Nigeria’s economy grew 1.87 percent in real terms in the first quarter of 2020 year-on-year, the National Bureau of Statistics said on Monday, shrinking from the previous quarter as oil prices and international trade fell due to the coronavirus pandemic. It is the slowest quarterly growth rate in one-and-a-half years even as the country is yet to recover from a 2016 recession that led to more than 13 million job loss. On the contrary, The total value of capital inflows into the country stood at $5.854 billion in the Q1’20, representing a 53.97 percent increase compared to $3.802 billion recorded in Q4’19. However, there are fears that the numbers might drop in the coming quarters as the impact of COVID-19 pandemic begins to set in. The NBS data showed that the largest amount of capital importation by type was received through portfolio investment at $4.309 billion, accounting for 73.61 percent of total capital importation, followed by other Investment, which accounted for 22.73 percent at $1.33 billion of total capital, and Foreign Direct Investment which accounted for 3.66 percent $214.25million of total capital imported in Q1 2020. In the Q2’19, the country’s real GDP at basic prices grew by 2.12 percent on a year-on-year basis. During the Q1’20, Nigeria’s crude production was 2.07 million barrels a day, the statistics office said, the country’s highest level in more than four years. But a global oil price crash due to reduced demand from the pandemic threatens to offset those gains, with annual growth in the oil sector contracting 1.3 percent from the previous quarter to 5.05 percent. The non-oil sector was also hit: growing by just 1.55 percent, which was down 0.72 percent from the last three months of 2019, the statistics office said. The World Bank expects the coming recession to be “much more pronounced” than in 2016 and potentially Nigeria’s worst financial crisis in four decades. Nigeria’s economy could shrink as much as 8.9% in 2020 in a worst-case scenario without stimulus, Finance Minister Zainab Ahmed said on Thursday, a deeper recession than forecast after oil prices plunged due to the coronavirus pandemic. Ahmed told Nigeria’s highest economic advisory body, the National Economic Council, that the contraction could reach 4.4% in a best-case scenario, without any fiscal measures. But with the stimulus, the contraction could be kept to just 0.59%, she said. The pandemic and an oil price plunge have not only hit growth but also dented the state’s main source of income, creating large financing needs and weakening the naira.

President Muhammadu Buhari has advised Nigerian farmers to increase their food production as Nigeria has ‘no money’ for food importation. Even before the coronavirus pandemic, Nigeria has restricted food importation as the country strived to produce a lot of the food it consumes. The country also shut its borders with neighbouring countries, largely to prevent the importation and smuggling of items such as rice, poultry and petrol. The borders are still shut but were also closed to human traffic following the coronavirus pandemic, although smuggling and other illegal activities still go on with the connivance of corrupt security officials. Mr Buhari gave his advice to the farmers while addressing journalists after observing this year’s ‘Eid’ prayer at the Presidential Villa in Abuja, on Sunday. Mr Buhari’s reference to the economy is not unrelated to what Nigeria’s finance minister, Zainab Ahmed, said last week that the country’s economy would definitely go into recession soon.

Imo Governor Hope Uzodinma has assented to a bill repealing the law that created pension allowances and gratuities for former governors, deputy governors, assembly speakers and deputy speakers. Signing the bill into law in Owerri on Friday, the governor noted that the erstwhile law runs contrary to the 1999 constitution as amended, which stipulates that a pensioner must have worked for at least 10 years and must be up to 45 years of age. He regretted a situation where some of the beneficiaries of such payments also receive a huge amount of money as salaries and allowances in other positions they occupied such as serving as senators or members of the House of Representatives. “Apart from the inconsistency of such a law to the provisions of the ground norm, which is the Constitution of 1999 (as amended), this has led to a very long time precedent that does not encourage diligence and prudence in service delivery,” the governor said. He, however, thanked the State House of Assembly for rising to the occasion and embracing totally the desire of the government to strengthen the Internally Generated Revenue (IGR) base of the state.

U.S. Treasury Secretary Steven Mnuchin rejected plans by the African Development Bank’s board to end an investigation into its president, Akinwumi Adesina and called for an independent probe into allegations against him. In a letter dated May 22 and addressed to Niale Kaba, chairwoman of the bank’s board of governors, Mnuchin said the Treasury disagrees with findings by the bank’s ethics committee that “totally exonerated” Adesina. Kaba confirmed receipt of the document and declined further comment. The intervention by the Treasury, the AfDB’s biggest non-African shareholder, comes two weeks after the ethics committee found no evidence to support allegations of favouritism by Adesina. The 60-year-old bank chief, who has repeatedly refuted the allegations, is the only candidate up for election as president at an annual general meeting scheduled for August. “We have deep reservations about the integrity of the committee’s process,” Mnuchin said. “Instead, we urge you to initiate an in-depth investigation of the allegations using the services of an independent outside investigator of high professional standing.” Adesina was accused by a group of unidentified whistleblowers of handing contracts to acquaintances and appointing relatives to strategic positions at the Abidjan-based lender. The AfDB is Africa’s biggest multilateral lender and has an AAA rating from Fitch Ratings, Moody’s Investors Service and S&P Global Ratings. Its shareholders are Africa’s 54 nations and 27 countries in the Americas, Europe, Middle East and Asia. In March, the lender issued a $3 billion social bond to help African countries deal with the fallout from the coronavirus pandemic. Bids for the securities on the London money market exceeded $4.6 billion. The bank also launched a $10 billion crisis-response facility for African nations.

Commentary

  • While the GDP results indicate that the economy may just be tenacious (both oil sector and non-oil sector grew at 5.06% and 1.55% respectively), what they really show are the beginnings of the impact of COVID-19 on the Nigerian economy. The main impact will be seen in the Q2 report as the main period of COVID-19 shutdown impact falls within this period. The currency devaluation (official and unofficial), as well as various tariffs, means importing goods will become even more expensive, further driving inflation up. Sellers will need to increase prices but will be unable to because, in this new economic clime, purchasing power has also plummeted in the shrinking middle class and rapidly expanded the lower class. It is therefore likely that many FMCG companies and retailers will struggle in the coming period. We agree with the Finance Minister that a recession looms, and we expect the government to already be preparing for the same. Almost in reaction to this GDP report, the CBN’s monetary committee cut interest rates by 100 basis points yesterday, in a signal that they favour growth over inflation at this point. While better late than never, we think that the cut will be followed by further loosening as economic recovery will prove weaker than expected, leading to more cuts by Q4. But there are other questions. What measures asides monetary easing, are being put in place to face the near-inevitable downturn? How are the most vulnerable going to be taken care of? What buffers are being created? Does the state in its current fiscal condition have the capacity to create them? Whilst the NBS noted that the slowdown reflects “the earliest effects of the disruption, particularly on the non-oil economy”, it is important to also note that the Nigerian economy does not take wild swings in growth, perhaps due to the large informal sector. However, because of the shutdown which spanned much of April and May, we can expect that Q2 results will not be as good as Q1, but perhaps not as bad as is expected. Another positive, depending on how one spins it, was that capital importation rose. But less positive is the fact that hot money grew fastest and Nigeria is still not getting the right amounts of FDI. Back to the GDP report, the growth of 1.87% represents the worst mark in a year. More worryingly, the non-oil sector comprised 90.5% of GDP, which means that oil’s share of GDP grew from 7.32% in Q4 2019 to 9.5% in Q1 2020, perhaps an indication of increased oil dependence. Agriculture declined by 0.11% from a year ago, construction declined 22.73% from a year ago, trade declined by 5.09% from a year ago. These industries are Nigeria’s biggest employers in the informal sector. The trajectory is clear. We advise all to brace up for impact.
  • Well-intentioned as President Buhari’s advice may be, it is hardly going to be easy or maybe even achievable for Nigeria to increase its food production. The President and indeed many Nigerians, make the error of framing food importation as the government takes money out of its pocket to buy the food abroad and then distributes it to Nigerians. The reality, of course, is that private individuals aggregate the demand, import food, and sell at a profit to Nigerians. The government’s main role is in providing the foreign exchange for Balance of Trade payments. This, it can fix with policy. Unfortunately, Nigeria’s government insists on controlling FX rates and being the primary supplier of FX in the market, and therein lies the real problem. Nigeria has a significant fiscal challenge with financing its budget. Perhaps it is time for the government to let go of its FX control obsession, let others supply the FX market at the right rates, and let people import what is a fundamental human need – food. The interesting thing is that by doing this, the higher the exchange rate, the more an environment for domestic food production is created. Still, on the policy side of things, the closure of the land borders to prevent smuggling has further raised food prices and inflation (already, Nigerians spend on average 60% of their income on food, compared with the US at 4%). Whether Mr Buhari will ease his border closures in order to allow for food imports, and cross-border trade is still anyone’s guess, but without that, it is very likely that the recession will bite harder and take longer to get out of. Finally, on the production side of things, Nigeria’s agricultural production is beset with legacy problems such as antiquated farming practices, lack of access to improved seed and other inputs, over-dependence on rain-fed agriculture, lack of mechanisation, and high post-harvest loss. On top of all these problems has now been added insecurity, especially in the North West (Zamfara, Sokoto, Kaduna, and Katsina) which are overrun by or encountering attacks from bandits, large swathes of the North East still gripped in Boko Haram insurgent vice and the Pastoral Conflict across the food growing central parts of the country, which we did a comprehensive report on five years ago. It is a mixed picture whichever way it is observed. Declaring the end to food importation is a non-starter and betrays an ignorance of one of the country’s most intractable problems.
  • With regards to the governorship pension law, Imo is not the first but is likely to be the vanguard of a raft of such abolishments. Zamfara for example, which had a similar law, abolished it in November 2019. It is very likely that this move by the Imo State Governor will put pressure on other states to do the same; however, it cannot be said that the pressure will by itself produce similar results as different political factors in the states contribute hugely. For instance, Governor Uzodinma is feeling the pressure of running a largely unaccepted government since the Supreme Court declared him the winner in January 2020 and removed his predecessor Emeka Ihedioha. This legislative move may be an attempt to increase his popularity with residents of the state. In the case of Zamfara, Governor Bello Matawalle, who has a long-running battle for control of the state’s politics against his immediate predecessor, leaned on the fact that the state assembly is entirely controlled by his PDP to have the law abolished. Politics aside, Governor Uzodinma’s move is bound to be well-accepted, considering how unpopular the pensions law is in the state, as well as similar laws across the whole country. The scale of this rollback, if it happens, will be significant – 24 other states have similar pensions laws. While the move is clearly political, the plunging revenue profile of most states makes this policy route a quick win. 33 of the 36 states can no longer meet just their basic salary obligations without federal help. The fiscal crisis Nigeria faces, which is serious at the federal level, is beyond dire at the sub-national level. Nigeria desperately needs to restructure its political and economic architecture if the country is to survive. A majority of potential productivity is trapped by the current structure leaving states with stymied financial profiles, who then proceed to waste the same on frivolities like humongous pensions for government officials who seek to insulate themselves from the financial realities on the ground even after their terms of office. More states are likely to follow suit, as their financial position continues to become even direr.
  • The US request for an independent probe of Mr Adesina lays bare the politics behind multilateral organisations. For one, the US Treasury Secretary’s approach is indicative of the rhetoric of President Trump’s America First administration. Bloomberg has reported that Denmark, Sweden, Norway, and Finland are among countries that wrote to the AfDB to back Mr Mnuchin’s demands for professional outsiders to look into the allegations, whilst African leaders including Nigeria’s Muhammadu Buhari and South African’s Cyril Ramaphosa have expressed support for Mr Adesina and commended him for his efforts to help secure funds for Africa to deal with the fallout from the coronavirus. Besides the US, France, another shareholder is not enthusiastic about an Adesina second term and has accused him of barely speaking French as well as ignoring the francophone staff of the bank (despite the fact that Mr Adesina regularly gives press conferences in French, which he speaks fluently). It does appear that there is a geopolitical factor at play, with African countries who aren’t in support of Mr Adesina hiding behind the US and France. In what appears to be the best course of action, the bank’s board has reportedly agreed to an independent probe of Mr Adesina. The next tussle will be who the auditor will be. While there have been impassioned letters in support of Mr Adesina from former President Olusegun Obasanjo and the finance minister, Zainab Ahmed, it is up in the air if the country will carry out a similar diplomatic effort as it did in 2015 when it engaged with other African leaders (including dispatching former VP Atiku Abubakar to meet with his friend, then SA President Jacob Zuma) to secure their support for Adesina’s election. Nigeria’s diplomatic position has progressively gotten weaker, but a push on Mr Adesina’s behalf may count for something, especially if the Nigerian government can deploy the trio of Mr Obasanjo, former finance minister, Ngozi Okonjo-Iweala, and President Buhari’s new Chief of Staff, Mr Ibrahim Gambari. If such a push is not carried out, Mr Adesina may well forget about continuing his leadership of the biggest multilateral lender on the continent.