AfDB Predicts Slow Economic Recovery for Nigeria

  • Projects 3.8% GDP growth rate this year, 5% in 2017

Kunle Aderinokun in Lusaka, Zambia

Despite the appalling real GDP growth rate of -0.36 per cent recorded in the first quarter of this year, the African Development Bank (AfDB) has projected a real GDP growth rate of 3.8 per cent for Nigeria by the end of the year and even painted a brighter outlook for the country in 2017 with a projection of a real GDP growth rate of five per cent.
The bank predicted that there would be a slow recovery of the economy this year as some of the reforms of the federal government begin to take effect.

AfDB, which made the projection in its Africa Economic Outlook (AEO) launched monday at the ongoing annual meetings in Lusaka, Zambia, noted that “Nigeria has had sluggish economic growth since the end of 2015 with the rate dropping to an estimated three per cent in December 2015, leading the authorities to adopt an expansionary 2016 budget that aims to stimulate the economy.”

Irrespective of AfDB’s estimated real GDP growth rate of three per cent as at December 2015, the Nigeria’s economy grew by 2.11 per cent growth rate as at fourth quarter-ended December 2015, which even plummeted to a historic -0.36 per cent in the first quarter of this year, according to the National Bureau of Statistics (NBS) figures.

Stating that “in West Africa, growth slowed in 2015 due to the sharp fall in commodity prices and the Ebola crisis, AfDB pointed out that, “ In Nigeria, Africa’s largest economy, oil production remained low and growth of the non-oil sector weakened as the government cut spending due to lower oil revenues.”

Specifically, it pointed out, the Nigerian economy had been adversely affected by external shocks, in particular a fall in the global price of crude oil.

The bank added that, “private-sector activity was also adversely affected by tighter monetary policy and foreign exchange restrictions, which were implemented to counter depreciation of the currency. Growth is expected to recover gradually with the help of a more expansionary government budget.”

AfDB noted that “the 2016 outlook is for slow economic recovery as some of the reforms begin to take effect and measures to boost the economy, such as increased spending on infrastructure, are implemented.”

According to the bank, “some specific reforms pursued by the new administration to lay a foundation for renewed growth are commendable. The key reforms include the rationalisation of the public sector in order to cut the cost of governance; enforcement of the single treasury account to block financial leakages; renewed efforts at enforcement of tax compliance; preparation for zero-budgeting starting in 2016; and increasing the ratio of capital to recurrent expenditure to 30:70.”

It, however, pointed out that, “security remains a major challenge, in the northeast in particular.”
“While the military has stepped up the fight against the Boko Haram insurgency the humanitarian situation has continued to deteriorate. The number of internally displaced persons is estimated at over 2 million, located mainly in the cities where conditions are safer. Both the government and development partners continue to explore additional ways of improving the situation,” it noted.

Generally, AfDB said, Africa’s economic performance held firm in 2015 amid global headwinds and regional shocks, positing that, the continent remained the second fastest growing economic region after East Asia.
According to the forecast of the AEO, the continent’s average growth is expected at 3.7 per cent in 2016 and pick up to 4.5 per cent in 2017, provided the world economy strengthens and commodity prices gradually recover.

In 2015, net financial flows to Africa were estimated at $208 billion, 1.8 per cent lower than in 2014 due to a contraction in investment. At $56 billion in 2015, however, official development assistance increased by 4 per cent; and remittances remain the most stable and important single source of external finance at $64 billion in 2015.

Acting Director, Development Research Department, at the African Development Bank, Abebe Shimeles, said: “African countries, which include top worldwide growth champions, have shown remarkable resilience in the face of global economic adversity. Turning Africa’s steady resilience into better lives for Africans requires strong policy action to promote faster and more inclusive growth.”

According to AEO which has a special theme: ‘Sustainable Cities and Structural Transformation’, the continent is urbanising at a historically rapid pace coupled with an unprecedented demographic boom: the population living in cities has doubled from 1995 to 472 million in 2015.

Nigeria, for instance, has been rapidly urbanising and fast-growing cities such as Lagos and Kano face increasing unemployment and income inequality because of poor urban planning and weak links between structural transformation and urbanisation.

This phenomenon, the report added, was unlike what other regions, such as Asia, experienced and is currently accompanied by slow structural transformation
According to the authors, lack of urban planning leads to costly urban sprawl. In Accra, Ghana, for example, the population nearly doubled between 1991 and 2000, increasing from 1.3 million to 2.5 million inhabitants – a rise of 92 per cent- at an average annual growth rate of 7.2 per cent. Consequently, the ratio of population to total built up area decreased from 132 inhabitants/ha to 90 inhabitants/ha at an average annual rate of 4.6 per cent, much higher than the global average of 2.1 per cent during the same period.

The AfDB report noted urbanisation was a megatrend transforming African societies profoundly. “Two-thirds of the investments in urban infrastructure until 2050 have yet to be made. The scope is large for new, wide-ranging urban policies to turn African cities and towns into engines of growth and sustainable development for the continent as a whole.”

It believed: “If harnessed by adequate policies, urbanisation can help advance economic development through higher agricultural productivity, industrialisation, services stimulated by the growth of the middle class, and foreign direct investment in urban corridors. It also can promote social development through safer and inclusive urban housing and robust social safety nets. Finally, it can further sound environmental management by addressing the effects of climate change as well as the scarcity of water and other natural resources, controlling air pollution, developing clean cost-efficient public transportation systems, improving waste collection, and increasing access to energy.”

Director of the OECD Development Centre and Acting Director of the OECD Development Co-operation Directorate, Mario Pezzini, said: “Africa’s ongoing, multi-faceted urban transition and the densification it produces offer new opportunities for improving economic and social development while protecting the environment in a holistic manner. These openings can be better harnessed to achieve the Sustainable Development Goals – especially SDG 11 on sustainable cities and communities – and the objectives of the African Union’s Agenda 2063.”

“The benefits could accrue for both urban and rural dwellers, provided governments adopt an integrated approach,” he added.