Kale explains Nigeria’s fragile economic growth, risks to watch in 2018

The Federal Government will struggle to push a fragile economic recovery and growth, as 2019 approaches. This was the conclusion of top economists and analysts at the BusinessDay Economic Outlook summit that held at the weekend.
It was agreed that 2018 is going be a year of two halves. The first half of positive growth while rising uncertainties surrounding pre-election year, which will see economic agents take a more cautious position on the economy in the second half of the year.
Speaking at the BusinessDay National Economic Outlook with the theme ‘Navigating from Recovery to Growth,’ director-general, National Bureau of Statistics (NBS), Yemi Kale, said “he expects more of government spending on infrastructure in 2018, but also expect to see much higher borrowing,” as Africa’s biggest economy positions for a more positive outlook in 2018.
Furthermore, Kale expects inflation to continue to fall till mid-year, then rise, depending on the election strategy adopted by the government, 2019 being an election year.
Nigeria’s inflation decreased to 15.13 percent in January, making it the 12th consecutive decline in headline inflation rate since January 2017.
According to figures from the NBS, this was 0.24 percent lower than the rate recorded in December (15.37%).
The Food Index increased by 18.92 percent (year-on-year) in January 2017, down from the rate recorded in December (19.42%).
Kale also anticipates full-year growth of 0.8 to 1.0 percent in 2017 and 2.0 to 3.0 percent in 2018, encouraged by election spending.
In his forecast of how key economic indicators will turn out as 2018 rolls, he expects that the country’s trade balance will come under pressure as capital importation slows down as we get closer to the 2019 election date. He also foresees that inflation will continue to decline until mid-year “then rise depending on the election strategy adopted.
“Trends in the past have shown that election period has been associated with increase in cash spending. And there is no indication that the next election will be different.”
He explains that the Nigerian economy is currently in the process of getting back economic output to its pre-recession levels after the contraction in the economy witnessed in 2016. He notes that while a vulnerable and highly unstable oil sector accounted for 80 percent of government revenues, a consumption driven non-oil sector including manufacturing, real estate, public administration, trade, finance all depend largely on the fortunes of the oil sector to thrive.
“Oil got us into recession and oil largely took us out of recession,” while explaining the current economic growth is highly fragile.
Kale also notes that Nigeria did not make enough savings in the period of high oil prices, leaving the country vulnerable when crude oil prices crashed in 2015.
But Kale notes that even though oil took Nigeria out of the recession, the agricultural sector was also key in helping the country exit recession. The output of the agricultural sector as a proportion of GDP moved from 21 percent in the third quarter of 2016 to 29 percent in 2017.
At the same time, the share of services output in real GDP declined from 55 percent to 48 percent, while that of industry declined from 24 percent to 23 percent, showing the resilience of the agricultural sector.
The structure of the Nigerian economy pre and post-recession, Kale says has not changed much, an indication that the economy is yet to feel the impact of the government diversification rhetoric, but also admits that diversification will not be achieved overnight.
The sectors to watch out for in 2018, he says, include agriculture, trade and manufacturing, arts, entertainment, recreation, music and video production, accommodation and food services, as well as real estate and other services.
He also lists the government policies to watch in 2018 to include the ongoing fiscal reforms, especially the Voluntary Asset and Income Declaration Scheme (VAIDS), the steps being taken to lower debt servicing costs and lengthen debt maturities, mobilisation of non-oil revenues and scaling up of social safety nets and infrastructure investment.
He also expects the Central Bank of Nigeria (CBN) to adopt a tight monetary policy stance to further reduce inflation and anchor inflation expectations, a more efficient and directed support programme like anchor borrowers programme, a focus on exchange rate stability and a possible move toward a unified market based exchange rate.
However, he also notes that the economy faces significant risks in 2018. The major risks include the on-set of the election cycle, rising geo-political tensions, industrial action by labour unions and the pending review of electricity tariffs.