Nigerian Economy and Financial Markets: A Blurry Path to Recovery

Nigerian Economy and Financial Markets: A Blurry Path to Recovery

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In our 2020 Outlook report, titled Nigeria in the New Decade: Nothing Ventured; Nothing Gained, we had reviewed the performance of the Nigerian economy over the last decade and highlighted critical imperatives necessary to restore the nation on the path of prosperity in the new decade. We noted that while economic performance in the last decade was a tale of two halves with GDP growth averaging 3.7%, the new decade promises to be better given the commencement of a reset in the economy and consolidation of reforms across key sectors. True to this, the decade commenced with traction from the leadership of the country in favour of curbing subsidies, embracing trade, and embarking on business friendly reforms. However, there has been no meaningful traction in restoring fiscal discipline, embracing market approach and raising agriculture productivity in an era when the world is increasingly transitioning to a post-carbon economy.

With the outbreak of the pandemic, the path to resetting the economy became murkier. The health crisis and the ensuing security and poverty challenges have further exposed decades of neglect for human capital development. We believe the impact of this pandemic would reverse the marginal gains recorded since the 2016 economic recession, thereby hurting businesses and households. Nigeria now faces the need to accelerate development in healthcare and education but weak government capacity and lack of policy makes this difficult. Major economies in the world are queued for vaccines. At $8/person, about $1.7tn would be needed to vaccinate Nigeria’s estimated 211m people. A sum of ₦400bn was reported for the vaccination of 70% of Nigerians over 2022 – representing more than 2 times of the 2021 healthcare capital budget.

Notwithstanding, we believe the pandemic presents an opportunity for the leadership of the nation to make choices that would help the economy reset. The cycle of poor investments in human capital development has to end. In the face of severe resource shortages, the fiscal discipline to channel government resources to the most critical sectors such as education, healthcare and infrastructure remains missing. The running costs of the government formed 86.1% of revenue in 2010 and was still elevated at 81.8% in the 2021 budget. This also meant that the resources available to invest in priority sectors are scarce. Also, the present approach to resolving insecurity has not led to significant improvements across the country while it continues to deter investments in the agriculture value chain, leaving the nation stuck to perennially weak growth in the sector. We believe the challenges of the past would continue to haunt the Nigerian economy, especially in the near-term if the leadership fails to make the right choices. The inability of the government to make these choices leave the nation on a blurry path to recovery.




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