With Nigeria’s economy recording growth for the first in six quarters, analysts say the recovery which is due to a pick-up in oil revenue is shaky unless the country broadens its tax base and diversify away from oil.
The National Bureau of Statistics (NBS) last week said the Nigeria’s real Gross Domestic Product grew year-on-year by 0.55 per cent in the second quarter of 2017 to N16.31 trillion compared to a 0.52 per cent decline to N15.86 trillion registered in the preceding quarter.
The return to growth mainly resulted from improved foreign exchange supply in the economy as the country’s oil income increased on reduced restiveness and sabotage of pipeline facilities in the Niger Delta coupled with increase in global crude oil prices.
Oil exports still dominate Nigeria’s foreign exchange income.
The improved foreign exchange had led to reduced business cost as well as improved household expenditure.
The cessation of attacks on oil and gas installations in the Niger Delta region resulted in an improvement in oil production to 1.84 million barrels per day (mb/d) in the second quarter of 2016 from 1.69mb/d in Q1 2017 and 1.81mb/d in Q2 2016.
Analysts say this puts the economic recovery on a balance hanging on stability of oil price at the global market and stable output.
The pressure on Nigeria to reduce its crude oil production figure of 1.8 million per day is expected to increase as the Organisation of Petroleum Exporting Countries (OPEC) meets on Friday, September 22, 2017 in Vienna, Austria.
According to a report on Africa’s economic prospects and challenges by UBS Wealth Management’s Chief Investment Office (CIO), “Africa – Cradle of Diversity”, Nigeria’s revenue base heavily relies on oil-related activities, which exposes the nation’s fiscal balance to energy price shocks and volatility risks.
The report noted that while Nigeria is Africa’s largest oil exporter and commodity exports remain a major growth driver in many African countries, “their importance is slowly declining as domestic demand plays an expanding role in sustaining growth. Some of the continent’s fastest growing economies are concentrated in non-resource-rich countries like Côte d’Ivoire, Senegal, Kenya and Ethiopia, which are expected to grow between six and eight per cents in the next few years.”
Head of Emerging Market Asset Allocation at UBS Wealth Management’s CIO, Michael Bolliger, said, “In the near term, oil will remain an important source of income for Nigeria. However, the impressive growth rates of non-resource-rich countries in Africa clearly indicate that development beyond oil is the way forward.”
On his own part, Head of Central and Eastern Europe, Middle East and Africa, France and Belgium International at UBS Wealth Management, Ali Janoudi, said “We see tremendous potential for Nigeria’s economy, which is Africa’s largest, but in order to achieve its potential, current reform programmes must be implemented and in some instances, accelerated.
“The current climate of higher energy prices and relative domestic stability indicate now is the right time to act.”