Structural Reforms crucial to Nigeria’s Future Economic Growth – PwC

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  • By Anayo Ezugwu

 

THE PricewaterhouseCoopers, PwC Nigeria has said that the country’s economy is on track for a broad-based recovery.

The PwC Nigeria in a new report said asides the improvement in real Gross Domestic Product, GDP, following the exit from recession in second quarter of 2017, the performance across several other macro-indicators suggested that the economy had turned a corner.

In the new report titled ‘Nigeria’s economic recovery – Defining the path for economic growth,’ the PwC listed some of these indicators to include: headline inflation at a 16 month low at 15.9 percent year-on-year in September; maintenance of trade surplus for three consecutive quarters; Purchasing Managers Index, PMI, remaining above the 50 points threshold for six consecutive months and the foreign reserves up to a 34-month high.

In addition, PwC further assessed the fundamental determinants of economic growth, with findings suggesting that economic freedom, consumption growth and investment share in GDP are significant drivers of the Nigerian economy.

Andrew S. Nevin, partner and chief economist, PwC Nigeria, said: “We find that an increase in the economic freedom index by one point could lead to a 1.7 percentage points increase in Nigeria’s economic growth. This underscores the role of economic policies as a major catalyst for economic development. Similarly, one percentage point increase in investment share in GDP and consumption growth was found to be associated with 0.2 percentage points and 0.7 percentage points increase in economic growth respectively.”

To show Nigeria’s potential economic performance over the next five years, the report presented three scenarios in which PwC examined the impact of political shocks, and the implementation of structural reforms and economic diversification on key economic indicators in Nigeria.

The firm in its analysis assumed that oil continued to be the main driver of fiscal and export revenues over the forecast period. As such, the extent to which the Nigerian economy moved towards its near-term development aspirations was dependent upon the success of its import substitution policies.

In scenario one, there was fast-paced implementation of structural reforms, particularly those related to the business environment. In addition, the oil price rose from an estimated average of $55 per barrel in 2017 to $60 per barrel in 2018, while domestic oil production was assumed at 2.2 million barrels per day from 2019 to 2022.

In the second scenario, there was sluggish implementation of structural reforms, with the drive for import substitution progressing at a slow pace. The oil price and domestic oil production remained stable at $60 per barrel and 2.2 million barrels per day respectively over the forecast period.

Scenario three presented a less optimistic picture with increased political tension in the wake of the 2019 general elections negatively impacting policy implementation.

A return of restiveness in the Niger Delta resulted in a collapse in oil production levels to an average of 1.7 million barrels per day by 2019, before a gradual recovery to 2.2 million barrels per day by 2022.

Andrew commented further on the summary of the findings: “In scenario one, real GDP growth peaks at 7.0 percent in 2022 and remains in line with trend, reflecting the implementation of structural reforms, and successful traction in the execution of import substitution policies.

“The resultant improvement in the macroeconomic environment leads to increased investment and per capita GDP. However, in scenario two, the implementation of key reforms evolves at a slow pace and economic growth averages 3.3 percent over the forecast period, reaching 5.0 percent in 2022. A mix of political and security shocks in scenario three which bring about a significant decline in revenues result in no growth (0.0 percent) in 2019. Subsequently, growth recovers to 4.3 percent by 2022.”

 

–   Nov 10, 2017 @ 16:27 GMT |

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