Nigeria’s President Muhammadu Buhari “is thought to be seriously ill and can be expected to withdraw from the day-to-day running of the economy over time. This is positive overall, as Vice President Yemi Osinbajo has more liberal instincts and may interfere less with the CBN.”
This is an extract from a report compiled by Oxford Economics and commissioned by the Institute of Chartered Accountants in England and Wales (ICAEW’s).
It comes after Nigeria’s president disappeared from public engagements which has sparked the rumors.
Titled “In Economic Insight: Africa Q1 2017”, the report provides a snapshot of Africa’s economic performance.
The report observes that Nigeria’s economy contracted by 1.5% in 2016. “The country faced a number of issues last year, most of which stemmed from the adverse effects of lower crude oil prices and Delta security threats which curtailed oil production. Also, despite a devaluation in June, the Central Bank of Nigeria (CBN) maintained a tight grip on the naira, restricting the flow of foreign currency to the private sector.
“While a rise in crude oil prices early in 2017 increased foreign exchange inflows, the CBN opted to boost its reserves rather than disbursing more dollars to the market. The lack of forex contributed to a wider gap between the official and parallel market exchange rates which stoked inflation, putting household spending under more severe pressure. Such signs prompted a downward revision in our growth forecast: we now predict GDP expanding by 1.5% in 2017.”
Aside from base effects, says the report, one of the key growth drivers this year will be a ramp up in fiscal spending. In its current form, the budget is designed to increase fiscal expenditure significantly to jump-start the economy. We expect more capital projects to get off the ground, which will support industries such as construction and manufacturing.
It notes that aynother key growth driver this year will be the expected increase in oil production. Delta security risks have eased since the government agreed to resume stipend payments to militants. Oil production looks set to trend gradually higher this year, which bodes well for downstream industries.
The management of the naira will also have implications for the economy this year. Forex liquidity has remained tight and hard currency is still difficult to get hold of through banking channels. As a consequence, the naira was changing hands at more than NGN500/$ on the black market early in February, against an official rate of NGN304/$ (it has since strengthened on the parallel market).
In response, the CBN stepped up efforts to clear forex backlogs. Recent developments have heightened the probability of a more liberal NGN stance being adopted this year, but a completely free float looks unlikely and tight forex liquidity conditions will remain a significant drag on economic growth.
Nigeria real GDP projections
Source: Nigeria National Bureau of Statistics, NKC African Economics
West Africa outlook
The report notes that two West African countries with the strongest growth potential in 2017 are Senegal and Ivory Coast, with forecast GDP growth figures of 6.7% and 7.7% respectively. “Notably, both countries use the CFA franc, which is pegged to the euro, removing much currency risk.
“In Senegal strong growth in the primary (specifically extraction and fisheries) and secondary (especially the chemical industry) sectors have pushed overall GDP growth above 6%. Improvements in infrastructure, particularly in electricity supply, made as part of government’s development plan, have made a big difference to the operating environment. Downside risks are the weather and slack demand from the Eurozone.”