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H1: Pre-existing vulnerabilities still strong in economy—Experts



Okey Onyenweaku

Many Nigerians have searched around for reasons to be happy even if it is for just a few minutes. But that momentary smile has been rare , scarce and definitely elusive. The Nigerian economy has remained prostrate in the last few years and hope is now illusory. There is a consensus that the economic conditions are worsening by the day despite government’s well touted effort.

A cursory assessment of Nigeria’s economy in H1 2021 has more woeful tales to tell than otherwise.

Given the turbulence and Covid-19 induced disruptions of the world and the setback of recession, the Nigerian economy only managed to record some slow growth.

Riding on the back of the discovery of the Covid-19 Vaccine and increasing vaccination of the world populace, the GDP grew 0.11 per cent at the end of 2020. In the first quarter 2021 – from January to March 2021 – the economy inched up 0.51 percent, boosted by rise in the price of crude which now hovers between $70pbd and $75pbd and improved vaccination in the globe. Weak economic growth analysts say , but believe more so that economic sectors are also underperforming. Of the 19 major sectors only 8 recorded improvement while 11 contracted. However, this upward adjustment of the economy has been debased by macro-economic pressures including high inflation, wobbly foreign exchange, Monetary policy development, Fiscal conditions and insecurity.


High inflation has a way of ravaging the economy negatively. Inflation had hit the roof top at 18.17 per cent in the first quarter and decelerated to 18.12 from may be May to June 2021. This level of inflation appear to have eroded the value of the Naira. Analysts believe that inflation is experienced when prices for energy, food, commodities, and other goods and services rise, the entire economy is affected.

They also explained that rising prices, known as inflation, impact the cost of living, the cost of doing business, borrowing money, mortgages, corporate, and government bond yields, and every other facet of the economy.

Former LCC boss, Dr. Muda Yusuf puts it thus: ‘’Presently, prices are being driven by the combination of structural factors [insecurity, FX shortage, exchange-pass through effect, higher energy costs, poor infrastructure, supply-chain disruptions] and monetary factors [fiscal deficit monetization]. Inflationary environment elevates production costs with adverse impact on corporate profitability, thereby making it increasingly difficult for businesses and corporates to meet their debt obligations to lending institutions. This transmits into significant increase in credit loss provisions with adverse impact on banks’ profitability’’.
Inflation had stood at 8.2 per cent in January 2015 but has jumped 120 per cent to 18.12 per cent by July 14, 2021. It has indeed become difficult to save in Naira as many are migrating to saving in foreign currency for value.


One strong enemy of an economy is the poor exchange rate. And the Nigerian economy appears to be suffering now from a lack of liquidity in foreign exchange more than ever before. Businesses have expressed discomfort given the fact that sourcing forex has become very difficult. In fact, products that have any links with forex are no longer within the reach of buyers as prices gallop daily due to continues value erosion of the Naira. An exchange rate is the value of a country’s currency vs. that of another country or economic zone. The Naira presently exchanges for the dollar at over N500/$1. The Naira has really lost vigour to the detriment of the economy.

At the end of the first half, the CBN replaced the fixed exchange rate of N379/$ with the NAFEX rate of N410-N411/$, which implied the unification of both rates into a more market reflective rate. ‘’Foreign exchange illiquidity makes banks more cautions in lending, especially to sectors with huge exposure to foreign exchange. Foreign exchange illiquidity aggravates investment risk which could negatively impact asset quality in the banking system. Foreign currency-denominated loans account for about between 30 percent and 35 percent of bank’s loan book. Foreign exchange volatility is associated with risks relating to asset quality and financial stability,’’ said the immediate past LCC DG, Musa Yusuf .

Monetary Policy Development

The CBN has left no stone unturned to ensure that the economy grows and stabilizes. It has retained its policy to maintain a balance between achieving growth recovery and subduing inflationary pressure. The apex bank has pushed many developmental finance interventions. It also employed administrative measures including OMO auctions, LDR/CRR debit and special bill auctions to control excess liquidity in the banking system as a way of tackling the monetary inflationary drivers.

Details show that at the last MPR meeting which took place in May 2021, the CBN retained all rates. For instance, MPR was retained at 11.50% with the asymmetric corridor of +100/-700 basis points around the MPR; CRR was retained at 27.5%; While Liquidity Ratio was also kept at 30%. Experts explained that the MPR is an interest rate that the CBN sets in order to influence the evolution of the main monetary variables in the economy. It determines the rate at which banks will offer loans to their customer. The CBN deliberately maintained the benchmark rate at 11.%, to stimulate economic growth by means of increasing credit facilities to the Nigerian economy, with the hope that increased productivity will subdue inflationary pressure in the medium term. But has yet given the desired results.

Nevertheless, analysts believe the actual Cash Reserve Ratio exceeds the 27.5 per cent to 40 or 50 per cent for some banks. ‘’The current CRR environment negates policy that mandates banks to lend at least 65 percent of customer deposits to the real sector. Banks are more concerned about the risk of extending credit to priority sectors such as agriculture, manufacturing, general commerce, and SMEs amid weak macroeconomic conditions, which explained why large corporates or prime borrowers with high creditworthiness are the biggest beneficiaries of the LDR policy’’, said an analyst. Despite these interventions, many sectors still cry that lack of credit are their major challenges.



It is difficult for an economy to thrive under harsh fiscal conditions. The fiscal conditions of the Nigerian economy have remained unimpressive given huge debts it has accumulated; the low revenue at its disposal and low budget performance. Critically,the total documented debt stock of Nigeria grew marginally to N33.1trillion as at end of May 2021, representing 22 per cent of nominal GDP. But the country’s debt to GDP stood at about 29 per cent still far below the 55 per cent threshold recommended by the world bank and International Monetary Fund for emerging markets.

However, where the challenge and danger lies for Nigeria is the high debt costs to revenue which is not sustainable. Data shows that debt to revenue accounted for over 90 per cent of FGs retained revenue between January and May 2021 and the government has continued to depend on debt and unconventional measures (CBN ways and means facility) to fund national budget. The country’s revenue mobilization is still weak even in the midst of high governance cost and subsidy. More worrisome is that the country has set new borrowing limit from 25 per cent of GDP to 40 per cent of the GDP. This was contained in the Medium Term Debt Strategy. Recently too, the Senate gave new approvals to the Federal Government to borrow $8.33bn and €490m from external sources.

The National Bureau of Statistics had in December 31, 2020 put the country’s GDP at N152.32tn. This implies that , forty per cent of the current GDP is N60.93tn.


No economy can thrive in the midst of extreme insecurity and Nigeria is not going to be an exception. The level of insecurity in the country has become unprecedented. It is affecting business activities negatively. Boko-haram, Terrorism and Banditry have created many IDP Camps in the country. Analysts believe that attacks, farmer-herder conflict, abduction, secessionist agitations and arson were recurring incidences in the first six months. Several farmlands were destroyed. Assets worth billions of naira were destroyed even as several people in the Northern region lost their means of livelihood. Investors confidence is being eroded despite strong oil prices.

These and many more are the challenges that beset the country in the first half of 2021. Those conditions that pushed the country into recession in 2016 and 2020 are strongly still there.

‘’Confidence may not be restored in the near term if the worsening security situation is not urgently addressed. For financial sector, rising insecurity discourages banks from providing credit facilities to businesses in vulnerable sectors and geographical locations as repayment capacity will be impaired.’’ Said Muda Yusuf, former LCC boss.

The Nigerian economy has remained troubled and hope appears to have taken a flight
The future continues to look bleak. The same conditions that dragged the Nigerian economy into recession are still dominating the economic space.
Not even the crude which is the mainstay of the economy can pull the country out of the quagmire. Despite that crude price hovers between $60 and $70 per barrel, a member of the economic advisory council, Bismarck Rewane who spoke at a Webinar fora advised that more must be done in the right areas and sectors if the economy must grow. He went ahead the puncture the argument of dependence on oil by projecting that by 2024 that Nigerians might start buying more of electrical cars than engines with fossil oil.

Though he expressed optimism that the economy still had a chance to grow depending on what the country does from no, he said, ‘’We don’t have time. Population is a time bomb.Oil is going away. Nigeria has to re-invent itself very very quickly. Nobody is buying your fuel in the next ten years.”

Rewane however explained that the economy could however slip back into the red zone if the growth drivers are not encouraged.

Dr. Abiodun Adedipe , MD/CEO of B. Adedipe Associate Limited, who spoke on the topic titled ‘Review of the Nigerian economy and Banking Industry at a recent FICAN forum noted the pre-existing vulnerabilities which plagued the country’s continued slow and sluggish economic growth were still there and have not changed.

According to him, these vulnerabilities included resource dependent/mono-product that accounted for almost 90 per cent of Nigeria’s foreign trade earnings in 2020 were from hydrocarbons; Portfolio investments evaporated plunged from 65.86 per cent in 2019 to 33.36 per cent in 2020; N99.94bn out flows from the stock market January -April 2021; highly- indebted; large informal sector; weak MSME’s represented large proportions of GDP and manufacturing activities; large populations and high poverty incidence.

Adedipe further explained that the global supply chains tanked or shortened as retailers closed their stores; Demand and supply shock, prompting collapse of demand that was a problem for resource dependent countries and firms in such as Nigeria; Overall Job losses was 8.46m on January 2021, having peaked at 23m on April 2020.


Since 2015, the economy has barely got off the floor. It had plunged into recession for about 12 months from 2016 to 2017. The economy had just barely recovered when it plunged into a second recession in 2020, though Covid-19 and the low price of crude were fingered to have been responsible for the wobbly economy.


Covid-19 had in fact, ravaged most economies, Nigeria inclusive. There were shut downs almost all over the world which affected business activities and also disrupted supplies among other halted events. The pandemic caused the death of many estimated to have hit over 4million and still counting. Nigeria also recorded its fair share of the devastating effect of the pandemic. This notwithstanding many analysts believe that even if such negative impacts are discounted, there are still and remain fundamental problems with the Nigerian economy and how it is being managed, including knee-jerk or non-pragmatic political reactions and policies that then tend to have a deleterious impact on economic growth.

The most recent is the Federal Government’s suspension of the operations of the microblogging platform, Twitter. Twitter is a ‘microblogging’ system that allows you to send and receive short posts called tweets. The firm whose net worth stands at over $4bn has provided direct and indirect jobs for many people all over the world and Nigeria is not left out. Experts estimate that the Nigerian economy loses over N2bn daily as a result of the ban on the use of Twitter. The implication of this is that huge funds have already been lost and many jobs connected to it are also lost.

Going to deeper grounds, recent statistics reveal that the rate of unemployment, the second highest in the world is 33%. At the same time, the underemployment rate stood at 22%; even as inflation, which is hitting the roof top at 18.12 per cent is at its highest point in the last seven years. At the same time, Diaspora remittances inflow fell 27 per cent year on year (YoY) to $17.2billion in 2020 from $23.55billion.

Many have also not forgotten that the operating environment last year was choking for almost all the businesses including banks. Though the banks largely posted impressive results, within the same operating environment, the 2021 budget chalked a deficit of N5.2trillion representing 3.6 per cent, while the country owes N33trillion ($82bn) debt. The fear here hinges on the fact that federal government spends about 60 per cent of its revenue to service debt.

The major revenue earner for the country, crude oil price, which has retreated from $70 pbd to $62.46 pbd as at March 25, 2020 still fluctuates.

Insecurity has not only hobbled agriculture, many parts of Northern Nigeria have been taken over by bandits such that not much business activities can subsist.

With the fearful scenario above, economic trajectory of the country is still uncertain. This is because even the apex bank has warned that care must be taken to galvanize and push the economy out of slumber.

What has heightened fears of Nigerians is the rising debt of Nigeria which stood at $33trn in 2021 while it is expected to hit $38trn in December 2021. But worries Nigerians most is that about 60 per cent the revenue is used to service debt. Despite these worries the Minister of Finance, budget and National planning, believes that the 23 per cent debt to Nigeria GDP was sustainable.

And though Nigeria recorded its highest Foreign Direct Investment (FDI) in eight quarters in the third quarter of 2020, as the nation attracted investment worth $414.79 million, that situation, many believe would be short lived given that Nigeria has become a killing field for terrorists and bandits. FDI is expected to shrink to reflect the worsening operating environment and investment climate, analysts reckon.

Earlier in the second quarter of 2020, FDI slumped to $148 million from $213 million in the preceding quarter.

Further explanations consider some of these risk components to include; the political risk components, government stability, socioeconomic conditions, investment profile, internal conflict, external conflict, corruption, religious tensions, democratic accountability, and ethnic tensions have a close association with FDI flows.

The above scenario, in fact, captures dramatically what Nigeria is experiencing today.
Just recently, some companies had to take their investment that was meant for Nigeria to Ghana because of insecurity among other regulatory challenges.

For instance, the US-based social media company, Twitter had announced plans to site its West African headquarters in Accra, and not Nigeria where it comparably has a majority of its clients and patrons.

Of course, the company chose Ghana citing democracy, respect for free speech and respect for rule of law as some of the reasons for the choice of Ghana over Nigeria and other African countries.

There is a consensus that most of structures required to live and feel free as a citizen of a country are lacking in Nigeria today.

There are many other firms like that which consider not only Ghana but other African Countries as having better and more friendly operating environment and ease of doing business than Nigeria.


It also important to note that diaspora remittances inflow into the country fell 27 per cent, year-on-year, (YoY) to $17.2 billion in 2020 from $23.55 billion.

Analysts have expressed their reservations and do not want to be carried away by what could be described as a flash in the pan. Many are seemingly certain that the economy which has just crawled out of recession to see a GDP growth of 0.11% at end of year and now o.5 in first quarter was still very feeble.

Fitch recently warned Nigeria to watch the rate at which it uses ways and means to inflate its economy.

For the Founder/Chief Executive Officer of Mutual Alliance (member of the Nigerian Stock Exchange, and Heritage Capital Markets Ltd, the economy has been flat and could relapse into recession if the government fails to pay adequate attention and enforce policies that can jump start the economy.

Ajaegbu who was also former President, Institute of Chartered Accountants of Nigeria (ICAN), told BH that as a natural phenomenon since the economy is already at the base the only natural thing is for it to grow even when no special macro-economic effort has been exercised.

Managing Director, Highcap Securities, Mr.David Adonri who shares in the fears of many told Business Hallmark that the economy has very little to offer the common man. ‘’You can see the reflection in the macro-economic indicators. Look at the unemployment rate at 33 per cent officially, but unofficially it might be up to about 60 per cent because those official figures are just to dress the window but in reality we know what is happening. Look at inflation which is officially 17.33 per cent, but in reality it may be up to 50 per cent.”

Adonri who noted that the micro-indicators have affected the GDP and weak growth of the economy which is captured at 0.11 per cent increase constitutes ‘motion without movement. ‘’It is an inflationary growth,” he explained.

Supporting the views of others on the weak economy, Group, Chief Executive Officer, Cowry Asset Management, Chief Johnson Chukwu told Business Hallmark that only drastic changes in the economic policies can make positive impact on the Nigerian economy which has remained weak due to the wrong ideas. ‘’Baring any global dislocation, the economy will continue to recover. We will continue to witness slow but positive growth. But the standard of living may continue to deteriorate because the growth will still remain below population growth.’’ Said Chukwu who also explained any major global distortion can cause harm to even the slow growth.

According to him, another challenge that could hurt the economy is that next year is close to the election time so the government may no longer be interested in making any major and drastic policy to benefit the economy.

How do you explain, in such proportion that could hardly be found elsewhere, the massive deposition of such natural resources as crude oil, zinc, gold, steel, rubber, palm, granite, rich and arable soil for the cultivation of different kinds of crops, abundant water bodies and above all, human resources, by way of talent, academic brilliance, and willingness to work?

Suffice it to say that Nigeria has it all. But the irony here is that Nigeria is also a poor country. The World Poverty Clock reports that as at yesterday, Nigeria has 43% of its population or about 90million people living below the poverty line of less than $1.90 per day. Against the background of Nigeria’s much touted wealth, one is then compelled to ask: What could be the problem?

Why are we the poor children of rich parents? Why are we the unfortunate dwellers in the hellhole of excruciating poverty while our parents live lavish in the paradise of excess wealth and affluence? The banker and investment expert, Dr. Alex Otti had earlier posited.

On his part, Bemigho Reno Omokri, a Nigerian human rights activist and lawyer, has reminded Nigerians that they should not think that foreigners are not watching the unfolding political crisis in Nigeria.

‘’And to those who think it was only the Igbo peoples of the Southeast that were affected by Muhammadu Buhari’s Civil War 2.0 threat, I hate to burst your bubble.

Foreign Direct Investors heard that threat. International aid organisations heard that threat. International finance corporations heard the threat. At this very moment, they are all being advised by their government to leave Nigeria.

Finance and investments that were on their way to Nigeria are now making a U-turn. Because money is a coward. It runs from where there are threats of war to where there are promises of stability.


As a result of these factors listed above, the economy will shrink. Again. The Naira will be devalued. Unemployment will rise, and the resultant joblessness will lead to a steep rise in the insecurity and crime epidemic facing the nation,” he said.

Unfortunately, While Nigeria is still struggling to convert its economic potentials to growth, China’s GDP expanded by a dizzying 18.3% in the first three months of 2021 from a year earlier, sealing its status as COVID-19’s “first in, first out” economy.

Details show that China’s first-quarter GDP expanded by 4.28 trillion yuan ($655 billion) from January-March last year. That’s roughly the size of Poland’s economic output in 2020, or two times the value of all the shares of French luxury goods giant LVMH in the stock market.

The Nigerian economy had plunged in 2016 contracted for about 12 months, (that is four consecutive quarters) before the recession of 2020. This clearly shows that the country’s economic growth is still very fragile and has been for most of the time dependent on crude oil to survive.

‘’The GDP growth could slip back’’, said Chief Executive of Financial Derivatives Company limited, Bismarck Rewane.

It would be recalled that the Nigerian economy had maintained a healthier growth trajectory before the election of President Muhammadu Buhari into office as President of Nigeria in 2015.

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