Nige­ria’s re­silience against global risks

Business a.m. - - FRONT PAGE - LUKMAN OTUNUGA

THERE WAS A COL­LEC­TIVE SIGH of re­lief across the Nige­rian econ­omy in Novem­ber af­ter of­fi­cial re­ports con­firmed that eco­nomic growth ac­cel­er­ated to 2.3% dur­ing the third quar­ter of 2019. Given how this rate of growth rep­re­sents the sec­ond-high­est quar­terly rate wit­nessed since 2016, Nige­ria is cer­tainly dis­play­ing a mea­sure...

THERE WAS A COL­LEC­TIVE SIGH of re­lief across the Nige­rian econ­omy in Novem­ber af­ter of­fi­cial re­ports con­firmed that eco­nomic growth ac­cel­er­ated to 2.3% dur­ing the third quar­ter of 2019. Given how this rate of growth rep­re­sents the sec­ond-high­est quar­terly rate wit­nessed since 2016, Nige­ria is cer­tainly dis­play­ing a mea­sure of re­silience against do­mes­tic and ex­ter­nal head­winds.

Look­ing deeper into the GDP re­port, growth was mainly driven by strength­en­ing mo­men­tum in the non-oil sec­tor of the econ­omy which high­lighted Nige­ria’s mis­sion to di­ver­sify away from oil re­liance. The non-oil sec­tor of the econ­omy ex­panded 1.85% an­nu­ally com­pared to the 1.6% wit­nessed dur­ing the sec­ond half of 2019. How­ever, growth in the oil sec­tor also played a role, grow­ing 6.5% over the same pe­riod last year.

Nige­ria recorded an in­crease in its oil pro­duc­tion to 2.04 mil­lion bar­rels a day in Q3 which was above the OPEC limit of 1.774 mil­lion bar­rels a day. If the na­tion is forced to com­ply with the quota dur­ing the fi­nal quar­ter of 2019 and early parts of 2020, this could hit eco­nomic growth. Although the govern­ment re­mains on a quest to di­ver­sify its rev­enue sources, crude oil still ac­counts for 90% of ex­port earn­ings and over 70% of govern­ment rev­enues.

While eco­nomic ac­tiv­ity is pro­jected to shift into higher gear in 2020 as the new min­i­mum wage hike stim­u­lates con­sump­tion which ac­counts for 80% of GDP, the na­tion still re­mains ex­posed to height­ened global risks.

Given how the pro­jected eco­nomic growth of 2.3% is be­low the 2.6% pop­u­la­tion growth, the GDP per capita risks de­clin­ing fur­ther.

US-China trade de­velop

ments will most cer­tainly im­pact Nige­ria’s econ­omy in the medium to longer term. While trade ten­sions con­tinue to weigh on emerg­ing mar­kets, de­vel­op­ing economies that have close trade ties with China re­main in the direct fir­ing line. With to­tal trade be­tween China and Nige­ria over $10 bil­lion in 2018, and av­er­ag­ing $3 bil­lion dur­ing the first and sec­ond quar­ter of 2019, trade de­vel­op­ments are poised to im­pact Nige­ria’s out­look.

Ris­ing in­fla­tion­ary pres­sures and ac­cel­er­at­ing eco­nomic growth in Q3 have pre­vented the Cen­tral Bank of Nige­ria from cut­ting in­ter­est rates from 13.5%. How­ever, if eco­nomic con­di­tions de­te­ri­o­rate and in­fla­tion­ary pres­sures mod­er­ate, the cen­tral bank could still pull the trig­ger on lower rates in 2020. Key themes seen in­flu­enc­ing the Nige­rian econ­omy for the rest of 2019 will re­volve around the pass­ing of the 2020 bud­get in De­cem­ber, US-China trade de­vel­op­ments, the Dol­lar’s val­u­a­tion and most im­por­tantly, oil prices.

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