Connect with us
nairametrics

Macro-Economic News

World Bank predicts Nigeria’s impending recession will be worst in 40 years

New World Bank report paints a grim picture of Nigeria

Published

on

World Bank predicts Nigeria's impending recession will be worst in 40 years

A new world bank report seen by Nairametrics has painted a very grim picture of the economy today and in the future. According to the World Bank, Nigeria is facing “potentially the most severe downturn in four decades…even if the outbreak is contained”. 

The report was included in a webinar presentation “ALIPA Webinar” dated August 27, 2020.

According to the World Bank, the double whammy of the oil price fall, and the COVID-19 pandemic has put Nigeria on the path to economic ruin and may not get out of it quickly if significant policy changes are not made. The report pointed out that the Oil Price Collapse is Destabilizing the economy and affecting fiscal and external balances, and growth.

Get corporate data from Nairametrics on Nairaytics

It also lamented that the Covid-19 Pandemic is reducing foreign remittances and adding to the households’ loss of income and consumption. It also exclaimed that foreign capital inflows are also expected to decline adding to external payment pressures.

GTBank 728 x 90

With all these grim predictions it projects a GDP contraction of -3% for 2020 “possibly triggering the worst recession in four decades.” The National Bureau of Statistics on Monday reported the Nigerian economy contracted by 6.1% in the second quarter of the year due to the Covid-19 pandemic and the crash in oil prices.

READ: Why Nigerians should consider investing in Commodities

GTBank 728 x 90

The fallout of an Economic Contraction

  • Jobs, already scarce from the 2016 recession, will be that much harder to find
  • Many Nigerians are expected to fall into poverty as incomes fall while the population continues to rise
  • Women and workers in the informal sector are likely to be more affected

The presentation also suggested what Nigeria must do to get out of the woods.

  1. Containing the COVID-19 outbreak and preparing for a more severe outbreak.
  2. Enhancing macroeconomic management to boost investor confidence
  3. Safeguarding and mobilizing revenues
  4. Reprioritizing public spending to protect critical development expenditures
  5. Supporting economic activity and providing relief for poor and vulnerable communities

READ ALSO: 2020 Q2 Analysis: Conoil Plc, hanging by the thread

Key Policy changes for Nigeria proposed

The World Bank also outlined suggestions for Nigeria’s foreign exchange management as well as some of its economic policies

  • Unify exchange rates into a single window, and increase exchange rate flexibility now, before foreign exchange reserves are further depleted and pressures mount for a much larger and disruptive devaluation that would hurt the poor
  • Ease foreign exchange restrictions to limit inflationary pressures and increase supply of food and key staples (e.g., health-related products).
  • Refocus management of monetary policy toward the primary objective of price stability
  • Phase-out land border closures to limit inflation and direct private sector development to more competitive ends
  • Continue making management of public debt more transparent
  • Review prudential requirements related to bank sales of non-performing loans to AMCON and similar companies to transparently streamline the process for efficient resolution of nonperforming loans

Go deeper==> download the report below;

Download (PDF, 1.63MB)

Fidelity ads
Click to comment

Leave a Reply

Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Economy & Politics

FAAC disburses N696.2 billion in July 2020, as Lagos State parts with N1.46 billion  

The sum of N696.18 billion to the Federal, State, and Local governments in July 2020 from the FAAC account.

Published

on

States lose N35.51 billion to bail-out , FAAC disburses N650.8 billion as South-South states receive highest share

The Federation Account Allocation Committee (FAAC), disbursed the sum of N696.18 billion to the Federal, State, and Local governments in July 2020, from the revenue generated in the month of June 2020. This was stated in the latest FAAC report, released by the National Bureau of Statistics (NBS). 

According to the report, the monthly disbursement increased by 27.2% compared to N547.3 billion shared in June, and 14.8% increase compared to N606.2 billion disbursed in May 2020. 

READ: Nigeria total public debt hits N31 trillion as debt service gulp over N1.2 trillion in H1 2020 

Checks by Nairametrics research, shows that a total of N4.58 trillion has been shared to the three tiers of government, between January and July 2020. Highest disbursement was recorded in April (N780.9 billion), followed by N716.3 billion in January 2020. 

Meanwhile, Lagos State – the economic hub of Nigeria, parted with N1.46 billion as external debt deductions in the month, indicating a total of N9.74 billion deductions between January and July 2020. 

GTBank 728 x 90

Explore the Nairametrics Research Website for Economic and Financial Data

Breakdown 

  • The amount disbursed in July comprised of N474.53 billion from the Statutory Account, N128.83 billion from Valued Added Tax (VAT), N42.83 billion from Exchange Gain Differences, and Distribution of N50 billion from Non-Oil Revenue for the Month. 
  • Federal Government received a total of N266.13 billion from the total disbursement. States received a total of N185.77 billion, and Local Governments received N138.97 billion. 
  • The sum of N28.50 billion was shared among the oil producing states as 13% derivation fund. 
  • Revenue generating agencies such as Nigeria Customs Service (NCS), Federal Inland Revenue Service (FIRS)and Department of Petroleum Resources (DPR) received N6.32 billion, N15.05 billion, and N2.68 billion respectively as cost of revenue collections. 

READ: Nigeria considers request for debt relief as debt stock climbs

GTBank 728 x 90

South-South scoops highest share 

The South-South region, also known as the Niger Delta region, received the highest share of the disbursement in the month of July. The region received a sum of N49.44 billion, representing 25.4% of the total net allocation for states. 

This is largely because the region contributes mostly to crude oil production in Nigeria, which is a significant source of revenue for the federation. Out of the six states in the region, only Cross River State is not an oil producing state. Hence, Rivers, Edo, Akwa Ibom, Bayelsa, and Delta States received a total of N24.28 billion as part of 13% oil derivation fund.  

North-West region received N36.83 billion (18.9%); followed by North-Central region, which received a net total of N30.69 billion (15.8%). Others include South-West (N29.55 billion), North-East (N26.32 billion), and South-East (N21.97 billion). 

READ: Fidelity Bank to raise N50 billion in bonds in Q4 to refinance existing debts

External debt deductions 

A total of N4.47 billion was deducted from the state’s allocation, as external debt deductions for the month of July. Lagos State parted with the highest amount of N1.46 billion, representing 32.6% of the total debt deductions in the month. A sum of N9.74 billion has been deducted as a result of external debt obligations between January and July 2020. 

Fidelity ads

READ: Investors flee Nigerian Stocks as FDI and FPI dips

It is worth noting that, the State’s external debt has declined by 9.67%, from $1.39 billion recorded as at the end of December 2019 to $1.26 billion in June 2020. 

Others on the list of top 5 deductions are, Kaduna (N414.6 million), Oyo (N305.4 million), Rivers (N280.3 million), and Cross River (N222 million). On the flip side, Ogun State parted with the lowest, as N9.1 million was deducted, followed by Borno (N21.6 million), and Taraba (N24.5 million). 

READ: Nigeria’s manufacturing sector contracts for 5th consecutive month – CBN 

Upshot 

  • With dwindling federally collected revenue, caused by volatility in global crude oil price and economic downtrend caused by COVID-19 pandemic, it is evident that federal allocations will likely face drastic decline, which is a cue for the State governments to strategize on more creative ways of generating revenue internally.  
  • A quick check at the states’ IGR numbers, shows that 91.9% of the states in Nigeria with the exception of Abuja, Ogun, and Lagos States rely more on federal allocation, as against internally generated revenue. 
  • This implies that several states in Nigeria are technically bankrupt without debt financing, and Federal Government monthly allocation. 

Continue Reading

Macro-Economic News

Despite billions on agriculture, food inflation up by 108% since 2015

About N2 trillion spent in the last 5 years to achieve food self-sufficiency.

Published

on

Despite billions on agriculture, food inflation up by 108% since 2015.

Nigeria’s food inflation has more than doubled since August 2015, exactly 5 years after the Buhari Administration took charge of the Nigerian economy.

This was determined by comparing the composite index for food inflation rate in August 2020 versus same period in 2015. The difference is a whopping 108% increase in inflation rate, in just 5 years. Within this period, Nigeria’s exchange rate has been devalued by 49%.

Whilst the Nigerian economy has been ravaged by a very low oil price environment, since it fell from over $100 per barrel in 2014, most of the reasons for the increase in cost of living are partly attributed to some of the policies of the government.

READ: Presidency gives reason for forex ban on food and fertilizer imports as MAN reacts

Since 2015, the government has focused on a ‘grow-what-you-can-eat’ policy, pouring billions of naira into the agricultural sector. Since its inception in 2015, the Anchor Borrowers Programme (ABP), has received about N190billion disbursement from the CBN.

GTBank 728 x 90

Another N622billion was lent through banks under the Commercial Agriculture Credit Scheme. Add the various grants, tax incentives, and concessions, that’s almost N2 trillion spent in the last 5 years on helping Nigeria to achieve food self-sufficiency.

READ MORE: FPI and FDI drop to $68 million and $18 million respectively in April, lowest since 2016

Whilst modest successes have been recorded, the cost of staple food items remain high – galloping in each passing month. Since the border closure was announced in August 2019, the food inflation rate has risen every month, from 13.17% in August of 2019 to 16% last month. It is projected to hit 20% by the first quarter of 2021, when the effects of the increase in petrol and electricity prices are accounted for.

GTBank 728 x 90

Despite billions on agriculture, food inflation up by 108% since 2015.

Nigerians have never had it this bad. Despite the good intentions of the government, things have not particularly turned out well. A common challenge in trying to solve a problem is not being able to manage what is outside of your control. In agriculture, a lot seem to be outside of the control of this government.

Explore the Nairametrics Research Website for Economic and Financial Data

Yield per hectare for most farming is well below global standards, driving up the cost of whatever is left to be sold to Nigerians. Farmers also face insecurity, flooding, and sometimes famine affecting their ability to plant and harvest. Even after harvesting, supply chain challenges still persist, leaving farmers to contend with middlemen, transportation, and storage. The result is far less farm produce reaching the final consumer.

For items under its control, it still cannot determine the outcomes, and the causes and effects. Just last week, it announced the banning of maize, only to flip-flop after learning that poultry farmers lacked maize feeds to grow their chickens. It quickly granted licenses to four companies to import maize.

(READ MORE:Nigeria’s inflation rate jumps to 12.82%, highest in 27 months)

Fidelity ads

Thus, while the government attempts to manage what it can control such as banning of imports, denying access to forex, and of course border closure, it cannot solve all these problems with CBN funding and banning. They are structural, and require a better approach that is private sector driven, yet pragmatic. The government also needs to tell itself the truth; Nigeria cannot be self-sufficient by banning.

READ: Nigeria’s border closure hurt many Ghanaian exporters – Ghanaian Foreign Minister

So long as we continue to avoid relying on data and objective reasoning, to balance the need for local agro-processing and imports to meet demand, food inflation will remain high and galloping. Who knows, by the time this administration’s tenure is up, we could be looking at a state of emergency driven by a full blown food crisis.

Continue Reading

Macro-Economic News

Nigeria’s inflation rate hits 13.22% in August 2020, highest in 29 months

Highest increases were recorded in prices of Passenger transport by air, Hospital services, Medical services, Pharmaceutical products and others.

Published

on

Nigeria's inflation rate, Headline inflation jumps to 11.61% in October on border closure

Nigeria’s inflation rate rose to 13.22% in August 2020, highest recorded in 29 months, since March 2018 (13.24%). This was contained in the recent Consumer Price Index (CPI) report, released by the National Bureau of Statistics (NBS).

The latest figure is 0.40% points higher than the rate recorded in July 2020 (12.82%). while on a month-on-month basis, the Headline index increased by 1.34% in August 2020.  

READ: CBN orders BDCs to sell forex at N386/$1

Food inflationA closely watched component of the inflation indexstood at 16% in August compared to 15.48% recorded in July 2020. On month-on-month basis, the food sub-index increased by 1.67% in August 2020, up by 0.15% points from 1.52% recorded in July 2020.

This rise in the food index was attributed to increases in prices of Bread and cereals, Potatoes, Yam and other tubers, Meat, Fish, Fruits, Oils and fatsand Vegetables.

GTBank 728 x 90

READ: Plentywaka raises $300,000, seeks partners as it launches operations in Abuja

Core inflation: This excludes the prices of volatile agricultural produce, also rose to 10.52% in August 2020. It is up by 0.42% points when compared with 10.1% recorded in July 2020. On month-on-month basis, the core sub-index increased by 1.05% in August 2020. This was up by 0.30% points when compared with 0.75% recorded in July 2020. 

GTBank 728 x 90

READ: Currency traders relatively neutral on U.S dollar, despite impressive U.S Jobs report

What drove inflation: Inflation for the month of August was driven by recorded increase in prices of Passenger transport by air, Hospital services, Medical services, Pharmaceutical products, Maintenance, and Repair of personal transport equipment. 

Others are Vehicle spare parts, Motor cars, Passenger transport by road, Repair of furniture, and Paramedical services.

READ: Nigeria government releases oficial gazette on list of pioneer industries and products

Upshot: As Nigerians continue to grapple with the effects of the COVID-19 pandemicand the reopening of the economy, prices of commodities such as air transport, and medical services seems to have been affected due to policies implemented, with the aim of curbing the spread of COVID-19 in the country. 

It is therefore evident that Nigerians are spending more, despite fixed income, contraction of economic activities, and dwindling rate of investment returns. 

Fidelity ads

Continue Reading
Advertisement
Advertisement
Advertisement
ikeja electric
Advertisement
Patricia
Advertisement
FCMB ads
Advertisement
Advertisement
IZIKJON
Advertisement
Fidelity ads
Advertisement
first bank
Advertisement
bitad
Advertisement
deals book
Advertisement
financial calculator
Advertisement
deals book
Advertisement
app
Advertisement