After an underwhelming 2019 for the Nigerian economy, focus should rightly turn to expectations for the new year.
The biggest economic risks facing Nigeria in 2020 have been the same since 2015 and they include weak economic growth, increasing poverty levels, and foreign direct investor apathy.
There’s a way out for Nigeria and it is implementing economic reforms that can spur investment, boost growth and create jobs.
In 2020, much will depend on six things if the economy is to look nothing like it did in 2019.
First is whether private capital will remain ironically shut out of Nigeria.; whether the government will retain full ownership of redundant assets that can be transformed with an influx of private capital and expertise.
This could have the single biggest impact on economic growth in the new year, seeing that the main driver of growth in 2019 and perhaps each year in the last decade- the oil sector- could run into troubles of its own in 2020.
The Organisation of Petroleum Exporting Countries (OPEC)’s oil production cap imposition on Nigeria alongside the dearth of new investment in the space, could mute significant growth in the sector.
Threats from the rising adoption of electric vehicles to the waning influence of OPEC are also long term challenges facing the oil sector.
The non-oil sector has flashed signs of promise but hasn’t been able to wrest the oil sector’s stranglehold on the economy.
The need to open up new sectors to private capital as a way of boosting economic growth is hardly new counsel in Nigeria but nothing has changed.
What’s worse from a Nigerian perspective is that other African countries are recognizing the role of private capital in growing the economy and are providing good competition for Nigeria in attracting capital.
Take Ethiopia, Africa’s second most populous nation, for instance.
Ethiopia plans to sell a minority stake in state-owned monopoly Ethiopian Telecommunication Corp to foreign investors in 2020, as well as two new licenses to drive competition in the space, as Prime minister Abiy Ahmed opens up the economy of Africa’s second most populous nation to foreign ownership for the first time in decades.
Ahmed’s ambitious privatization plans don’t end there.
Six sugar plants will also be sold to foreign investors while sectors including international aviation, where state-owned Ethiopian airlines dominates, as well as power and postal services will be open for private sector partnership with the government.
Ethiopia is not alone. Ghana and Egypt are also putting incentives in place to attract capital while Nigeria slumbers.
The second factor to consider for 2020 is whether the country’s three-year-old multiple exchange rates practice will remain, even though estimates set in the 2020 budget that show an exchange rate peg of N305 per dollar suggests the practice- said to be deterring investment- will indeed stay.
The N305 rate is said to used for government transactions while a much weaker rate of N360 is the market rate for investors and exporters.
Third is whether initial steps to gradually phase out a costly petrol subsidy will be taken and if electricity will be priced on market terms.
Given that President Muhammadu Buhari has fought off pressure to implement these reforms for the most part of his five year administration gives little optimism for change.
Fourth is for how long the current financial repression in the market, whereby local investors have been handed big headaches by CBN policies that have forced government bond yields below inflation, will continue.
There are two positive implications of the CBN’s determination to force yields down. First is it reduces the government’s borrowing costs and second is it has improved credit to the private sector. Whether it is sustainable and is without long term damages to lenders’ asset quality remains to be seen.
What happens to government finances in 2020 is the fifth factor to consider in making predictions about how the economy will fare.
There will be more focus on driving taxes in 2020. The increase in Value Added Tax (VAT) to 7.5 percent kickstarts this year and a mulled communications tax could boost tax revenues.
Finally, much will also depend on whether Nigeria continues with a raft of protectionist policies that contradict signing the African Continental Free Trade Area agreement.
It is unclear if the controversial land border closure will make way in 2020.
