From Uche Usim, Abuja
Although Nigeria’s growth has remained slow and fragile since exiting recession last year, some economic experts have expressed confidence that 2018 could be a better fiscal year, despite some possible headwinds.
Top on the list of the likely headwind is inflation which is expected to spike with increased campaign spending by politicians in the months leading to 2019 general elections.
For some, such optimism is bolstered by the fact that the Central Bank of Nigeria (CBN) has succeeded in stabilising the foreign exchange market by providing sufficient liquidity for various segments of the market.
This action has stabilised the dollar at N360, while the interbank rate and bureau de change rates have converged. The development has helped investors make informed investment decisions and take calculated risks without fear of losing money with violent swings in naira rates.
Moreover, oil prices have hit $71/barrel (the highest since 2014), which is a soothing news for a largely mono-economy like Nigeria that benchmarked the N8.612 trillion 2018 budget on $45/barrel.
With external reserves now peaking at $40.4 billion, some observers have called on the government to be careful not to be distracted by dirty politics that may blight the economy, especially as 2018 remains a pre-election year.
They have argued however, that in order to sustain some of these gains in the new year, government needs to remain focused on diversifying the economy using agriculture, manufacturing and mining sectors as the fulcrum.
To build on the slim economic progress, they argued that political stability remains critical for government which also needs to address the incessant herdsmen/farmers clashes. It also needs to support small and medium enterprises and the manufacturers in general.
But notwithstanding the good news from the international oil market, a seasoned Economist, Dr Ayo Teriba, at a recent forum in Lagos cautioned that Nigeria must strengthen its reserve buffers to insulate the economy from cyclical shocks that tend to adversely affect economic indicators and the well-being of Nigerians.
According to him, the nation’s fragile recovery from recession in 2017 has been more cyclical than policy-driven. This means that the improved conditions of the international crude oil price (Over $60 per barrel) and oil production (Over 2 million barrels per day), facilitated Nigeria’s current growth.
He expressed concern that with another scenario of a weak international crude oil price regime, the economy might still come under severe pressure due to the lack of reserves and sufficient buffers at the moment.
Teriba gave a comparison of Saudi Arabia which with reserves of over $400 billion was able to manage the shocks of the crude oil price decline from late 2014, while Nigeria struggled with the same experience because of a reserve of under $40 billion.
“Nigeria’s economy needs to live above cyclical swings in the global commodity market.” He advised that depressing commodity prices has thrown commodity based economies into a tailspin.
He advocated a robust fiscal plan from the government to manage any cyclical swings.
Speaking in the same vein, Professor Uche Collins of the Economics Department, Nnamdi Azikwe University, Awka, urged th government to evolve quick responses to emergencies that may erupt in 2018.
Alredy, the fiscal authority has promised to sustain the momentum of aggressive spending to prosecute capital projects. It promised, in its 2018 budget explanatory note to roll over some capital projects of 2017 yet to be completed. This invariably suggests more spending to sustain a liquid economy.
According to Uche Uwaleke, a Chartered Banker, Stockbroker and Head of Banking & Finance Department, Nasarawa State University Keffi, the stock market will largely be bearish in 2018.
He said with elections only a few months away from the last quarter of this year, there will be politically-motivated spending, which will in turn shift the country’s inflationary challenge more from cost-push to demand-pull inflation.
He predicted that core inflation in 2018 will be highest in the month of December.
“The CBN will likely tighten monetary policy once again in order to reduce inflation and anchor inflation expectations. The pressure to make last-minute impression on Nigerians through populist policies will result in increased government borrowings thereby widening fiscal deficits and undermining fiscal consolidation.
“Interest rates will spike, exacerbating the condition of deposit money banks that had extended credit facilities to politically-exposed persons. The rate of non-performing loans will surge during this period. The fourth quarter of 2018 will be full of uncertainty caused by political tension and so the stock market will be bearish especially with the exit of foreign investors who are not likely to return till the conclusion of the general elections in the first quarter of 2019”, he explained.
Uwaleke added that the first quarter will be a good time for risk-taking investors to take positions in undervalued stocks.
“Overall, economic activities will progress at snail pace in the first quarter of 2018 with higher unemployment rate than the previous quarter, a little shy of 20 percent. Real GDP growth rate, year on year, will likely hit the two percent mark but it will be more from base effect than actual expansion in economic activities considering that the economy was still in recession during the corresponding period of the preceding year.
“The economy will be at cruising point during the second and third quarters of 2018. Much of the expansion in economic activities will occur during this period. The International Monetary Fund (IMF) has forecast a real GDP growth rate of 2.1 percent for Nigeria while the Federal Government’s target is 3.5 percent as contained in the 2018 budget. “Real GDP growth for 2018 will lie somewhere in-between. Improvements in security and oil infrastructure will likely boost oil production up to the level (2.3 million barrels per day) envisaged in the 2018 budget. Healthy external reserves, sufficient to finance over seven months of imports, will support a stable exchange rate and convergence of rates across all the segments of the forex market”, he explained.
Uwaleke said economic performance in 2018 will be a marginal improvement over 2017.
“Overall, I predict further improvements in the official figures by the NBS in 2018. However, the combined forces of double-digit inflation, high unemployment rate and a fragile GDP growth still below the rate of population growth will all conspire to prevent any significant effect of improvements in economic indices on the welfare of the ordinary Nigerian.
“The performance of the economy this new year will be powered by the outcomes in the international crude oil market. OPEC’s decision to extend the output cut agreement through 2018 provides a guarantee that the crude oil price will stay above the budget reference price of US$45 per barrel. There is a flip side though to the sustained oil price increase which has already manifested in the high cost of importing petroleum products. The Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Maikanti Baru, is reported to have disclosed recently that the current Landing Cost of petrol is N171 per litre, a development compounded by hoarding, diversion and cross-border smuggling, on account of the wide price differential between Nigeria and neighbouring countries which has pushed up the demand for PMS in the country to over 50 million litres per day”, he said.
The Minister of Finance, Mrs Kemi Adeosun in a recent forum said 2018 looks bright as the government was gradually weaning itself of over-independence on oil by focusing on non-oil revenue generating sources like taxes.
From the Voluntary Asset Income Declaration Scheme (VAIDS) alone, she said the government is targeting $1 billion.
She added that various revenue generating agencies were investing heavily in ICT to ensure they improve the money injected into government’s coffers.
However, going by official figures, 2017 recorded a number of improvements on the economic front over the previous year. Helped by recovering crude oil prices and higher oil production, the year witnessed the return of the economy to positive GDP growth trajectory after a debilitating recession that spanned five quarters in a row. The foreign exchange market was less chaotic, enabled by a remarkable accretion to external reserves which surged from US$25.84 billion on 3rd January 2017 to US$37.35 billion on 18th December 2017. Inflationary pressure moderated considerably from a peak of 18.72 percent in January to 15.90 percent in November 2017. The stock market was bullish on average posting impressive returns (the NSE All share index recorded 43.39 percent year-to-date gain as of 13th December, 2017) which significantly dwarfs the negative performance of the previous year. The World Bank’s Ease of Doing Business ranking in which Nigeria moved up 24 places was indicative of an improved business climate.
“But it was not all cheering news in 2017. Reflecting the low growth environment and exposure to the oil and gas sector, the banking industry’s solvency ratios declined from about 15 percent to 10.5 percent between December 2016 and October 2017. Non-performing loans in the banking sector rose to 15 percent as of October 2017 well ahead of the CBN’s regulatory threshold of 5 percent. The recent disclosure by the National Bureau of Statistics that unemployment rate jumped from 14.2 percent in the fourth quarter of 2016 to 18.8 percent in the third quarter of 2017 seems to outweigh the many positive economic developments in the outgoing year” Uwaleke added.
For Mr Rislanudeen Muhammad, an ex-bank Chief Executive, 2018 looks promising as the Economic recovery and growth plan (ERGP) and concurrent positive effect of increased oil price in the international market, improved output due to relative peace in the Niger Delta as well as export quota waiver by Organization of petroleum Exporting Countries (OPEC) would help the country.
“For an import dependent economy like ours, this has the positive effect of improving liquidity in the foreign exchange market and minimizing the incidences of round tripping and rent extraction.
“We got into 2018 when all economic indices minus unemployment rate and food inflation (not core inflation) were improving. However this mild recovery and projected growth encapsulated in the ERGP might be threatened when concentration of politicians heads towards election campaigns more than governance…”
Moreso when the recovery has more to do with oil recovery than other sub sectors of the economy minus Agriculture.
Since inflation rate has been coming down, monetary policy rates need to start coming down moderately to support sustained private sector growth and discourage Banks from concentrating their excess liquidity in high ju need to be dealt with urgently to avoid future fatalities as well as food crisis”, he advised.
In his submission, a Developmental Economist Mr. Odilim Enwagbara urged the government to invest wisely to record the right harvests.
“Economic development is like sowing a seed and after months of taking care it, you harvest. Again, you expect more harvest if you have done so more than previous years. So, it is what we sow that we expect to harvest from. Without investing in the critical growth driving sectors of the economy, it will be impossible to expect sudden growth”, he said
Overall, experts have advised the fiscal and monetary authorities to close ranks and work hard towards giving Nigerians a better economy in 2018, to soothe them from the excruciating pains they have continually experienced since the coming of the Buhari administration.