2018 Outlook of the Nigerian Economy: The Need for an Even Keel


Executive Summary

  • The Nigerian economy exited a negative territory in 2017 as Gross Domestic Product (GDP) grew by o.55% in the second quarter of 2017. This was largely attributed to the increase in oil production and a recovery in oil price. However, the real sector especially sectors such as trade, manufacturing, finance & insurance, and information technology is yet to recover fully. Thus growth remains largely volatile, as it remains vulnerable to shocks.
  • Though leading indicators such as the  Production Manufacturing Index,  External reserve, nominal currency and price stability have improved, labor force participation remains weak and this leads to a surge in the misery index. As such Nigeria’s  economic story is still blurring with mixed tunes and though policies put in place are gradually getting clearer,  discordant tunes are common in a  pre-election year.
  • The needed precursor for growth is evident, but the possibility of an escape velocity is still in doubt since the real sector remains currency and  GDP growth lag behind population growth. Therefore as the economy exits the recessionary line, the possibility of a “go slow” economy characterized by tepid growth and rising unemployment cannot be written off especially youth unemployment which could further heighten migration outflows thus denting our growth potential on the long run due to substantial human capital flight.
  • In the wake of such reality, this edition of Proshare Confidential takes an in-depth look at the global economy while highlighting that both advanced and developing economies are expected to grow in sync in a long while. Though, most developing economies have adapted partly to ongoing off-shore financial risk.
  • The study further took a cursory review of the monetary policy interventions in 2017, having observed that the monetary authority was willing to ensure price sstability and exchange stability though this conflicted with attaining economic prosperity simultaneously. The self-  restrictive mandate of the monetary  policy made it largely reactionary,  while it seemed less concerned about maximum employment, even when  there is a profound level of depression  in the overall level of well-being.
  • In 2018, we see monetary policy  slanting towards a mid- point to  accommodate growth.Thus we can expect a 100 basis point shave to the monetary policy rate accompanied by a cut in the quantity base. The root  penetration of a rate cut will be  shallow without reducing the cash  reserve ratio.
  • Our outlook which is in line with most analysts is convinced on sustaining the growth momentum in 2018. In specific the dynamic adjustment path will readjust better in 2018 coupled with strong oil production and stability in oil prices. Such will grease both external reserve and exchange rate positively. At the same time, the external trade will improve but it will take a longer period to diversify fully the external trade universe of the nation.
  • The outlook is positive toward the oil sector but retains some aversion to the real sector given both policy inertia and reeling effect from hysteresis.  Although the state accrued that margin compression will fall most sectors will be concerned about stabilization rather than expansion.
  • The report further pointed out that revenue to states and local government will bolster in 2018, but still leave their fiscal capacity diminished. States are faced with the challenge of improving their internally generated revenue in a new norm, whereby they are constrained by huge debt and flagging output to revenue. States that are more tilted to the private public partnership will improve their ease of doing business, review tax laws, ensure a more effective land administration, contain recurrent expenditure and leverage more on more elastic road network to thrive better. Although the outlook on states has improved, the states must be cautious of how the nature of fiscal multipliers isused without structurally adjusting to the new reality.
  • Finally, the study takes a detour to the  CFA currency zone, taking a look at the macro dynamics of such countries.  The currency bloc has been able to achieve price stability and economic growth at the expense of individual monetary autonomy. At the same growing higher than the average regional growth, more importantly, the relatively cooling off in the Euro has left the peg untested for some time.  Regardless the fiscal sustainability of each could threaten the peg on the medium term; the lack of individual domestic money market could limit their choices.


Possible headline risk in 2018  Off-Shore or External risk

We don’t contemplate any real change across geopolitical regions, as rising populist tendency remains.  Expectedly the global economy will continue the recovery, though growth in the EU and Japan remain fragile.

More interestingly advance and developing economies will be growing concurrently. Regardless certain  external risk still remains such as:

Offshore – Bucket Risk

The possibility of a further rate hike by the Fed The possibility of other central banks taking a hawkish position is grim
Although emerging economies are better off compared to the previous year, their flawed structural end still makes them venerable.High
Global EconomyThe global economy will enjoy substantial growth, moreover, both emerging and advanced economies will grow in sync.Low
Growing geopolitical tension and
populists tendency
This will affect trade as it is a risk to export revenueLow
Oil  Revenue
Shale oil producers OPEC
The possibility of shale oil producers driving cost lower coupled with further caps by OPEC is a concern.High
Immigration inflows and outflowsSo far economic and political insecurity have led to immigration outflows. The economic condition has rather been averse to inflows. Regardless such play out will affect the nation’s human capital negatively in the long run thereby eroding its potential growth level gradually. Moreover, with the present state of youth unemployment and underemployment standing at 67.4% and 42.45% immigration outflow will persist as the human Index remains poor.High

Country Specific Risk
The macro condition of the economy has improved as oil prices increased, providing support for government finances across the board. Regardless the following remain a concern.

Country Specific- Bucket Risk

RiskRemarkRisk level
Policy inertia and lack of complete budget executionGiven, the structural and political economy policy inertia and budget passage delay, this has affected government spending. Eventually, creating effective lags and low response to cyclical
The possibility of a shortfall in oil
Non- oil revenue has failed to provide the needed support, due
to the shortfall.
Pre-election yearThe possibility of politics derailing reforms is a concern and this could affect capital importation negatively at the tail end
of the year.
Possible cut on the finances of states and local government (SLG)Although cyclical shock has tampered down, regardless the state are also experiencing substantial diminishing fiscal
capacity just as the federal government.
Herdsmen and Boko HaramThe present herd’s men crisis is affecting agricultural output. The herdsmen crisis in the agricultural belt of the country
poses a risk.

Macro Outlook in 2018

Over the years price stability has been threatened by currency disturbances, thereby it is not surprising to see headline inflation jolt as prices of crude swing downwards.  The steep nature of price downwards has made the shed off cumbersome.  Moreover, the impact of allowing prices to be led by the parallel market has made price readjustment harder.

In 2018, there is relatively a minute possibility of a currency disturbance;  however, the possibility of a recoil in core inflation is likely, thus providing a  scenario whereby inflation could travel relatively flat. Regardless, we expect transitory inflation to give way though this is dependent on the gradual readjustment of price to its earlier path, as earlier monetary shock fizzles off. However, the bandwagon effect on price could remain due to government’s reluctance, thus our forecast for inflation in 2018, largely stands at 12%.


In 2017, growth has been cyclical driven as improvement was large as a result of the oil sector, as most sectors remain within the negative zone. Moving forward, it is expected that sectors like construction will grow at a faster pace than 0.4% coupled with a manufacturing sector which would have reached the positive territory.

However, the recent slip in telecommunication and financial sector is a threat to robust growth.  Thus, we expect growth to lag behind annual population growth and stand between 2.5% to 2.8% in 2017.

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