Nigeria’s economic performance worsened in 2017. The economy was severely affected by the plunge in crude oil prices, decline in oil production, and the reduction in nonoil exports, all of which contributed to the acute scarcity of foreign exchange. The economy was also adversely affected by the knock-on effects of foreign exchange controls introduced by the CBN in 2015, especially the foreign exchange restriction of 41 import items, some of which are direct inputs required by the manufacturing and agro-allied industries. This section analyses some key economic indicators in 2016, and provides a quick review of the 2017 Budget.
Key Economic Indicators
Gross Domestic Product (GDP)
The Nigerian economy recorded 3 consecutive quarters of economic contraction in 2016. The GDP in the third quarter of 2016 continued the downward trend and contracted by 2.24 percent relative to Q3 2015. While the oil sector continued its decline, the non-oil sector moved in the opposite direction and grew slightly by 0.03 percent. Virtually all major sectors of the economy were in recession with the exception of Agriculture and Information & Communications. There is an urgent need for the FG to take steps to spur growth in the following six sectors of the economy, which accounted for approximately 80% of GDP as at Q3 2016: Agriculture, Trade, Information & Communications, Manufacturing, Real Estate, and Mining and Quarrying.
Consumer Price Index (CPI) / Inflation Rate
In 2016, the CPI recorded signicant increase in the price level of goods and services nationwide, rising to a 20- year high of 18.555 (year-on-year) in December 2016! The increase was largely due to the devaluation of the Naira, the hike in electricity tariffs and the “modulation” of the prices of petroleum products. The most affected areas of increase relate to essentials such as housing, water, electricity and gas. The uptick in ination, combined with rising unemployment and underemployment rates, has increased Nigeria’s Misery Index to one of the worst in the world.
However, in June 2016, the xed exchange rate policy was ofcially replaced with a exible one to be regulated by the Revised Guidelines for the Operation of the Nigerian Inter-Bank Foreign Exchange Market (“Revised Forex Guidelines”). The introduction of the Revised Forex Guidelines was seen by many stakeholders as a welcome development. The general expectation was that exchange rates would be determined by market forces with no spread restrictions, and international monetary transfers would be purchased by Authorised Dealers at the Interbank Foreign Exchange Market (IFEM). The liberalisation of the IFEM was intended to boost investors’ condence, and thus increase foreign exchange supply by attracting foreign direct investment (FDI) and foreign portfolio investment (FPI). Unfortunately, the CBN’s implementation of the Revised Forex Guidelines has been suspect. This has resulted in signicant fragmentation of the foreign exchange market, and a wide (and widening) gap between ofcial and parallel market rates.