The State of the Economy

September 2021

Dr. ‘ Doyin Salami

Chairman, Presidential Advisory Committee on the Economy
Content

Performance of Action Points to

Key Economic improve
Economic Outlook
indicators economic
for H2’2021
growth and
inclusion
 Nigeria’s real GDP growth by 5% in 2021Q2
Real GDP Growth
• Year-on-Year real GDP expanded by
5.0% 5.0%
5% in 2021Q2.

3.0% 2.6% • This was mainly due to the base

1.9% effect following the implementation
1.0% of lockdown and restrictions in
0.1% 0.5% 2020Q2.
-1.0%
• The deeper an economy contracted
in 2020Q2, the higher it will grow in
-3.0% 2021Q2.
-3.6%

-5.0% • In the third and fourth quarters of

2021, the base effect is expected to
-6.1% fade out. Hence, growth will be
-7.0%
lower.
2019Q4 2020Q1 2020Q2 2020Q3 2020Q4 2021Q1 2021Q2

Source: NBS; Chart: NESG Research

…but is the economy really recovering?

Real GDP (N’trillion)

-0.79%
• Typically and especially in a
19.5 19.6 period of recovery, real GDP
16.7
17.8
16.8 16.7 value in the first quarter is
15.9
the lowest in the four
quarters.

• Quarter on Quarter real GDP

suggests a 0.79% decline in
2021Q2.

• Issues relating to insecurity

2019-Q4 2020-Q1 2020-Q2 2020-Q3 2020-Q4 2021-Q1 2021-Q2 and FX are persistent.

Source: NBS; Chart: NESG Research

Key sectors of the economy showed strong growth in the quarter
Sectoral Growth in Q2-2021
Quarter on Quarter Year on Year
Electricity, Gas ,Steam and Air Conditioning
264.2% 78.2%
Supply
Water Supply,Sewerage, Waste Management • On a year-on-year basis, the
43.2% 18.5% Services sector grew by 9.3%
and Remediation
Public Administration 32.3% -1.7% in 2021Q2.
Information and Communication 18.3% 5.5%
• The Industrial Sector, which is
Human Health and Social Services 7.9% 4.9% mainly driven by crude oil,
Administrative & Support Services 6.2% 4.8% contracted by -1.23%
Trade 5.8% 22.5%
Agriculture 5.6% 1.3% • Agricultural sector recorded a
Real Estate -0.7% 3.8% growth of 1.30%.
Financial and Insurance -1.8% -2.5%
• Sectors that contracted the
Professional, Scientific and Technical Services -6.3% 1.3% most in 2020Q2 (except crude
Transportation and Storage -9.5% 76.8% oil) because of the lockdown
Manufacturing -13.1% 3.5% are those that posted high
Mining and Quarrying -19.0% -12.3% growth rates in 2021Q2 due to
Construction -23.1% 3.7% the base effect.
Education -29.9% 0.6%
Other Services -32.5% 0.6%
Accommodation and Food Services -61.1% 2.0%

Source: NBS; Chart: NESG Research 5

Investment climate in Nigeria faces major headwinds
Total Investment Inflows (US$ Billion)
➢ Total foreign investment inflows into Nigeria
remains low. 2.76

➢ Investment inflows was US$875 million in 1.91

2021Q2 – the lowest quarterly inflow since 1.29 1.46
2016Q1. 0.88

➢ FDI inflow into Nigeria has revolved around

US$1.0 billion in the last five years. FDI inflow 2020Q2 2020Q3 2020Q4 2021Q1 2021Q2
in 2021Q2 was US$78 million, even lower than
2020Q2.
FDI inflows (US$ million)
➢ Key hurdles Nigeria’s investment climate
include: 414.8
➢ macroeconomic instability.
➢ policy inconsistency. 251.3
➢ inadequate infrastructure. 214.3
➢ insecurity. 148.6 154.8
➢ Tough business climate. 78.0

2020Q1 2020Q2 2020Q3 2020Q4 2021Q1 2021Q2

Source: CBN, NBS; Chart: NESG Research 6

 Nigeria’s Trade remains in despite high crude oil price
Trade Balance (N’trillion)
➢ There was a significant improvement in
2.08 Nigeria’s trade deficit position in 2021Q2. The
1.78
1.39
deficit narrowed to N1.87 trillion.
0.87 0.83
0.64 0.59 ➢ While the value of imports declined by 1.5%
yoy, exports value increased by 75%.

-0.33 ➢ Crude oil continued to dominate exports,

-0.58
accounting for 80% of total export

-1.92 -1.87 ➢ Notable change in the composition of trade

-2.39
-2.73
Export Vs. Import – now 42:58 from 30:70 in
Q1-2021.
-3.94
➢ The deficit will narrow further in H2-2021 on
the back of improved economic activities, and
2018-Q1

2018-Q2

2018-Q3

2018-Q4

2019-Q1

2019-Q2

2019-Q3

2019-Q4

2020-Q1

2020-Q2

2020-Q3

2020-Q4

2021-Q1

2021-Q2
exchange rate harmonization.

7
Source: NBS; Chart: NESG Research
 Exchange rate depreciation continues despite increasing CBN’s
FX interventions
Exchange rate Trend
➢ The foreign exchange market continues to witness supply
496.19
shortage to meet its demand. Consequently, the gap between
503.9
500 the various markets keeps expanding.

➢ From N92 in June to N99 in July as CBN stop sales of forex to

BDC operators
450
Exchange
rate gap ➢ As of July 2021, interbank and Parallel rates have depreciated by
N99 6.27% and 6.67% year to date.
N/US$

400 404.9
➢ Foreign exchange pressure will continue into H2-2021owing to
limited inflows from both crude and non-oil sources, rising
imports and a backlog of foreign currency demand.
360.94
350
➢ External Reserves trended upwards and currently at
US$34.2billion as of September 2 following higher oil prices.

300 ➢ Weaker foreign investment inflows, high demand for foreign

currency to finance imports and other needs and possible
Sep-19

Sep-20
Mar-19

Mar-20

Mar-21
Nov-19

Nov-20
Jul-20

Jan-21
Jan-19

Jul-19

Jan-20

Jul-21
May-19

May-20

May-21

clearance of FX backlogs are factors that continue to weaken

External Reserves.
Interbank BDC

8
Social resilience weakens as economic fragility amplified

Labour force
Statistics 2020 (%)
➢ Inflation rate stood at 17.38% in July-
2021 from 16.5% in Jan-2021 and food
Nigeria’s Inflation trend
inflation at 21.03%.
33.3 25
➢ Increases in food prices is mainly
driven by insecurity
20 21.03
➢ Social resilience has deteriorated
22.8 15 17.38 further with misery index at 51.2% in
May-2021 from 49.8% in Jan-2021 and
Percent

youth unemployment at 45%.

10

➢ World bank estimates that additional 7

5 million Nigerians have been pushed
43.9 into poverty in 2020 due to falling
Headline Food
0 purchasing power. This makes the total
number of poor people to be 90
Jul-16

Jul-19
Jul-14

Jul-15

Jul-17

Jul-18

Jul-20

Jul-21
Jan-14

Jan-17

Jan-20
Jan-15

Jan-16

Jan-18

Jan-19

Jan-21
million from 82.9 million in 2019.
Unemployment
Underemployment
Employed
Source: NBS; Chart: NESG Research
 10.0%
40.0%
60.0%

20.0%
30.0%
50.0%

0.0%
Osun

11.7%
Benue

Zamfara

Sokoto

Ogun

Kwara

Ondo

Kebbi

Oyo

Katsina

Kano
rate above national average of 33%
18 states + FCT have unemployment

Plateau
Unemployment rate as at 2020Q4 (%)

Nasarawa

Delta

Gombe

Taraba

Enugu

Ekiti

National
33.3%

Bauchi

Bayelsa
… States dimension of unemployment rate

Lagos

Jigawa

Niger

Kogi

Ebonyi

FCT Abuja

Rivers

Borno

Anambra

Kaduna

Edo

Abia

Akwa Ibom

Yobe

Cross River

Adamawa

Imo
56.6%
FG Expenditure keeps increasing at a faster pace than revenue

Actual FG Retained Revenue & Expenditure in Nigeria (N’trillion) ➢ From Jan to May 2021, actual fiscal deficit
was N3.01 trillion (53.8% of total budgeted
12.0 deficit for 2021)

10.1 ➢ While overall expenditure has grown by

10.0 102% from N5 trillion to N10.1 trillion
between 2015 and 2020, revenue increased
by just 15%.
8.0 N6.15 trillion
deficit - 4% ➢ This subdued government revenue is as a
of GDP
6.0 5.0 result of;
➢ constraints around domestic
4.0 production/investment.
3.9
3.4 ➢ Low tax base as tax revenue to GDP still
2.0 revolves around 7%.
➢ Limited effort to explore and unlock
0.0
opportunities for revenue generation at
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 state level – over-centralization.
➢ Issues relating to efficiency in revenue
Fed Govt Retained Revenue Total Expenditure
collection.

Data Sources: Central Bank of Nigeria and Ministry of Finance, Budget and National
Planning 11
 Public debt continues to expand on the back of growing fiscal deficit

35 120
32.9 33.1
Nigeria’s Debt Statistics ➢ Nigeria’s public debt stood at N33.1 trillion as
30
100 at March 2021, according to figures from the
27.4 97.7
DMO.
25 24.4
➢ When Ways and Means, AMCON liabilities
21.7 80
and projected fiscal deficit for 2021 are
20 82.9 considered, total debts is expected to
17.4
60 increase to about N54 trillion in 2021.
15 ➢ Nigeria’s debt/GDP at 35% appears
12.6
11.2 comfortable, however, debt service to
10.0 40
10 revenue at 97.7% (Jan to May 2021) suggests
7.6
35
35.5 Nigeria’s debt is already unsustainable.
20
5 ➢ To improve revenue, we must block leakages,
unlock opportunities at state level, improve
tax efficiency and coverage, sell-of dead
0 0
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021* assets, which are estimated at US$900
Public Debt (N’Trn) Debt to GDP (%) - RHS Debt Serv. To Rev (FG, %) - RHS billion.

*Jan to May 2021

Data Sources: DMO, IMF, Ministry of Finance, Budget and National Planning 12
 Monetary policy maintains status quo
Trend in Lending Rate (%)
35
30
25 ➢ Outcome of the MPC meeting held in July-2021
20
Percent

15
➢ The benchmark interest rate (MPR) retained at
10
11.50%
5
0
➢ The asymmetric corridor remained at +100/-700 bps
-5
around the MPR
➢ The cash reserve ratio retained at 27.50%; and
Jan-20

Jan-21
Aug-20

Mar-21
Mar-20

Nov-20

May-21
May-20

Oct-20
Jun-20

Jun-21
Dec-20
Feb-20

Jul-21
Jul-20

Feb-21
Apr-20

Sep-20

Apr-21
➢ The Liquidity Ratio retained at 30.00%
InterBank Rate Prime Lending Max Lending

Trend in Tbills & OMO rates (%)

12
10.22 10.19 10.17
➢ Yields are trending upward across segments of the market
9.68 9.89
9.35 9.51
10
7.69
8.09 ➢ Rising yields are driven by the numerous liquidity management
7.15
8
strategiesof the CBN to stabilize the market which include:
5.79
6 5.13 5.37 ➢ Introduction of the CBN Special Bill;
4.42
➢ Week on week OMO Auctions;
4 ➢ Direct debit on banks’ cash balance.
➢ As well as expanded government’s debt programme
2

0 ➢ Rising yields are expected to push short-term rates higher and

21'M8 21'M9 21'M10 21'M11 22'M1 22'M2 22'M3
attract investment
Tbills OMO
13
Sources: FMDQ
Content

Performance of Action Points to

Key Economic improve
Economic Outlook
indicators economic
for H2’2021
growth and
inclusion
 Way Forward: 5 action points to rebound the economy for strong growth

➢ Monetary Stability ➢ There is need to

➢ Effective Fiscal Management strategically reposition ➢ Quick intervention and
➢ Good Governance sectors for growth, job resolution of crisis
➢ Effective citizen engagement creation and poverty
reduction

Policy & Human Capital

Macroeconomic Regulatory Sectoral Reforms Security
Stability Development
Consistency

➢ This encompasses the

➢ Massive investment in R&D
need to reduce policy
➢ Digitalization of health and
reversal and somersault
education
that tend to be hostile to
➢ Empowering youthful
sectoral growth
population with productive
skills

15
 Role of State House of Assembly in improving state competitiveness
Reallocation of spending priorities
State HoAs can shape the budgets of their
states in favour of capital expenditure. More
emphasis should be given to human capital
development and the provision social
amenities for the populace.
Serve as champions of Ease of doing
business
Legislative bodies can review existing legal
impediments to doing business in the
states. These include amending tax laws,
reforming procurement laws to support
indigenous private sector; improving access
to construction permits and making it easier
to register properties.
Ensure Transparency and accountability
Obtaining budget breakdown of some
states is still a major challenge. The State
HOAs can establish laws to ensure the
publication of states budgets, quarterly
budget performance reports and
monitoring and evaluation reports.
Enhancing Partnerships with the private
sector
State HOAs can establish legal frameworks to
promote PPPs to aid infrastructure development
in their states. Nigeria’s large infrastructure
deficit that cannot be covered by the government
alone. HOAs must strengthen the legal and policy
frameworks to attract private capital.
Ensure Value Chain Development
State government can develop joint
partnership frameworks/MoUs with the
federal government and its agencies across
several areas including mineral exploration,
manufacturing, agriculture etc.
Provision of Funding for Data Collection to
aid Planning and Investment
Statistical agencies in many states are mostly
under-funded. Gathering baseline data is useful
for planning, tracking progress and making
investment decisions. State governments must
ensure the appointment of qualified professions
to lead these agencies and also provide them
with adequate resources.
16
Content

Performance of Action Points to

Key Economic improve
Economic Outlook
indicators economic
for H2’2021
growth and
inclusion
 INFLATION RATE: Downward trajectory of inflation will
continue as the harvest season commences
- However, an uptick in structural factors contributing to inflation;
and high crude oil prices would mean an increase in the cost of
refined petroleum will result in higher inflation rate in Nigeria

Economic
Outlook- UNEMPLOYMENT RATE: By the end of 2021,
unemployment rate is projected to hit about 40%.
- Employment capacity of the manufacturing sector is still low;
the

Nigeria – - According to the CBN’s July 2021 PMI report, sectors' employment
indices at 46.5 remains constrained below the 50 points mark.

Real Sector
FIFTH WAVE OF COVID-19 SPREAD MAY HAMPER ECONOMIC
RECOVERY: The increasing rate of new COVID-19 cases raises
the fear of another episode of the virus infections in Nigeria.
- If this happens, containment measures will likely slow-down
Nigeria’s economic recovery.

18
Policy Environment

The uptick in global oil prices might improve the

government’s revenue and reduce fiscal deficit. In addition,
increased exploration of marginal oil fields and relaxed

Economic
OPEC quotas will increase Nigeria’s oil production and
expected oil revenue in 2021. PIA was passed in Q3 2021.
This will have long-term effect on the economy.

Outlook- The government may adopt unconventional approaches to

budget deficit financing. Some of these include sales of

Nigeria – government assets, privatisation of some State-Owned

Enterprises like Transmission Company of Nigeria (TCN) etc.

Fiscal Policy Continuous payment of subsidy on refined petroleum

products would narrow FAAC allocations and widen the
country’s budget deficit. If this continues, the action could
push Nigeria into a “Debt Overhang” by the end of 2021.

19
Policy Environment

In the face of a liquidity squeeze in the country’s

Economic
financial system, the Monetary authority will
continue to focus on attracting foreign investment
inflows into the country.

Outlook-
Nigeria – The Central Bank of Nigeria (CBN) will maintain its
FOREX rationing and FX market interventions. This
Monetary could exert pressure on exchange rate.

Policy The Apex bank will continue its real sector

interventions programme such as Anchor
Borrowers’ Programmes to support the real sector.

20
Thank You