The Nigerian Economic Summit Group (NESG) with the use of its Macroeconomic Model developed to simulate and analyse the various impacts of different policies on Nigeria’s major macroeconomic indicators, has made projections for the West African nation based on 3 scenarios – Best Case, Business as Usual and Worst Case – for the period between 2021 and 2025.
In all 3 scenarios, NESG, details the respective macroeconomic outcomes for the continent’s biggest economy.
Scenario 1 – Best Case:
In our best-case scenario, we assume that the continued discovery and availability of vaccines and recovery of the global economy would lead to relative stability in the global oil market for 2021 – 2025. Consequently, we assume that global oil price will average US$51 per barrel in 2021 and increase to US$53, US$57, US$63 and US$65 per barrel in 2022, 2023, 2024 and 2025 respectively.
Alongside oil price, this scenario assumes an improvement in crude oil production to 1.8 million barrels per day (mbpd) in 2021 to 1.8 mbpd, 1.9 mbpd, 2.1 mbpd and 2.2 mbpd in 2022, 2023, 2024 and 2025 respectively. This is in anticipation of a reduction in OPEC cuts, expansion in Nigeria’s production quota, the commitment of the National Assembly to passing the Petroleum Industry Bill and continued peaceful operation in the Niger Delta region.
This scenario further assumes the federal government will be able to spend up to N2.3 trillion as capital expenditure in 2021 and N3.8 trillion in 2025. This will rest on the anticipated increase in revenue from oil and non-oil sectors. This scenario also assumes improved private investment as well as capital and labour efficiencies across major sectors during the period.
Outcomes
The outcomes of this scenario will have significant upside on the macroeconomy over the period 2021 – 2025. Real GDP expands by 2.9 percent in 2021; by 5.5 percent in 2022 and 7.5 percent in 2025. The growth will be driven by expansion in major sectors such as Agriculture, Telecommunications, Financial Institutions, Construction, Trade and Manufacturing.
Government revenue will increase by 23.3 percent in 2021 and expand by an average of 30 percent over the next five years. Inflation rate will moderate to 14.5 percent in 2021 and move down to 11.2 percent in 2025. In addition, the unemployment rate will fall to 26 percent and 19.3 percent in 2021 and 2025 respectively. In this scenario, the Nigerian economy recovers swiftly from the recession and gets on a path of high and sustainable growth that delivers improved social welfare.
Scenario 2 – Business as Usual
The business-as-usual scenario assumes that crude oil price will average US$44 per barrel in 2021. The price of crude oil will increase gradually to US$50 per barrel in 2025. This is on the back of increasing usage of vaccines among major economies of the world, however, mass vaccination will be delayed, thus, resulting in slower economic expansion and demand for crude oil.
To maintain a higher crude oil price, OPEC will constantly implement production cuts over the period. Consequently, Nigeria’s crude oil production will average 1.7 mbpd in 2021 and 1.8 mbpd in 2025. This scenario also assumes that the government spends N1.7 trillion as capital expenditure in 2021 and N1.9 trillion by 2025.
Outcomes
The outcome of this scenario is a gradual improvement of the economy. Real GDP expands by 0.9 percent in 2021; 1.7 percent in 2022 and 2.9 percent in 2025. Agriculture, Finance and Telecommunications sectors continue to be the major driver of growth based on their recent resilience.
Meanwhile, other sectors such as Manufacturing and Services expand marginally. Nevertheless, government revenue increases by 9.6 percent in 2021 and maintains an average growth of 10 percent over the next five years. Despite the opening of the land borders, the persistent restrictions from the continuous spread of COVID-19, increased electricity and petrol prices keeps the inflation rate high at 16 percent in 2021 while it subsided to 12.1 percent in 2025.
Also, unemployment rate will inch up to 28.3 percent in 2021 and to 30.7 percent in 2025. This implies that economic growth will be driven by a few sectors of the economy.
Scenario 3 – Worst Case
In the worst-case scenario, we assume crude oil price will average US$30 per barrel in 2021 and US$46 per barrel in 2025. In this scenario, there is an escalation in the spread of COVID-19, especially the new strain, which leads to another round of global lockdown with resultant effects on crude oil demand from major economies in Europe, Asia and North America.
Consequently, OPEC expands production cut and Nigeria’s crude oil production declines to 1.4 mbpd in 2021 and increases to 1.8 mbpd in 2025. With the eventual decline in government revenue, we assume the federal government spends N1.1 trillion as capital expenditure in 2021 and N1.9 trillion in 2025 financed majorly by borrowings.
Outcomes
In this scenario, real GDP declines by 2.5 percent and 0.6 percent in 2021 and 2022 respectively. In 2023, 2024 and 2025, the economy expands by 1.1 percent, 1.7 percent and 1.9 percent respectively. The output of key sectors such as manufacturing, construction and other services subsectors will experience contraction.
This will lead to a contraction in government revenue by 40 percent in 2021 as revenue from oil and non-oil sectors becomes constrained. Subsequently, government revenue increases marginally by an average of 5.2 percent over the following four years.
Inflationary pressure increases further as inflation rate rises to 17 percent and 18.7 percent in 2021 and 2023 respectively before inching down to 17.7 percent in 2025. Unemployment rate increases to 33 percent in 2021, further to 35.3 percent in 2024 before retreating to 34.7 percent in 2025.
