Nigeria’s resilience against global risks

By Lukman Otunuga

There was a collective sigh of relief across the Nigerian economy in November after official reports confirmed that economic growth accelerated to 2.3% during the third quarter of 2019. Given how this rate of growth represents the second-highest quarterly rate witnessed since 2016, Nigeria is certainly displaying a measure of resilience against domestic and external headwinds.

Looking deeper into the GDP report, growth was mainly driven by strengthening momentum in the non-oil sector of the economy which highlighted Nigeria’s mission to diversify away from oil reliance. The non-oil sector of the economy expanded 1.85% annually compared to the 1.6% witnessed during the second half of 2019. However, growth in the oil sector also played a role, growing 6.5% over the same period last year.

Nigeria recorded an increase in its oil production to 2.04 million barrels a day in Q3 which was above the OPEC limit of 1.774 million barrels a day. If the nation is forced to comply with the quota during the final quarter of 2019 and early parts of 2020, this could hit economic growth. Although the government remains on a quest to diversify its revenue sources, crude oil still accounts for 90% of export earnings and over 70% of government revenues.

While economic activity is projected to shift into higher gear in 2020 as the new minimum wage hike stimulates consumption which accounts for 80% of GDP, the nation still remains exposed to heightened global risks.

Given how the projected economic growth of 2.3% is below the 2.6% population growth, the GDP per capita risks declining further.

US-China trade developments will most certainly impact Nigeria’s economy in the medium to longer term. While trade tensions continue to weigh on emerging markets, developing economies that have close trade ties with China remain in the direct firing line. With total trade between China and Nigeria over $10 billion in 2018, and averaging $3 billion during the first and second quarter of 2019, trade developments are poised to impact Nigeria’s outlook.

Rising inflationary pressures and accelerating economic growth in Q3 have prevented the Central Bank of Nigeria from cutting interest rates from 13.5%. However, if economic conditions deteriorate and inflationary pressures moderate, the central bank could still pull the trigger on lower rates in 2020. Key themes seen influencing the Nigerian economy for the rest of 2019 will revolve around the passing of the 2020 budget in December, US-China trade developments, the Dollar’s valuation and most importantly, oil prices.