at the retail end. Well, the prevailing economic crisis has forced the Buhari-led administration to seek drastic measures to salvage the economy.

Sadly, of all possible solutions, the one that’s been considered most and has sparked a national debate is the proposal by Nigerian Economic Council (NEC) and Senate to the president to sell national assets to “build reserves and provide funds for immediate spending” and thus ensure that this recession will be the “shortest” ever. It is hoped that at least $10 billion can be generated from this.

Oluseun Onigbinde, founder of BudgIT, a public budget communication company, and a heartbroken supporter of the Buhari government, lamented on this myopic attitude of the government. “No consideration for Inter-generational equity but just lure for short-termism. No review of public finance structure and lifestyles. Always hunting for the easy way out,” he said.

Mr. Chukwuma Soludo, Former CBN Governor

Former CBN governor Chukwuma Soludo says he is “troubled” by the proposal to sell some valuable national assets. “Sale of assets is the easy short-term option to earn peanuts while ignoring the hard work to earn the sustainable revenue required to move the economy forward,” he stated.

A few leading economic analysts like Feyi Fawehinmi have argued in favour of the sales adding that some Nigerian assets are actually worth nothing hence a sale would be profitable. For example, across the first half of this year, Nigeria’s 3 oil refineries have managed to expend N41 billion on operations to generate N720 million in revenues.

So Fawehinmi concludes: “How much should any normal person pay for the right to lose billions of naira? The correct answer is zero. Sorry Nigerians, those refineries are worth the same thing as those iron pots they use to cook jollof rice for parties.”

So why sell them? Well, the first reason is that it frees the government from being the one making those losses. That money can go towards something else. Secondly, if we can find anyone crazy enough to buy them, we should let that person have a go at trying to make them work.

Maybe they have some ideas on how to cut costs and use technology to increase efficiency. Remember when the government collected $2bn from the privatization of run down power assets? Since then it has put in far more than that amount in bailouts to the industry.

If you sell for zero, there is less reason to bailout the owner in future. But this very type of sale does not achieve the objective of the Nigerian government which is to raise revenue for cash reserves to run its government. The lucrative national asset at the centre of the sale debate is the Nigeria Liquefied Natural Gas (NLNG), a joint venture between Shell, Total, Eni and Nigerian National Petroleum Corporation (NNPC) – the largest shareholder with 49% stake.

The privately well run asset generates $1 billion annually for Nigeria and is expected to fetch $28 billion if sold. The question remains – to sell and get quick cash to solve immediate problems? Or not to sell and determinedly look inwards for long-term sustainable solutions?


It is good news that the Federal Inland Revenue Service (FIRS) has announced its intention to make 700,000 companies pay tax for the first time and bring 10 million more individuals under the tax net.

From this source, it anticipates an increased revenue of over N1 trillion to N4.8 trillion from taxation. While Nigeria’s non-oil revenue has averaged 3% of GDP over the years (because of its overdependence on easy oil rents for revenue and abandoned tax collection) many African countries without oil average 18-25% of GDP in tax revenue.

Such countries also have a larger informal sector than Nigeria. Several of them are doing close to double digit GDP growth. The tax compliance drive is a good effort, but the bulk of the money is in the informal sector and Nigeria must learn how other African countries capture tax from their informal sectors.

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President Buhari’s Second Term: A chance to provide peace, prosperity, and security?



Nigerians re-elected President Buhari for another four years in what many have termed – a chance to make amends. In what could be called his third stint at the helm of affairs in Africa’s most populous country, questions about a coherent economic strategy are already being asked. In the last dispensation, protectionist posturing was worsened by a management style perceived to be distant while crucial decisions were delayed.

The economy is set to continue its recovery from the worst recession in its history. Nonetheless, the forecast is for economic growth to remain well below historic averages in the next five years. According to economic survey by Economist Intelligent Unit (EIU), Nigeria’s Gross Domestic Product (GDP) is set to reach $473.5bn in 2019 and rise to $680.9bn by 2022. This prediction will hinge, for the most part, on the current intensity of economic reforms and current rate of investment being sustained.


Background of the economy leading to election 2019

The Nigerian economy grew by 1.9% in 2018, an improvement from 0.8% recorded in 2017, with the non-oil sector being the fulcrum for the growth picture. Over the last quarter of 2018, the economy recorded a solid growth of 2.4% – with the expansion in the non-oil space (2.7% YoY) taming the contraction observed in the oil sector (-1.6% YoY). Dissecting the components in the non-oil territory, all subsectors expanded, with the services and Agriculture sector leading the pack. Notably, improvement in the number of active subscribers in ICT subsector coupled with mild support from transport drove the expansion in the services sector (3.8% YoY). Furthermore, while the Agriculture sector improved by 2.5% in Q4 18, it was disappointing compared to its four-year average of 3.8%. On the flipside, the oil sector dived into recessionary waters buoyed by low crude production (-2.6% to 1.91mbpd).


Declining Income per Capita

It is important to note that Nigeria has a huge population of over 180million and a population growth rate of 2.6% – higher than the 2018 GDP growth of 1.9%. GDP growth is projected to reach 2.0% and 2.2% in 2019 and 2020 respectively before rising to 3.2% by 2021. This means Nigeria would have had five consecutive years of declining income per capita – from 2016 to 2020. A burgeoning youth population is also unlikely to be matched by job growth, meaning unemployment – at over 40% – is likely to rise even further.

A breakdown of the GDP components show that Nigeria’s gross fixed investment, at $66.5bn, will account for just 14.0% of GDP in 2019. This pales in comparison to that of other notable emerging economies – Brazil (19%), India (27.12%), China (42.86%), and South Africa (18.7%). Majority of countries in the world have gross fixed investment of 18-22%. The EIU goes further to forecast that gross fixed investment in Nigeria will rise by just one basis points to 14.1% ($86.2bn) by 2022.


Why does this matter?

The importance of this component of GDP is that it is a clear indicator of the future productive capacity of the economy. The aforementioned basically means that the current and projected rate of investment is simply suboptimal and far below the level required to propel Nigeria to an accelerated growth path. It is incapable of providing Nigeria with the investment impetus that will have the desired multiplier effect on output. Nigeria has also grossly underinvested in its infrastructure. The existing infrastructure gap is estimated at over $300bn and requires 10% of GDP ($37.6bn)/annum over the next 10 years to bridge – an unlikely feat given that  current infrastructure needs are far in excess of current cash flows. Nigeria’s capital budget in 2018 was $7.98bn – 26.6% of total budget and 2.2% of GDP. This compares to 6% of combined GDP of emerging market economies. Nigeria’s share of emerging markets total spend on infrastructure is currently less than 1%.


Few options, Tough Choices

Nigeria’s high population growth rate means it must be much more efficient with economic policy. Putting Nigeria on an accelerated path to a free and market driven economy requires making tough game-changing decisions now. It will begin with figuring out how to raise the level of gross fixed investment to levels above and beyond the global average of 18-22%. Investment in the next 3-5 years will depend on policies and incentives.

Galvanizing domestic and international investment will be crucial. This will require a structure that incentivizes private investment considerably more than what is currently obtainable. Achieving this will require significant increases in public investment in infrastructure, in addition to more comprehensive and deep-seated market oriented structural reforms.


The Game changing Formula

Raising the level of investment in infrastructure given the government’s current revenue and borrowing constraints requires rethinking ways to attract private sector funding in the form of Public Private Partnerships (PPP). Outright sale and concessions of government assets– airports, seaports, inner city highways and trunk roads– should be a key consideration for policymakers.

Airports concession has the potential to lower the average cost for aviation operators by 50%. The government’s stake in the power distribution companies should be sold to the private sector while the power sector forbearance needs to be dealt with. The rail investment program needs to be accelerated while the road networks to major seaports need to improve.  Another item that is top on the list of reforms is the foreign exchange policy where a movement to currency convertibility with minimal intervention is paramount. Fears of a wild depreciation if the Central Bank of Nigeria lets go of its current policy of a managed float, are greatly exaggerated. The almost insignificant deviation between the parallel and the Investor Exporter Foreign Exchange (IEFX) window – which is closer to market equilibrium than the official rate – supports this fact. There is also the issue of fuel subsidy which has now taken the form of under recovery as the Nigerian National Petroleum Company (NNPC) now fully bears the brunt of the subsidy as the sole importer of Premium Motor Spirit (PMS). Deregulating the downstream sector of the petroleum industry requires the removal of subsidies, which will spur competition, bring about efficiency and increased investment in domestic refining – the lack of which has been a huge drain on Nigeria’s foreign exchange earnings over the years.  Not only is a game changing formula now imperative, it has become inevitable. Nigeria can continue at its current pace of reforms and investment – a recipe for chaos, social and political disintegration; or take drastic measures to raise public and private sector investment to levels that will accelerate productivity and economic growth.


Ending extreme poverty must be a top policy priority for Nigerians and the new government. The country has the capacity to deal effectively with poverty: large endowments of natural resources, especially oil; a young and highly educated population; and many people adept at entrepreneurship and the creation of wealth.

Nevertheless, there are many threats to the creation of wealth. Two of them stand out: widespread corruption and the absence of peace and security in many regions. Corruption, like embezzlement of public funds, has plagued Nigeria since independence. Buhari came to power in 2015 promising to clean up corruption and restore professionalism in the public services. Although he appears to have made significant progress in that fight, his critics say that he only targeted his political opponents and ignored his allies and supporters. Still, many Nigerians give him credit for his efforts and for not illegally amassing wealth for himself. To deal more effectively with corruption, Buhari must now significantly improve openness and transparency in government communication, especially with respect to government procurement programs.

The Buhari government also needs to deal with extremism and other threats to peace and security like Boko Haram and the lawless armed gangs who roam parts of the country kidnapping people and holding them for ransom. This must be done not just through military action but also by providing opportunities for young people, especially in the rural areas, for self-actualization.

Finally, the government must address the issue of lack of basic infrastructure for development: passable roads, adequate and reliable power, water treatment plants (access to clean drinking water is a major problem for most communities), basic health care, affordable housing (especially in urban areas), police protection, and other services that can enhance the ability of citizens to live in peace.

Posterity will judge Buhari and his government by how well they use the opportunity granted to them by Nigerian voters to make peace, security, and prosperity possible for their fellow citizens.

On the economic front, we expect resilience in agriculture sector and a recovery in the oil sector to be the key drivers for growth in non-oil and oil sector accordingly. In the non-oil sector, muted growth in ICT and in turn services as well as weak growth in Manufacturing due to depressed consumer wallet and delay with minimum wage bill, guides to slower growth in the non-oil sector of 1.3% YoY (2018: 2.0% YoY). In the oil space, the additional 200kbpd from the Egina oil field guides the expectation of an expansion in crude production over 2019 (2.06mbpd), albeit capped by OPEC cut. That said, it is expected growth in the oil sector to print at 7.1% (2018: 1.1%). Overall, 2019 growth estimate is forecast to 1.98%, a notch away from 1.93% recorded in 2018. For Q1 19, a slowdown in growth is expected to 1.3% YoY driven by a contraction in the oil sector (-1.1% YoY) and moderation in non-oil sector growth.

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