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The Macroeconomic Outlook for Nigeria in 2016

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Presentation given by Dr. Ayo Teriba, CEO, Economic Associates on the 14th of January 2016 to FATE Foundation Alumni Business men and women at the Business Outlook for 2016 session.

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The Macroeconomic Outlook for Nigeria in 2016

  1. 1. 1
  2. 2.  GLOBAL SHOCKS  TRANSACTIONS SHOCKS  Commodity Prices (Income/Economic/Current Account)  PORTFOLIO SHOCKS  Global Equity Indices (Wealth/Financial/Capital Account)  DOMESTIC RESPONSES  FINANCIAL VOLATILITY  Equities, Forex Demand, and Reserves  FINANCIAL ASSETS AND PRICES  Money, Bonds, and Equity  FISCAL REALITIES  Weak/Weakening Non-oil/Oil Revenue Base  SECTORAL BALANCE SHEETS  Households, Businesses, Banks, Government, and Central Bank  THE OUTLOOK: RESOLVING THE PARADOXES  FISCAL  SECTORAL  FINANCIAL NIGERIA’S ECONOMIC OUTLOOK IN 2016 Realities 2
  3. 3. a. Fiscal Disconnect: Africa’s largest economy vs. Africa’s lowest revenue to GDP ratio i. 13% Oil, 87% vs. non-oil GDP, 70% Oil vs. 30% non-oil revenue ii. Oil revenue- 8.5% of GDP, Non-oil revenue of 3.5% of GDP- lowest in Africa b. Sectoral Disparities: Few fast growth sectors vs. many stagnant sectors i. It takes only the biggest six of Nigeria’s 46 sectors to surpass SA GDP ii. Remaining 40 sectors account for only 33 percent of Nigeria’s GDP iii. There is indeed a ‘missing middle’ in Nigeria’s large economy c. Regional Disparities: Rich regions get richer, poor regions, poorer i. Agricultural, trading/commercial, and oil/gas hubs ii. Natural endowments, sectoral concentration, federal investments, and exclusion d. Financial/Monetary Disconnect: Excess banking system liquidity vs. Illiquid economy i. Nigeria is Africa’s largest economy but Africa’s fifth investment destination ii. FG cannot fund capital projects, State governments cannot pay salaries iii.Businesses/households face prohibitive interest rates, yet ‘banks’ have ‘excess liquidity’ that CBN must ‘always’ tighten, because it poses a threat to exchange rate stability e. Growth-Unemployment Paradox: High growth vs. high unemployment i. We do not know the spatial distribution of unemployment: where are the unemployed? ii. We do not know number unemployed, by states, we cannot create jobs where needed Nigeria’s Economic Paradoxes Realities 3
  4. 4. a. To Resolve Fiscal Disconnect, Plug Leakages i. End Oil Theft, Oil-Subsidy Abuses, and Abuses of Duty/Tax Waivers ii. Withdraw ‘Autonomy’ from ALL Revenue-Collecting Agencies iii. Capture Value Created by government interventions, Lagos and FCT examples b. To Resolve Sectoral and Regional Disparities, Fix Growth Enablers i. Inclusive vs. Non-inclusive Market Outcomes, Developmental State, Planning, etc. ii. Build an ultramodern nationwide rail transport system 1. Rail creates values that are multiples of its costs 2. Much of the value are its indirect impact on adjacent property 3. Capture those across 36 states and FCT, as well as 774 LGAs to build rail! iii. Adopt LNG-type JVs to Fix energy supply iv. Attract medium to long term real sector investment to stabilize capital flows c. To Resolve Monetary Disconnect, puncture banks’ excess liquidity, ease mon. policy i. Pay regulatory attention to liquidity management choices of individual banks ii. Have some liquidity criteria for government deposit placements iii. Then ease monetary policy by demolishing existing monetary policy barricades iv. Monitor and support the liquidity conditions of government, businesses and consumers d. Unemployment should respond to (a-c), but also i. Disaggregating no. of unemployed to reveal spatial variations, by age, gender, skill, etc. ii. Promoting and supporting artisanal cooperatives nation-wide Resolving Nigeria’s Paradoxes Realities 4
  5. 5. 1. FISCAL TRANSITION  Orderly Plan to Raise Government Revenue to levels required to fund policies for inclusive growth  Quality governance could require minimum revenue of about 25% of GDP  Institute a Quarterly Watch of impact of Fiscal Reforms on Revenue Inflows 2. ECONOMIC TRANSITION  Clear Plan to lower system-wide transaction costs to boost growth linkages and inclusion - Lower cargo transportation costs  Rail haulage (adopt self-funding modalities to build ultramodern nationwide rail system)  ‘Value Capture’ modalities, such as ‘rail-plus-property model’, can deliver funds to for rail - Steady energy supply will spur inclusive growth  Petrol (Adopt LNG-type IJVs to refine Nigeria’s crude locally and stop importing)  Gas (Privatize Pipelines or adopt LNG-type IJVs)  Power 3. FINANCIAL TRANSITION  A transition to a low interest rate stable currency regime is required to spur growth and inclusion  An orderly transition to a lower MPR, CRR, and LR regime is required  Low interest rates is consistent with high returns on real sector investments  Use rail, refineries and pipelines reforms to attract and retain long term capital inflows  Increased long term capital inflows are required for a strong Naira Quest for Growth Inclusion in Nigeria Realities 5
  6. 6. 1. Nigeria needs to Create More Fiscal Space i. Nigeria’s Government Revenue Does Not Measure Up to her Economic Size! ii. Stronger Revenue Drive is required to ensure Reasonable Expenditure Levels 2. Nigerian Economy Has Grown Fast i. Africa’s Largest and World’s 21th Largest Economy ii. But there are Glaring Disparities Across Nigeria’s Sectors and Regions 3. Now Needs Inclusive Growth i. Competitiveness and Linkages need to be built … ii. … Through Lower System-wide Transaction Costs 4. Nigeria’s Money, Debt and Equity Markets are Sound i. Cash, Non-Interest Deposits, and Interest-Bearing Deposits ii. Money, Bonds, and Equity: Wither Excess Liquidity? 5. But there is a Need to Channel ‘Excess Liquidity’ into Low-Interest Loans i. Deflate ‘Excess Liquidity’ in Banks and Ease Central Bank’s Policy Measures ii. Channel Bank Liquidity into Low Interest Producer/Consumer Loans Nigeria’s Quest for Inclusive Growth Realities 6
  7. 7. Economic Associates, 16 Amodu Ojikutu Street, Victoria Island, Lagos, Nigeria. Tel: 0803 305 5380; e-mail info@econassociates.com; home page http://www.econassociates.com  EA provides ongoing assessment of the outlook of the Nigerian economy. We clarify the trends and outlook of risks and opportunities in the Nigerian economy, given the realities of the international economic situation, and the economic policy directions of the government. Our products and services currently include:  Economic Outlook monthly summaries of the main drivers of Nigerian economic outlook.  Briefing for decision-makers on the drivers of the economic outlook.  Training on selected themes on the Nigerian economy.  Regular access to EA staff to discuss new ideas as they emerge. About EA 7

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