The extent of diversification of Nigeria’s economy and revenue sources and the development of infrastructure would determine the sustainable economic outlook of the country in the medium to long-term.
Senior Research Analyst, FXTM, Mr Lukman Otunuga, at a media interactive session, reviewed the Nigerian macroeconomic outlook in the light of global and domestic variables and concluded that diversification, infrastructure and the development of other natural resources like gold would have positive impact on the national economic growth.
According to him, eradication of poverty in Nigeria depends on domestic production, but poor infrastructure has been a major impediment.
He noted that it is important for government to continue the ongoing quest to diversify from reliance on crude oil.
He said the ongoing democratic transition in the United States of America (USA), Brexit and potential discovery of COVID-19 vaccine are global factors that could have significant impact on the Nigerian macroeconomic performance.
He explained that the breakthrough in the race to find a vaccine for COVID-19 as well as improved U.S-China trade relations and a Joe Biden presidency in the U.S.A may uplift global sentiment, to the advantage of Nigeria.
Otunuga said the impact of lower interest rates in the country could stimulate consumption in 2021 and help to drive overall growth.
He pointed out that the rising gold price could offer Nigeria some support given the recent effort to develop the Nigerian gold mining and refining sector and to build further a national gold reserve.
“It is very important we talk about gold price because it could offer Nigeria some support. Nigeria has refined its own reserve Gold bar and paid N268 million for the 12.5kg bar to start a central bank stock,” Otunuga said.
He commended the encouraging development in the diversification of the national economy, noting that the newly regulated gold mining sector is expected to create 250,000 new jobs.
While the 2021 national budget projects growth rate of 3.0 per cent, Otunuga said Nigerian economic growth is projected to expand by 1.7 per cent in 2021.
He noted that inflation has remained above Central Bank of Nigeria (CBN) target since 2015 but it has remained unsaturated because of the persistent boarder closure.
According to him, there are limited tools to tame inflation as tight fiscal policy may do more damage than good.
“The unsavoury combination of border closures, coronavirus related disruptions and lower interest rates have fuelled inflationary pressures in Africa’s largest economy. With consumer prices projected to jump to almost 14 per cent in October, this will be the highest rate since February 2018. In a perfect world, the government may have deployed tight fiscal policy to tame inflationary pressures. However, such a move that involves raising taxes and limiting government spending may do more damage than good at a time where Nigeria continues to heal wounds inflicted by COVID-19. With inflation projected to rise amid ongoing border closures, the Central Bank of Nigeria may have limited room to loosen monetary policy,” Otunuga said.
He said the emergence of Joe Biden as President of U.S.A. could bring an improved or stronger bilateral relations to Africa while improving trade relations between both sides would be beneficial to Nigeria.
According to him, prospect of a more predictable policy towards Nigeria and a weakening in dollar would further stimulate Nigerian economic growth.
Otunuga said the decision around Britain’s exit from the European Union (EU) may also influence Nigeria’s economic outlook noting that Britain is one of the biggest sources of capital investments in Nigeria.
He pointed out that in the second quarter of 2020, investment from the United Kingdom amounted to $428.8 million and Nigeria’s foreign direct investment (FDI) may be adversely impacted if the condition in United Kingdom failed to improve.
He noted that while COVID-19 had impacted Nigeria like other economies, Nigeria’s COVID-19 data appeared to be more encouraging than several other countries.