Performance of The Nigerian Economy in 2018 - Implications


Monday, February 18 2019  02:46 PM / FSDH Research

Ahead of the Presidential election, the National Bureau of Statistics (NBS) released its final judgment on the performance of the Nigerian economy in 2018. The report containing the judgment shows that the Nigerian economy has continued to recover. The economy expanded by 1.93% in Full Year (FY) 2018, higher than 0.82% recorded in 2017. Great performance, right? Before you start your jubilation, hear this: the Nigerian economy is growing slower than the growth rate in its population, an indication of growing poverty! This means that the economy is not expanding in such a way that can create enough job opportunities for the unemployed population, which the NBS put at 21million as at Q3 2018(our report on how to create jobs in Nigeria to reduce the number of unemployed people is available on our website). Although that is the sad reality, there is a way out. Nigeria can grow at above 6% if appropriate policies and the will power to implement the policies are in place.

If you are searching sectors of the economy to start a business or to lend money to, you should be looking at the fastest growing or largest sectors of the economy. These are also the sectors where policymakers can easily achieve tangible results to show the impacts of their policies on the economy. Therefore, such sectors usually command government's attention and 'protection'. The most influential sectors that drove performance in FY 2018 are: Information and Communication; Agriculture; Manufacturing, Transportation and Storage, and Mining and Quarrying sectors. The five fastest growing sectors on average between Q1 2017 – Q4 2018 are Electricity, Gas, Steam, and Air Conditioning Supply; Transportation and Storage; Water Supply, Sewage, Waste Management and Remediation; Information and Communication and Mining and Quarrying.

The fragile recovery in the economy means that additional policies which would fast-track economic activities in the country are urgently required. This means it will be a hard sell for the Central Bank of Nigeria (CBN) to increase key interest rates in the country. Increase in the key interest rates like Monetary Policy Rate (MPR), Cash Reserve Requirement (CRR) and Liquidity Rate (LR) may not be in view in the short-term. Usually, an increase in the MPR, CRR and LR may help to reduce a high inflation rate and keep the foreign exchange rate stable. However, such actions have the tendency to reduce economic growth, effectively 'to rob Peter to pay Paul'.

The growing recovery in the economy, if sustained, will reduce the business risks inherent in the country, which usually scare away investors. No-one wants to set up a business in an economy that is in recession. After a free and fair election in Nigeria and tangible efforts to improve the infrastructure in the economy, we expect Nigeria to attract more domestic and foreign investment in the non-oil sector. This would stimulate lending activities, which would pull the finance and insurance sector out of economic recession.

Nigeria is in 'marriage' with the Organization of the Petroleum Exporting Countries (OPEC), and therefore Nigeria cannot pump any amount of crude oil that it desires outside the dictates of OPEC. In addition, Nigeria has no control over the price of crude oil. Therefore, the best Nigeria can do is to ensure that it maintains the current peace in the oil-producing regions in Nigeria so that it can continue to produce crude oil that meets its production quota. These developments may mean that the country's efforts to move the sector out of recession are limited. Nigeria should, however, continue to encourage the establishment of business in Nigeria that will promote the growth of solid mineral development. This, in turn, will stimulate activities in the Mining and Quarrying sector of the economy.

Urgent intervention in the education and real estate sectors are required. These are labour-intensive sectors that can generate jobs for both skilled and unskilled labour. The expansion in these sectors can also promote economic activities in other sectors of the economy and help to generate jobs while growing the economy.

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