PwC: Structural Reforms, Political Risk Management Crucial to Nigeria’s Economic Growth


Emma Okonji
PricewaterhouseCoopers (PwC) has said that the Nigerian economy is on track for a broad-based recovery, but noted that structural reforms and political risk management are very vital to the country’s economic growth.

Defining the path for Nigerian economic growth, Economists at PwC Nigeria noted that aside the improvement in real GDP, following the exit from recession in Q2 of 2017, the performance across several other macro-indicators suggest that the economy has turned a corner.

Some of these indicators according to the report, include headline inflation at a 16 month low at 15.9 per cent year/year in September; maintenance of trade surplus for three consecutive quarters; Purchasing Managers Index (PMI) remaining above the 50 points threshold for six consecutive months and the foreign reserves up to a 34-month high.
The PwC report further assessed the fundamental determinants of economic growth, with findings suggesting that economic freedom, consumption growth and investment share in GDP are significant drivers of the Nigerian economy.

Partner and Chief Economist at PwC Nigeria, Dr. Andrew Nevin, said: “We find that an increase in the economic freedom index by 1 point could lead to a 1.7 percentage point increase in Nigeria’s economic growth. This underscores the role of economic policies as a major catalyst for economic development. Similarly, a one percentage point increase in investment share in GDP and consumption growth were found to be associated with 0.2 percentage points and 0.7 percentage points increase in economic growth respectively.”

To show Nigeria’s potential economic performance over the next five years, the report presents three scenarios in which PwC examined the impact of political shocks, and the implementation of structural reforms and economic diversification on key economic indicators in Nigeria.

The firm, in its analysis, assumed that oil will continue to be the main driver of fiscal and export revenues over the forecast period. As such, the extent to which the Nigerian economy moves towards its near-term development aspirations is dependent upon the success of its import substitution policies.
In the first scenario, the report is of the view that there is fast-paced implementation of structural reforms, particularly those related to the business environment. In addition, the oil price will rise from an estimated average of $55/bbl in 2017 to $60/bbl in 2018, while domestic oil production is assumed at 2.2mbpd from 2019 to 2022.

In the second scenario, the PwC is also noted that there is sluggish implementation of structural reforms, with the drive for import substitution progressing at a slow pace. The oil price and domestic oil production remain stable at $60/bbl and 2.2mbpd respectively over the forecast period. Scenario 3 presents a less optimistic picture with increased political tension in the wake of the 2019 general elections negatively impacting policy implementation. A return of restiveness in the Niger Delta results in a collapse in oil production levels to an average of 1.7mbpd by 2019, before a gradual recovery to 2.2mbpd by 2022.

Commenting further on the summary of the report findings, Nevin said: “In scenario 1, real GDP growth peaks at 7.0 per cent in 2022 and remains in line with trend, reflecting the implementation of structural reforms, and successful traction in the execution of import substitution policies. The resultant improvement in the macroeconomic environment leads to increased investment and per capita GDP. However, in scenario two, the implementation of key reforms evolves at a slow pace and economic growth averages 3.3 per cent over the forecast period, reaching 5.0 per cent in 2022.
He added: “A mix of political and security shocks in scenario three, which bring about a significant decline in revenues result in no percentage growth in 2019, but that subsequently, growth will recover to 4.3 per cent by 2022.”