With debt to GDP at 80.5 percent, weak fiscal consolidation and significant dollar-denominated debt, Angola has struggled to push its way out of the lingering economic recession and in 2018, was advised by the International Monetary Fund to impose austerity measures such as reducing public debt, scrapping fuel subsidies and weakening its currency.
The reforms which followed a $3.7bn Extended Fund Facility to Angola, Africa’s second-biggest oil producer, is expected to address some challenges the country has, improving IMF outlook on its growth next year to 1.2 percent from -0.3 percent in 2019.
“Macroeconomic stability has been restored and maintained through a more flexible exchange rate regime, restrictive monetary policy, and fiscal consolidation,” the World Bank noted earlier this year.
Although out of a recession, Nigeria, which is Africa’s biggest oil producer, shares similar characteristics with Angola and has barely grown its economy since 2017, averaging less than 2 percent annually. Angola’s GDP on the other hand has contracted for the past three years.
Angola’s debt-to-GDP ratio is forecast at 90 percent for 2019.
The rising debt burden for Nigeria, though at 17.5 percent of GDP in 2018, has remained worrisome as recurrent expenditure and debt servicing take prominence in the new budget plan. Nigeria has earmarked N2.45 trillion or about 24 percent of its 2020 budget estimates for debt servicing, just N10m less than capital budget.
Public debt, according to the Debt Management Office, stood at N25.7trn in half-year with N8.32trn external debt and N17.37trn domestic debt.
External vulnerability has heightened and foreign reserve continues a downward trend to around $40.28bn with significant foreign debt, as defending the naira remains a burden Nigeria is unwilling to let go.
Meanwhile, fiscal consolidation is uncertain in the face of an ambitious plan that pits record-high spending of N10.33trn against a questionable revenue target of N8.155trn, most of which would for the first time come from “other sources” asides tax and oil.
Unlike Angola, critical reform to unshackle the economy has been slow if not lacking, seen in near 17 percent decline in stock market return year-long, as growth prospects for Nigerian companies dampen on weak macroeconomic signals.
New worries are emerging and put the economy at risk of another recession should the oil market become depressed as external buffers continue to thin.
In October, analysts at Lagos-based Financial Derivatives said there is a 25 percent chance Nigeria in 2020 enters stagflation or recession-inflation, which occurs when the inflation rate is high co-existing with high unemployment in a sluggishly growing economy.
Inflation, currently at 11.24 percent, is expected to remain elevated due to minimum wage cost and increase in food price following recent land border closure alongside external imbalances and imported inflation.
While there is no new data for unemployment since 23 percent was reported in the third quarter of 2018, anecdotal evidence points to rising unemployment estimated at 30 percent, Financial Derivatives said.
The combination of high unemployment, high inflation and decelerating growth for Nigeria which slowed for two straight quarters to 1.94 percent in the second quarter of 2019 remains worrisome.
The recent move to close the border to check smuggling and boost local rice production helped maintain the dollar/naira peg at near N359/$, according to estimates by Bismarck Rewane, foremost economist and CEO of Lagos-based Financial Derivatives.
The trade-off, however, is seen in the declining performance of firms and lower productivity of labour with a direct impact on national output.
For instance, in the latest three months to September 30, a period reported by most listed manufacturers, Nigerian Breweries saw a 71.4 percent drop in profits, Guinness and Unilever slipped into a loss, Presco saw profit decline by 51.1 percent, International Breweries worsened loss by more than 100 percent, among other players that underperformed.
“Vacancy factor is rising in Ikoyi and Victoria Island,” said Rewane, as the impact of flat growth weighs on demand for real estate.
Reforms remain lacking in the power sector where non-cost-reflective tariff has questioned the commercial viability of private investment in the sector. Industry experts advise 1 megawatt to 100,000 people but Nigeria’s estimated 200 million people make do with 4,000-megawatt of electricity, increasing cost of operation for many businesses.
Despite an improvement on “getting electricity” in the latest ease of doing business ranking, poor transmission lines and other technical hurdles are still concerns for Nigeria which has asked for Siemens’ help to bridge the supply gap.
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