Guaranty Trust Bank (GTB) has projected the Nigerian economy to grow by 1.8 percent in year 2020, on the back of oil prices recovery and discovery of Covid-19 vaccines.
The bank which made the projection in its 2021 Macroeconomic outlook released at the weekend, noted that the planned rebasing of the country’s economy will drive the Inclusion of some economic activities in the computation framework and back-casting to recompute GDP estimates for prior years.
Reviewing the economy in 2020, the bank noted that apart the the devastating impact of the covid-19 pandemic which triggered health and economic challenges, the aftermath of the peaceful #ENDSARS protests across the country by youths lending their voices against brutality and high-handedness of the Special Anti-Robbery Squad (SARS) of the Nigerian Police Force (NPF) cast a dark shadow on the year.
It further noted that the deteriorating security situation amplified calls for a change of guard of security chiefs in the country.
According to the report, “In his 2021 New Year message, whilst reassuring the youths of his administration’s commitment to fulfilling their 5for5 demands and reforming the NPF, President Buhari also revealed plans to re-energize and re-organize the security apparatus and personnel of the security agencies to enhance their capacity to subdue criminal and extremist groups in the country. In line with his promise, President Buhari replaced the service chiefs, in January 2021.
“The prolonged lockdown in Lagos, Ogun and Abuja as well as widespread movement restrictions in most states in a bid to flatten the curve of the covid-19 pandemic in Q2 2020 triggered a downturn in economic activities which led to a contraction in 16 of the 19 economic sectors according to the National Bureau of Statistics (NBS) GDP Q2 2020 report. This coupled with the decline in price and demand for oil resulted in negative growth in two (2) consecutive quarters of -6.10% and -3.62% in Q2 and Q3 2020 respectively compared to 1.87% and 2.55% growth in the preceding quarters of Q1 2020 and Q4 2019 respectively. While the economy recovered into growth territory of 0.11% in Q4 2020 as a result of yuletide spending and relative improvement of economic activities, the annual GDP for 2020 contracted by 1.92%.
“With the recovery of oil prices, the discovery of effective Covid-19 vaccines coupled with a pick-up in economic activities, we project that the economy will expand by 1.8% in 2021. We note the federal government’s plans to rebase the country’s GDP through the commencement of the National Business Sample Survey (NBSS). This is in line with the United Nations Statistical Commission’s recommendation of GDP rebasing every five (5) years. The process of rebasing involves replacing an old base year with a more recent one. The last rebasing was done in 2013 where the government replaced the base year from 1990 to 2010 data which resulted in an 89% growth in GDP from US$270 billion to US$510 billion.
“This planned rebasing would replace the 2010 data with the more recent 2018/2019 data. We expect this exercise to drive the Inclusion of some economic activities in the computation framework and backcasting to recompute GDP estimates for prior years.
“We anticipate the rebasing exercise to have a positive impact on the country’s GDP numbers and related metrics. The rebasing exercise Is expected to be completed in 2022.”
The bank listed other prospects of macroeconomic importance in 2021 to include:
Business and Regulatory Environment
The business environment, it noted that “came under significant pressure due to negative GDP growth and the crash in oil prices. A combination of rising double-digit inflation and the general increase in utility cost weighed negatively on household incomes and business operations. Despite these challenges, the Nigerian equity market was the toast of investors as it emerged as the world’s best-performing stock market in 2020 with a growth of 50%.
“We anticipate a slight improvement in the operating environment arising from a possible increase in FX liquidity, better understanding of and management of the spread of the virus and increased government spend.
“We expect the monetary thrust to be relatively accommodative with the primary focus of monetary authorities maintained on spurring growth, achieving exchange rate stability and improving FX availability.
Fiscal Environment and the 2021 Budget
The bank said, “following the return to the January – December budget cycle in 2020, President Buhari signed the 2021 Appropriation Bill into law in December 2020. The budget dubbed ‘Budget of Economic Recovery and Resilience’ was increased by N505 billion from N13.08 trillion to N13.58 trillion by the National Assembly. The 2021 approved budget is 28.2% higher than the 2020 budget with a targeted revenue of N7.99 trillion, total expenditure of N13.59 trillion and an estimated deficit of N5.60 trillion. The deficit is projected to be financed with proceeds from privatization, drawdown of already approved loans and new borrowings.
“A total of N5.64 trillion and N4.13 trillion were earmarked for Recurrent and Capital Expenditure respectively. The estimates for debt servicing and statutory transfers stood at N3.12 trillion and N479 billion. Notably, debt servicing as a percentage of projected revenue and expenditure stands at 39.1% and 23%.”
“The 2021 budget is predicated on a benchmark oil price of US$40 per barrel (pb), oil production of 1.86 mbpd (including Condensates), exchange rate of N379/US$1, GDP growth rate of 3% and inflation rate of 11.95%. Save for the projected inflation rate, we note that these budget assumptions are in line with present economic realities. Following the introduction of finance bills to accompany annual budgets in 2019 in a bid to improve revenue through regular tax reforms, and encourage investment, the 2020 Finance Act introduced over 80 amendments to 14 various laws and became effective on January 1st, 2021.
“Some notable changes contained in the Act include:
• Low-income earners that earn minimum wage or less, are now exempt from personal income tax.
• Telecommunications services provided in Nigeria will now fall under the category of goods liable for excise duties.
• Reduction of import duties on tractors from 35% to 5%, mass transit vehicles of more than 10 passengers and trucks from 35% to 10%, and cars from 30% to 5%.
• VAT exempt status for commercial airline tickets and lease of agricultural equipment for agricultural purposes.
• Establishment of a Crisis Intervention Fund (CIF) of N500 billion or other sums approved by the National Assembly.
• Setting up a sub-fund of the CIF to be known as Unclaimed Funds Trust Fund (UFTF) where unclaimed dividends and unutilized funds in dormant accounts outstanding for 6 years or more will be warehoused as a special debt of the government Deleting of electronic bank transfer as transaction liable for stamp duties and introducing electronic money transfer levy of N50 on N10,000 or more on electronic transfer deposits in any financial institution.
“We applaud the government’s decision to exclude low-income earners from personal income tax payments as this will enhance the disposable income of that segment of the populace. Similarly, the reduction of import duties on select categories of vehicles should also help to reduce the prices of the referenced vehicles. However, the establishment of the Unclaimed Funds Trust Funds has raised questions about the constitutionality of abrogating such funds by the federal government. Some have argued that this specific provision may indicate the government’s desperation and leaves a lot to be imagined for subsequent finance bills. It is not unlikely that the legality of the executive and legislative to enact such an Act could be challenged in a court of competent jurisdiction by civil society organizations in the coming weeks.
“Nigeria’s perennial non-oil revenue challenge has continued to undermine the government’s diversification plans as mere lip service. In view of the economic and health impact of the pandemic, the revenue projections (especially the non-oil revenue) of the 2021 budget appears ambitious. That said, we applaud the government’s decision to deregulate the price of PMS and are optimistic that the resulting cost savings would be used for other developmental projects.”