By David Malingha Doya
Economy expands 0.8% in 2017 after 2016’s contraction
IMF forecasts economic growth will quicken to 2.1% this year
Nigeria’s economy rebounded in 2017, and could do even better in 2018.
Gross domestic product in Africa’s biggest crude producer expanded 0.8 percent last year compared with a contraction of 1.6 percent in 2016, the Abuja-based National Bureau of Statistics said in an emailed report on Tuesday.
This year may look better than that, and these charts show why.
Nigerian GDP expanded in the last three quarters of 2017, after contracting for more than a year. This momentum could help the economy expand 2.1 percent in 2018, according to International Monetary Fund projections.
What Our Economists Say
“The 4Q report constitutes an upside surprise after a number of underwhelming GDP prints. The non-oil sector finally seems to be gathering some momentum, lifted primarily by services. We expect the non-oil sector to be depressed by the fuel shortages and price increases but to continue to expand over 2018 on the back of higher oil revenue and debt-financed fiscal spending.”
– Mark Bohlund, Bloomberg Economics –
President Muhammadu Buhari proposed a 16 percent increase in spending this year to 8.6 trillion naira ($24 billion), maintaining focus on increasing investments in roads, ports and power ahead of next year’s election.
While oil contributes less than 10 percent to Nigerian GDP, it’s the nation’s biggest earner of foreign exchange and the fall in prices and output in 2016 aggravated a dollar shortage, driving up inflation. If the government can maintain and increase stability in the crude producing Niger delta, where militants attacked oil and gas facilities last year and in 2016, production could remain stable.
“The main risk will be on oil production,” said Yvonne Mhango, an economist at Renaissance Capital in Johannesburg. “Toward elections, and with politics heating up, it will be important for the Niger delta to remain stable to allow oil continue to flow without disruption.”
Higher oil revenue, relaxation of foreign-currency trading, as well as dollar-bond sales, helped boost Nigeria’s foreign reserves to a four-year high of almost $42 billion. That improved supply of foreign currency needed to import factory inputs, and helped to stabilize the naira.
Policy makers have adopted a system of multiple exchange rates, including a trading window for foreign investors known as Nafex in which the naira was allowed to weaken. That helped attract more investment flows into the country and narrowed the gap between the naira’s official and black-market rates.
“The currency is stable, and that is a positive to the growth outlook,” Pabina Yinkere, an analyst at Vetiva Capital Management in Lagos, said by phone. “Foreign-exchange volatility isn’t good because it makes it difficult for businesses to plan, and it has inflationary impacts.”
The increased availability of foreign currency has helped the Nigerian inflation rate fall from the record level it reached in 2016, creating some scope for the central bank to start lowering its key rate. However, policy loosening may be limited by big fuel-cost increases and spending ahead of the election, which could keep price growth above the 6 percent to 9 percent target band.
— With assistance by Simbarashe Gumbo, Ana Monteiro, and Paul Wallace