Vi-M’s Journal of 2017 Macroeconomic Trends and 2018 Predictions for Nigeria
It was not surprising for many macroeconomic observers and analysts, to see the Nigerian economy slide into a recession in Q2 of 2016, as the growth and exchange rate stability recorded in the prior decade-and-half, from 2000 to 2014, had been entirely dependent on favorable global commodity cycles (oil prices), rather than on focused economic diversification, industrialization and reforms.
2017, however, was a better year than 2016 for the Nigerian economy as it exited recession, albeit cautiously, with a growth rate of 0.70% in Q2 and 1.40% in Q3. The early but weak recovery was largely aided by improved global oil prices and production volumes, with the oil sector in Nigeria growing by 25.9%, and the non-oil sector still contracting by 0.80% in Q3 of 2017. The lesser performance of the non-oil sector during this period further reiterates the need for the Nigerian government to focus more on non-oil revenue sources through focused and effective economic diversification strategies and action plans.
In this journal, we will be looking at the macroeconomic indices shaping the quality of business and livelihood in Nigeria, the trends in 2017 and our firm’s predictions for 2018.
These macroeconomic indices are captured under 8 broad themes as follows:
- Political Stability
- State of National Security
- Economic Stability
- Federal Government Interventions
- The National Budget
- The Capital Market
- The Money Market
The opinions and predictions expressed in this document are strictly made from a personal but professional point of view. Vi-M therefore accepts no responsibility whatsoever over decisions taken by our audience based on the contents of this journal.
Macroeconomic Trends in 2017
Just as the All Progressive Congress (APC) Government was beginning to settle into office and consolidate approaches for tackling the 2016 recession, the beginning of 2017 in Nigeria was politically marred due to the long absence of the President from the country on medical grounds. There were rumors that the President may have passed on, as there was no public update on his health conditions or nature of illness that warranted such long absence from office.
But despite this, the lamentations of a people scorched by the effects of economic decline, hardships, uncertainties and recession seemed to have kept the new governing council on its toes. Slowly but consistently, the members of the governing council, within their different ministries started developing and executing several initiatives, which effects albeit not immediately felt, have begun to put perspective to the political and governance climate in Nigeria.
Some of these initiatives launched in a bid to regain the confidence of the citizenry in the new government included: the Economic Recovery and Growth Plan (ERGP)- 2017 to 2020, which was launched by the Presidency in April 2017 with the aim of restoring the nation’s economy to the path of sustainable growth. It was the major policy of the government to tackle the recession.
The second major measure was the 2017 “Budget of Recovery and Growth” which was signed into law in June 2017 by the then Acting President, Vice-President Yemi Osinbajo. The signing of the Budget authorized the release of N7.4 trillion from the Consolidated Revenue Fund, of which N2.361 trillion was allocated to capital expenditure (inclusive of Statutory Transfers of N.434 trillion).
And a third was the Presidential Enabling Business Environment Council (PEBEC) reforms geared towards improving Nigeria’s position on the 2017 World Bank’s Ease of Doing Business rankings covering 190 economies and based on certain outlined indices.
Other policy initiatives embarked upon by the government ranged from foreign exchange interventions, expansionary monetary policies implemented by the Central Bank of Nigeria (CBN) and intensified drive for economic diversification through Agriculture, industries and taxes.
Albeit the economic interventions and policy reforms by the government, 2017 was still characterized by threats to security of lives and properties. There has been a recent resurgence of Boko haram attacks on army officers and suicide bombing attacks on soft targets in spite of the continuous reports that the Nigerian army had dismantled the sect. The growing sense of insecurity in the country was also aggravated by the continued sporadic attacks by suspected Fulani Herdsmen on local communities, the mistaken bombing of an Internally Displaced Persons (IDP) camp in the North, the quit-notice given to Igbo people in the North by some northern youths and its subsequent suspension, the clampdown of rising Biafran agitators by the Nigerian Army, the tagging of the IPOB group a terrorist group, the strong agitations for restructuring of Nigeria, the resurfacing threats by the Niger Delta militants etc.
A notorious kidnap kingpin- Chukwudumeme Onwuamadike aka “Evans” was caught by the Police, in the second half of 2017. Subsequently, other deadly kidnappers had also been caught. Although the current states of the cases against the kidnap kingpins are not certain, news of kidnap activities have gradually declined, compared to the very rampant cases experienced before 2017 and prior the second half of 2017.
Since the 1st quarter of 2017, according to data from the Central Bank of Nigeria (CBN) and the National Bureau of Statistics (NBS), there has been slow but steady economic recovery. As at the ending of 2017, there was a modest Gross Domestic Product (GDP) growth rate of about 1.4%.
Inflation also reduced to 15.37% from a high of 18.55% as at the beginning of the year, although the prospect of the reducing inflation rate was again stifled by hike in food prices from November 2017. The Christmas holidays were also met with fuel scarcity and increases in transportation cost. Food and commodity prices are however, gradually declining from the upsurge experienced towards the end of last year.
Foreign exchange reserves also experienced increase to $38 billion as at the end of the year (this can be attributed to the increase in oil prices and the Federal Government’s foreign debt market activities).
Due to the strong and continuous foreign exchange (Forex) interventions by the Central Bank of Nigeria throughout 2017, foreign exchange rates between the interbank and parallel markets are now converging- from a difference of 62% as at the end of 2016 to 19% as at 2017 ending.
Other key indicators of economic stability and national standard of living include: adequate infrastructure and public utilities, good system of transportation, power/ energy, employment and ease of business/ living. In line with the Federal Government’s EGRP of 2017 to 2020, action plans have been outlined, and certain amounts earmarked in the 2018 budget to steadily address the insufficiencies in infrastructure, power, employment and general ease of doing business and living in Nigeria.
Federal Government interventions
On the back of growing agitations against the relatively new government by the citizenry, as the economic hardships heightened, the Federal Government launched several initiatives, which in our opinion, are gradually shaping and strengthening the economy, as follows:
1. The ERGP- 2017 to 2020:
The Economic Recovery and Growth Plan was launched by the Presidency in April 2017 with the aim of restoring the nation’s economy to the path of sustainable growth. It was the major policy of the government to tackle the recession. It seeks to promote self-sustenance by discouraging imports while promoting local production and consumption. In addition, its aim is to create a business-friendly environment, diversify the economy, accelerate growth and make the economy globally competitive.
The broad policy objectives of the ERGP are: restoring growth, investing in our people and building a globally competitive economy. Its top execution priorities 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.
The provisions in the 2018 Budget (Budget of Consolidation) also reflect the key priorities in the ERGP, with a strong emphasis on leveraging private capital for development.
2. The PEBEC Activities:
The Presidential Enabling Business Environment Council (PEBEC) had as its short-term target, the responsibility to improve Nigeria’s rankings in the next World Bank Ease of Doing Business Report in 2017 by at least 20 positions, as Nigeria ranked 169 out of 190 countries reviewed by the World Bank in 2016. To achieve its objective, PEBEC commenced an immediate 60 days national action plan in 2017 on three key priority areas – entry and exit of goods; entry and exit of people; and government transparency and procurement.
The scorecard of PEBEC at the end of the 60 days national action showed an overall result of 70% completion of targeted reforms. Some of the completed reform interventions included: e-platforms for ease of paying taxes and tax administration, revised timeframe for processing new company registration to 24 hours, single registration form for incorporation of business, electronic submission of registration documents, the need for lawyers in order to register new businesses at the Corporate Affairs Commission (CAC) is now optional, reduced number of documents for processing imports/exports, physical examination of goods at the ports now harmonized to ensure only one point of contact between officials and importers, introduction of the new immigration regulations, consolidation of arrival and departure forms, the Nigerian Immigration Service (NIS) now offers 48-hour visa processing and visa on arrival (VOA) services to prospective visitors, improved access to credits, improved website transparency as agencies such as CAC and NIS now have their process and documentation requirements clearly spelt out online, improved airport ambience at the Lagos and Abuja international airports, etc.
These reforms obviously helped to achieve PEBEC’s objective as Nigeria gained 24 places in the World Bank’s 2018 Doing Business Report which was released in October 2017. Nigeria is now ranked 145th among 190 economies on the ease of doing business index and among the top 10 improved countries on the index.
3. The Nigerian Investment Promotion Commission (NIPC) and Federal Ministry of Industries, Trade and Investment (FMITI) activities:
In August 2017, the Federal Government in collaboration with the FMITI and the NIPC, lifted a two to three year administrative suspension earlier placed on the Pioneer Status Incentive (PSI) Scheme, upon the conclusion of critical reforms to the regime. Companies granted PSI enjoy income tax holiday for an initial period of three years extendable for additional two years, subject to meeting the required conditions.
Upon lifting of the administrative ban, twenty-seven (27) industries were added to the list of industries eligible for the PSI, bringing the existing list of 71 pioneer industries and products to 98. The approval of new industries and products for PSI was a positive development and it reiterated government’s resolve to actualize the growth plan as articulated in the ERGP.
A new set of application guidelines was also issued and published on the NIPC website, to provide a better insight into the step by step processes involved in a first-time application and application for extension of pioneer period for an additional two years, after the initial 3-year period.
Secondly, also in line with the objectives of the ERGP, as well as the Medium-Term Expenditure Framework and Fiscal Strategy Paper for 2018 to 2020, NIPC, in collaboration with FIRS published the first edition of the Compendium of Investment Incentives in Nigeria (the Compendium) in November 2017, which helped reiterate the Federal Government’s commitment to encouraging investments in Nigeria. The Compendium is a compilation of fiscal incentives and sector specific concessions provided for in the Nigerian tax laws and other legal instruments. It seeks to provide a one-stop reference document for investors (or potential investors) in the Nigerian economy seeking to know what fiscal incentives or concessions are or will be available to them.
4. The Federal Government’s N-Power- Youth Empowerment and Job Creation Initiative:
The N-Power is an initiative of the Social Investment Program of the Federal Government, which goals are to employ and empower young unemployed people between the ages of 18 and 35 years. So far, the N-Power program claims to have employed 200,000 youths and 300,000 volunteers to empower the beneficiaries of the program. This initiative, in our opinion, would help create an inclusive platform for social security and wealth redistribution among the beneficiary Nigerian youths.
5. The Federal Government’s Home Grown School Feeding Program:
In 2017, the Federal Government also widely championed the home grown primary school feeding program, catering for the feeding of children in rural primary schools for free, thereby curbing poverty induced hunger and impediments to effective learning.
These Federal Government’s initiatives, in our opinion, are indications of an enlightened and well-meaning government. If these initiatives are sustained, built upon and driven forward under the strict principles of discipline, integrity and resilience, it is our belief that they will greatly shape and strengthen the Nigerian economy in the long run.
To be continued.