Thursday, November 01, 2018 06.57AM / By Doyin Salami, LBS / Proshare WebTV
Dr Doyin Salami a seasoned Nigerian economist was the keynote speaker at the Lagos Business School 2018 Alumni lunch networking session, discussing the topic “2019 Elections And Your Business”.
The presentation which was a robust discourse on the forthcoming general elections in 2019, provided an opportunity for Dr Salami to share his perspective on how the build up to the polls and post events will likely shape the economy, business environment and the markets.
This is the first of a 3-part coverage. In this first part, we highlight his views on the state of the Nigerian economy and where it is headed.
Drivers of the Nigerian Economy
Dr Salami from his presentation outlined the Drivers of the economy covering Global conditions, Policy, Financial markets, Cost, Activity, Economic and Social Development.
In the area of Global conditions, the economist identified the following as drivers;
On the Policy side he shared that the key areas are the fiscal and monetary policies which continue to play roles, in dictating the pace of the economy.
From the Cost perspective inflation, interest rate and exchange rates were listed as the determinants of activities in the economic space.
Looking at economic activities Salami said the Output, Income & Expenditure, Volume of foreign trade and Credit volumes showed how the economy is faring.
The financial markets also play a key part in the economy, especially the equities and fixed income segments.
In addition to the economic drivers Dr Salami noted the importance of the Economic and Social Development Indices which cover the following;
International Conditions are Favourable on Balance, Albeit with Significant Tail Risks
External Balances are Improved Compared to Crisis Period, but are Running Into Headwinds
The economist stated that the gains from higher oil prices are constrained by renewed production challenges, whilst capital flows, once recovering, begin to taper, induced by rising international interest rates and uncertainties associated with the 2019 elections.
Deployment of Accumulated Foreign Exchange Reserves by the CBN in Defence of the Naira
According to Dr Doyin Salami efforts to manage the impact of external headwinds, are manifest in the deployment of accumulated foreign exchange reserves by the CBN in defense of the Naira.
From the presentation made by the LBS lecturer the Nigerian gross foreign reserves has gone down by nearly $4bn since peaking in July, 2018.
A Fragile and Weakening Economic Recovery
The economy according to Salami is experiencing a fragile and weakening economic recovery pace, as Nigeria has failed to grow higher than its population rate of 2% at the moment.
The current economic growth rate is 1.8% and the Central Bank of Nigeria has warned that the nation could plunge back into a recession.
Here is an overview of the analysis of the last three quarters;
Oil GDP 3.53%
Non-oil GDP: 0.45%
21 Sectors Contracting
14 Slow Growing Sectors (Growth <3%)
11 Fast growth sectors (Growth >3%)
Oil GDP: 14.77%
10 Sectors Contracting 23 Slow Growing Sectors (Growth <3%)
13 Fast growth sectors (Growth >3%)
Oil GDP 3.95%
Non-oil GDP: 1.80%
15 Sectors Contracting
13 Slow Growing Sectors (Growth <3%)
18 Fast Growing Sectors (Growth >3%)
Failing Recovery Reflects Limp Growth or Contraction in Major Sectoral Growth Drivers
The major sectoral growth drivers that have either experienced limp growth or contraction include;
· Real Estate
· Oil and Gas
Once Easing, Inflation has Bottomed Out and is poised to Rise in Coming Months
The season of an easing inflation in Nigeria has now bottomed out and Salami projects that it will rise in the coming months.
It has always been analysed and argued that during the pre-elections season inflation rates tends to be spike due to spending during the period.
Nigeria’s inflation rate is currently 11.28% and the Federal Government in its 2018 budget, set an inflation target of 12.4%.
From his presentation, Salami showed that the recent trajectory of short term rates suggest a tightening of liquidity conditions.
This also revealed the issues around the Monetary Policy Rate v Treasury Bills Primary stop rates and The Asymmetric Corridor v Overnight Rate.
Lending rates remaining High
Giving further insight into developments in the financial market, Dr Salami acknowledged the fact that lending rates still remain high the monetary policy retained at 14% .
He identified the concerns around the Headline Inflation v Monetary Policy Rate and Headline Inflation v Lending rates as key issues to be considered.
Sluggish Credit Growth
From the analysis the Credit growth in the country has been sluggish looking at the Credit v Output growth and the Inflation-adjusted Credit growth shows a lot needs to be done in this space.
Fiscal Realities and FG’s Plan for Asset Sales to Rebalance the Fiscus in 2018
The challenging fiscal realities in the country has clearly led the Federal Government to mull asset sales, in an attempt to rebalance the fiscus in 2018.
Dr Salami notes that the FG has lined up 10 State Owned Enterprises for sale to raise N289bn (US$797m) in Q4, 2018.
With fiscal deficits and the need to mobilize resources and revenue for public expenditure, the FG has to be innovative in its strategy.
Coverage of the Presentation
Other Related Post From Doyin Salami
14. Gross Official Reserves Declines by US$1.53bn in September 2018 to US$44.31bn