Nigerians marked the New Year with great expectations. They want improvement in all sectors of the economy. Such optimism that things will turn out fine will be reflected in the management of the economy. Despite the optimism, emerging key macroeconomic indicators for 2020 suggest that the economic outlook might not be so good.
This may not be the best start since the country came out of recession three years ago, but it may not be the worst case economic scenario as some critics of the government might have projected. However, the economy might not have a steady growth path if the government fails to initiate aggressive fiscal and monetary policies. On the bright side indicator of the economic outlook for the year is the relatively stable global oil prices and local production level.
At present, oil price in the international market is above US$60 per barrel, $3 above government’s projected budget benchmark. Compared to the same period within the past four years, this is the best start for the economy since 2015 if sustained for the rest of the year. Also, the level of oil production is at a four-year high at the beginning of the New Year at two million barrels per day daily.
Non-oil revenue is also improving the prospects of the economy to remain on course depending on steps government will take to generate more revenue. Besides, the stock market ended 2019 with an impressive N362billion gain as at the last three trading days. The positive performances came on the heels of a hefty loss of N492billion in the fourth quarter of 2019. The market capitalisation of equities listed in the Nigerian Stock Exchange (NSE) increased by 87 basis points in the last trading for 2019.
However, the economy is still vulnerable to both domestic and external shocks, as inflation, unemployment, national debt stock, debt servicing, poor revenue generation, power supply challenges, are deepening. The country’s quest to overcome growth and development challenges may remain uncertain. This is because the Federal Government has continued to prioritise huge consumption above capital investment, as CBN statistics have revealed. For instance, the Federal Government reportedly spent 95.9 per cent of its resources on statutory transfers (7.2 %) and recurrent expenditure (88.7 %), leaving a paltry 4.1 per cent for capital projects.
According to the CBN Economic Report released in November 2019, government’s projections sustained its pattern of shortfall by N218.5billion. At N322.62billion, the estimated government’s retained revenue for the month of November was below the monthly budget of N705.44billion by 54.3 per cent. Also, at N858.92billion, the estimated federally collected gross revenue fell below the monthly budget estimate of N1.24trilion and the preceding month’s receipt of N894.09billion by 31.1 per cent and 3.9 per cent, respectively. The shortfall, relative to the monthly budget estimate, was attributed to reduction in both oil and non-oil revenues. Also, the economy has not been growing as projected. As statistics from the last quarter of 2019 indicated, the fundamentals of the economy were not as strong as government had wished. The economy did not grow beyond two per cent. At the end of 2019, Nigeria’s GDP had dropped by 0.16 per cent to two per cent. No doubt, the country may face tougher financial crisis if government fails to initiate aggressive fiscal and monetary policies that will stimulate growth and stem inflation, unemployment and poverty. Government’s promise to lift 100 million Nigerians out of poverty in 10 years beginning from this year may be a mirage if the challenges facing the critical sectors of the economy are not drastically addressed.
We still believe that power, manufacturing and transportation sectors are vital to economic growth. Despite huge investment in the power sector, Nigerians do not have adequate power supply. A tottering GDP is an indication that the economy may experience turbulence if steps are not taken to retool it.
Therefore, the economy should not be allowed to experience another recession in 2020. Economic experts project high cost of Doing Business this year due to poor infrastructure, multiplicity of taxes, excessive regulations, insecurity and others. Though Nigeria improved significantly in the Ease of Doing Business Index last year, the concern remains that the performance of trade sector in 2020 will be shaped by the direction of government’s policies.
The CBN should boost lending to the real sector through financial intermediation and inclusiveness. While we welcome the ban on certain goods that can be produced locally, government should review the land border closure and deepen the diversification of the economy through the agricultural sector that is already yielding results. Since agriculture is key to economic growth, government should hasten the plan to establish 680 agricultural centres across the country.