A recent report released by Fitch Solutions on Nigeria’s country Risk for the third quarter of 2019 reveals Nigeria’s economy will struggle to return to the robust levels of economic growth, witnessed prior to the 2014 collapse in global oil prices, due to the economic policies of the Buhari led Government.
According to the report, the contraction and slow projection in Nigeria’s growth will be driven by Nigeria’s challenging operating environment and back economic policies.
“Over the next 10 years, Nigeria’s economy will struggle to return to the robust levels of real GDP growth recorded prior to the collapse in oil prices. With substantial increases in oil production unlikely, the country will have to develop alternative sectors, but this will likely prove difficult in Nigeria’s challenging operating environment and weak reforms.”
The report details some factors that will be responsible for the likely contracted and slow growth outlook for Nigeria’s economic outlook in the next 10 years. Here are some of the factors highlighted.
Business Unfriendly: The report revealed that there is a low expectation of oil production returning to the level witnessed between 2010-2014 for the next 10 years, and this will pose significant challenges to Nigeria’s economic outlook.
- However, it stated that the unfriendly business environment in Nigeria and the instability of the commodity-dependent economy will keep fixed investment below the levels required to move the country away from its oil dependence.
- According to Fitch report, the victory of incumbent Muhammudu Buhari in the February 2019 elections suggests little scope for structural reform in the years ahead, weighing on the economy’s long-term growth prospects.
- Hence, Nigeria’s economic growth forecast is put at 3.4% per year over the long-term outlook from 2019 to 2028, compared with 6.1% in the 2010-2014 oil boom years.
The report also shows that a combination of low prices and long-term constraints on production suggests that the oil sector will not be the economic driver that it was previously.
- Crude exports have historically accounted for 90.0-95.0% of total merchandise exports and around 70.0% of government revenues.
- While this has led to substantial economic growth in previous years, the outlook over the next decade is far less positive.
- However, it was stated that Nigeria’s economy will struggle to diversify away from its long-standing oil dependence, due to a poor operating environment hindering investment into alternative sectors.
“Given the country’s growing population, the most pressing sectors for the Nigerian economy to diversify into would be those that create significant opportunities for employment, such as agriculture and manufacturing.”
“However, developing these sectors requires substantial surrounding infrastructure, including a reliable power supply and adequate storage and transport links to move to produce to market. Nigeria will find it difficult to attract the level of investment it needs to develop this infrastructure while its operating environment remains such a headwind to businesses.”
Population Upsurge – Often viewed as a highlight of the Nigerian economy, the report ironically viewed Nigeria’s booming population as a time-bomb that will trigger unrest. According to Fitch,
- While Nigeria’s large population should boost growth significantly, in the absence of sufficient employment opportunities there is a substantial risk that the country’s demographic dividend will turn into a demographic time bomb, with potential for the booming population to threaten political stability.
- Meanwhile, it was noted that Nigeria’s large and fast-growing population (expected to reach 251.6 million by 2028) will ensure opportunities are on offer for investors willing to take on substantial risk
- This will see economic activity slowly accelerate from the recession recorded in 2016.
On Corruption: According to Transparency International, Nigeria ranks 144th out of 180 countries in its 2018 Corruption Perceptions Index. According to Fitch,
- With rampant corruption having concentrated wealth in the hands of political elites, the country suffers from significantly unequal wealth distribution and this makes policy implementation difficult.
- Hence, high-level corruption could further a sense of grievance and raises the potential for destabilising protests.
“Nigeria’s business environment is significantly weakened by rampant corruption, burdensome bureaucratic procedures, and a weak legal framework. Financial crimes such as fraud, embezzlement and money-laundering also continue to threaten businesses operating in Nigeria.”
The latest inflation report shows that Nigeria’s inflation rose to 11.40% in May. According to Fitch, while Nigeria’s inflation moderated to an average of 12.2% in 2018, price pressures remain elevated – in part due to continued disruptions of the food supply chains because of instability in key producing areas.
Hence, it was revealed that average inflation will remain above the central bank’s target high of 9.0% until 2022. Thereafter, the inflation rate is expected to fall into high single-digit levels with slow growth in the economy.