As Nigeria celebrates her 60 years of independence, it is important to examine how the economy has fared in these past decades.
A cursory look at data (spanning 40 years) obtained from both the CBN and the National Bureau of Statistics (NBS) showed that despite the huge growth potential in Nigeria, the nation’s economy only grew at an average rate of 3.33% between 1982 and 2020 (Year to date).
Oil exploration and price fluctuations
Since Nigeria switched to oil exploration as the mainstay of the economy, export earnings from the commodity have risen to over 90%. Meanwhile, the dependency on oil may be doing more harm than good, as growth remains on the ebb.
For instance, the collapse of world oil prices from an average of $117 per barrel in 1980, to an average of US$23.57 per barrel in March 2020, has highlighted the precarious nature of the country’s economic and financial positions.
In 1983, Nigeria’s economy plunged into recession, contracting at -10.93%. The contraction recorded in 1983 remains one of the biggest in our history; this was on the back of oil supply glut following the 1970s energy crisis, causing oil prices to tank.
In order to rescue the Nigerian economy in 1986, Nigeria adopted the IMF’s Structural Adjustment Programme (SAP), under the regime of General Babangida (Rtd), which signaled a radical departure from the previous austerity measures of General Buhari.
Among two other objectives, SAP was specifically introduced to restructure and diversify the productive base of the economy, in order to reduce dependency on the oil sector and imports, with a US$450 million trade policy and export diversification loan support from the World Bank.
Forty years later, despite other development plans introduced by several administrations, effective diversification to other productive sectors remains elusive to the Nigerian economy. Scholars have often posited that Nigeria is a ‘resource-cursed’ economy. Basically, this refers to the paradox that countries with an abundance of natural resources tend to have less economic growth and worse development outcomes.
Analysis of data showed that in the last 40 years, Nigeria’s economic growth has largely depended on changes in oil prices (Fig 1.). This implies that despite the diversification policy drive that has been mooted by several regimes and administrations, the Nigerian economy has remained a largely mono-cultural economy, undermined by distortions in global oil prices.
Low purchasing power amidst double-digit inflation & falling naira
The Nigerian economy continues to battle with the rising Inflation rate, with persisting structural issues undermining the purchasing powers of consumers. Nigeria remains an import-dependent economy, and import remains a pass-through for rising domestic inflation, as manufacturers depend on the importation of input materials to produce final goods.
In the last four decades, Nigeria’s exchange rate plunged from a yearly average of N0.67/$1 to N379/$1, further stressing the fragility of the economy. On the other hand, rising inflation is partly driven by inherent structural issues, which continue to raise the cost of doing business in the country.
Despite moves by the Central Bank in recent years to manage the country’s currency, a sustained decline in oil prices may further stoke pressure on the nation’s currency.
It was an ambitious plan by the administration of former President Yar’Adua, to make Nigeria one of the top 20 economies in the world by 2020. Nigerians welcomed this Vision 2020, which also aimed to increase the average life expectancy to 70 years, and boost GDP to $900 billion.
A cursory look at World Bank data in 2007 shows that the Nigerian economy ranked 31st globally, estimated at $236 billion. However, fast forward to 2019, despite the Nigerian economy growing to $488.1 billion, it only moved up four places to rank 27th in the world.
Similarly, according to the United Nation Development Programme (UNDP), Life expectancy in Nigeria dropped to 54.3 years in 2018, one of the lowest in the world. This further validates that the Nigerian economy failed to achieve goals set out in the Vision 2020 development plan.
On the back of the outbreak of the COVID-19 pandemic, fresh development plans and frameworks are currently being introduced to abate the impact on the Nigerian economy. Whilst this is laudable, Nigeria needs more than just developing plans to achieve inclusive growth.
Nigeria’s inflation rate hits 15.75% in December 2020, highest in 3 years
This is 0.86% points higher than the rate of 14.89% recorded in November 2020.
Nigeria’s inflation rate increased by 15.75% (year-on-year) in December 2020, the highest rate recorded in 3 years.
According to the latest Consumer Price Index report, released by the National Bureau of Statistics (NBS), the latest figure is 0.86% points higher than the rate of 14.89% recorded in November 2020.
On a month-on-month basis, the index increased by 1.61% in December 2020. This is 0.01% point higher than the rate recorded in November 2020 (1.60%).
The closely watched index rose sharply by 19.56% in December compared to 18.3% recorded in the previous month.
- On a month-on-month basis, the food sub-index increased by 2.05% in December 2020, up by 0.01% point from 2.04% recorded in November 2020.
- The rise in the food index was caused by increases recorded in prices of bread and cereals, potatoes, yam and other tubers, meat, fruits, vegetable, fish and oils and fats.
The “All items less farm produce’‘ or Core inflation, which excludes the prices of volatile agricultural produce stood at 11.37% in December 2020, up by 0.32% when compared with 11.05% recorded in November 2020.
- Also, on a month-on-month basis, the core sub-index increased by 1.10% in December 2020. This was up by 0.39% when compared with 0.71% recorded in November 2020.
- The highest increases were recorded in prices of passenger transport by air, medical services, hospital services, shoes and other footwear, passenger transport by road, miscellaneous services relating to dwellings, hairdressing salons and personal grooming establishments, and repair of furniture.
- Others include vehicle spare parts, pharmaceutical products, motor cars, maintenance and repair of personal transport equipment, paramedical services, motorcycle, dental services, and bicycles.
Worst hit states
- In the month of December 2020, Bauchi State recorded the highest inflation rate at 19.85%, closely followed by Kogi State with an inflation rate of 18.4%
- Others include Edo (18.1%), Zamfara (17.9%), and Sokoto (17.6%)
- In terms of food inflation, Edo State also recorded the highest rise in inflation rate with 24.1%, followed by Kogi (23.16%), Sokoto (22.2%); while Kwara and Zamfara State recorded food inflation of 22.1% and 21.7% respectively.
Meanwhile, the urban inflation rate increased by 16.33% (year-on-year) in December 2020 from 15.47% recorded in November 2020, while the rural inflation rate increased by 15.20% compared to 14.33% recorded in November 2020.
What this means
The rise in the consumer price index indicates that consumers spent more in the month of December compared to the previous month.
- This implies that the purchasing power of Nigerians is continually eroding.
- Nigerians could be faced with new worries if the second wave of the covid-19 pandemic leads to a second round of lockdown in the country.
- The significant increase could, however, be attributed to the Christmas and New year festivities in the month of December.
Nigeria’s total public debt increases by N6 trillion in 1 year
Nigeria’s total public debt stock as of September 2020, increased by over N6 trillion in just one year.
Nigeria’s total public debt stock as of September 2020, increased by over N6 trillion in just one year. This is according to the Nigerian Domestic and Foreign Debt report, recently released by the National Bureau of Statistics (NBS).
The total public debt (External and Domestic) incurred by Nigeria stood at N32.22 trillion ($84.57 billion) as of September 2020, which represents an additional N6.01 trillion when compared to N26.21 trillion recorded as of the corresponding period of 2019.
The breakdown shows that external debts accounted for 37.82% (N12.19 trillion) of the total debt stock, while domestic debts at N20.04 trillion represented 62.18% of the total.
- Further disaggregation of Nigeria’s foreign debt showed that $16.74bn of the debt was multilateral.
- Also, $502.38m was bilateral (AFD) and another $3.26bn bilateral from the Exim Bank of China, JICA, India, and
KFW while $11.17bn was commercial which are Eurobonds and Diaspora Bonds.
- Total external debt grew by $5.04 billion (N3.9 trillion) within the period, indicating an increase of 18.72%.
- Total domestic debt on the other hand declined by $5.86 billion. However, it represents an increase in Naira value of N2.09 trillion, largely due to multiple devaluations of the currency during the period.
A cursory look at the breakdown of the domestic debts show that 73.53% (N11.65 trillion) were in form of Federal Government bonds, 17.17% (N2.72 trillion) in Treasury bills, followed by Promissory Notes accounting for 6.13% (N971.9 billion) of the total federal government domestic debts.
Others include; FGN Sukuk (N362.6 billion), Treasury Bonds (N100.9 billion), Green bond (N25.7 billion), and Savings bond (N12.6 billion).
More loans to be expected
On the 31st of December 2020, President Buhari signed the 2021 appropriation bill of N13.59 trillion into law, which 25.7% higher than the revised 2020 budget of N10.8 trillion. However, the budget comes with a deficit of N5.6 trillion, which is expected to be financed mainly through borrowings both externally and domestically.
According to the minister of Finance, Budget, and National Planning, Dr. Zainab Ahmed, in a budget presentation on Tuesday, N2.34 trillion will be sourced each from domestic and foreign sources respectively, N709.69 billion from Multilateral/bilateral loan drawdowns, and N205.15 billion from privatisation proceeds.
Recall that Nairametrics reported in December that, the World Bank finally approved a $1.5 billion loan request made by Nigeria as budget support in order to cushion the impact of the covid-19 pandemic on the country’s revenue.
It is also worth noting that the federal government will be tapping into funds in unclaimed funds and dormant accounts.
PMI: Nigeria’s manufacturing sector contracts in December
The manufacturing sector relapsed in December from 50.2 index points recorded in the month of November 2020.
The Manufacturing Purchasing Managers’ Index (PMI), for the month of December, witnessed a contraction, as it stood at 49.6 index points. This was disclosed in the PMI report, recently released by the Central Bank of Nigeria (CBN).
According to the report, the manufacturing sector relapsed from 50.2 index points recorded in the month of November 2020. It however, gained marginally compared to 49.4 index points recorded in October 2020.
The report also disclosed that out of the 14 surveyed subsectors, 4 subsectors reported expansion (above 50% threshold) in the review month in the following order:
- Transportation equipment
- Nonmetallic mineral products
- Paper products
- Food, beverage & tobacco products.
However, textile, apparel, leather, and footwear subsector remained stationary while the remaining 9 subsectors reported contractions in the following order:
- Primary metal,
- Petroleum & coal products
- Electrical equipment
- Fabricated metal products
- Printing & related support activities
- Plastics & rubber products
- Chemical & pharmaceutical products and
- Furniture & related products
For context read: Nigeria’s manufacturing sector contracts for 4th consecutive month – CBN
PMI for the non-manufacturing sector stood at 45.7 points in the month of December 2020, indicating contraction in Non-manufacturing PMI for the ninth consecutive months.
Of the 17 surveyed sub-sectors, 5 subsectors reported growth in the following order:
- Arts, Entertainment & Recreation
- Water supply, sewage & waste management
- Electricity, gas, steam & air conditioning supply
- Educational services and Professional
- Scientific & technical services
While twelve subsectors reported declines in the following order: Management of companies; Utilities; Transportation & warehousing; Real estate rental & leasing; Construction; Finance & insurance; Agriculture; Wholesale/Retail trade; Information & communication; Repair, Maintenance/Washing Of Motor Vehicles; Health care & social assistance and Accommodation & food services.
What you need to know
- In December 2020, suppliers’ delivery time was faster, new orders and production level increased while employment level and raw materials inventories contracted.
- The business activity index for the non-manufacturing sector contracted at 46.9 points from the expansionary level recorded in the month of November 2020.
- The employment level Index for the non-manufacturing sector in the month of December 2020 stood at 45.1 points, indicating contraction in employment level for the ninth consecutive months.
What this means
PMI is a survey that is conducted by the Statistics Department of the Central Bank of Nigeria and shows the changes in the level of business activities in the current month compared with the preceding month.
- For each of the indicators measured, this report shows the diffusion index of the responses, which is computed as the percentage of responses with positive change plus half of the percentage of those reporting no change, except for supplier delivery time, which is computed as the percentage of responses with negative change plus half of the percentage of those reporting no change.
- A composite PMI above 50 points indicates that the manufacturing/non-manufacturing economy is generally expanding. 50 points indicate that there is no change, while a PMI below 50 points indicates that it is generally contracting.
- A contraction in manufacturing activities means that the sector is yet to recover from the covid induced downturn which crippled the manufacturing activities for 6 consecutive months before recording slight expansion in the previous month.