President Muhammadu Buhari in his independence day broadcast highlighted his administration’s achievements regarding the economy. In reality, not much has changed over the last few years.
Here are key points from the speech, and the actual situation of things:
We are diversifying away from reliance on oil to increased manufacturing capacity, solid minerals development, and agriculture.
Data from the National Bureau of Statistics (NBS) shows GDP growth slowed from 1.95% in the first quarter of 2018 to 1.50% in the second quarter of 2018. The slowdown was largely due to lower growth in the oil sector. Growth in the sector fell from 9.61% in the first quarter of 2018 to 8.55% in the second quarter of 2018.
While the non-oil sector grew, the increase was not driven by manufacturing or agriculture, but services led by telecommunications.
Manufacturing fell from 3.39% in the first quarter of 2017 to 0.68% in the second quarter. Agricultural Sector fell from 3.00% in the first quarter of 2018 to 1.19% in the second quarter of 2018.
There is now an enabling environment for local and foreign investment in Nigeria. We are building a rules-based system – a level playing field that is free from fixers and intermediaries. This is the cornerstone to help genuine investors and honest consumers, and the platform that will allow for the real reforms that we intend to deliver over the coming years.
Foreign investors in the country may hold a contrary opinion. The Central Bank of Nigeria (CBN) in August ordered MTN Nigeria to repatriate $8.1 billion. The Office of the Attorney General also slammed a $2 billion back taxes on the firm. The apex bank in addition, fined all the banks involved in the transaction: Citibank, Standard Chartered, Stanbic IBTC and Diamond Bank.
The actions led to several foreign portfolio investors exiting the country, and the apex bank had to issue a statement denying it would apply foreign exchange laws retroactively. In a press briefing after the Monetary Policy Committee (MPC) meeting last week, CBN Governor, Godwin Emefiele stated that the apex bank was reviewing the information provided by all the parties.
Capital importation into the country remains largely concentrated on portfolio investments.
Data from the Nigerian Bureau of Statistics (NBS) Second Quarter report on capital importation shows Portfolio investment, accounted for 74.7% ($4,119.5 million) of total capital importation, followed by Other Investment, which accounted for 20.5% ($1,132.8 million) of total capital, and then Foreign Direct Investment (FDI), which accounted for 4.7% ($261.4 million) of total capital imported.
FDI has done poorly since the Buhari administration was elected in May 2015.
Portfolio investments have been largely concentrated in the equities market, which rallied in 2017 and the first quarter of the year but has since slumped due to their exit.
We are gradually strengthening the economy with a stable Naira and falling inflation rate. We are building an economy that is moving away from over reliance on oil. Consequently we have witnessed massive return to farms and seen bumper harvest, despite recurrent floods across the country.
The Naira’s stability is largely as a result of the CBN defending the currency and not market forces. The bank is able to do so due to robust foreign exchange reserves. This, in turn, is largely due to a rebound in crude oil prices. Oil recently reached a two year high of $80 a barrel and some analysts have hinted at a return to the $100 level.
The inflation rate has also began to rise gradually. Inflation increased by 11.23 per cent (year-on-year) in August 2018. This is 0.09 per cent points higher than the rate recorded in July 2018 (11.14 per cent) and represents the first year-on-year rise in headline inflation following eighteen consecutive disinflations in headline inflation.
Inflation is not an indicator of the country’s economic progress, and the massive spike last year was largely due to the devaluation. Nigeria’s inflation is largely cost push, and the stability in the foreign exchange rate means the rate of increase in inflation will also drop.
Inflation could go much higher as inflows from the 2018 budget and election spending are yet to kick in. GDP is a much better indicator of economic growth, which the President failed to mention in his speech.