Nigeria’s Recovery Path Remains Blurry despite Improved Projection -Afrinvest
The Nigeria’s economy recovery path remains blurry despite improved projection, Afrinvest said while reviewing the World Economic Outlook report.
In a new report, the International Monetary Fund, IMF, raised global economic growth forecast for 2021 to 6% due to improve economic recovery amidst pandemic-induced stress.
In its April 2021 edition of the World Economic Outlook report published this week, IMF also raised growth projection for Nigeria to 2.5%.
The increased growth forecast is anchored on recovery in global economic activities from the pandemic-induced downturn of the year 2020 which resulted in a global gross domestic product (GDP) contraction of 3.3%.
Detail showed the IMF now expects global growth in 2021 to improve from 5.5% earlier projected in January 2021 to 6.0%, while growth for 2022 is expected to print at 4.4% as against the earlier projection of 4.2%.
These revised projections are expected to be jointly driven by the improved recovery of economic activities in both the Advanced Economies (AEs) and the Emerging Markets & Developing Economies (EMDEs) divides of the global economy, barring new resurgence of the COVID-19 pandemic and any other major shock.
The 2021 GDP growth forecast for Nigeria was raised to 2.5% from 1.5%, while that of 2022 was lowered to 2.3% from an earlier projection of 2.5%.
“Interestingly, the new IMF projection for Nigeria in 2021 aligns with our 2021 growth forecast as contained in our macroeconomic outlook report, and this further reinforces our position that Nigeria’s path to recovery will be blurry, with no hope of a near term improvement in the average living standards of its citizens”, Afrinvest said.
Despite the projected 2.5% GDP growth rate for 2021, Nigeria’s economic growth is expected to lag the annual population growth rate of 2.6% by 10 basis points.
Afrinvest explained that the country requires a minimum GDP growth rate of about 5.2% (2x of population growth rate) continuously for a medium-term period to achieve inclusive and sustainable growth that will translate into improved living standards for its average citizens.
“Unfortunately, it is tough for an economy to achieve strong and sustainable GDP growth without resolving structural problems that drove Inflation rate to a 4-year high of 17.33%, Unemployment rate to an all-time high of 33.1%, Official Exchange rate depreciation of 92.4% in five year (from ₦197/$1 in 2016 to ₦379/$1), as well as heightened external vulnerability as currently the case with Nigeria”.
Afrinvest said to escape from this conundrum, the Nigerian government must allow for private sector players to get involved in the provision and maintenance of critical infrastructure such as power and road network.
“This will help improve local business activities, boost production of goods at competitive prices, create more jobs, and reduce FX pressure from import bills.
“On the policy leg, effort must be intensified to address insecurity concerns in order to ensure the smooth running of economic activities at all times”, the firm explained.
“We feel that the upward review of Nigeria’s growth rate to 2.5% may appear optimistic given the country’s associated structural challenges that are chiefly driving inflation rate higher and subjecting the Naira to further depreciation against the greenback”, Cowry Asset Management said in a review.
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“This is more so that the African oil-rich country still grapples with worsening insecurity which has continued to spread to other relatively peaceful regions. Against this background, we expect interest rate to stay relatively high in 2021, a position that would impact the country’s growth rate negatively”, the firm added.
Nigeria’s Recovery Path Remains Blurry despite Improved Projection – Afrinvest