Dim Prospects for Nigeria’s Economic Growth, Recovery

Prospects for growth and recovery for Nigeria’s 2021 financial year are currently not appearing very positive.

The country’s economy is seriously under threat as key indices tend to exhibit volatility in economic performance.

After some two percent drop, the country’s gross domestic product (GDP) posted at $443 billion in the fiscal year 2020 amidst the outbreak of COVID-19 pandemic.

Nigeria’s GDP was however, projected to grow by 2.5% as the global economy recovers from the virus-induced shocks.

But, some economic analysts are pinpointing that some developments in the domestic economy have heightened concerns about recovery and growth projection, downside risk mentioned include slow vaccination rate in the country.

In the first quarter of this year, the country headline inflation rate maintained an uptrend, as the Central Bank of Nigeria (CBN) shies away from raising interest rate without to slowed down distortion in price level.

Misery index worsened as heighten inflationary trend matched joblessness following a high unemployment rate reported by the authority.

The country’s weak macroeconomic data is a downside to economic recovery and growth projection, analysts said as stakeholders await the release of first-quarter gross domestic products.

In a report, the FSDH group notes that despite the positive GDP growth in the fourth quarter of last year, inflows from foreign direct investment (FDI) and portfolio investment (FPI) remain low in the first quarter of 2021.

Adding, analysts say, ”this suggests low investors’ confidence amidst uncertainties relating to foreign exchange management and insecurity concerns.”

Interestingly, Nigeria still maintained its position as the largest economy in Africa as actual real GDP growth in 2020 was -1.9%, however, nominal GDP expanded by 5.6%.

Its GDP posted at $443 billion in 2020 followed closely by Egypt which recently displaced South Africa (GPD-$283 billion) as the second largest economy in Africa, recorded $362 billion GDP size.

Angola and Morocco were also noted to have GDP size valued at $147 billion and $112 billion respectively.

FSDH however, notes that Nigeria’s real GDP loss stood at N3.2 trillion in 2020, mainly due to COVID-19, as analysts expect real GDP growth for 2021 to be positive.

“For real output to return to pre-COVID-19 level of N71.4 trillion in 2019, the economy will have to expand by 2%.

”Key challenges of insecurity, stagnant crude oil production, foreign exchange scarcity and lower investment inflows are major risks to economic growth in 2021”, FSDH said.

Economic Threats

As the inflation rate zooms, the local currency, Naira, purchasing power has reduced given the fact that the apex bank has devalued its official exchange rate by more than 92% in the last five years.

Analysts said insecurity, logistics bottlenecks, high fuel cost are key factors that continue to affect general price level.

With the joblessness rate, Fitch Ratings also said in a report that weak consumers spending will weigh on growth, noting that high inflation will curb spending power.

The twin evil of unemployment and inflation continue to undermine policy authority performance as various policies put forward have somersaulted. Some pundits believe that anchored borrower programmes and border closure are failed policies attempts.

In the mean time, the Buhari administration has continued to be seeing value in local industry protectionism due to poor country’s competitive/comparative advantage.

”Comparatively, the largest economy in Africa appears to have no production advantage in anything – a core problem that needs authority attention”, an economist said at a forum at the wekend.

At the forum, some investment analysts explained that government land border policy was a total failure when considering how prices of food items have reacted. Saying, rather than real cost, inefficiencies have been priced into all goods and services from intermediation to final goods.

Though the International Monetary Policy, (IMF) projected that the Nigerian economy will grow 2.5% in 2021, things appear worst at the moment for individuals and corporates, the situation that Fitch Ratings anchored its weak consumer spending projection on.

”While the economy is projected to rise 2.5%, the Nigerian population is expected to grow at 2.6% on average, which would result in a decline in per capita income”, analysts said.

Though the Nigerian economy is well-diversified, still, the growth projection is anchored on oil price recovery rather than some sort of strategic policy development which this administration is lacking.

Speaking of food inflation, market prices have inched higher significantly following 19 consecutive months of price increment without commensurate adjustment to labour wages.

”The foreign exchange market continues to witness supply shortage of foreign currency to meet demand. Consequently, the gap between the various markets keeps expanding.

”Foreign exchange pressure will continue into the second quarter owing to limited inflows from both crude and non-oil sources, rising imports, and a backlog of foreign currency demand”, FSDH said in a report.

Inflation rate printed at 18.17% in March after 19 consecutive month-on-month jumps, driven by increased food prices across the nation.

Saddle with the responsibility to ensure price stability, the Nigerian monetary policy said at the policy committee meeting that supply chain shock is a key factor driving headline inflation rate.

Coming at the heels of the rising inflation rate is joblessness which has widened the misery index among Nigerians.

 

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