Amid crash in oil prices, diversifying the economy away from oil remains critical to Nigeria’s future growth, the International Monetary Fund (IMF) concluded in a recent report on Nigeria’s economic and monetary policies.
Despite oil price gaining some momentum now, in the past eight months, the world has witnessed the greatest oil meltdowns in history. Winners and losers have emerged from this trend, and this has triggered a number of serious macroeconomic outcomes that affect virtually all regions on earth.
“The value of oil exports this year is expected to be lower than 2014 by a factor of 6 percent of gross domestic product (GDP). Nigeria’s oil revenue will be down 2 percent this year,” the report said.
“But in order to ensure future economic stability, the country must reduce its dependence on oil revenues and strengthen the private sector’s participation in the economy,’’ the report further stated.
Africa’s largest economy is expected to underperform its decade-long growth story, as real output growth decelerates to 4.75 percent in 2015 from 6.3 percent in 2014, the IMF projected in a March 4 press release.
The recent collapse in oil prices may force federal government to focus on the non-oil sector of the economy and encourage more private sector participation.
The Central Bank of Nigeria (CBN) closed the Dutch Auction System (rDAS) window, unifying the rDAS rate with interbank foreign exchange market rate in responded to the sharp decline in oil prices and to help strengthen the naira.
The Senate revised the 2015 budget, tightening the fiscal envelope by lowering the budget benchmark oil price to $52/barrel. The lower chamber also lowered the budget oil benchmark to $54/barrel.
Nigeria’s state budgets generally lack the rigor of the federal budget process, and are mostly reliant on revenue coming from the centre, to fund state activities, with the exception of Lagos State and a few other.
Oil represented only 13 percent of gross domestic product in 2013 — services accounted for more than 50 percent — oil remains critical to Nigeria as a revenue and foreign-exchange source.
Industry concentrations could have major repercussions for the entire banking sector especially the key sectors of the economy.
Inflation is seen rising to 11.5 percent by the end of 2015 from 8 percent at the end of 2014.
Over the past decade, Nigeria’s growth has averaged 6.8 percent, accounting now for 35 percent of sub-Saharan Africa’s gross domestic product, and it has kept its general government fiscal deficit and public debt low.
But the country lags peers in critical infrastructure, and has high rates of poverty and income inequality, the IMF said.
IMF commended the federal government for making progress in promoting economic diversification, and for their macroeconomic response to collapsing export prices.
Research has shown that a strong manufacturing base is key to economic diversification and guarantees job creation, strong export base and foreign exchange earnings.
Nigeria could boost its GDP growth by about two percentage points if the electricity industry was able to meet consumption demand,” First bank of Nigeria Capital in its March 02 note.
The IMF also praised Nigeria’s plans to strengthen tax administration, and encouraged the country to rein in exemptions, maintain tax rates under review and continue with subsidy reform and improving management of oil revenues.
JOSEPHINE OKOJIE
