By Ishaya Ibrahim
Economists at PwC Nigeria believe that the economy is on track for a broad-based recovery.
The report noted that aside the improvement in real GDP following the exit from recession in Q2 of 2017, the performance across several other macro-indicators suggest that the economy has turned a corner.
Some of the indicators include: Headline inflation at a 16-month low at 15.9 percent year-on-year (yoy) in September, maintenance of trade surplus for three consecutive quarters, Purchasing Managers Index (PMI) remaining above the 50 points threshold for six consecutive months and the foreign reserves up to a 34-month high.
In addition, PwC further assessed the fundamental determinants of economic growth, with findings suggesting that economic freedom, consumption growth and investment share in GDP are significant drivers of the Nigerian economy.
Chief Economist at PwC Nigeria, Andrew S. Nevin, was quoted as saying: “We find that an increase in the economic freedom index by 1 point could lead to a 1.7 percentage points increase in Nigeria’s economic growth. This underscores the role of economic policies as a major catalyst for economic development. Similarly, a one percentage point increase in investment share in GDP and consumption growth were found to be associated with 0.2 percentage points and 0.7 percentage points increase in economic growth respectively.”
To show Nigeria’s potential economic performance over the next 5 years, the report presents three scenarios in which PwC examines the impact of political shocks, and the implementation of structural reforms and economic diversification on key economic indicators in Nigeria. The firm in its analysis, assumes that oil continues to be the main driver of fiscal and export revenues over the forecast period. As such, the extent to which the Nigerian economy moves towards its near-term development aspirations is dependent upon the success of its import substitution policies.
In Scenario 1, there is fast-paced implementation of structural reforms, particularly those related to the business environment. In addition, the oil price rises from an estimated average of USD55/bbl in 2017 to USD60/bbl in 2018, while domestic oil production is assumed at 2.2mbpd from 2019 to 2022.
In the second scenario, there is sluggish implementation of structural reforms, with the drive for import substitution progressing at a slow pace. The oil price and domestic oil production remain stable at USD60/bbl and 2.2mbpd respectively over the forecast period.
Scenario 3 presents a less optimistic picture with increased political tension in the wake of the 2019 general elections negatively impacting policy implementation. A return of restiveness in the Niger Delta results in a collapse in oil production levels to an average of 1.7mbpd by 2019, before a gradual recovery to 2.2mbpd by 2022.
Andrew comments further on the summary of the findings:
“In scenario 1, real GDP growth peaks at 7.0% in 2022 and remains in line with trend, reflecting the implementation of structural reforms, and successful traction in the execution of import substitution policies. The resultant improvement in the macroeconomic environment leads to increased investment and per capita GDP.
However, in scenario 2, the implementation of key reforms evolves at a slow pace and economic growth averages 3.3% over the forecast period, reaching 5.0% in 2022. A mix of political and security shocks in scenario 3 which bring about a significant decline in revenues result in no growth (0.0%) in 2019. Subsequently, growth recovers to 4.3% by 2022.”
