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2. 2 Nigeria’s Economic Outlook in 2015 Ayo Teriba CEO, Economic Associates ayo.teriba@econassociates.com Author page: http://ssrn.com/author=358232http://ssrn.com/author=358232 November 20 2014

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4. 4Fiscal Realities4 Note: Italicized items are for 2012, all other are for 2013 F ISCAL I NERTIA  Discordant fiscal contraction/austerity in the face of ongoing domestic economic expansion.  Nigeria fails to produce ‘savings’ from years of oil-price benchmarking.  Nigeria is also inept in raising revenue from evident and widely acknowledged ongoing boom in non-oil activity (N70 trillion non-oil GDP; N2.95 trillion federally collected non-oil revenue is 3.7% of GDP).  Nigeria’s non-oil GDP is bigger than each of South Africa’s and Egypt’s GDP. Why should they each have more tax revenue than Nigeria?  Govt Revenue as % of GDP: -Nigeria 12.2% ( Oil 8.5%, non-oil 3.7%! ) -South Africa 25.0% -Egypt 24% -Algeria33.8% -Angola41% -Morocco24.47  VAT rates: -Nigeria 5%! -South Africa 14% ( standard ), 30% ( maximum ) -Egypt 10% ( standard ), 25% ( luxury goods ) -Algeria17,% 14%, 7% -Angola10% ( standard ), 30% ( maximum ) -Morocco20% ItemN' Billion% of GDP  Total Federally Collected Revenue9,759.812.20  Oil Revenue6,809.28.51  Non- Oil Revenue2,950.63.69 ­ Corporate Income Taxes848.01.06 ­ Value Added Tax710.00.89 ­ Customs and Excise Duty475.00.59 ­ Custom Levies161.60.20 ­ Education Tax214.60.27 ­ FG Independent Revenue206.80.26 ­ States’ IGR543.00.68 ­ LGA’s IGR26.60.03  Nominal GDP80,009.1100  Oil GDP10,296.0012.87  Non-Oil GDP69,926.1387.40  Expenditure on GDP81,010.0101.25  Private Consumption58,440.0073.04  Investment11,924.0014.90  Government Consumption6,548.008.18  Net Exports4,097.005.12  External Spending  Exports14,615.0018.27  Imports10,518.0013.15  Net Exports4,097.005.12

5. 5 Macro Trajectories: Trends, Cycles, and Shocks 5 Federation Account

6. 6 Macro Trajectories: Trends, Cycles, and Shocks 6 Federal Account

7. 7  Trends and Outlook of Global Transactions Shocks  Volatile Commodity Prices -GDP Growth, Spending, Employment, and Inflation  Trends and Outlook of Global Portfolio Shocks  Volatile Global Equity Indices -Domestic Equities, Bonds, Forex, and Reserves  Demand Management Policy Inertia  Fiscal Disconnect and Policy Endogeneity: Austerity?!!!  Monetary Policy Ineptitude/Inertia: Tight Monetary Policy Stance?!!!  Needful but Absent Domestic Structural Shifts  Transport: Road, Rail, Water, Air  Utilities: Water, Sewerage, Energy  Social: Education, Health, Security, Insurance  Needful but Absent Balance Sheet Evaluation and Repairs  Private: Personal, Corporate, and Banks  Government: Federation, Federal, States, LGAs  Central Bank: Payments, Monetary, Financial  Democratic Effectiveness and Economic Outcomes  President, Parliament and Economic Outcome  Economic Diagnostics and Economic Intelligence Global Impulses, Domestic Impact, and Domestic Policy Responses

8. 8 Signal from Recent Global Market Volatilities  What signals should we extract from recent volatility of global oil prices? -To what extent is it about sustainability of the challenge of ‘dear oil’ to ‘cheap oil’ -About who blinks: OPEC/Russia or US/Canada, and how soon? -Looming Crisis: Sovereign Fiscal Implosion or Corporate Debt Implosion -Which producers will survive $60pb oil price threshold  What signals should we extract from recent volatility of global equity prices? -Likely impact of the divergent growth paths of the advanced economies -Likely impact of discordant policy tunes from advanced economies  What signals should we extract from recent policy statements in Nigeria? -Austerity? Spending cuts? Not non-oil revenue drive? Not increase in the VAT rate and coverage? Not streamlining of arbitrary import duty waivers? -Not ending government (NRC) monopoly in rail, and allowing new entrants, PHCN-style? -Not building Nigeria’s capacity to refine all its own crude output for domestic use and export?  What signals should we extract from democratic disposition to economic management? -President, Parliament and Economic Outcome -Economic Diagnostics and Economic Intelligence

9. 9 Outlook 2015: Global Impulses vs. Domestic Responses  Ongoing volatilities in global commodity prices and global equity prices threaten to destabilise domestic economic and financial activity in 2015, but only if the volatilities become protracted, or turn out to persistent contraction. -Monetary policy responds only to movements short term liquidity in banks and public sector; says and does nothing about real economic activity and sectoral balance sheets. -Needful value-creating structural reforms in rail transportation and oil refining are not happening. -Nigeria’s most important failing is the ineptitude to extract the tax revenue that we all know and the whole world knows that we could extract! -Countries that fund donor agencies and provide grants/soft loans/investment to other countries are only able to do so because the have the liver to generate optimal tax revenue at home!  Austerity? Surely not for Nigeria! -Champagne, wine, beer, spirits, tobacco, luxury cars, boats, private jets, and other activities of ostentation that go with them can surely sustain VAT rates much higher than 5%? We do not need McKinsey to come and tell us or teach us how to do that! And we can and should do that this minute! Why not? -We can effect needful immediate heavy investment in health, educational, security and defence capabilities and be happier for it! Why not, if not? -Duty waivers? For who? For what? -Immediate excess oil refining capacity? Why not? -Immediate rail transport revolution? Why not?

10. Economic Associates, 16 Amodu Ojikutu Street, Victoria Island, Lagos, Nigeria. Tel: 0803 305 5380; e-mail info@econassociates.com; home page http://www.econassociates.cominfo@econassociates.comhttp://www.econassociates.com  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. About EA 10