Africa > West Africa > Nigeria > Nigeria, GDP growth is expected to rebound to 4.1% in 2016 and 4.2% in 2017

Nigeria: Nigeria, GDP growth is expected to rebound to 4.1% in 2016 and 4.2% in 2017


As with a lot of hydrocarbons producers elsewhere in the world, Nigeria endured a challenging 2015 as falling oil prices impacted the country’s exports and exchange earnings.

This was compounded by a range of broader macroeconomic pressures, inclunding uncertainty in the lead up to the 2015 presidential elections, a strengthening US dollar and insecurity in the north of the country. According to the IMF, these headwinds slowed Nigeria’s GDP increase to an estimated 3.2% in 2015, the lowest rate since 1999.

While increase remains well above the average for advanced economies, the outlook for the coming year looks brighter still, on the back of better policy stability and an uptick in increase – bucking the IMF’s predictions for a world slowdown.

Electoral confidence

GDP increase is expected to rebound to 4.1% in 2016 and 4.2% in 2017, according to the majority recent IMF estimates, and central to maintaining that is a spate of new policies from the government of President Muhammadu Buhari.

In a boost to the country’s democratic credentials, Buhari’s election in March 2015 marked the initial time in Nigeria’s history that an opposition party defeated the ruling party in open elections. Although it took several months before the cabinet was finalised, the government has unveiled a series of measures aimed at improving stability, increasing increase and addressing structural bottlenecks.

Atop the government’s inventory of priorities is improving security in the north of the country, where attacks by terrorist group Boko Haram have dampened investment and strained public finances. The president has as well launched a high-profile anti-graft campaign to reduce incidents of corruption.

Spending boost

According to the World Bank, crude sales typically account for around 75% of Nigeria’s budget spending. However, with Brent futures dipping below $30 in early January, and Nigeria’s 2016 budget based on a price of $38 per barrel, government hydrocarbons revenues are expected to see substantial declines.

Nonetheless, the Buhari government has as well signalled plans to stimulate the economy through better public spending, announcing a N6.1trn ($30.6bn) budget for 2016 in late December, up nearly 25% over the previous year’s initial budget. According to Vetiva Capital Management Research, N3.86trn ($19.4bn) of the total is expected approaching from oil sales, with the remainder approaching from other revenue collection and deficit financing.

The new budget is expected to increase the country’s fiscal deficit to N2.2trn ($11bn), or 2.2% of GDP, taking the country’s in general public deficit profile to 14% of GDP.

To help bridge the gap, Kemi Adeosun, the recently appointed minister of finance, has suggested Nigeria will seek additional funding on international deficit markets by the end of March. The move comes in spite of rising costs for developing market borrowers, with statements by the president suggesting it could look for as much as N900bn ($4.5bn) in financing abroad.

Nigeria, which is currently rated “B+” by Standard & Poor’s, currently has some $1.5bn in dollar-denominated bonds outstanding following issuances in 2011 and 2013. Yields on securities due in 2023 rose by some 300 basis points over the second half of last year.


The government is as well looking to encourage better economic diversification to reduce reliance on revenues from oil and gas exports. Adeosun said the government hopes to boost non-oil revenue by N1.6trn ($8bn) in 2016, with an emphasis on additional effective revenue collection from government agencies and parastatals.

In line with the national drive to diversify the economy and propel non-oil increase, a lot of sectors – namely, mining agriculture, telecoms and industry – are expected to play an increasingly significant role.

Mining, for example, could boost Nigeria’s GDP by 10% in the next five years, according to a recent statement from PwC, with additional than 44 minerals in 500 locations seen as ripe for development. Agriculture is as well seen as a promising area for increase, with McKinsey forecasting that agricultural improvements could see sector revenues additional than double to $263bn per year by 2030.

Policy revisited

While diversification efforts have been ongoing for several years, the urgency has increased, particularly with the strengthening US dollar. The Central Bank of Nigeria has held the naira at between N197:$1 and N199:$1 since March, roughly 20% down from where it was in 2014.

However, with the national tapping into its foreign reserves – which have fallen 15% year-on-year to around $29bn in December – to make up for foregone oil revenues, it has sought to reduce dollar sales and curb speculation, introducing new capital controls. The result has been a spike in the parallel market exchange rate to as high as N305:$1, according to press reports.

Nigeria is far from the only African economy to face this situation: the South African rand and Ghanaian cedi have both been hit particularly hard, dropping additional than 20% against the US dollar, while, according to Bloomberg, the Zambian kwacha ranked as the worst-performing currency in the world.

Nonetheless, given Nigeria’s stable political environment, large people and growing middle class, the country is expected to weather challenges such as lower oil prices and downward pressure on the naira, and remain an attractive destination for foreign investment in the long term.

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