Nigeria: Mid-Year Economic Review By Biodun Adedipe Associates

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 Sunday, July 29, 2018 / 09:55 PM / B. Adedipe Associates Ltd

Background and Historical Issues

The economy had impressive, non-inclusive growth up until 2014. Annual GDP growth averaged 6.4% during 2001-14.

The pre-election year fever of 2014 up to the general elections of 2015, coupled with the endemic structural defects and rigidities resulted in 2.5% GDP growth the 2016 recession.

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The 2016 recession only complicated the misery!

Inflation peaked at 18.72% in January 2017 and has been trending downwards since then to 11.23% in June 2018. Unemployment was 14.4% in Q1 2017, resulting in basic misery index of 33.12%.

Nigeria lost about 1% GDP growth to the recession – average GDP growth rate for 2001-17 is 5.45%.

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The misery index doubled in a matter of 8 years!

• 15%  added during the previous administration.

• 23% added during the current administration.

This calls for urgent intervention in the four components of the index:

• Unemployment rate

• Inflation rate

• Lending rate

• GDP growth rate

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GDP growth rate slowed during Q1 2018 to 1.95%, from 2.11% in Q4 2017, being the first time the upward tick will subside.

This is more glaring in the Chart on slide 8, indicating an urgent need to explore all possibilities of intervention.

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The growth rate was encouragingly above the trend line from Q2 2017, but kissed the line in Q1 2018, suggesting likelihood of dipping below the line from Q2 2018!

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Foreign trade data suggest a strengthening external sector.

·         Exports are expanding rapidly.

·         Imports trended downwards from June 2017, and then upturned in Q1 2018!

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Oil remains the prime mover of the Nigerian economy, accounting for 76.3% of exports, on the back of favourable oil prices and steady production / export.

This portends vulnerability.

Major Indices and Interpretations

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With a monthly import bill of $2.745 billion during Q1 2018, current external reserves represent 17.3 months, which is above minimum threshold of 11 months (it used to be 6 months).

Seemingly comfortable until we consider what happened to Argentina during H1 2018!

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These figures are interesting, painting the picture of an attractive investment destination. But most of these are portfolio investments, accounting for 60% of the total for 2017 and 72.42% in Q1 2018!

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Rate remains stable because the CBN has  capacity to intervene in the market. Some analysts call it ‘defending the Naira’, but I see it as necessary stimulus for the economy!

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Policy Headwinds and Tailwinds

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Economic Recovery and Growth Plan (2017-2020)

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Other Government Policies

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FGN Budget 2018: Key Issues

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The Trajectory and Implications

As noted earlier, growth tanked in Q1 2018, confirming that the recovery that commenced in Q4 2016 is still fragile.

This is in spite of intervention schemes across several sectors of the economy.

These are times that pragmatism and creativity are important to unleash pent-up, latent and sterilized resources.

Farmers/herdsmen clash and Food security?

As stated on this platform in April 2018, the herdsmen rampaging in the middle belt and extending to the South are a real threat to food security. Now, it is proven!

·         Many farmers have abandoned their farms, and harvest expectation for 2018 planting season is already failing!

·         Inflation rate has continued to drop, but not significantly. Food inflation is the key factor in Nigeria’s headline inflation.

·         Food index increased by 17.59% against 0.79% in headline inflation in February 2018!

·         There is likely a reversal of heavy food importation that will restart pressures on the Naira exchange rate.

 

Infrastructure

Misplaced priorities and cost of project execution remain worrisome.

  • Gradual improvement in Federal roads, but most State and Local Government roads are in bad shape!
  • Extended commuting time has become a major drag on productivity and wellbeing of citizens (mostly urban dwellers).
  • There is considerable leakages still in the execution of projects and crony capitalism is getting further entrenched. 

Improvement in power supply is being stymied by the billing system operated by the Discos.

Political Environment

The typical discourse about policy sustenance and continuity in a pre-election year, for now, answers to low risk as no formidable candidate is yet to emerge to effectively challenge the incumbent President.

  • This possibly explains why foreign investors are still showing great interest and positioning for a post-2019 election Nigerian business space.
  • This may not repeat at sub-national levels where performance and management of transition may become major determinants of who wins and who loses.

Shift in Direction of Foreign Flows: A Ticking Bomb?

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Pre-election Year Blues? Stock Market Trends

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Pre-election Year Blues? External Reserves (ER) and Crude Oil Price (COP)

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Conclusion

The fate of the Nigerian economy still hangs on hydrocarbons – volume produced and exported vis-à-vis the international market price.

This vulnerability may only be mitigated by pursuit of business unusual - strengthened non-oil sector to truly diversify foreign earnings and reduce reliance on imports consumption.

By shrinking the space for the private sector with seeming policy contradictions in dependence on private funding of ERGP and strangulating revenue drive (especially with the unorthodox methods at the State levels), no significant change may be expected. There has been nothing of note in respect of P-P-P, as contained in the ERGP!

Monetary policy has been carrying some of the burdens that well structured fiscal and commercial policies should have delivered.

 


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