Vi-M’s Journal of 2017 Macroeconomic Trends and 2018 Predictions for Nigeria (Volume III)

2018 Predictions

One major limitation of the economic predictions in Nigeria is the lack of consistent and credible data or information, also the uncertainty around the credence of the methods adopted by the research statisticians producing such public statistics. Given the very wide gap between the publicly displayed information and the harsh economic realities of the ordinary citizens and businesses in the economy, so many people no longer bother believing the publicized rosy stories.

We will however analyze the information we have, and based on adequate measure of professional skepticism, make the most reasonable predictions for 2018.

Political Stability

This year will conclude the 4th year of President Buhari’s presidential term in office according to the Nigerian Constitution, and elections are to hold again in 2019. Indications from the ruling party is that the incumbent will run for a second term in office, but seeing that some of his previous proponents are gradually and publicly withdrawing alignment (based on information available in the media), it is expected that the coming elections would equally be as tough as that of 2015.

There also appears to be a recent trend by the Federal Ministries, Departments and Agencies announcing their achievements so far in office through any available public media, particularly through the social media and at private sector events. It is hoped that the heightening competition will bring out the best and not the worst of the political opponents. There is also the slight possibility that the government’s focus may shift from the economic reforms it has sought to implement so far, to political campaigns as the elections draw closer and in the current year.

Further, there are interest groups clamoring for the Restructuring of the country, which entails divesting many of the powers, privileges and economic resources currently being controlled by the Federal Government, (with the exception of national security) to the States or Regions, as may be nationally agreed. The proclamations made so far by President Buhari’s administration indicate that such restructuring will not be allowed or tolerated.

National Security

So far under the present administration, we have had a number of security related threats and killer herdsmen attacks in many local communities, amounting to gruesome loss of lives and properties.  Up until yesterday, 7 February 2018, when the Nigerian Army announced the planned deployment of troops to Benue, Taraba, Niger, Nasarawa, Kogi and Kaduna States to go after killer herdsmen and the militia behind the killings, in an operation tagged “Operation Cat Race”, there has not been any publicly available information indicating the intention of the present administration to tackle such violence decisively.

This ‘Operation Cat Race’ is billed to commence on 15 February 2018 and end on 31 March 2018. The Nigerian Army will also work with the Department of States Services (DSS), the police, the Nigerian Immigration Service (NIS), the Nigerian Security and Civil Defence Corps (NSCDC) and other security institutions on the ‘operation’.

We hope that through this operation and going forward, the Nigerian government will finally live up to the expectations of the citizens on this crucial national matter of security of lives and properties.

Economic Stability

With the recent and gradual improvements in economic indices such as GDP growth,  inflation rate, foreign exchange reserves, convergence of the foreign exchange market, improved Purchasing Managers’ Index (PMI), 42.3% increase in Nigerian Stock Exchange (NSE) All Share Index (ASI) in 2017, improved capital flows, improved ease of doing business ranking by 24 places to 145th position, and the 3-year ERGP, one could confidently say that the Nigerian economy is on its way to rebound. Economic activities are also expected to further pick up once politicians start spending on campaigns towards the 2019 elections and the applicable multiplier effects.

Certain factors however, may mitigate against the prospects of full economic rebound. These include: lingering fuel scarcity in many parts of the country and agitations of the oil marketers for petrol pump price increase which may continue to hike the prices of non-oil related consumptions and commodities, giving rise to inflation; actions of the killer herdsmen, which may lead to scarcity of food and surge in food prices; the coming elections, which may warrant politicians pumping in excess money into the economy and thereby hiking inflation.

Also, in December 2017, the Central Bank of Nigeria (CBN) weakened the exchange rate marginally to N 307/USD as against the N 305/ USD in the official spot market. We do not know whether the intention of the CBN is to weaken the naira in order to achieve convergence of the interbank rate with that of the parallel market. But the depreciation of the naira can lead to other non-favorable outcomes such as increases in the prices of fuel, food and commodities. This will in turn put pressures on the decreasing (as a result of the economic downturn) incomes of the basic Nigerian households or consumers.

At the meeting of the Bankers’ Committee in Lagos yesterday 7 February 2018 though, the CBN placed a ban on banks (with severe consequences on default) from selling dollars above N360/$ or charging any commissions on such sales to the public, on invisibles such as Business Travel Allowance (BTA), medicals and school fees, among others. According to the Bankers’ Committee, this move will serve as palliative for Nigerians who have been buffeted by the harsh economy.

The Federal Government’s ERGP, if sustained and implemented, will also help keep the economy focused towards complete stabilization. One cannot however tell how much the coming elections may either strengthen or shift the focus of the governing council from pursuing the ERGP strategies.

Federal Government Interventions

The implementation of the Economic Recovery and Growth Plan (ERGP)- 2017 to 2020 is expected to continue in 2018, albeit the focus of political office holders may be shifted away towards running for second term in office. The top execution priorities of the ERGP include: stabilizing the macroeconomic environment, achieving agriculture and food security, ensuring energy sufficiency in power and petroleum products, improving transportation infrastructure and driving industrialization by focusing on SMEs.

Other government’s social investment program and ease of doing business strategies are expected to continue and improve in 2018, all things being equal.

NIPC’s  strategy for 2018 include: improving the image of Nigeria as an investment location; championing investment climate reforms; Proactive investment promotion & facilitation in priority sectors with large scale job creation potential; Providing quality aftercare services to investors with expansion potential and supporting States to become more effective promoters of domestic and foreign investments.

Although the NIPC’s public goals of attracting more investment into Nigeria appear noble and commendable, the Commission would do well to strengthen the administrative bottlenecks and excessive bureaucracy that is currently associated with obtaining the investment incentives.

 The 2018 Budget

The Federal Government released the Medium-Term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP) for 2018 to 2020 fiscal years and subsequently presented the 2018 Budget to a joint session of the National Assembly in November 2017. The Budget, tagged “Budget of Consolidation,” is aimed at ensuring growth and stability as Nigeria recovers from a period of economic recession. The MTEF/ FSP document highlights government’s plans to achieve its defined objectives which include a 7% GDP growth by 2020, in alignment with goals set out in the ERGP.

The 2018 Budget, projects a total revenue of N6.609 trillion; total expenditure of N 8.612 trillion (fiscal deficit of N 2.005 trillion) and is based on a projected N 305/ USD exchange rate; crude oil production of 2.3 million barrels per day; and crude oil price of $ 47 per barrel (adjusted from $45 by the National Assembly).

2018 Budget Revenue Sources and Predictions:

As has been the practice, the major source of the projected revenues in the 2018 budget is crude oil production and sale. The recent increase in oil prices reflect the declining global oil inventory levels attributable to high compliance rate to the Organization of Petroleum Exporting Countries (OPEC) oil cut deal and Venezuela’s decrease in oil exports. However, some industry experts have argued that the uncertainty regarding the duration of the oil cut deal coupled with the forecasted increased supply response by shale producers would increase global oil inventory and eventually, contribute to a decline in oil prices. We do not expect that any such decline will happen in 2018. The Honorable Minister for Finance, Kemi Adeosun, also expressed certainty in one of her recent tweets that regardless of the oil prices, the Federal Government has comfortably ‘balanced’ its budget provisions on $45 per barrel.

Other concerns about achieving the revenue targets from oil include pipeline vandalism, lack of adequate infrastructure to enhance oil production to expected production levels, and poor governance structure in the industry. The Federal Government is thus expected to put strong measures in place to resolve the agitations of the oil pipeline vandals and curb the vandalism, ensure quick passages/ signing of the Petroleum Industry Governance Bills and continuously work to improve the oil sector infrastructure.

There are no much concerns around the revenue projections from non-oil sources, particularly  taxation, in the 2018 budget, given the major tax reforms, amnesty and drive carried out last year and which the tax authorities may hope to build on in 2018.

2018 Budget Expenditure Outlay and Predictions:

26% of the planned spending in the 2018 budget is expected to go into debt servicing. This growing debt service allocations plus Nigeria’s rising debt profile should be a big source of concern for the economy, unless there are strict measures put in place to ensure that the proceeds from the borrowings are actually spent on sustainable infrastructure and industries related initiatives. This will ensure that in no distant time, borrowings and spending on debt servicing will be balanced out by growing internally generated revenues from a more diversified and strengthened economy.

30% of the planned spending in the 2018 budget is also expected to go into Capital items, in line with the execution strategies of the ERGP 2017 to 2020. According to the National Budget Office, allocations have also been made towards the strengthening certain sectors of the economy as follows:

  • N58 billion for agriculture and food safety; particularly encouraging agribusiness and agropreneurs;
  • N51 billion for ensuring energy sufficiency and power sector reforms;
  • N 60 billion for improving transportation infrastructure;
  • N39 billion for special economic zone projects;
  • N28 billion export expansion grant (EEG), in form of tax credits to support export (both targeted towards driving industrialization with focus on small businesses);
  • N400 billion for the Federal Government’s social intervention programs; and
  • N100 billion for a new social housing program requiring a N1 trillion fund.

To be continued.


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