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Economy Returned to Positive Growth in 2017 But the Non-Oil Sector Performance Remains Weak

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Thursday, January 04, 2018 11:43AM / PwC

Economic Context
 

Five global themes to consider in 2018  

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Nigeria is the largest economy in Africa. However, growth has fallen sharply since 2010, with the economy falling into recession in 2016 due to an oil-induced crisis  

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With a quickly-expanding population, technology adoption and rising investment, by 2050 the nation is expected to become the first African nation to become a top 15 global economy  

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A third of the economy is based on primary industries of agriculture, mining and quarrying (which includes the large oil sector)

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Nigeria’s economy has returned to positive growth in 2017, but the non-oil sector performance remains weak 

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Fiscal Accounts 
Key assumptions of the 2018 budget  

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2018 budget revenue proposals – Where the money is coming from?  

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2018 budget expenditure proposals – Where the money going to?  

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Capital expenditure in the proposed 2017 budget  

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The oil sector remains the main source of export earnings and government revenues though its contribution to GDP has declined  

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However, the low oil price has placed significant pressure on the currency and government earnings  

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Oil prices are not the only concern – production failures, spillages and high bunkering and theft rates affected volumes. However, volumes have increased recently due to lower incidence of attacks on facilities.  

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The tax base is much lower than other economies at a similar level of development. It is also poorly diversified; half of government revenue is dependent on oil.  

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The government also has a limited ability to increase revenues through taxes on oil companies  

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Overall, only a limited portion of the oil revenues may filter through to support the real economy  

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The biggest portion of federal government expenditure is the public sector payroll, accounting for 1.8% of overall GDP – equivalent to the total size of the livestock industry. There is limited scope to reduce government expenditure without cutting employment or wage levels.  

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Large levels of public expenditure have opened up a fiscal deficit over the last few years. The deficit is projected to remain elevated due to weak revenue accretion  

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Despite this, outstanding government debt is low compared to countries within the region and those at similar levels of development  

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Of the NGN20.3trillion of outstanding public debt, the majority is denominated in domestic currency. However, the share of external debt is expected to increase, supported by the government’s refinancing plan.  

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Nigeria’s economic recovery: Defining the evolution of economic growth  

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Lower oil prices, disruptions to crude oil production, and an unstable FX regime are the major near term risks. 

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