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Nigerian Economic Outlook: Headwinds with Bright Spots

FILE - Nigerian president Muhammadu Buhari

FILE - Nigerian president Muhammadu Buhari

Last week, the National Bureau of Statistics released a 41-page report predicting the state of Nigeria's economy through President Muhammadu Buhari's term. "The Nigerian Economy: Past, Present and Future" reviews current conditions and aims to provide policymakers and investors with the likely trends of key macro-economic indicators in future years, with a focus on Gross Domestic Product (GDP), inflation and trade.

While there are some obvious near-term headwinds, there are bright spots in the future of Nigeria's transitioning economy.

In 2015, GDP dropped due to a decline in the price of crude oil, which constitutes a major source of income for the government.

Other factors include the dominance of political activities due to general elections, shocks in the domestic supply of refined petroleum products, Northeast insurgents, and restrictions on foreign exchange transactions. Nigeria imports a considerable amount of goods, both through formal and informal channels.

As with all oil-dependent nations, the largest headwind is the oil supply glut, and consensus expects prices to remain lower for longer with Iran coming back in global markets and a stalemate in production cuts.

Simply put, supply far outweighs demand and there is too much product in the system for prices to recover.

Resetting the economy

That said, the report makes an interesting observation. It points out that economists love these times, making truth of the phrase, "never let a crisis go to waste." It allows governments to take the opportunity to make hard decisions.

As such, Buhari's government is using the 2016 budget as an opportunity to reset and redirect the macroeconomic dynamics of Nigeria.

In the near-term, yielding results may be slow going, but according to the report, growth is expected to jump-start between 2017 and 2019 as infrastructure developments take shape and provide support for both the oil and non-oil sectors.

There are three areas Buhari is focused on for economic growth: agriculture, industry and services. In particular, there are plans by government authorities to develop critical infrastructure to transport gas to power plants to increase Nigeria's stock of power, which will have multiple effects on the manufacturing and services sectors.

Other efforts to spur growth include a number of fiscal measures. These efforts over the 2017-2019 period should yield average growth of roughly 5.4 percent.

Headline inflation over the 2017-2019 period is expected to average 9 percent, while trade is projected to grow by an average of 15.6 percent over the same time, which means Nigeria will be doing more selling than buying.

A stabilization of oil prices beyond 2016, combined with a more competitive economy, is expected to yield a rebound in both imports and exports.