STATE OF THE NIGERIAN ECONOMY By Dr Suleyman Abdu Ndanusa (OON) 1 13 th June 2016
Outline Introduction Snapshot of selected economic statistics Baseline statistics {Economy as at May, 2015} The Nigerian economy {May 2015 April 2016} Comparative analysis of statistics {2014-2016 (Q1)} Other Macroeconomic Conditions Recommendations 2
Introduction Nigeria s economy enjoyed a blissful growth in the past decade With average growth of 5.9% between 2006 2015 But growth in 2015 (Q4) declined to 2.11% And -0.36% in 2016 (Q1) Economy is now stifled and drained of funds 3
Baseline statistics {Economy as at May 2015} The economy was jeopardized with.. Rising insecurity Corruption Wastage of public resources Falling price of crude oil 4
Baseline statistics continues.. CPI index as at May 2015 was 8.3% An unemployment rate of 8.2% by 2015 (Q2) GDP growth of 2.35 as at 2015 (Q2) Ratio of fiscal debt to GDP for the year was 1.09% An external reserves worth $31bn Total debt stock of N12.06tn by 2015 (Q1) 5
Nigerian Economy Snapshot 2014 2016 Q1 Source: NBS, Budget Office, DMO, and World Bank 2014 2015 2016 Q1 GDP N89.04trn ($568.5bn) N95.18trn ($477.45bn) N22.3trn ($111.86bn) Real GDP Growth % 6.22 2.79-0.36 Debt Stock Profile N11.243trn ($67.73bn) N12.60trn ($65.42bn) Debt to GDP ratio 12.10% 13.02% 14%e Debt Servicing N712bn N953.6bn N1.362trn (e) Oil Production 2.21mbpd 2.2mbpd 1.677mbpd Ave. Crude Oil Price $100.40 USD $52.65 USD $49.64 Exchange Rate YTD N168 to $1 USD N197 to $1 USD N197 to $1 USD Inflation rate 8.00% 9.60% 13.72% Unemployment Rate 7.80% 9.90% 10.40% FDI Inflow $4.7bn or N789.6bn $3.4bn or N669.8bn $710.97m or N140.07bn Appropriation N4.69trn N4.493trn N6.08trn Crude Oil Benchmark 2.388mbpd 2.28mbpd 2.20mbpd Oil Price benchmark $77.5 USD $53 USD $38USD Exchange Rate Benchmark N160 N190 N197 Fiscal Deficit N911.96bn N1.041trn N2.22trn 6 Fiscal Deficit as % of GDP 1.90% 1.09% 2.14% Share of Capital as % of total expenditure 27.29% 12.40% 30.40%
Snapshot of the economy (2014-2015) Following an April, 2014 statistical rebasing Nigeria emerged as Africa s largest economy And 24 th largest in the world Value of GDP as at 2013 was $264.9bn But rose to $568.5bn in 2014 7
... Nigeria s GDP in Billions Source: NBS, World Bank Data 2014-2016 600 500 400 300 200 100 0 2014 2015 2016Q1 Trn NGN 89.04 95.18 22.18 Bn USD 568.5 477.45 111.86 8
...sectoral contribution to GDP in % source: NBS Data 2015-2016 9
... Year on Year Comparison (%) source: NBS Data, 2016 20 15 10 5 0 10-5 Agric Mining & Quarry ing Manufa cturing Electric ity, Gas & Steam Constr uction Info & Comm Finance & Insuran ce Other Service s 2015Q1 17.77 6.74 10.17 0.54 4.18 11.93 3.97 4.26 2016Q1 19.17 4.14 9.33 0.37 3.99 12.25 3.71 4.84 Net 1.4-2.6-0.84-0.17-0.19 0.32-0.26 0.58
...Real GDP Growth 2014 2016Q1 source: NBS Data 2014-2016 Real GDP growth 6.22 2.79-0.36 2014 2015 2016Q1 11
...Real GDP growth in 2014 was 6.22% But growth in 2015 dropped to 2.79% Decline was mainly as a result of fall in oil revenues Oil benchmark in 2015 budget was $65 per barrel But reviewed to $53 per barrel (same year) With average oil production of 2.28mbpd 12
Transportation & Water supply, sewage Art, ent. & Recreation Information & Comm Education Agriculture Trade Human Health & Admin & support Prof. sci. & Tech Mining & Quarrying Public Admin. Real Estate Construction Manufacturing Accom. & Food Financial & Insurance Electricity, Gas, steam quarterly growth by sector Q1 2016 (source: NBS Data, 2016) 20 growth % 10 0-10 -20 growth % -30-40 -50 13
...Sub-Sahara Africa Real GDP Growth (Source: IMF Data 2016) 14
...real GDP growth (source: IMF Data, 2016) 15
...oil exporting countries are continually recording decline in growth (Source: IMF data, 2016) 16
...oil exporting countries are continually recording decline in growth Sub-Saharan African (SSA) Fragile countries include South Sudan, Somalia, Central African Rep., Chad, DRC. ETC. SSA Low Income Countries; Benin, Burundi, Niger, Guinea, Ethiopia etc. SSA Middle income nations, South Africa, Ghana, Zambia, Senegal, Egypt etc. SSA Oil producers: Nigeria, Angola, Equatorial Guinea, Gabon, Congo Brazzaville etc 17
...Like Nigeria, other top African economies are struggling South Africa is set to grow by just 0.6% in 2016 Africa s second largest oil producer (Angola) is distressed Unable to meet its budget and debt obligations Kenya holds a more diversified economy but Also has a troubled banking sector Record of two failed banks in 2015 A third bank ailing by 2016 (Q1) 18
Nigerian economy (May 2015 till date) Good progress has been made in several areas: Fight against corruption Degrading of boko haram Greater accountability and transparency 19
...the Nigerian economy (May 2015 till date) Reduction in wastages The Treasury Single Account system (housing about N2.2Trn as at March 2016.) Subsidy removal in 2016 (N1trn paid in 2015) Capital Expenditure up by 18% 20
capital exp to total expenditure reached 16-year high (Budget Office 2016) 35 30 25 20 15 10 5 27.29 Capital Exp to Total Budget % 30.4 Capital Exp to Total Budget 12.4 0 2014 2015 2016 21
But how about economic indicators.. Real GDP slipped from 2.35% in 2015 (Q2) to 2.11% in Q4 of the same year Output contracted in 2016 (Q1) to (- 0.36) CPI skipped from 8.3% in May 2015 to 12.77% in 2016 (Q1) The inflation rate rose to 13.7% in April, 2016 22
But how about economic indicators.. Total debt rose from $63.5bn in March 2015 to $65.4 in December 2016 Domestic Borrowing of N984bn or $4.995bn 2016 External borrowing of N900bn or $4.57bn Bringing Debt to GDP ratio at14%. 23
Other likely reasons for the slow growth Delay in; the passage of the 2016 budget, cabinet formation and appointment of DGs and Heads of Parastatals Inadequate power and high tariffs Scarcity of forex and the depreciating Naira Scarcity of premium motor spirit Volatility in global oil prices 24
...Other Macroeconomic Conditions Monetary Policy: The FGN as at May 2016 Maintained MPR at 12% which was earlier increased from 11% in March 2016. CRR was also increased from 20% to 22.5% in March 2016. Liquidity Ratio is maintained at 30%. Monetary Policy Committee recommended the adoption of flexible exchange market. Implementation still remains uncertain due to FGN resolve not to devalue the naira 25
Monetary policy continues... By May 31, 2016 external reserve had fallen to $26.6bn USD down from $27.87bn USD recorded in March 2016. The FGN has fully implemented the Treasury Single Account (TSA) system to curb leakages in the economy FGN maintains its stance against naira devaluation. Although huge gap exist between the parallel market and official rates. The parallel market rate currently is btw N350 and N385 to $1 USD 26
...naira exchange rate to $1 USD (source: CBN) 200 168 197 150 31/12/2014 31/12/2015 197 31/3/2016 Exchange rate 27
...the fiscal policy adopted is expansionary and it is hopeful impact FGN expenditure increased by 35.3% with appropriation bill of N6.077trn. Statutory transfers (e.g. feeding 1m school pupils, N5000 cash transfer) in place of about N351.4bn Strategies in place to expand tax base. Tax capacity is still too low to enhance vibrant economy. 28
...inflation rate (%) (source: NBS Data) Inflation is worsening due mainly to negative external effects and domestic hike in prices of power and PMS 13.72 8 9.6 2014 2015 2016Q1 29
...unemployment rate (%) source: NBS Data Unemployment rate is rising with increasing inflation 7.8 9.9 12.1 2014 2015 Q1 2016 30
...Unemployment also increased Unemployment rate jacked up from 8.2% in 2015 (Q2) to 10.4% (Q4) And to 12.1% in 2016 (Q1) Youth unemployment stands at 16.4% in 2016 (Q1) 31
...Crude Oil Production (Quarterly output) source: NBS Data 32
...oil production projected at 2.20mbpd in 2016 But the activities of oil vandals in the Niger Delta region has drastically slowed down production to 1.66mbpd. 33
...crude oil production 2014-2016Q1 mbpd source: NBS Data Oil Production 2.21 2.2 1.66 2014 2015 2016Q1 34
...Ave. crude oil price ($) per barrel source: NBS Data 120 100 100.4 80 60 40 52.65 49.64 20 0 2014 2014 2015 2015 2016 2016 2017 Ave. Crude oil price($) 35
...FDI Inflow in billions (CBN, NBS data) FDI inflow in Billions NGN USD 789.6 669.8 140.1 4.7 3.4 0.711 2014 2015 2016Q1 36
...foreign portfolio investment flows Source: NSE 2016 37
...foreign portfolio investment flows Net flows recording negative increase due to unfavourable business investment clime in the economy 38
...fiscal deficit is also on the increase source: budget office 2.5 2 Fiscal Deficit (NTrn) 2.22 1.5 1 0.912 1.04 Fiscal Deficit (NTrn) 0.5 0 2014 2015 2016 39
...fiscal deficit to GDP (%) Source: Budget office 4 2 1.9 0 31/12./2014 1.09 31/12/2015 2.14 31/12/2016 Fiscal Deficit to GDP 40
...thereby increasing our Debt to GDP (%) source: budget office 14 14 13.5 13 13.02 12.5 12.1 12 11.5 11 2014 2015 2016 Debt/GDP 41
...our FX reserve is also fast depleting As at march 31, 2016 Nigeria s foreign reserve stood at $27.87bn USD down from $29.6bn USD recorded in May 2015. 42
...Macro-Financial Position Banking Sector Corporate lending is declining Sovereign lending rising Credit risk on the increase due to unfavourable business environment. FX availability declining Credit access declining 43
...Macro-Financial Position Oil Sector Oil Price declined although gradual recovery is recorded. How sustainable? Production is declining Foreign exchange earning on the decline 44
...Macro-Financial Position Corporate Sector: Sales declining Profit margins declining Investments also recording headwinds Debt risks on the increase 45
...Macro-Financial Position Household Sector: Consumption expenditure on the decline Purchasing power worsening. Health, education and shelter costs are on the increase. 46
...Macro-Financial Position Government Sector: Diminished oil revenue. Declined capital investments. Rising fiscal deficit Increased wages and payment arrears. 47
...Hopes, still uncertain How soon can we achieve a turn around and avert the looming recession? Are we not already in one? 48
...even though the war against corruption is commendable And a strong resolve to curb insecurity But there is need to extend similar commitment to the economy Sabotage on oil infrastructure is reducing crude output As well as benefits from recent global oil price recovery 49
...The economy is confronted with Militant insurgency Unstable power supply Global decline in oil price Weakening currency Rising unemployment FX restrictions also hamper business activities 50
...needed policy actions Diversify the economy to promote exports and grow jobs Increase capital investment in the economy through the fiscal budgetary process to drive growth. Urgently present a modality for operating the new flexible exchange rate structure. Stop protecting the Naira to the detriment of the economy! 51
...more actions Monetary policy should target inflation, liquidity and growth objectives Drastically promote import substitution to reduce devaluation pressures on the naira Increase capital investment in the economy to drive growth Promote agricultural policies to drive selfreliance and reduce imports 52
...more actions FGN should aim to better prioritize development spending, to effect development goals e.g. targeting infrastructure We need a war room for the pursuit of economic recovery There seems not to be a sense of urgency in our economic management. 53
THE END THANK YOU FOR YOUR TIME 54