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2021 IN REVIEW: Six themes that shaped the economy in 2021

Nigeria’s promise fades as economy stutters

There were bright spots for Nigeria in 2021 as the economy recovered from the COVID-induced disruptions of 2020. But there were also some low points that did Africa’s biggest economy more harm than good.

Nigeria’s surprise recession exit

In February 2021, the National Bureau of Statistics (NBS) announced that the economy came out of its worst recession in more than 33 years, growing by 0.11 percent in the fourth quarter of 2020. The pandemic-induced recession began when the economy contracted by 6 percent and 3.6 percent in the second and third quarters of 2020.

The exit came as a surprise, beating analysts’ expectations as well as projections from the International Monetary Fund (IMF) and the World Bank, all of which pointed towards an exit at the end of 2021.

Nigeria’s GDP grew marginally by 0.51 percent in the first quarter of 2021 and maintained the positive trajectory by growing 5.01 percent and 4.03 percent in Q2 and Q3, respectively.

Inflation rate slowed for the first time since September 2019

Nigeria’s inflation rate slowed for the first time in almost two years in April 2021 after rising steadily since September 2019. But it brought no substantial relief to Nigerians who still had to contend with high prices.

Nigeria’s failed border closure policy, which kicked off in August 2019, as a strategy to boost local production yielded little gains as inflation began rising steadily from September 2019.

Inflation inched down from 11.1 percent in July 2019 to 11.02 percent in August 2019, the lowest reading since January 2016, but rose to 11.24 percent in September 2019 and continued to rise till April 2021 when it hit 18.12 percent.

Since then, inflation has declined for eight months straight to 15.4 percent in November 2021.

The declining inflation has however brought no relief for Nigerians as the rate still remains one of the highest among African peers, pushing more people into poverty.

The World Bank reported that inflation pushed 8 million Nigerians into poverty between 2020 and 2021.

CBN’s ban on sales of forex to BDCs

In the seventh month of the year, the Central Bank of Nigeria (CBN) ended the sales of foreign exchange to Bureau De Change operators. The apex bank explained that the parallel market had become a conduit for illicit forex flow and graft; therefore, it will no longer process the application of BDC licences.

The CBN began to channel weekly dollar sales through commercial banks to meet legitimate forex demands.

The drop in crude oil prices in the first quarter of 2020, exacerbated by the impact of the COVID-19 pandemic on other sources of foreign exchange earnings, fuelled volatility in Nigeria’s FX market.
A day after the move, the naira fell from N505 to N525 per dollar at the parallel market, a rate the CBN governor, Godwin Emefiele, has consistently said is not a true reflection of the exchange rate.

Read also: The economy in 10 charts

A surge in abduction epidemic

When President Muhammadu Buhari announced the appointment of new service chiefs on January 26, 2021, Nigerians cheered as they hoped this would help improve insecurity, but the wave of mass abductions targeting school children that began in December 2020 only escalated in the first half of this year.

Over 1,000 students were kidnapped and many schools were shut, according to the United Nations. Many Nigerians were also abducted and huge ransoms were demanded.

According to data from Nigeria Security Tracker (NST), there were 2,943 abduction cases and 5,800 death cases due to insecurity between January and June 2021.

According to a report by SB Morgen (SBM) Intelligence, a Lagos-based political risk analysis firm, an estimated N10 billion was demanded by kidnappers ($19.96m) in the first six months of the year.

The high-risk business environment continues to discourage foreign inflow into the economy. According to a recent report by Rand Merchant Bank (RMD), Nigeria ranked the second most attractive investment destination in Africa seven years ago but it has slipped behind several other countries and now ranks 14th position.

Investors’ appetite for stocks waned on rising yields

After ending the year 2020 with a record 50 percent gain and the world’s best-performing stock market, the Nigerian stock market has been unable to sustain the momentum in 2021, as investors’ appetite for stocks waned on rising yields on fixed-income securities.

Unlike last year when interest rates were low and investors had to troop into the stock market, they moved out as soon as yields began rising. The equities market has gained 5.08 percent year till date.

Public debt hits N38trn

Nigeria’s public debt rose to N38 trillion in the third quarter of 2021, according to data published by the Debt Management Office (DMO).

The data, which include the total external and domestic debts of the Federal Government, 36 states and the Federal Capital Territory (FCT), show an increase of N2.54 trillion when compared with the corresponding figure of N35.4 trillion at the end of Q2, 2021.

The DMO explained that the increase was largely accounted for by the $4 billion Eurobond issued by the government in September 2021.

Nigeria’s rising public debt combined with its rising spending needs and the difficulty in raising extra tax revenue put the country in a difficult fiscal policy trilemma.