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Nigeria’s Economic Outlook in 2015

Ayo TeribaCEO, Economic Associates

ayo.teriba@econassociates.comAuthor page: http://ssrn.com/author=358232

November 20 2014

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 Equatorial Guinea

 Gabon

 Zambia

 Uganda

 Cameroon

 Ivory Coast

 Democratic Republic of the Congo

 Tanzania

 Ghana

 Tunisia

 Ethiopia

 Libya

 Kenya

 Sudan

 Morocco

 Angola

 Algeria

 Egypt

 South Africa

 Nigeria

0 100,000 200,000 300,000 400,000 500,000 600,000 700,000

15,574

19,228

22,416

23,053

27,957

28,288

30,639

34,238

44,223

47,439

48,145

54,890

55,206

70,127

105,101

121,704

211,906

271,427

350,779

580,470

2013 GDP

(US$ millions)

4Fiscal Realities 4

Note: Italicized items are for 2012, all other are for 2013

FISCAL INERTIA

Discordant fiscal contraction/austerity in the face of ongoing domestic economic expansion. Nigeria fails to produce ‘savings’ from years

of oil-price benchmarking. Nigeria is also inept in raising revenue from

evident and widely acknowledged ongoing boom in non-oil activity (N70 trillion non-oil GDP; N2.95 trillion federally collected non-oil revenue is 3.7% of GDP).

Nigeria’s non-oil GDP is bigger than each of South Africa’s and Egypt’s GDP. Why should they each have more tax revenue than Nigeria? Govt Revenue as % of GDP:

- Nigeria 12.2% (Oil 8.5%, non-oil 3.7%!)- South Africa 25.0%- Egypt 24%- Algeria 33.8%- Angola 41%- Morocco 24.47

VAT rates: - Nigeria 5%! - South Africa 14% (standard),

30% (maximum)- Egypt 10% (standard), 25% (luxury

goods)- Algeria 17,% 14%, 7%- Angola 10% (standard), 30% (maximum)- Morocco 20%

Item N' Billion % of GDP Total Federally Collected

Revenue 9,759.8 12.20 Oil Revenue 6,809.2 8.51 Non- Oil Revenue 2,950.6 3.69

­ Corporate Income Taxes 848.0 1.06

­ Value Added Tax 710.0 0.89­ Customs and Excise

Duty 475.0 0.59­ Custom Levies 161.6 0.20­ Education Tax 214.6 0.27­ FG Independent

Revenue 206.8 0.26­ States’ IGR 543.0 0.68­ LGA’s IGR 26.6 0.03

Nominal GDP 80,009.1 100 Oil GDP 10,296.00 12.87 Non-Oil GDP 69,926.13 87.40

Expenditure on GDP 81,010.0 101.25 Private Consumption 58,440.00 73.04 Investment 11,924.00 14.90 Government

Consumption 6,548.00 8.18 Net Exports 4,097.00 5.12

External Spending Exports 14,615.00 18.27 Imports 10,518.00 13.15 Net Exports 4,097.00 5.12

5Macro Trajectories: Trends, Cycles, and Shocks 5

Federation Account1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

0

10

20

30

40

Total Federally Collected Revenue

Total Federally Collected Revenue

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

0

10

20

30

Oil Revenue

Oil Revenue

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

0

4

8

12

Non-Oil Revenue

Non-Oil Revenue

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

0

5

10

15

20

25

Federation Account

Federation Account

6Macro Trajectories: Trends, Cycles, and Shocks 6

Federal Account1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

0

5

10

15

Fed Govt Retained Revenue

Fed Govt Retained Revenue

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

0

5

10

15

20

25

Total Expenditure

Total Expenditure

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

0

4

8

12

Recurrent Expenditure

Recurrent Expenditure

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

02468

1012

Capital Expenditure

Capital Expenditure

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Trends and Outlook of Global Transactions Shocks Volatile Commodity Prices

- GDP Growth, Spending, Employment, and Inflation Trends and Outlook of Global Portfolio Shocks

Volatile Global Equity Indices- Domestic Equities, Bonds, Forex, and Reserves

Demand Management Policy Inertia Fiscal Disconnect and Policy Endogeneity: Austerity?!!! Monetary Policy Ineptitude/Inertia: Tight Monetary Policy Stance?!!!

Needful but Absent Domestic Structural Shifts Transport: Road, Rail, Water, Air Utilities: Water, Sewerage, Energy Social: Education, Health, Security, Insurance

Needful but Absent Balance Sheet Evaluation and Repairs Private: Personal, Corporate, and Banks Government: Federation, Federal, States, LGAs Central Bank: Payments, Monetary, Financial

Democratic Effectiveness and Economic Outcomes President, Parliament and Economic Outcome Economic Diagnostics and Economic Intelligence

Global Impulses, Domestic Impact, and Domestic Policy Responses

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Signal from Recent Global Market Volatilities

What signals should we extract from recent volatility of global oil prices?- To what extent is it about sustainability of the challenge of ‘dear oil’ to ‘cheap oil’- About who blinks: OPEC/Russia or US/Canada, and how soon?- Looming Crisis: Sovereign Fiscal Implosion or Corporate Debt Implosion- Which producers will survive $60pb oil price threshold

 What signals should we extract from recent volatility of global equity prices?- Likely impact of the divergent growth paths of the advanced economies- Likely impact of discordant policy tunes from advanced economies

What signals should we extract from recent policy statements in Nigeria?- Austerity? Spending cuts? Not non-oil revenue drive? Not increase in the VAT rate and

coverage? Not streamlining of arbitrary import duty waivers?- Not ending government (NRC) monopoly in rail, and allowing new entrants, PHCN-style?- Not building Nigeria’s capacity to refine all its own crude output for domestic use and

export?

What signals should we extract from democratic disposition to economic management?- President, Parliament and Economic Outcome- Economic Diagnostics and Economic Intelligence

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Outlook 2015: Global Impulses vs. Domestic Responses

Ongoing volatilities in global commodity prices and global equity prices threaten to destabilise domestic economic and financial activity in 2015, but only if the volatilities become protracted, or turn out to persistent contraction. - Monetary policy responds only to movements short term liquidity in banks and public sector;

says and does nothing about real economic activity and sectoral balance sheets.

- Needful value-creating structural reforms in rail transportation and oil refining are not happening.

- Nigeria’s most important failing is the ineptitude to extract the tax revenue that we all know and the whole world knows that we could extract!

- Countries that fund donor agencies and provide grants/soft loans/investment to other countries are only able to do so because the have the liver to generate optimal tax revenue at home!

Austerity? Surely not for Nigeria! - Champagne, wine, beer, spirits, tobacco, luxury cars, boats, private jets, and other activities

of ostentation that go with them can surely sustain VAT rates much higher than 5%? We do not need McKinsey to come and tell us or teach us how to do that! And we can and should do that this minute! Why not?

- We can effect needful immediate heavy investment in health, educational, security and defence capabilities and be happier for it! Why not, if not?

- Duty waivers? For who? For what?

- Immediate excess oil refining capacity? Why not?

- Immediate rail transport revolution? Why not?

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Economic Associates, 16 Amodu Ojikutu Street, Victoria Island, Lagos, Nigeria. Tel: 0803 305 5380; e-mail info@econassociates.com; home page http://www.econassociates.com

We clarify the trends and outlook of risks and opportunities in the Nigerian economy, given the realities of the international economic situation, and the economic policy directions of the government. Our products and services currently include: Economic Outlook monthly summaries of the main drivers of Nigerian economic

outlook. Briefing for decision-makers on the drivers of the economic outlook. Training on selected themes on the Nigerian economy. Regular access to EA staff to discuss new ideas as they emerge.

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