Nigerian economy in 2019: How did Nigerians fare?

Mon, Dec 30, 2019

By publisher

11 MIN READ

Economy, Featured

Despite the executive orders by President Muhammadu Buhari and other policy measures adopted to stimulate economic growth in 2019, the economy failed to soar as expected by many Nigerians

By Goddy Ikeh

THE performance of the Nigerian economy in 2019 has been seen and described differently by some stakeholders as a significant year, which in many ways has reshaped the capital market for years to come, while the manufacturer’s CEOs Confidence Index, MCCI, identified inadequate electricity supply and the duo of multiple taxation and overregulation amongst others, as challenges confronting operations in the country in the outgoing year. And the survey conducted by NOIPolls in December 2019 to gauge the perceptions of Nigerians on how well the country has fared in 2019 particularly on some key socio-economic areas, revealed that Nigerians believe that the country has not fared well in the following areas; the Health sector (79 percent), Electricity supply (66 percent), Job creation (65 percent) and the Economy (64 percent).

But in his progress report on the Nigerian economy in 2019, Buhari said in his 2020 budget address at the National Assembly that the economic environment remained very challenging globally and that it reflected the uncertainties arising from security and trade tensions with attendant implications on commodity price volatility.

He noted that the Nigerian economy recorded nine consecutive quarters of GDP growth and that annual growth increased from 0.82 percent in 2017 to 1.93 percent in 2018, and 2.02 percent in the first half of 2019. According to Buhari, the continuous recovery reflects the Nigerian economy’s resilience and gives credence to the effectiveness of our economic policies thus far.

“We also succeeded in significantly reducing inflation from a peak of 18.72 percent in January 2017, to 11.02 percent by August 2019. This was achieved through effective fiscal and monetary policy coordination, exchange rate stability and sensible management of our foreign exchange.

“We have sustained accretion to our external reserves, which have risen from $23 billion in October 2016 to about US$42.5 billion by August 2019. The increase is largely due to favourable prices of crude oil in the international market, minimal disruption of crude oil production given the stable security situation in the Niger Delta region and our import substitution drive, especially in key commodities.

“The foreign exchange market has also remained stable due to the effective implementation of the Central Bank’s interventions to restore liquidity, improve access and discourage currency speculation. Special windows were created that enabled small businesses, investors and importers in priority economic sectors to have timely access to foreign exchange.

“Furthermore, as a sign of increased investor confidence in our economy, there were remarkable inflows of foreign capital in the second quarter of 2019. The total value of capital imported into Nigeria increased from US$12 billion in the first half year of 2018 to US$14 billion for the same period in 2019.

On the performance of the 2019 budget, Buhari recalled that the 2019 ‘Budget of Continuity’ was based on a benchmark oil price of $60 per barrel, oil production of 2.3 mbpd, and an exchange rate of N305 to $1. And based on these parameters, the federal government projected a deficit of N1.918 trillion or 1.37 percent of Gross Domestic Product.

As at June 2019, Federal Government’s actual aggregate revenue (excluding Government-Owned Enterprises) was N2.04 trillion. This revenue performance is only 58 percent of the 2019 Budget’s target due to the underperformance of both oil and non-oil revenue sources. Specifically, oil revenues were below target by 49 percent as at June 2019. This reflects the lower-than-projected oil production, deductions for cost under-recovery on supply of premium motor spirit, PMS, as well as higher expenditures on pipeline security/maintenance and Frontier exploration.

Daily oil production averaged 1.86 mbpd as at June 2019, as against the estimated 2.3 mbpd that was assumed. This shortfall was partly offset as the market price of Bonny Light crude oil averaged US$67.20 per barrel which was higher than the benchmark price of US$60.

Additionally, revenue projections from restructuring of Joint Venture Oil and Gas assets and enactment of new fiscal terms for Production Sharing Contracts did not materialize, as the enabling legislation for these reforms is yet to be passed into law.

The performance of non-oil taxes and independent revenues such as internally generated revenues were N614.57 billion and N217.84 billion respectively.

Receipts from Value Added Tax were below expectations due to lower levels of activities in certain economic sectors, in the aftermath of national elections. Corporate taxes were affected by the seasonality of collections, which tend to peak in the second half of the calendar year.

He disclosed that in spite of the delay in capital releases, a deficit of N1.35 trillion was recorded at end of June 2019, representing 70 percent of the budgeted deficit for the full year.

Buhari noted that despite these anomalies, the federal government was able to meet its debt service obligations, current on staff salaries and that overhead costs had also been largely covered.

But the survey published by the NOIPolls in December said the National Bureau of Statistics, NBS, reported that the nation’s Gross Domestic Product, GDP, grew from 2.12 percent in the second quarter of 2019 to 2.29 percent in the third quarter of 2019 indicating an increase of 0.17 percent, but that despite this increase in the nation’s GDP, the average Nigerian is yet to feel the impact of this increase in the GDP.

It noted that the Director-General, Budget Office of the Federation, Ben Akabueze, stated that for Nigerians to effectively feel the impact of economic growth, the rate of Gross Domestic Product growth must be higher than the population growth.

The survey findings on the economy showed that 64 percent of the respondents stated that the nation has not fared well in this area in 2019 despite the marginal increase recorded in the county’s GDP in quarter 3, 2019 as reported by the National Bureau of Statistics.

“On the contrary, 68 percent of Nigerians reported that the country has fared well in the area of Agriculture while 58% reported that the country has fared well in the Education sector. The poll also revealed that 79 percent of Nigerians disclosed that healthcare delivery has not fared well in 2019, while 66 percent lamented over epileptic power supply in 2019. And that 65 percent of Nigerians complained about lack of job in the country and this could be as a result of the high rate of unemployment and under-employment in the country as well as the thousands of Nigerians who join the labour market on a monthly basis.

The survey concluded that the poll revealed that a larger proportion of Nigerians consider healthcare, electricity supply, job creation and the economy as the critical areas that have not fared well in 2019 and consider Agriculture, Education and Security as areas where the government has fared well. Synergy between government and concerned stakeholders will go a long way in ensuring that these critical challenges are addressed in 2020.

For instance, fixing these sectors pointed out by Nigerians will attract more foreign direct investments, create millions of jobs, help to create new markets, foster competition, spur innovation, lower prices, raise productivity and in turn leads to increase in living standards.

For the manufacturing sector, it was a catalogue of challenges. For instance, the manufacturer’s CEOs Confidence Index, MCCI, published by Channels Television on

December 16, 2019, identified inadequate electricity supply and the duo of multiple taxation and over regulation amongst others, as challenges confronting operations in the country.

The report, which captured the third quarter of 2019, was created by the Manufacturers Association of Nigeria, MAN, to gauge the pulse of the economy on a quarterly basis.

It also listed other challenges to include high-interest rate, poor accessibility to ports, poor economic infrastructure and difficulty in sourcing foreign exchange.

On multiple taxations, the report showed that the majority of MAN CEOs interviewed (89 percent) agreed that multiple taxes and levies depress production in the manufacturing sector.

“Record shows that manufacturers pay over 30 different taxes, levies, and fees to agencies of the Federal, State and Local Governments on account of increased revenue target.

“Consequently, there is the need to streamline the observed multiplicity of taxes and ensure that only approved taxes/levies/fees are charged.”

It added that there had been an improved level of access to ports operation, following the on-going government reforms.

“Notwithstanding, poor access, heavy traffic and undue congestion at the ports are still prevalent. This assertion was corroborated by the responses of MAN CEOs interviewed in the current MCCI viz-a-viz previous responses in the first and second quarter of the year.”

It noted that despite the Federal Government’s Executive order on the patronage of locally made goods, the report said that 62 percent disagreed that patronage of Nigerian manufactured products has improved as a result of the implementation of the Executive Order 003.

“This response clearly shows that the Executive Order 003 which mandated all Government establishments to make Nigerian manufactured goods first choice in public procurement processes has not been conscientiously implemented.”

It recommended that “there is a need to properly review the implementation processes of Executive Order 003 to ensure that Government patronage of goods manufactured in Nigeria improves to boost the performance of the Nigerian manufacturing companies for increased contribution to national output and increased employment opportunities.”

However, the aggregate Manufacturers CEO’s Confidence Index for the third quarter of 2019 of 51.7 points, presented a marginal increase of 0.8 index point over 50.9 index points recorded in the second quarter of the year.

The report also lauded the slight increase in the index, stressing that it depicts uptick in the performance of the manufacturing sector and shows that manufacturers’ confidence in the economy improved in the third quarter.

On the closure of the country’s land borders, the manufacturer’s index recommended that an urgent resolution of the Nigeria-Benin border dispute should be done, so as to resuscitate Nigeria’s export trade within the ECOWAS region.

“Although the Third Quarter index point indicates marginal improvement in the economy over the preceding quarter, it is far below projections and expectations of MAN and the majority of the member-companies operating in the sector. Therefore, we urge the Government to urgently address the challenges identified and give priority attention to the general recommendations in this report.”

But, Muda Yusuf, director-general of the Lagos Chamber of Commerce and Industry, LCCI, who did not dwell much on the challenges of the economy in 2019, rather projected a high cost of doing business in 2020. In the projection in the LCCI 2019 Economic Review and Outlook For 2020 released in Lagos on Thursday, December 19, 2019, Yusuf attributed the projected high cost to poor infrastructure, multiplicity of levies, excessive regulations, among others.

Yusuf said that while the nation might have recorded improvement on the Ease of Doing Business Ranking due to some recent policy measures, realities on ground would continue to differ if the highlighted challenges were not properly addressed.

He said that the performance of the trade sector in 2020 would be shaped by the direction of government policies.

Yusuf anticipated that the manufacturing sector would continue to benefit from the Central Bank of Nigeria’s aggressive credit push.

He, however, predicted that competition between foreign and local producers would fade on prolonged closure of land borders.

The director general said that headline inflation was expected to trend higher in 2020.

He said this would be driven by implementation of new minimum wage and continued closure of the land border.

Yusuf said that higher Value Added Tax rate of 7.5 per cent and the early disbursement of funds for budget implementation following the return of the budget cycle would also be contributory factors.

“We expect economic growth to remain subdued at around 2 per cent by 2020 as consumer demand, as well as private sector investment, will most likely remain weak.

“We are of the view that failure by government to fix structural constraints with regards to fixing power challenges and rehabilitating deplorable road networks, will perpetuate the poor productivity and performance of the sector.

“In our opinion, continued protectionist measures of government will most likely limit growth in 2020.

“Elsewhere, the level of the country’s engagement in Africa Continental Free Trade Area, AfCFTA, scheduled to kick-off July 1, 2020, will also impact the performance of trade sector.

“As a sustainable solution, it is imperative to fix the fundamental issues of high cost of domestic production, the prohibitive cost of cargo clearing at the Lagos ports, prohibitive import tariffs, high cost of logistics within the economy, and border policy capacity,” he said.

On the performance of the agricultural sector, the Director-General projected improved credit flow to agriculture on the back of proposed increase in deposit money banks’ loan to deposit ratio to 70 percent.

However, from policy perspective, Yusuf expressed the view that prolonging closure of the land borders would further add impetus to agricultural output in 2020.

“We are also of the opinion that the President forwards an executive bill to the National Assembly to make this policy a law as this would ensure that this policy becomes entrenched in the laws of the land and does not fade away after the tenure of the present administration,” he added.

The projections for 2020 by the LCCI and the recommendations are in consonance with what other stakeholders have also made, it is now left to the government to study these recommendations and take necessary policy measures to improve the nation’s economy and tackle the prevailing hardship in the country.