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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

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

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

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

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

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:

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