Economic Outlook: 5 Things to Watch Out for in 2018

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If there’s one thing economists can all agree on, it’s that the events and trends in 2017 have set the tone for an eventful 2018 in Nigeria. Since the economy technically exited the economic recession the big question has been: Will the 1 percent economic growth recorded in 2017 continue and become more evident in 2018? We attempt to answer this question as we break down the five things to watch out for in 2018.

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  1. Higher GDP Growth: Nigeria’s GDP growth rate is expected to be higher in 2018 following predictions from the World Bank and the IMF. While the World Bank forecasts a 2.5 percent GDP growth rate in 2018, the IMF predicts a 1.9 percent GDP growth rate in 2018 which YNE thinks is more realistic. This is because, albeit somewhat impressive, expectations of a positive economic growth rate are heavily reliant on a continuous rise in oil price and minimal attacks on pipelines by militants. However, both oil price and militant activities are unpredictable and beyond the government’s control. Moreover, the country’s 2.6 percent population growth rate outweighs the positive economic growth forecast which will have severe implications for income inequality and poverty reduction.
  2. Higher Unemployment: Although the economy has technically recovered from the 2016 recession and is expected to continue growing, we expect more people to become unemployed in 2018 for three reasons. First, the length and severity of the economic recession suggests that job losses will continue into 2018. Second, 2018 promises a ‘jobless growth’ since except for agriculture, the growth is not expected to be driven by labour-absorbing sectors. Third, the country’s youth bulge and increasing population implies an increase in new entrants to the labour market which will likely outweigh job creation. Overall, we expect that the high unemployment will taper down consumer spending which will have adverse effects on growth.
  3. Increase in Minimum Wage: Following the setting-up of a committee to look into revising the minimum wage upwards and the president’s stance towards re-election in 2019, the president is expected to at least double the minimum wage in 2018. If this happens, the morale and spending of Nigerian workers will rise which will be good for the economy. But the impending increment poses some important questions. How will the government fund the increment given that at the current wage the 2017 budget was poorly funded? Why increase the minimum wage when at the current wage workers are not being paid regularly? Will the government increase capital spending since government’s finances are already skewed towards recurrent spending?
  4. Higher Debt Profile: The country’s total debt stock came up to $61.14 billion in 2017 and the government’s attitude towards borrowing suggests higher debt levels this year. Already, there are plans to issue a green bond for environmentally-friendly projects and a $300 billion Eurobond was issued at the end of 2017. While debts can prove useful in funding critical investments, the rising debt particularly rising external debt implies that a higher portion of our revenue will be used for debt servicing and the economy will become more vulnerable to external shocks. Towards the end of 2017, Moody’s downgraded Nigeria from a B1 to a B2 rating because of the country’s 38 percent debt to revenue ratio, in part.
  5. Increased Electricity Generation: In December of 2017, Nigeria attained record-breaking above 5,000 megawatts electricity generation levels which was driven bigly by the restoration of the Trans Amadi power plant. YNE expects that the completion of the Azura-Edo power plant and the enforcement of the eligible customer declaration which will permit eligible customers to buy electricity from other licensees apart from distribution companies (DISCOs) will further increase electricity generation in 2018. Overall, Nigerians should expect better power supply if the Transmission Company of Nigeria (TCN) completes its ongoing transmission projects and DISCOs work on the challenges with their feeders.

2018 will be an eventful year in Nigeria! We are eager to witness the ‘Year of Infrastructure’ which the government has promised us and an improved enforcement against tax defaulters as VAIDS comes to an end. But what is most certain is that money is going to be in the hands of party faithfuls and influencers. Sadly, spending amongst a few cannot alone generate strong economic growth. Diversification reforms, job growth, capital stock growth and technology innovations provide better assurance for high and consistent growth rates. However, YNE predicts that government’s focus will be on lobbying and campaign rather than executing economic reforms in 2018.

 

 

 

 

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