Nigeria Economic Report: Improved Economic Outlook in 2014, and Prospects for Continued Growth Look Good
- The Nigeria Economic Report cites positive economic trends for the country and predicts higher growth in 2014
- The report highlights two potential risks, coming from oil prices and short-term capital flows
- The report provides a reassessment of poverty and living standards in Nigeria, concluding that poverty rates are likely lower than previously believed, but highly uneven across Nigerian regions
ABUJA, July 22, 2014 – Nigeria’s short-term economic outlook has improved in 2014 and prospects for continued growth and macroeconomic stability are good in light of increased revenues to the federation, stable foreign reserves and an augmented fiscal reserve fund, according to a new World Bank report. The Nigeria Economic Report (NER) also highlights two remaining risks to the country’s positive economic outlook; uncertainty in oil prices and output, and short-term capital flows.
The report offers a reassessment of poverty and living standards in Nigeria on the basis of newly available data (GHS), concluding that poverty rates may actually be significantly lower than previously estimated. However, there is a strong and growing divide between the Southern and Northern parts of the country in poverty levels.
Using newly-available data on growth, poverty, and living standards, the report gives a clearer picture of general development trends in the country, according to report author John Litwack, World Bank lead economist for Nigeria.
“The combination of the new GDP and poverty estimates is valuable in giving us what we believe to be a clearer picture of development and poverty reduction in Nigeria,” Litwack said. “Both sets of numbers indicate the prime importance of urban areas for growth and poverty reduction.”
Additional key findings of the report include:
Short Term Economic Outlook: Nigeria faced a challenging macroeconomic and budgetary situation in 2013 and early 2014. Oil output decreased, leading to unexpected declines in exports and budgetary revenues. Despite a low benchmark (expected) oil price, oil revenues to the Federation in 2013 were 24.4% lower than expected. The country lost more than $10 billion in external reserves and almost exhausted its fiscal reserve fund (Excess Crude Account). The federal and state governments were compelled to cut expenditures in light of revenue shortfalls. The Naira came under considerable pressure by early 2014.
Macroeconomic trends were considerably more favorable in the second quarter of 2014. Oil revenues to the Federation have increased notably, budgetary revenues to the Federation in the first five months of the year were considerably higher than planned, the Excess Crude Account has received augmentation, and the foreign reserve position has stabilized. The government’s resolve to maintain prudent macroeconomic policy was an important factor in this stabilization.
The NER projects a generally optimistic short-term macroeconomic outlook, with the pace of economic growth accelerating and a likely continuation of the recent positive trends. Nevertheless, two important potentially important destabilizing macroeconomic risks remain; a negative shock to oil prices or oil output, and volatility in short-term capital flows.
A re-assessment of poverty and growth in Nigeria: Macroeconomic data on growth, poverty, and living standards during the last decade have been rather puzzling, Litwack said. On the one hand, the country appeared to be experiencing strong economic growth averaging 7% annually, which was particularly concentrated in the pro-poor areas of agriculture and trade. On the other hand, the national per capita poverty rate remained very high at more than 60% of the population, with little evidence of recent progress in poverty reduction. The recent re-basing of the national accounts, which increased estimated GDP to $509 billion, making Nigeria the 26th largest economy in the world, brought further attention to this puzzle. How could a country of the size and wealth of Nigeria have poverty rates much higher than in surrounding countries like Niger and Benin Republic?
The NER examines new data that would appear to clarify the murky picture of economic development in Nigeria:
· The new (re-based) gross domestic product (GDP) numbers for 2010-2013 offer a very different picture from previous numbers. The pace of annual GDP growth is somewhat slower, averaging 5% during this period.
· The Nigerian economy is revealed to be far more diversified and dynamic than previous numbers would suggest, with significant contributions to growth coming from manufacturing and various services that were underestimated in the past. The nature of this growth implies that it is much more concentrated in urban areas than previously believed. Average growth in agriculture was only 4.2% during 2011-2013, and is estimated to have fallen under to under 3% in each of 2011 and 2013. Thus, growth in agriculture in many rural areas in Nigeria would appear to be not much greater than population growth, which is estimated at close to 3% for the nation.
The NER then provides an updated analysis of poverty and living standards in Nigeria based on a panel survey of 5,000 households that was carried out in 2010/2011 and 2012/2013 as part of the General Household Survey of the Nigeria National Bureau of Statistics. The results are generally consistent with the newly re-based GDP numbers:
· The panel survey gives evidence that the per capital poverty rate (Nigerian definition based on less than 3000 calorie-a-day consumption) is significantly lower than had been previously estimated. From this survey, it is estimated that 33.1% of the population lived below the poverty line in 2012/2013.
· Poverty is much lower in urban areas (12.6%) than in rural areas (44.9%), and the urban poverty reduction dynamic is much stronger.
The NER also documents major differences in poverty and living standards by macro-region in Nigeria. While the South of Nigeria has relatively low poverty rates, ranging from 16% in the South West to 28.8% in the South East, poverty rates in the North West and North East are 45.9% and 50.2%, respectively. While the South of Nigeria (especially the South West) has experienced a strong positive dynamic in poverty reduction in recent years, the poverty rate in the North West has remained stagnant, while poverty has actually increased in the North East. Thus, disparities between the North (North West, North East) and South of Nigeria in poverty and living standards have increased. This is no doubt related to the recent security challenges in the Northern part of Nigeria. Explanatory factors for the high differences in living standards by geographical region are likely related to differences in the provision of public services and the degree of connectedness to larger markets.