At its first meeting in 2020, held on the 18th February, the Board of Directors of the Nigerian Economic Summit Group (NESG) as usual, reviewed the global and domestic economic and financial environments, as well as the outlook for the rest of the year 2020.
Following its deliberations, the NESG’s Board of Directors commented as follows:
Whilst the economy remains on the path of recovery - with GDP growth at 2.3 percent, the Nigerian economy remains very fragile through a combination of slow growth and vulnerability to changes in external conditions, especially oil price fluctuations. The Board notes that 10 out of the 46 sectors of the economy, contributing approximately 27.1% of output, contracted in 2019. A review of performance by the various economic sectors showed that the Agriculture Sector continues to grow slowly. Whilst the Service sectors, at 53 percent, remained the largest contributor to output, growth in these sectors is adversely affected by issues which include rising incidences of insecurity and continuing closure of our nation’s borders.
The Board noted that during 2019, a combination of lower than anticipated oil prices, and the OPEC cap on crude oil production resulted in public revenue continuing to perform below expectations. This has led to rising public indebtedness and budget underperformance. The Board commends the Federal Government for the enactment of the Finance Act – a law which has the potential to significantly and sustainably improve fiscal transparency and effectiveness. The increase in VAT from 5% to 7.5% will improve non-oil revenue for the government – especially for the sub-national governments. It is, however, important for stimulating output growth and sustaining competitiveness of our economy to ensure that higher levels of taxation do not choke our fragile growth. The NESG recognises the need to improve revenue performance at all levels of the public sector, but this must not be at the expense of investments and job growth.
Given the shortage of capital, Nigeria needs to do more to attract real investments into key sectors of the economy. The low inflow of Foreign Direct Investment (FDI) into strategic sectors in the last three years is instructive - Post-recession, FDI remains around US$1 billion per annum, significantly lower than pre-recession levels where, as recently as 2014, it stood at US$2.3 billion. To improve FDI inflows, Nigeria must demonstrate the commitment to attract and protect investments. In addition, businesses continue to be concerned about policy inconsistency, insecurity and other business constraints such as inadequate infrastructure.
The NESG acknowledges continuing progress on Ease of Doing Business and commends the work of the Presidential Enabling Business Environment Council (PEBEC) as Nigeria moves from 146th position in 2018 to 131st position in 2019 in global World Bank Ease of Doing Business rankings. Sustained progress has been made in such areas as: Starting business; Obtaining Construction Permits; and Enforcing Contracts. The next level of reform which will further improve Ease of Doing Business must focus on areas which include: Power Supply; Ports Administration; and Rail Infrastructure Development. The NESG recommends that the Public-Private Partnership (PPP) model provides a model which Nigeria must successfully leverage to tackle the challenge of infrastructure financing. To achieve this, the government needs to strengthen all laws governing PPP agreements and must demonstrate sincere commitment towards upholding agreements and protecting investors.
The NESG commends the Federal Government on signing the African Continental Free Trade Agreement (AfCFTA). Having signed the agreement, there are a number of urgent steps for sequencing effective integration of the Nigerian economy into the African Economy through AfCFTA. Specifically, Nigeria needs to ratify the agreement to become a ‘State Party’ which will enable us participate effectively in the on-going negotiations of the treaty. There is also a need to commence work towards ensuring alignment of domestic policies and regulations with the Agreement. We must also expedite implementation of trade readiness priorities to gain maximum benefit from AfCFTA.
The NESG notes the continuing closure of our national borders. Whilst the reasons for this measure have been well canvassed, the NESG urges the government to work expeditiously with our regional neighbours towards resolving the issues and reopening the borders as the adverse impact of border closure especially on trade, employment and cost are mounting.
The Board notes the stability in the exchange rate of the Naira in 2019 and thus far this year. The Board is, however, concerned that Nigeria’s external buffers have continued to decline and that the foreign investment inflows are predominantly short-term portfolio investments. Given the fall in oil prices and expectation that oil prices will continue to ease, the NESG recommends that the Central Bank consider managing the Naira by allowing the currency fluctuate within a pre-determined range not exceeding 5 percent. Such fluctuation will serve to reduce the net outflow of reserves by improving confidence in the economy.
The outlook for the global economy is beclouded by the Coronavirus outbreak in China. As a threat to public health, the NESG notes that the World Health Organisation (WHO) has listed Nigeria along with 13 other African countries as nations where an outbreak of the Coronavirus is possible. Given increasingly close economic links with China, it is imperative for Nigeria to upgrade national preventative readiness and ensure adequate capacity to isolate any infected entrants into Nigeria. It is also important for public policy to note the adverse effect of the Coronavirus on global economic growth, especially commodity prices, and adjust to ameliorate these adverse effects.
The NESG is worried about the rising cases of harassment of businesses in the guise of raising revenue. Whilst companies must meet ALL legal demands and obligations, it is important that the processes for demand and collection of dues must not only be transparent but must avoid trampling on the rights of companies to challenge demands which they believe exceed their obligations. As we noted earlier, it is imperative that Nigeria continues to work towards being a preferred destination for international investment.
The NESG urges government (legislature and the executive) to continue to work harmoniously to ensure the timeous enactment of economy enhancing legislation, in particular, the Petroleum Industry Bills, the Companies and Allied Matters Amendment Bill and the Investment & Securities Amendment Bill.
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