CBN's January 2021 Economic Report: Bridging the Growth Gap


Thursday, May 13, 2021 /2:o5 PM/by Adesola Borokinni, Proshare Research, Header Image Credit: BCG

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Nigeria's economy has been bruised, battered and bashed. The coronavirus (COVID-19) pandemic split the economy in two unequal halves of winners and losers with losers being in the overwhelming majority.


Rebounding modestly from a deep growth plunge of -6.1% in Q2 2020 and 3.63% in Q3 2020, the economy did a hard break turn in Q4 2020, rising by +0.11%. The outlook for 2021 suggest that the growth would continue with full year expansion settling at between +1.8% (by the most recent Fitch Report estimate) and +2.5% (by a recent international monetary fund (IMF) commentary on the country). 


A Central Bank of Nigeria ( CBN) report for January 2021 showed how the country's economy fared in the first month of the year. The macroeconomic data gave insights into Nigeria's rolling economic realities. Some of the major insights of the report included, but was not limited to, the following:

According to the report, a total of US$0.38bn new capital was imported into the economy in January 2021, compared with US$0.55bn in December 2020. The disaggregation of capital importation by type of investment showed that inflow of other investments (OI) accounted for the largest share at US$0.29bn, and represented 75.5% of the total, followed by foreign direct investment (FDI) inflow of US$0.06bn, which accounted for 16.4%. Foreign portfolio investment (FPI) inflow, at US$0.01bn, constituted 8.1% of the total.

Federally collected revenue as of January 2021 stood at N807.54bn which was 4.6% below the provisional budget benchmark and 12.8% percent lower than the collection in the corresponding period of 2020. Oil and non-oil revenue constituted 45.4% and 54.6% of the total collection, respectively (see Chart 1).

Chart 1: Nigeria's Federally Collected Revenue

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Source: CBN, Proshare Reserve

Nigeria's trade deficit as of January 2021 stood at US$2.51bn, representing a decline from US$1.69bn in December 2020. Aggregate foreign trade as of January 2021 stood at US$8.14bn, a M-o-M increase of +3.2%, from US$7.89bn recorded in December 2020 and a decline of -27.5% when compared to the corresponding period of 2020. Aggregate exports declined by -9.2% to US$2.81bn in January 2021, compared with US$3.1bn in December 2020, due, largely, to a decline in crude oil and gas export receipts. On the other hand, merchandise imports increased to US$5.33bn in January 2021, from US$4.79bn in December 2020, as domestic demand improved (see Chart 2).

Chart 2: Nigeria's Trade Data

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Source: CBN, Proshare Reserve

External reserves stood at US$35.44bn as of end-January 2021, a decline of -2.8% and -3.5% from US$36.46bn in December 2020 and US$36.73bn in January 2020. The data also revealed that Nigeria's reserves per capita declined to US $171.88, compared with US$176.89 at the end-December 2020.  It should be noted that data as of April 30th, 2021, reveals that Nigeria's external reserve stood at $34.9bn.

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Growing Deep Roots

According to the CBN's early year 2021 report, Nigeria's trade deficit widened, external reserves declined, and federally collected revenues collapsed. These set of negative macroeconomic data were outcomes of some of the fundamental challenges faced by the economy in 2020 such as infrastructural deficit, corruption, insecurity, high levels of inflation, and the lack of political will take hard decisions and needed action.


It has been projected by multilateral agencies that there will be a recovery in the global economy in 2021 on the back of the re-opening of major economies, increased vaccination, recovery in factory activities, retail sales, etc. It is expected that the recovery in the global economy will result in increased global liquidity in search of investment opportunities. A few analysts expressed doubt about the Nigerian economy as an investment harbor with high domestic inflation, raging social insecurity, poor infrastructure, and so on. Therefore, although there might be an increase in capital importation in the months ahead, the rise might be insufficient to trigger meaningful change in domestic economic growth. Although the Nigerian Investment Promotion Commission (NIPC) reported an increase of $8.41bn in new investments in the Q1 2021, most analysts fear that the spike in insecurity and security warnings by countries like Canada, America, and Australia might make this investment announcement a dodgy sound bite.


Former United States Of America President, Barack Obama "21st-century businesses require 21st-century infrastructure, modern ports, stronger bridges, faster trains, and the fastest internets". To upgrade economic infrastructure to attract more capital importation, President Joe Biden announced a $2.3trn infrastructural plan. Although the Nigerian economy does not have adequate funds to implement such an ambitious infrastructural plan, the country can adapt the strategy that has been employed by Australia.


The Australian Stop Gap

 Australia implemented an incentive system model to finance its infrastructure. The government put up infrastructure in poor conditions for sale to private investors and used the money to invest in new infrastructure that is needed. The model portends two significant benefits which include: first, the existing infrastructure is upgraded and renovated while new infrastructure is being financed without necessarily resulting in large tax increases. The model also foresees that new infrastructure financed by the government could be sold to private investors through the same system, therefore, creating a system in place to always generate money for the government.


It should be noted that there are plans by the Nigerian government to fashion out an infrastructural plan somewhat like the Australian incentive model i.e., the Highway Development Management Initiative, a scheme by the Federal Government to concession roads. The HDMI is an effort of the FG to mobilize private capacity, resources, and entrepreneurship into the Nigerian highway sector; and convert roads from just social assets into assets of commercial opportunities. Also, in May of 2021, President Muhammadu Buhari approved the establishment of a Public-Private Partnership styled infrastructure company named Infra-Co with an initial seed capital of N1trn expected to grow to N15trn in assets and capital over time. It is expected that Infra-Co will be able to attract private sector participation in the nation's quest to bridge its infrastructure deficit necessary for the growth across all sectors of the economy.


Frontier markets (FMs) economists have commended this initiative but note that Nigeria's infrastructural deficit is far higher than the amount needed to resolve the challenge in the short to medium-term, the Executive Secretary, Federal Capital Development Authority (FCDA), noted that Nigeria needs the sum of $3trn in the next 30 years to solve its infrastructure deficit and engender development. Also, Infra-Corp a private sector-driven initiative, that the project that would be attractive to it would be an infrastructure project that would be bankable as the economics of the project would justify capital commitments on purely economic considerations. According to the Infrastructure Concession Regulatory Commission (ICRC), Nigeria has about 195,000km road network out of which a proportion of about 32,000km are federal roads while 31,000km are state roads, the question being raised is what proportion is bankable for Infra-Corp to embark upon.


According to Muda Yusuf, Director-General, the Lagos Chamber of Commerce and Industries (LCCI) "The private sector can only do so much, and they can only focus on bankable projects. There are many infrastructural projects that people deserve to have but if you work out the economics of it, they cannot attract private capital. Therefore, the government must fill this gap. There must be a private sector infrastructural fund in addition to the Infra-Corp initiative. We need to have a pool of funds to support infrastructure, as it is not sustainable to support infrastructure through the annual budget e.g., road bill. Some of these reforms might be painful but there must be political will to implement them as annual budget alone, and private sector contributions are not sufficient on their own to reduce the infrastructural deficit".


A critical component of the value chain would be the ports. Unfortunately, despite several policies, action plans e.g., the e-call up system to ensure that trade and economic activities at the Nigerian ports operate at an optimal level, major Nigerian ports e.g., Apapa and Tin Can ports still operate below par due to high levels of corruption, poor coordination amongst agencies at the ports, poor facilities, etc. It is projected that the persistence of this challenge will fuel the cost component of companies' dependent on imported inputs thereby fuelling a rise in inflation, decline in their competitiveness, and a decline in their productivity.


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Turning the Tides

Several attempts have been to diversify Nigeria's foreign earnings away from oil but most of the efforts have fallen flat on their faces. The problems pivot around weak external reserves, high domestic fiscal spending on recurrent budget items, high levels of domestic unemployment, high rates of domestic inflation, high domestic interest rates, poor domestic value chain linkages, low manufacturing productivity, and rampant bureaucratic intrusion resulting in high domestic production costs.


Extractive rather than transactional bureaucracy has impeded the country from adopting cost-leadership templates in goods manufacturing and service delivery. This has cut the country's ability to increase African exports at the knees and weakened opportunities under the African Continental Free Trade Agreement (AfCFTA).


 Turning the tide of repressed economic potential would require a mindset shift by policy planners and ministries, departments and agencies (MDAs) responsible for stimulating growth.  The economy would not turn on a whim because hope in not a method. 

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