Nigeria's Economic Outlook in 2017

Abstract

The economic events of 2016 taught us a lot of hard lessons about Nigeria’s interface with the global economy, and the links with domestic growth, stability and policy responses. This paper attempts to distill some of the lessons and clarify the outlook.

Weak commodity prices brought Nigeria’s growth to a very abrupt end and inflicted heavy bouts of devaluation of the Naira. The downturn tested our counter-cyclical policy capability and revealed weaknesses in both fiscal and monetary responses.

Falling revenue constrained counter-cyclical fiscal response, while the central bank pro-cyclically hiked rates twice in the year, and further amplified the downswing by obstructing legitimate foreign exchange transactions, while, it could easily have eased rates and sought increased capital inflows to counter the downswing, as the over-subscription of Nigeria’s Euro-bond issue has now revealed to be an option.

Nigeria needs to look beyond exports as a source of external financing, and boost foreign investment inflows. Nigeria is currently very closed to foreign investment as many large infrastructure sectors that could be major investment destinations remain under government monopoly.

Nigeria needs to break government monopoly across all infrastructure sectors, including rail transportation, power transmission, gas pipelines, oil refining, education and health, among others, and take immediate practical steps to open them up to foreign investment now.

Weaknesses in rail transportation and energy infrastructure makes agriculture, mining and manufacturing uncompetitive in Nigeria. Rebuilding rail transport and energy infrastructure by opening them up to foreign investment now will revive agricultural, mining and manufacturing production and exports in the medium term, and make the Nigerian economy more resilient to global shocks.

Although the cyclical tide has turned upward to brighten the outlook in 2017, boosting foreign investment inflows and rebuilding nationwide rail transport and energy infrastructure immediately is still required to ensure stability in the future, release Nigeria’s latent growth energies, and ensure brighter long term economic outlook.

Keywords: Nigeria, Naira, Cycles, Oil Price, External Reserves, Sectors, States, Counter-cyclical Policies, Outlook, Devaluation, Recession, Inflation, FDI, Diaspora Remittances, Government Monopoly, Rail Transport, Electricity, Gas, Infrastructure, Services, Agriculture, Industry, Farms, Factories, Cities

JEL Classification: E66, F21, F31, F32, N17, O55