Oil, agriculture rule Nigeria’s economy in 2018

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By Sopuruchi Onwuka

Cumulative revenue and non revenue economic benefits from Petroleum industry operations and agriculture for the basis for performance of the Nigerian economy in 2018, according to report released weekend by the African Development Bank (AfDB).

The bank which plans to mobilise annual $130-$170 billion infrastructure development fund by last quarter of the year also points at the need to accelerate Africa’s industrial development and crash poverty rates across countries in the continent.

President of the bank, Nigeria’s AkinwumiAdesina, stated at events marking the first report on Africa’s economic outlook that programmes need to be evolved by governments of the continent to create jobs, reduce poverty and promote inclusive economic growth.

The report which was released weekend recognized that the nation’s economy has continued to show signs of recovery from the 2016 recession with gross domestic product (GDP) estimated at 0.8% in 2017, up from –1.5% in 2016.

AfDB said Nigeria’s GDP outlook from this year, anchored in higher oil prices and production, as well as stronger agricultural performance, is positive, with growth projected at 2.1% in 2018 and 2.5% in 2019.

In analysing economic indices that underpin projections for the Nigerian economy, the bank pointed at trends in the movement of commodity prices with a note that Brent crude oil prices rebounded to an average of $52 per barrel in 2017 and are projected to reach $54 in 2018, up from $43 per barrel in 2016.

The Oracle Today reports that crude oil prices actually touched a region above $70 per barrel in January 2018 following glut burst by key world producers that collaborate on balancing of market forces.

AfDB also noted that Nigeria’s oil production increased from 1.45 million barrels per day (mbd) in the first quarter of 2017 to 2.03 mbd in the third quarter of 2017 following de-escalation of hostilities in the delta region. The bank’s analysts noted that output levels are expected to remain at the same level in 2018 and 2019, following restrictions by the Organization of the Petroleum Exporting Countries (OPEC).

Macroeconomic indicators, according to the bank, pointed at expansionary fiscal policy across 2016 and 2017, even though total spending as a percentage of GDP declined from 13% in 2014 to 10.3% in 2017. The bank noted that revenues declined more sharply, from 11.4% to 5.6%.

The bank which presented economic outlook for countries of the continent projected that Nigeria’s budget deficit would continue to maintain a declining trend from 4.8% in 2017 to 4.3% in 2018 and 4.1% in 2019 as revenue performance improves.

At 14%, unemployment remained high in 2017, the same as in 2016, and is expected to decline only slightly in 2018, to 13.5%, as recovery eases production constraints in manufacturing and agriculture.

Monetary policy rate which has been kept at 14% since July 2016 to support the naira and control inflation, according to AfDB, “will continued to be contractionary in 2017 and is expected to remain so in 2018;” while inflation is projected to ease to 13.7% in 2018 and 12% in 2019 after remaining stubbornly high in the double digits from 15.6% in 2016 to an estimated 16.2% in 2017.

The bank stated that administrative measures introduced by Central Bank of Nigeria since early 2017 including trading window for portfolio investors at market-determined rates and the introduction of the Nigerian Autonomous Foreign Exchange Rate Fixing, which allowed commercial banks to quote forex rates that are close to parallel market rates, improved foreign currency liquidity in the economy.

It added that the Naira remained stable for most of 2017 and is expected to strengthen slightly as the economy continues to recover.

AfDB said the recovery in oil prices and production volumes are expected to help drive growth and provide fiscal space as the government pursues important structural reforms to diversify the economy.

It added that faithful implementation of the Economic Recovery and Growth Plan (2017–20) holds the promise of weaning the country off its dependence on oil. The plan focuses on six priority sectors: agriculture; manufacturing; solid minerals, including iron, gold, and coal; services, including information and communication technology, financial services, tourism, and creative industries; construction and real estate; and oil and gas.
On the headwinds confronting the economy, AfDB stated that Nigeria still faced significant challenges, including foreign exchange shortages, disruptions in fuel supply, power shortages, and insecurity in some parts of the country.

It added that revenue mobilization efforts are insufficient; at 5%, value added tax rates are among the lowest in the world, and revenue administration is inefficient.

“Poverty is unacceptably high; nearly 80% of Nigeria’s 190 million people live on less than $2 a day.”
In the 2018 outlook, AfDB strongly canvassed for Africa’s industrialization through development and growth of critical economic infrastructure that would provide the crucial foundation for vibrancy in the industrial sector.

Meanwhile yhe bank plans an investment forum in last quarter of the year to mobilise funds for infrastructure development and bridge an estimated funding gap of $130-$170 billion a year.

Mr. AkinwumiAdesina a compelling case for accelerating Africa’s industrialization in order to create jobs, reduce poverty and promote inclusive economic growth.

Citing data from the Bank’s 2018 African Economic Outlook launched in Abidjan, Côte d’Ivoire, he said infrastructure development remains critical sustainable economic growth.

He urged African governments to encourage a shift toward labour-intensive industries as a means of generating employment, especially in rural areas where 70 percent of the continent’s population resides.

“Agriculture must be at the forefront of Africa’s industrialization,” he said, adding that integrated power and adequate transport infrastructure would facilitate economic integration, support agricultural value chain development and economies of scale which drive industrialization.

He pointed out that economic diversification through industrialization with tangible investment in human capital will enable the continent’s rapidly growing youth population to successfully transition to productive technology-based sectors.

citing data from the outlook, Mr. Adesina also restated that increasing the share of manufacturing in GDP in Africa and other Less Developing Countries could boost investment in the G20 by about US $485 billion and household consumption by about US $1.4 trillion through win-win situation between Africa and the developed world.

In his remarks, the Bank’s Chief Economist and Vice-President for Economic Governance and Knowledge Management, CélestinMonga, said the African Economic Outlook has become the flagship report for the African Development Bank, providing data and reference material on Africa’s development that are of interest to researchers, investors, civil society organizations, development partners and the media.

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