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World Bank forecasts modest 2.1 per cent GDP growth for Nigeria

09 Apr 2019
Financial Nigeria

Summary

This modest GDP growth expansion in 2019, according to the World Bank, reflects stagnant oil production due to regulatory uncertainty, which has limited investment in the oil sector.

Nigerian Finance Minister Zainab Ahmed

The World Bank has projected a rise in Nigeria's Gross Domestic Product (GDP) growth rate from 1.9 per cent in 2018 to 2.1 per cent in 2019, according to the 19th edition of the multilateral bank's Africa’s Pulse, titled "Analysis of Issues Shaping Africa’s Economic Future.” The April 2019 issue of the biannual analysis of the near-term macroeconomic outlook for Africa was published on Monday, showing that Sub-Saharan Africa’s (SSA) economic growth slowed to 2.3 per cent last year, down from an average of 3.3 per cent in the previous five years.   

The report attributed the slowdown in the region's growth to weak performance in SSA’s three largest economies — Nigeria, South Africa and Angola — which account for almost 60 per cent of its overall economic output. While Nigeria's real GDP in 2018 was 1.9 per cent, South Africa grew by 0.8 per cent, down from 1.4 per cent in 2017, following the country’s exit from recession in the third quarter of 2018. Meanwhile, Angola remained in recession.

The 2.1 per cent growth forecast for Nigeria in 2019, is 0.1 percentage point lower than last October’s forecast by the World Bank. This modest expansion, according to the bank, reflects stagnant oil production due to regulatory uncertainty, which has limited investment in the oil sector. As for the non-oil sector, the bank said economic activity is held back by high inflation, policy distortions, and infrastructure constraints. In addition, the World Bank said Nigeria’s agricultural output continues to suffer the effects of conflicts and climate change, adding to the modest growth momentum in 2019.

Nigeria’s inflation rate has remained in double digits since 2016. The Petroleum Industry Governance Bill (PIGB), which is part of the long-awaited Petroleum Industry Bill (PIB), was passed by the Senate in May 2017. But the president declined assent to the bill. According to the U.S. Energy Information Administration (EIA), “Regulatory uncertainty has resulted in fewer investments in new oil and natural gas projects, and no licensing round has occurred since 2007. The amount of money that Nigeria loses every year from not passing the PIB is estimated to be as high as $15bn.”

The report also said gross Foreign Direct Investment (FDI) inflows have decreased from 2.5 per cent of GDP in 2005–08 to 0.7 per cent of GDP in 2015–18. Meanwhile, portfolio investment (PI) and other investment inflows (OI) increased as a percentage of GDP. “The rise in PI (from 0.8 percent of GDP in 2005–08 to 1.2 percent of GDP in 2015–18) can be attributed to the government tapping international bond markets. OI in Nigeria rose from -4.1 percent of GDP in 2005–08 to 0.3 percent of GDP in 2015–08,” the bank stated in the report.

“In Nigeria, although the manufacturing and non-manufacturing PMIs remained above the neutral 50-point mark – which denotes expansion – they fell further in February, due to weaker rises in output and new sales orders across firms. Household consumption in Nigeria has remained subdued, while multiple exchange rates, foreign exchange restrictions, low private sector credit growth, and infrastructure constraints have continued to weigh on private investment,” said the World Bank’s Africa Pulse.   

The bank said for SSA economies to make their economies more resilient to risks in a challenging external environment, they need to strengthen domestic conditions. This includes improving the regulatory environment and addressing other macroeconomic conditions.

The World Bank's growth projection for Nigeria for 2020 is 2.2 per cent and 2.4 per cent in 2021, as improving financing conditions help boost investment. The report also examines how the digital economy can help the continent move forward. According to the report, Africa still lags the rest of the world in access to broadband. Only 27 per cent of Africa’s population has access to the internet. Few citizens have digital identities, businesses are slowly adopting digital technologies, and only a few governments are strategically investing in developing digital infrastructure, services, skills and entrepreneurship.

The digital economy is expected to raise growth per capita by 1.5 percentage points per year and reduce the poverty headcount by 0.7 percentage point per year. The digital transformation of Africa would create more jobs, encourage entrepreneurship among the youth, increase farmers’ productivity, bring more women into the labour force, and create markets.

“Digital transformation can increase growth by nearly two percentage points per year and reduce poverty by nearly one percentage point per year in Sub-Saharan Africa alone,” said Albert Zeufack, World Bank’s Chief Economist for Africa, adding that this is a game changer for Africa.


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