NigeriaPresident Buhari’s Second Term: A chance to provide peace, prosperity, and security? Published 3 months agoon April 24, 2019By Vaultz Publisher Share Tweet 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 2019The 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 CapitaIt 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 ChoicesNigeria’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 FormulaRaising 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.THE ROAD AHEAD 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. Related Topics: Up NextNigeria’s GDP overview in Q1, 2019: focus on major economic activities Don't MissNigeria’s economy in 2019: Woes or fortune? Continue Reading Advertisement You may like Click to comment NigeriaNigeria’s GDP overview in Q1, 2019: focus on major economic activities Published 1 month agoon June 20, 2019By Vaultz Publisher Nigeria’s Gross Domestic Product (GDP) grew by 2.01%(year-on-year), in real terms, in the ﬁrst quarter of 2019. Compared to the ﬁrst quarter of 2018, which recorded real GDP growth rate of 1.89%, the Q1 2019 growth rate represented an increase of 0.12% points. However, relative to the preceding quarter (fourth quarter of 2018), real GDP growth rate declined by –0.38% points (See ﬁgure 1).It is worth noting that general elections were held across the country during the ﬁrst quarter of 2019 and this may have reﬂected in the strongest ﬁrst quarter performance observed since 2015. Aggregate GDP stood at N31,794,085.85 million in nominal terms.This aggregate was higher than in the ﬁrst quarter of 2018 which recorded N28,438,604.23 million, representing a year on year nominal growth rate of 11.80%. The aggregate was, however, lower than in the preceding quarter of N35,230,607.63 million, by –9.75%. The nominal GDP growth rate in Q1 2019 was higher than the rate recorded in Q1 2018 by 2.54% points. For further analysis, the Nigerian economy can be classiﬁed broadly into the oil and non-oil sectors.The Oil SectorIn the ﬁrst quarter of 2019, average daily oil production stood at 1.96million barrels per day (mbpd), lower than the average daily production of 1.98mbpd recorded in the same quarter of 2018 by -0.02mbpd but higher than the fourth quarter 2018 production volume by 0.05mbpd. (Figure2). The level of oil output during the quarter was the highest recorded over the past one year and the second highest since mid-2017.Real GDP growth in the oil sector was –2.40% (year-on-year) in Q1 2019 indicating a decrease by –16.43% points relative to the rate recorded in the corresponding quarter of 2018. Growth decreased by –0.79% points when compared to Q4 2018 which was –1.62%. Quarter-on-Quarter, the oil sector recorded a growth rate of 11.60% in Q1 2019. The Oil sector contributed 9.14% to total real GDP in Q1 2019, down from ﬁgures recorded in the corresponding period of 2018 but up compared to the preceding quarter, where it contributed 9.55% and 7.06% respectively. The Non-Oil SectorThe non-oil sector grew by 2.47% in real terms during the reference quarter. This was 1.72% points higher compared to the rate recorded in the same quarter of 2018 but -0.23% points lower than the fourth quarter of 2018. During the quarter, the sector was driven mainly by Information and communication technology. Other drivers were Agriculture, Transportation and Storage, Trade and Construction. In real terms, the nonoil sector contributed 90.86% to the nation’s GDP, higher than recorded in the ﬁrst quarter of 2018 (90.45%) but lower than the fourth quarter of 2018 (92.94%).Mining & Quarrying The Mining & Quarrying sector consists of Crude Petroleum and Natural Gas, Coal Mining, Metal ore and Quarrying and other Minerals sub-activities. This sector grew, in nominal terms, by –20.09% (year on year) in Q1 2019. Quarrying and other minerals exhibited the highest growth rate of all the sub-activities at 137.41% followed by coal activity at 57.36%. However, Crude Petroleum and Natural gas remains the main contributor to the sector with a weight of 99.10%. Comparing Q1 2019 against the Q1 2018 and Q4 2018 revealed that nominal GDP growth rate declined by –102.92% and –10.69% points respectively. The Mining & Quarrying sector contributed 9.90% to aggregate GDP in the ﬁrst quarter of 2019, lower than the contributions recorded in Q1 2018 (at 13.85%) but higher than the 6.83% recorded in the preceding quarter. In real terms, the Mining and Quarrying sector grew by –2.31% (year-on-year) in the ﬁrst quarter of 2019. Compared to the ﬁrst and last quarters of 2018, this represented a decline of –16.41% points and –1.07% points respectively. Quarter on quarter, growth rate recorded was 9.87%. The contribution of Mining and Quarrying to real GDP in the quarter under review stood at 9.21%, lower than the rate of 9.62% recorded in the corresponding quarter of 2018, though higher than the 7.23% recorded in the fourth quarter of 2018. AgricultureFour sub-activities make up the Agricultural sector: Crop Production, Livestock, Forestry and Fishing. sector grew by 22.58% year-on-year in nominal terms in Q1 2019, showing an increase of 16.78% points from the same quarter of 2018. Compared to the preceding quarter, the nominal GDP growth rate was about 4% points higher. Crop Production remains the major driver of the sector. This is evident as it accounted for 85% of agriculture GDP. Quarter on quarter, growth stood at –25.27%. Agriculture contributed 19.11% to nominal GDP during the quarter, higher than the recorded contribution in the ﬁrst quarter of 2018 but lower than recorded in the fourth quarter. In real terms, the agricultural sector grew by 3.17% (year-on-year) in the ﬁrst quarter of 2019, an increase of 0.17% points compared to the corresponding quarter of 2018, and 0.72% points compared to the preceding quarter. During the quarter, the sector contributed 21.91% to real GDP, higher than the contribution in the ﬁrst quarter of 2018 (21.66%) but lower than the fourth quarter of 2018 (26.15%).ManufacturingThe Manufacturing sector comprises of thirteen activities: Oil Reﬁning; Cement; Food, Beverages and Tobacco; Textile, Apparel, and Footwear; Wood and Wood products; Pulp Paper and Paper products; Chemical and Pharmaceutical products; Non-metallic Products, Plastic and Rubber products; Electrical and Electronic, Basic Metal and Iron and Steel; Motor Vehicles and Assembly; and Other Manufacturing.In the ﬁrst quarter of 2019, nominal GDP growth in the Manufacturing sector was recorded at 36.45% (year-on-year), or 27.52% points higher than the rate recorded in the corresponding period of 2018 (8.93%), and 2.88% points higher than in the preceding quarter. Quarter on quarter, manufacturing sector recorded a growth rate of 1.09%. The sector’s contribution to nominal GDP during the quarter was 11.32%, higher than its contribution in both the ﬁrst quarter (9.28%) and the fourth quarter (10.11%) of 2018.Real GDP growth in the manufacturing sector was 0.81% in the ﬁrst quarter of 2019 (year on year). This was lower than in the same quarter of 2018 by –2.59% points, and the preceding quarter by –1.54% points (Figure 6). On a quarter-on-quarter basis, the growth rate stood at –4.62%. In terms of its contribution, the sector accounted for 9.80% of real GDP in Q1 2019, lower than the 9.91% recorded in the ﬁrst quarter of 2018 but higher than the 8.86% recorded in the fourth quarter of 2018.ConstructionThe Construction sector grew by 66.99% in nominal terms (year on year) in the ﬁrst quarter of 2019, an increase of 58.02% points compared to the rate recorded in the same quarter of 2018. This was also higher when compared to the rate recorded in the preceding quarter. On a quarter on quarter basis, nominal growth was recorded at 10.62%. Construction contributed 6.17% to nominal GDP in the ﬁrst quarter of 2019, higher than the 4.13% contribution a year earlier, and the 5.03% contributed in the fourth quarter of 2018.The real growth rate of the construction sector in the ﬁrst quarter of 2019 stood at 3.18% (year on year), or 4.71% points higher than the rate recorded a year earlier. Relative to the preceding quarter, there was an increase of 1.13% points. Quarter on quarter, the sector grew by 1.36% in real terms. By contribution, the construction sector accounted for 4.09% of real GDP in the ﬁrst quarter of 2019, higher than its contribution of 4.04% in the same quarter of 2018, and the 3.48% contribution recorded in the preceding quarter.Trade In the ﬁrst quarter of 2019, the nominal year on year growth in Trade services stood at 4.82%. This indicates an increase of 6.94% points when compared to the ﬁrst quarter of 2018, and 0.40% points when compared to the fourth quarter. The quarter on quarter growth rate was –11.23%. Trade’s contribution to nominal GDP in the ﬁrst quarter of 2019 was 16.96%, lower than the contribution in the same quarter in 2018, and lower than the preceding quarter’s contribution, recorded at 17.24%.In real terms, the year on year growth rate for Trade services stood at 0.85%, which is 3.42% points higher than the rate recorded the previous year, and –0.17% points lower than in the preceding quarter. Quarter on quarter, growth stood at –11.80%. In real terms, Trade’s contribution to GDP was 16.87%, lower than the 17.07% it accounted for in the previous year, but higher than the 16.50% recorded in the fourth quarter of 2018.Finance and InsuranceThe Finance and Insurance Sector consists of the two activities: Financial Institutions and Insurance, which accounted for 84.76% and 15.24% of the sector in real terms respectively in Q1 2019. The ﬁnancial services sector grew at –3.96% in nominal terms (year on year), with the growth rate of Financial Institutions as –5.64% and Insurance recording a nominal growth rate of 6.61% in Q1 2019. The sector growth rate was, however, slower than that in Q1 2018 by –17.78% points, and –5.50% points than in the preceding quarter. Quarter on quarter, growth was 2.56%. The sector’s contribution to aggregate nominal GDP was 3.23% in Q1 2019, lower than the 3.76% it represented the previous year, but higher than the contribution of 2.84% recorded in the preceding quarter.In real terms, growth in this sector was estimated at –7.60%, lower by –20.90% points compared to the rate recorded in Q1 2018, and by –5.83% compared to the preceding quarter. Quarter on quarter, growth in real terms stood at 1.90%. The contribution of Finance and Insurance to real GDP stood at 3.21% during the quarter, which is lower than its contribution of 3.55% recorded in the ﬁrst quarter of 2018, although higher than 2.72% recorded in Q4 2018. Continue Reading Advertisement LatestPopular Africa1 month agoRepublic of Namibia Insights1 month agoBorn agile or journey to an agile organization Economy1 month agoGlobal Economic Growth Becomes Fragile as Trade Tensions Persist LN | Business1 month agoThe 2019 Toyota RAV4 SUV, a masterpiece for all! 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