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N IGERIA ’ S E CONOMIC O UTLOOK IN 2016
 Current Outlook of Global Shocks
 Transactions shocks- movements in global commodity prices and their implications for corporate income growth, national economic growth, and current account balances.
 Portfolio Shocks- movements in global equity prices and their implications for corporate wealth growth, national financial stability, and capital account balances.
 Current Outlook of Domestic Responses
 Overall and Sectoral Growth
 Financial Assets- Equities, Forex Demand, and Reserves
 Financial Prices- Money, Bonds, Inflation, Interest Rates, and Exchange Rates
 Fiscal Realities- Non-oil/Oil Revenue outlook
 Balance Sheets- Households, Businesses, Banks, Government, and Central Bank
 Current Policy Outlook
 Fiscal- Federal and States revenue realities and spending plans
 Financial- liquidity, interest rate and exchange rate policies of the Central Bank of Nigeria
 Sectoral- sectoral/infrastructure policies of the Government of Nigeria

a. Fiscal Disconnect: Africa’s largest economy vs. Africa’s lowest revenue to GDP ratio i. 13% Oil, 87% vs. non-oil GDP, 70% Oil vs. 30% non-oil revenue ii. Oil revenue- 8.5% of GDP, Non-oil revenue of 3.5% of GDP- lowest in Africa
b. Sectoral Disparities: Few fast growth sectors vs. many stagnant sectors i. It takes only the biggest six of Nigeria’s 46 sectors to surpass SA GDP ii. Remaining 40 sectors account for only 33 percent of Nigeria’s GDP iii. There is a curious ‘missing middle’ in Nigeria’s large economy
c. Financial/Monetary Disconnect: Excess banking system liquidity vs. Illiquid economy i. Nigeria is Africa’s largest economy but is also now Africa’s fifth investment destination ii. FG cannot fund capital projects, State governments cannot pay salaries iii.Businesses/households face prohibitive interest rates, yet ‘banks’ have ‘excess liquidity’ that CBN must ‘always’ tighten, because it poses a threat to exchange rate stability

a. To Resolve Fiscal Disconnect, Plug Leakages i.
End Oil Theft, Oil-Subsidy Abuses, and Abuses of Duty/Tax Waivers ii. Withdraw ‘Autonomy’ from ALL Revenue-Collecting Agencies iii. Capture Value Created by government interventions, Lagos and FCT examples
b. To Resolve Sectoral Disparities, Fix Growth Enablers i.
Inclusive vs. Non-inclusive Market Outcomes, Developmental State, Planning, etc.
ii. Build an ultramodern nationwide rail transport system
1. Rail creates values that are multiples of its costs
2. Much of the value are its indirect impact on adjacent property
3. Capture those across 36 states and FCT, as well as 774 LGAs to build rail!
iii. Adopt LNG-type JVs to Fix energy supply iv. Attract medium to long term real sector investment to stabilize capital flows
c. To Resolve Monetary Disconnect, puncture banks’ excess liquidity, ease mon. policy i.
Pay regulatory attention to liquidity management choices of individual banks ii. Have some liquidity criteria for government deposit placements iii. Then ease monetary policy by demolishing existing monetary policy barricades iv. Monitor and support the liquidity conditions of government, businesses and consumers

1. F ISCAL T RANSITION
 Orderly Plan to Raise Government Revenue to levels required to fund policies for inclusive growth
 Quality governance could require minimum revenue of about 25% of GDP
 Restrict Revenue Collecting Agencies Autonomy to ‘Operating Expenses’
2. E CONOMIC /S ECTORAL T RANSITION
 Reduce System-wide transaction costs to boost growth linkages and inclusion
Reduce cargo transportation costs
 Rail haulage (adopt self-funding modalities to build ultramodern nationwide rail system)
 Adopt ‘Value Capture’ modalities, such as ‘rail-plus-property model’, can deliver funds to for rail
Steady energy supply will spur inclusive growth
 Petrol (Adopt LNG-type IJVs to refine Nigeria’s crude locally and stop importing)
 Gas (Privatize Pipelines or adopt LNG-type IJVs)
 Power (Privatize the whole spectrum, including transmission)
3. F INANCIAL T RANSITION
 A transition to a low interest rate stable currency regime is required to spur growth and inclusion
 An orderly transition to a lower MPR, CRR, and LR regime is required
 Low interest rates is consistent with high returns on real sector investments
 Use rail, refineries and pipelines reforms to attract and retain long term capital inflows
 Increased long term capital inflows are required for a strong Naira

1. Nigeria needs to Create Required Fiscal Space i.
Nigeria’s Government Revenue Does Not Measure Up to her Economic Size!
ii. Stronger Revenue Drive is required to ensure Reasonable Expenditure Levels
2. Nigerian Economy Has Grown Fast i.
Africa’s Largest and World’s 21 th Largest Economy ii. But there are Glaring Disparities Across Nigeria’s Sectors and Regions
3. Now Needs Inclusive Growth i.
Competitiveness and Linkages need to be built … ii. … Through Lower System-wide Transaction Costs
4. Nigeria’s Money, Debt and Equity Markets are Sound i.
Cash, Non-Interest Deposits, and Interest-Bearing Deposits ii. Money, Bonds, and Equity: Wither Excess Liquidity?
5. But there is a Need to Channel ‘Excess Liquidity’ into Low-Interest Loans i.
Deflate ‘Excess Liquidity’ in Banks and Ease Central Bank’s Policy Measures ii. Channel Bank Liquidity into Low Interest Producer/Consumer Loans

 EA provides ongoing assessment of the outlook of the Nigerian economy. We clarify the trends and outlook of risks and opportunities in the Nigerian economy, given the realities of the international economic situation, and the economic policy directions of the government. Our products and services currently include:
 Economic Outlook monthly summaries of the main drivers of Nigerian economic outlook.
 Briefing for decision-makers on the drivers of the economic outlook.
 Training on selected themes on the Nigerian economy.
 Regular access to EA staff to discuss new ideas as they emerge.
Economic Associates, 16 Amodu Ojikutu Street, Victoria Island, Lagos, Nigeria. Tel: 0803 305 5380; e-mail info@econassociates.com; home page http://www.econassociates.com
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