ight months after recording its first Covid-19 case, the Nigerian economy has faced unprecedented challenges, navigating through the impacts with resilience and adaptability. As of October 26, 2020, there have been 62,111 confirmed cases and 1,132 deaths in Nigeria. (1,295,541 confirmed cases and 29,191 deaths in all of Africa). Back in March, health policy experts expressed serious concerns on whether African countries could limit the spread of the highly infectious coronavirus. One of the epidemiological models developed in March projected that by the end 2020, there would be an estimated 123 million infections and over 300,000 deaths on the African continent, in a best-case scenario. (1.2 billion infections and 3.3 million deaths in a worst-case scenario). “A mix of socio-ecological factors such as low population density and mobility, hot and humid climate, lower age group, interacting to accentuate their individual effects”, have so far contributed to the relatively low level of infections and deaths recorded in Africa, according to the World Health Organization (WHO). Yet, as countries across the continent have eased lockdown restrictions which were crucial in limiting the spread of the coronavirus, experts have warned that African countries are not completely out of the woods, and must be vigilant to make sure that a second wave of infections does not overwhelm the continent’s weak healthcare systems. So far, while Nigeria has avoided a public health crisis, on the economic front, the pandemic has disrupted lives and caused economic insecurity and hardship for households, affected business activities, and severely impacted the government’s finances. The five charts below illustrate the economic impact of the pandemic. Impact on Livelihoods As the country resorted to a lockdown to curb the spread of the coronavirus, the resulting slowdown in economic activities has taken a hard toll on Nigerian households. Earlier this year, due to restrictions on movement and travel, many of the country’s mostly informal 41.5 million Micro Enterprises (96% of all businesses in the country) which account for more than 80% of total employment, had to either close or scale back operations. The charts below show the impact of the pandemic on employment and income. [caption id="attachment_5400" align="aligncenter" width="589"] Households reporting shocks of job losses[/caption] Source: National Bureau of Statistics (NBS) COVID-19 National Longitudinal Phone Survey Round 3: July 2020; Living Standards Measurement Study (LSMS) Integrated Surveys on Agriculture: General Household Survey Panel 2010/2011, 2012/3013, 2015/2016 and 2018/2019. Note: Round 3 of the Nigeria COVID-19 National Longitudinal Phone Survey (COVID-19 NLPS) 2020 was conducted between July 2 and July 16, 2020. 1,950 households from the baseline survey (Round 1) were contacted and 1,820 households, fully interviewed. According to the NBS, the data are representative at the national level and survey weights were calculated to adjust for non-response and under-coverage. [caption id="attachment_5401" align="aligncenter" width="583"] Change in income by source, compared to August 2019 (% of households and source of income)1[/caption] Numbers do not add up to 100% Source: National Bureau of Statistics (NBS) COVID-19 National Longitudinal Phone Survey Round 4: August 2020. Note: Round 4 of the Nigeria COVID-19 National Longitudinal Phone Survey (COVID-19 NLPS) 2020 was conducted in August 2020. 1,881 households from the baseline (Round 1) were contacted and 1,789 households, fully interviewed. According to the NBS, the data are representative at the national level and survey weights were calculated to adjust for non-response and under-coverage. Food Insecurity Since the pandemic began, the rates of moderate or severe food insecurity among Nigerian households have increased significantly. For most households, reduced incomes due to business closures and job losses, has coincided with an increase in food prices. The Food and Agriculture Organization (FAO) defines food insecurity as a situation that exists when people lack regular access to enough safe and nutritious food for normal growth and development and active and healthy life. This may be due to the unavailability of food and/or lack of resources to obtain food. Severe food insecurity is akin to hunger and defined as when people have run out of food and gone an entire day without eating at times during the year. According to the National Bureau of Statistics (NBS) August 2020 Covid-19 impact monitoring report, 68% of Nigerian households experienced moderate or severe food insecurity in August, down from 76.8% in June and almost double the rate of 37% measured in the NBS Jan/Feb 2019 General Household Panel (GHS) post-harvest survey. The charts below show that almost all households in the country have experienced the shock of the increase in food prices and reveals the disturbing rate of severe food insecurity experienced by households since the pandemic started. [caption id="attachment_5402" align="aligncenter" width="573"] Households experiencing shock of increase in price of major food items consumed[/caption] Source: National Bureau of Statistics (NBS) COVID-19 National Longitudinal Phone Survey Round 3: July 2020; Living Standards Measurement Study (LSMS) Integrated Surveys on Agriculture: General Household Survey Panel 2010/2011, 2012/3013, 2015/2016 and 2018/2019. Note: Round 3 of the Nigeria COVID-19 National Longitudinal Phone Survey (COVID-19 NLPS) 2020 was conducted between July 2 and July 16, 2020. 1,950 households from the baseline survey (Round 1) were contacted and 1,820 households, fully interviewed. According to the NBS, the data are representative at the national level and survey weights were calculated to adjust for non-response and under-coverage. [caption id="attachment_5403" align="aligncenter" width="582"] Households Food Insecurity Experience[/caption] Source: National Bureau of Statistics (NBS) COVID-19 National Longitudinal Phone Survey Round 4: August 2020; Living Standards Measurement Study (LSMS) Integrated Surveys on Agriculture: General Household Survey Panel 2018/2019. Note: Round 4 of the Nigeria COVID-19 National Longitudinal Phone Survey (COVID-19 NLPS) 2020 was conducted in August 2020. 1,881 households from the baseline (Round 1) were contacted and 1,789 households, fully interviewed. According to the NBS, the data are representative at the national level and survey weights were calculated to adjust for non-response and under-coverage. The Federal Government of Nigeria’s (FGN) Revenue Problem have worsened The FGN’s finances has been hit with a double whammy of Covid-19 and low oil prices. The record crash in oil prices and the global spread of the coronavirus earlier this year prompted a downward review of the FGN’s overly ambitious revenue targets for 2020, which will see its fiscal deficit widen further. In its May 2020 Economic report, the Central Bank of Nigeria (CBN) noted: “If the current COVID-19-induced restrictions persists, and oil prices remain low, government revenue is likely to further decline. However, recurrent expenditure is projected to continue to rise, considering the countercyclical fiscal policy measures needed to sustain the economy. Consequently, the overall fiscal balance is expected to deteriorate further, while the Federal Government resorts to new borrowings to finance its increasing obligations.” The Country’s Ministry of Finance echoed a similar message as from the CBN expressing worry about the state of the FGN’s finances noting that “The projected Debt Service/Revenue ratio at 47% (actual for 2019 was 58%) raises some concern about the sustainability of FGN debt. However, it is more indicative that the country is faced with a serious revenue problem rather than a classic debt problem. Efforts must therefore be geared towards tackling the revenue problem so it does not degenerate to a real debt sustainability issue.” The chart below illustrates an increasingly worrying revenue problem for the FGN and shows total recurrent debt expenditure taking up a large chunk of total revenue inflows. [caption id="attachment_5404" align="aligncenter" width="588"] FGN revenue inflows and recurrent dept expenditure[/caption] Source: Budget Office of the Federation, Federal Ministry of Finance. Note: Recurrent Debt Expenditure includes debt service payments and line items such as interest on ways & means and sinking fund to retire maturing loans. Oludayo Abass - Associate Sources: “CBN Economic Report, May 2020”, Central Bank of Nigeria, https://www.cbn.gov.ng/Out/2020/RSD/CBN%20Monthly%20Economic%20Report,%20May%202020.pdf, accessed 27 October 2020 Covid-19 Impact Monitoring, National Bureau of Statistics, July and August 2020 “Covid-19 in Africa: protecting Lives and Economies”, United Nations Economic Commission for Africa, “Covid-19 Nigeria”, Nigeria Centre for Disease Control, https://covid19.ncdc.gov.ng/, accessed 27 October 2020 “Hunger and food insecurity", Food and Agriculture Organization of the United Nations, http://www.fao.org/hunger/en/#:~:text=A%20person%20is%20food%20insecure,an%20active%20and%20healthy%20life., accessed 27 October 2020 “Social, environmental factors seen behind Africa’s low COVID-19 cases”, World Health Organization, https://www.afro.who.int/news/social-environmental-factors-seen-behind-africas-low-covid-19-cases, accessed 27 October 2020 The Medium-Term Expenditure Framework and Fiscal Strategy Paper (MTEF/FSP) 2021-2023, Budget Office of the Federation, Federal Ministry of Finance, Budget & National Planning Quarterly Budget Implementation Reports 2010-2020, Budget Office of the Federation, Federal Ministry of Finance, Budget & National Planning “WHO Coronavirus Disease (COVID-19) Dashboard”, World Health Organization, https://covid19.who.int/, accessed 27 October 2020
Over the course of history, humans have been trading goods and services using different means. All these means have something in common - the agreement of their value, and thus their use in operations. One example of an ancient form of human exchange was witnessed in Micronesia where they used an exchange method called the ‘yap’ which were massive ray stones. These ray stones were so big that people were unable to move them, however they were still being used as a means of exchange just by knowing who was the owner of which part of the ray stone. The idea behind this is simply that ray stones or any other exchange mean does not have any intrinsic value apart from the fact that people came to an agreement of their value. Cryptocurrencies could be interpreted as the digital version of the ‘yap’ ray stones. Just like internet has changed the way we communicate in modern day, cryptocurrencies are about to change is a modern, digital means of exchange with an agreed upon value. Cryptocurrencies are digital currencies that are not ruled or governed by any institution. They are designed to be used outside of the intermediary rule that is applied today by financial and governmental institutions. It introduces a very independent, yet very secure system. According to the Coinmarketcap, as of August 2017, there were 843 currencies, where Bitcoin, Ethereum, Ripple, Bitcoin Cash and Litecoin remain the best ones mainly based on their value in USD and their circulating supply. Bitcoin alone has on average daily transactions of 288,953 which is the equivalent of 150 million USD. In addition to that, it is important to mention that Bitcoins are released through a process of mining. In the cryptocurrencies system, accounts given to the users are similar to simple blank sheets of paper. In these sheets, every user has to write down any transaction they were part of. What is special about this system is that any transaction written by any user appears in every other users’ sheet. This essentially gives any user the access to transactions happening in the whole system. The only difference is that the users are connected through a computer code network rather than paper sheets. The rationale behind this system of sharing everyone’s transactions is having everybody else confirm their ownership of coins following the basic and historical exchange system rule. The list of all the transactions is called the blockchain system. This blockchain technology works like a database in which all the transactions are stored, and that automatically performs calculations right after any transaction to update the users’ account and show each users’ balance. Cryptocurrencies are growing in popularity and increasingly been used in African nations. According to an article written by Rainer Michael Preiss, an Adjunct Researcher at NTU_SBF Center for African Studies, digital currencies, primarily bitcoin are increasingly taking roots in countries like South Africa, Ghana, Kenya, Botswana, Zimbabwe and Nigeria. Various factors make Africa a potential platform for a successful blockchain economy yet one of the main possible reasons for its growing popularity would be that Africa has a need for an alternative to its local fiat money mainly due to its lack of reliability and accessibility. Bitcoin and cryptocurrency systems in general suggest not only a better alternative to fill these existing gaps but also an opportunity for the population to control their wealth and enhance transparency, giving birth to a new era of stronger social justice in Africa. This innovative means of trade is about to update the way humans exchange and perform transactions. It suggests a practical and transparent way of doing so. These advantages are simplifying the process of trading and could potentially solve certain social and financial issues faced within societies. Tareq Amhoud, Analyst at Infomineo. Sources: https://coinmarketcap.com/ https://www.howwemadeitinafrica.com/cryptocurrency-great-african-opportunity/59402/
For many decades, the African hospitality market has been exclusively reserved to private investors, of which the majority are hotel chains and property companies. Looking at the market today, it appears that the Sub-Saharan African hospitality sector, excluding South Africa, is now rising as a key investment opportunity for both international hotel chains and institutional investors such as private equity firms. With the tourism sector being a key target for most African governments, hospitality investments are strongly supported by public authorities who offer incentives to attract the world’s largest brands, making the continent the new battleground of major international hotel groups. According to EY’s Africa Attractiveness Survey, the African hotel and tourism sector was forecasted to grow by almost 17%, with accommodation demand increasing from the business travelers connecting to big smart African cities and many other African commercial capitals, as a reflection of strong economic growth. As the continent remains attractive to investors for business, trade and capital investment, it leads to an increasing demand for accommodation and hospitality products. The hospitality sector is developing at a fast pace with large investments planned in sub-Saharan Africa. It has shown a 29% average yearly growth rate between 2012 and 2016 in terms of room capacity, according to W Hospitality Group 2016 survey. At the end of 2016, hotel developments are planned for 35 of the 49 sub-Saharan African countries, with western Africa absorbing 45% of the capacity of rooms planned, followed by Southern Africa with 26% and Eastern African capturing 24% of the planned rooms. The offer covers all hotel’s segmentation, with an emphasis on 4-star hotels, mainly targeting business travelers and tourists with specific requirements when visiting Africa. In terms of the number of investments, they are largely focused on the southern region of the continent, with South Africa absorbing the highest amount of investments. Kenya attracts the highest amount of hotel investments in the east Africa region, followed by Uganda, as the countries are offering diverse opportunities for tourism development and therefore large capacity of absorbing hospitality investments. West Africa is also a key target for several investors, with Nigeria on top of priority, followed by Cote d’Ivoire and Ghana. Both countries are very attractive due to the rise of their business travelers, as their economies keep prospering. Historic segment investors like international hotel groups are actively taking advantage of the market opportunities. They all plan several openings and hotel extensions, with some looking to increase their footprint on the continent through hotel acquisitions in main countries and local development offices to support their strategies: AccorHotels has set up partnerships with strong investors to conquer the African hospitality market and aims to increase its sub-Saharan Africa network to 15,000 rooms in 100 hotels over the next five years. Carlson Rezidor, with 30 hotels comprised of 6,300 rooms under development across the continent, has set up a hospitality fund, Afrinord Hotel Investments, with Nordic institutions to support its growth on the continent. Marriott International announced in 2014 its plan to expand its African presence to 150 properties in 17 national markets by 2020. Its acquisition of Protea, a 116-hotel group spanning seven African nations, for USD 200 million, marks a key step in its strategy. The American group Hilton, with 39 hotels in 17 African countries, intend to double its presence to 80 hotels by 2020 with new openings and extensions in Ghana, Kenya and Nigeria. Even if international hotel chains seem to be the leading active players on the field, the local groups are not in marge. Mangalis Hotel Group, the new African hotel chain is investing USD 340 million to build 15 hotels in west and central Africa through 3 brands (Noom, Yaas and Seen) with a total of 2,200 rooms and suites. Azalaï Hotels who has footprints in several west African countries, with a capacity of 1,000 rooms, intends to grow above 1,600 rooms in terms of capacity after this fundraising. At the beginning of this year, AfricInvest announced an injection of EUR 17.3 million in Azalaï Hotels capital, to support the hotel group development across Africa through capacity extension and service improvement. Beside the hotel groups, institutional investors are also showing interest to the hospitality and tourism sector. Gradually increasing their exposure on the segment, investment funds see the African hospitality sector as a golden egg, and show their enthusiasm for the segment by mainly investing through equity vehicles. Their investments target both greenfield and brownfield projects in all geographies. These funds targeting African hospitality markets are largely funded by development institutions around the world, helping local tourism sectors take off and raise the economy. As other institutional investors, African sovereign wealth funds are looking to hospitality, as the segment is considered as a relatively safe investment sector. The Libyan Investment Authority (LIA), the Libyan sovereign wealth fund, has been actively investing in hotels in Africa through its subsidiary LAICO, Libyan African Investment Company. The fund owns hotel chain Laico Hotels & Resorts, which also owns the Ensemble Hotel Holdings group, proprietor of the high-prestige Michelangelo Hotel in Johannesburg. Laico Hotels & Resorts has 10 properties of 4-star and 5-star hotels with over 2,200 rooms through 2 brands: Laico and Ledger. Most of its acquisitions were targeting three-star to five-star hotels and are managed by international operators. In 2008, LAICO established a joint venture, called LAICO Hotels Management Company, with Tunisia Travel Service (TTS), a Tunisian company involved in the hospitality sector through hotel management, airlines and ground transportation. LIA is similarly followed by Angola’s Fundo Soberano de Angola (FSDEA), which is starting investments in hotel and commercial infrastructure in sub-Saharan Africa. The fund is expected to invest in 50 sub-Saharan African hotels over three years, including in Angola. This is thanks to allocation of USD 500 million in equity capital to a hotel development fund for Africa, as it has earmarked the tourism space as a particularly potent area. FSDEA’s hotel fund will focus on three-star to five-star hotels in sub-Saharan African capitals and other commercial centers, targeting business travelers rather than tourists for their currently returns. The fund will target existing hotels changing ownership or those still under development. Funds from Mozambique, Nigeria and Ghana are all intending to follow their peers and to exploit the recent rises in tourism to Africa. The new dynamism on the African hospitality sector proves that investment opportunities on the continent are diverse for all types of investors. All it takes is to be more alert to rising opportunities and growing sectors. Gaicha Saddy, Senior Associate at Infomineo. Sources: Agence Ecofin, AfricInvest investira 17,3 millions d’euros pour soutenir le développement du groupe Azalaï Hotels (January 2017) http://www.agenceecofin.com/investissement/0601-43579-africinvest-investira-17-3-millions-deuros-pour-soutenir-le-developpement-du-groupe-azalai-hotels Jeune Afrique, Hôtellerie : Hilton entend doubler sa présence africaine (October 2016) http://www.jeuneafrique.com/362631/economie/hilton-entend-doubler-presence-dici-4-ans-afrique/ W Hospitality Group, Hotel Chain Development Pipelines in Africa 2016 (May 2016) http://w-hospitalitygroup.com/newwhg/wp-content/uploads/2016/05/W-Hospitality-Group-Hotel-Chain-Development-Pipeline-in-Africa-2016-1.pdf EY’s attractiveness survey, Africa 2015, Making choices (2015) http://www.ey.com/Publication/vwLUAssets/EY-africa-attractiveness-survey-2015-making-choices/$FILE/EY-africa-attractiveness-survey-2015-making-choices.pdf JLL, Hotel Investment Outlook 2015, Hotels & Hospitality Group (January 2015) http://www.jll.com/Research/JLL%20Hotel%20Investment%20Outlook%202015.pdf African Union, Invest In Africa 2015 (2015) http://www.un.org/en/africa/osaa/pdf/pubs/2015investinafrica.pdf Bloomberg, Angola Sovereign Wealth Fund Starts Hotel, Infrastructure Pools (April 2014) https://www.bloomberg.com/news/articles/2014-04-23/angola-sovereign-wealth-fund-starts-hotel-infrastructure-pools African Development Bank, Africa’s Quest for Development: Can Sovereign Wealth Funds help? (December 2011) https://www.afdb.org/fileadmin/uploads/afdb/Documents/Publications/WPS%20No%20142%20Africas%20Quest%20for%20Development%20%20Can%20Sovereign%20Wealth%20Funds%20help%20AS.pdf Companies websites
Revenue receipts from oil will be just as important to driving Nigeria’s economy in the medium term as they were in the last decade. An estimated 70% of government revenues and around 90% of the country’s foreign exchange earnings come from oil sales. However, Nigeria is currently experiencing the effects of its over-dependence on oil and under-investment in infrastructure, which will have serious socio-economic implications in the long-term if kept this way. For many investors, Nigeria remains an important part of their long-term Africa portfolio strategy, and rightly so. Between 2005 and 2015, Nigeria’s economy grew by an average of 6.5% annually, driven largely by record revenue receipts from crude oil sales, which funded the country’s consumption-led growth model and propelled it to become the largest economy in Africa in 2014. Also, not only does the country possess the continent’s largest and one of the fastest growing domestic markets, it also accounts for an estimated 29% of Africa’s total GDP (2016). In addition, the strong economic growth the country experienced between 2005 and 2015 helped create new consumer groups with significant pent-up demand for goods and services. Source: United Capital; Unlocking rapid development of transport infrastructure in Nigeria, 2014 However, despite Nigeria’s economic success in the last decade, strong economic growth wasn’t followed by the required infrastructure investments and the country’s infrastructure stock is becoming inadequate to support its large population and level of economic activity. At around 25% to 40% of GDP, Nigeria’s stock of infrastructure is significantly lower than the global average of about 70%. If the country’s infrastructure bottlenecks were concerning before, they have only gotten worse and Nigeria desperately needs to improve its outdated and insufficient infrastructure. Moreover, growth in Africa’s largest economy has turned negative. On the back of a macro-economic environment characterised by low oil output, low oil prices and a faltering exchange rate regime, in 2016, and for the first time in 25 years, the country experienced its first full year contraction, with the economy shrinking by about 1.5%. Since officially slipping into recession in the second quarter of 2016, some of the issues which drove the economy into recession has been “partially” addressed and Nigeria’s economy is expected to come out of recession by the end of 2017. In fact, the IMF estimates that the Nigerian economy will grow by 0.8% in 2017, with growth in 2018 to 2022 averaging 1.8% annually. Yet, as identified by the McKinsey Global Institute (MGI) in 2014, for Nigeria to achieve its full economic potential by 2030, GDP growth needs to average a minimum of 7.1% annually. This would see GDP grow to an estimated $1.6 trillion, with the potential for an estimated 70 million people to move out of poverty. Source: National Bureau of Statistics When comparing the IMF growth estimates above with the 9.45% growth the country saw in 2010, and considering factors such as decades of under-investment in infrastructure which has caused significant infrastructure deficits, a fast growing population - a large proportion of which lives in poverty, and a new reality of low oil prices ($40 to $70 range in the foreseeable future), Africa’s largest economy needs to get serious about investing in infrastructure and creating an environment which attracts significant private investments in infrastructure. Nigeria’s underinvestment in overall infrastructure, historically around 1.5% of GDP, contributed to the worsening infrastructure challenges. This is about one fifth of the investment level needed to keep economic growth at 7% and above. To put things into perspective, countries like China and India invested 8.6% and 5% of GDP, respectively between 1992 and 2013. According to the World Economic Forum rankings on overall infrastructure quality in 2016, Nigeria sits near the bottom at 132nd out of 138 countries surveyed, well below 4 of the 5 largest economies in Africa with Egypt ranking 96th, South Africa 64th, Algeria 100th, and Morocco 58th. With oil prices at about half of what it used to be a couple of years ago, Nigeria’s economy would struggle to grow consistently at rates at which it did in the last decade if it doesn’t aggressively address its infrastructure challenges. For Nigeria to effectively address its infrastructure challenges, it must transition from a consumption-led growth model to an investment-led growth model, one which would promote accelerated investments in infrastructure. Also, according to the MGI, an estimated $1.5 trillion needs to be invested in infrastructure through 2030 to allow Nigeria’s economy reach its full potential, with much of the investments going to power, transportation, and real estate. This would mean annual infrastructure investments in excess of $50 billion. With a fast-growing budget deficit and high borrowing costs, the government is losing the race to boost its own investments. The current government has shown it is serious about investing in infrastructure with record budget appropriations for capital expenditures. ($5.9 billion in 2016, compared with $2.8 billion in 2015). While helpful, it is clear the required level of improvement in Nigeria’s infrastructure won’t come only through increased public investments but rather by promoting a friendlier environment for private investments. To attract the level of investments required to transform Nigeria’s infrastructure, not only must the government properly execute target infrastructure plans, it must lay the groundwork for private investments through a regulatory framework which tackles the availability of private funding and protects private investments in infrastructure. Infrastructure challenges notwithstanding, Nigerian development has come to a decisive moment. Transition to an investment-led growth model, in addition to tackling corruption and waste in government, could see the country achieve faster economic growth than it did in previous years, a scenario which would see Nigeria’s economy become one of the top destinations for private investments in the world. High crude oil prices and improved productivity, which the MGI defined as GDP generated per worker and estimated to have contributed 55% of total growth set the stage for a decade of strong economic growth, which has provided a platform on which Nigeria must build upon. Strong economic growth spurred Nigeria’s economy to become the largest market in Africa, while domestic consumption grew significantly. However, changing dynamics in the oil industry has hit Nigeria hard, forcing it to face the realities of the limitations of its infrastructure. Should Nigeria’s government tackle regulatory and funding challenges in infrastructure investments, it could open up a pipeline of potential private infrastructure investments of more than $500 billion dollars over the next 2 decades, putting Nigeria on course to meet its economic potential. Oludayo Abass, Analyst at Infomineo. Sources African Economic Outlook: 10 facts you probably didn’t know Bloomberg: China Spends More on Infrastructure Than the U.S. and Europe Combined Economic Recovery & Growth Plan 2017-2020 FT; Nigeria economy suffers first annual contraction in 25 years IMF Jackson, Etti & Edu: The infrastructure gap in Nigeria – new sec rules to the rescue? McKinsey Global Institute – Nigeria’s renewal: Delivering inclusive growth in Africa’s largest economy National Bureau of Statistics PWC; Infrastructure Development in Nigeria: Better late than never The Global Competitiveness Report, 2016–2017, page 47 United Capital; Unlocking rapid development of transport infrastructure in Nigeria Vanguard: 2016 budget: FG to spend N1.75trn on Capital Expenditure niimp.gov.ng MEA Pulse Episode 2: How is the Nigerian Government Diversifying its Economy? Hosting Soji Akinelye from the Infomineo's Lagos office, MEA Pulse Episode 2 dives into the transitioning Nigerian economy, the success stories of private investments, as well as the data accessibility for business research in the country. https://soundcloud.com/user-961934619/episode-2-how-is-the-nigerian-government-trying-to-diversify-its-economy
The African continent, a beacon of African growth, remains one of the fastest-expanding economies globally. Despite this promising trajectory, the economic foundation of many African nations is still predominantly tethered to commodity production and exportation, especially crude oil, underscoring a critical need for diversification and development of internal value-added operations. Oil is a natural resource that commonly attracts a high amount of foreign investment and boosts the main economic indicators of a country. It can be easily used as a proxy for natural resource based economies. Moreover, due to the current commodity crisis for certain economies, with the barrel price sinking in 2014-15 to its lowest level since 2003[1], it is easier to highlight some differences in performance between oil producing and non-oil producing African countries. It is also important to highlight such differences since it provides an opportunity to assess the convenience and sustainability of a development process based on these natural resources. Oil and Non-oil Producing Countries Nineteen of the 54 African countries are currently oil producers, however, it is worth noting the number of produced barrels can considerably vary from one country to another. Those countries are home to about 56% of the African population.[2] Fig.1 - African crude oil producing countries[3] In terms of wealth, the gap between the two groups of countries is evident, when it comes to GDP and GDP per capita. Nevertheless, the growth rates for both indicators show how the recent trends are not necessarily related to the oil economy. In relative values, the non-producing countries show better performance than the producers, but the progress of the two groups of countries can be reasonably compared over the years. Fig. 2 – GDP in USD bln[4] Fig. 3 – GDP growth[5] Fig. 4 – GDP per capita in USD[6] Fig. 5 – GDP per capita growth[7] It is easy to identify the higher impact that the 2014-15 price crisis had on oil-producing countries, whose overall GDP and GDP per capita fell by 10.0% and 12.2% respectively in 2015. The same crisis could have also been an important factor in the good export dynamics. As the following chart shows, the oil-producing countries’ export precipitated in 2015 (-49.0%), as a result of a negative trend during the last five years. Even the export from non-oil producing countries fell during the same period, but the overall decrease is moderate (-2.0%). Fig. 6 – Export of goods in USD bln[8] Fig. 7 – Export of goods growth (decrease)[9] In terms of attractiveness, the oil economies continue to attract the most attention from foreign investors, despite the fall in oil prices. The producing countries received increasing FDI (+4,7%) with a fluctuating trend in the course of the years. In the last years, the oil-free countries received around 21% to 56% fewer inflows compared to the oil producers, yet still showing an overall +1.0% growth. Fig. 8 – FDI inflows in USD bln[10] Fig. 9 – FDI inflows growth[11] Beyond indicators strictly related to the economy, it is interesting to recognise how the richer oil-producing countries are on average more developed than the others. With reference to human development aspects such as life expectancy, education, and income per capita (enclosed in the elaboration of the Human Development Index), the African oil producing countries show better performance than non-producers. The following chart shows this gap, despite the fact that HDI growth trends are comparable among the two groups of countries. Fig. 10 – Human Development Index[12] Consequences and Recommendations The recent crash in oil markets and commodity prices has harshly affected the global economy, with no immunity offered to developing countries. Saudi Arabia for instance, once thought immune to the downturn in oil prices, was recently declared at the verge of bankruptcy and forced to make its first international bond sale[13] to bring in necessary cash. In Nigeria, the falling oil prices have been claimed to have “a painful effect” on the country’s economy, with the necessary slowdown of the production and a negative impact on the rest of the industry[14]. In Angola, the oil crisis is believed to have unmasked how poorly managed the country really was in the last decade, giving visibility to all the economic and social deficiencies that were concealed by the high growth percentages[15]. Even some non-producing countries have been affected by the negative situation. For example, in Mozambique the realisation of various large projects aiming to benefit from the country’s natural gas resources, whose selling price is strictly related to oil price, has been continuously delayed these past years. This conjuncture created a series of erroneous expectations leading the country into a major economic downturn, with the government taking on more debt assuming an easy repayment, once revenue from LNG started flowing[16]. The IMF pointed out how most of the African countries where energy and mining exports accounted for a larger share of GDP will need to make “sizeable adjustments” to their domestic spending. On the other hand, countries that have invested in infrastructure and strengthened domestic consumption are all expected to grow at rates between 6-7% and more in the next few years. This is the case for the Ivory Coast, Kenya, Rwanda, Senegal and Tanzania[17], leading to the clear but not so obvious conclusion that diversification is an inescapable factor for sustainable growth. Antonio Pilogallo, Associate at Infomineo. Learn more about Antonio. [1] Source: http://www.bbc.com/news/world-35345874. [2] Source: Infomineo analysis on WB data [3] Source: https://www.cia.gov/library/publications/the-world-factbook/rankorder/2241rank.html. Given the very small amount of crude oil production, Morocco has been considered as a non-producing country. [4] Source: Infomineo analysis on WB data [5] Source: Infomineo analysis on WB data [6] Source: Infomineo analysis on WB data [7] Source: Infomineo analysis on WB data [8] Source: Infomineo analysis on UN Comtrade data [9] Source: Infomineo analysis on UN Comtrade data [10] Source: Infomineo analysis on UNCTAD data [11] Source: Infomineo analysis on UNCTAD data [12] Source: Infomineo analysis on UNDP data [13]Source: http://www.forbes.com/sites/timdaiss/2016/10/23/we-are-doomed-to-bankruptcy-unless-changes-made-says-saudi-official/#6e9b68d24471 [14] Source: http://www.bbc.com/news/world-35345874 [15] Source: https://www.washingtonpost.com/news/worldviews/wp/2016/08/02/how-the-crash-in-oil-prices-devastated-angola-and-venezuela/?utm_term=.816db1e8ab7d [16] Source: http://ww2.frost.com/frost-perspectives/impact-oil-and-gas-price-slump-mozambiques-economy/ [17] Source: https://www.weforum.org/agenda/2016/04/10-things-the-imf-wants-you-to-know-about-africas-economy