Nigerian economic outlook 2018: Growth  sustainability needed — Experts

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…better days ahead

By Ayobami Adedini

The Nigerian economy exited a negative territory in 2017 as Gross Domestic Product (GDP) grew by 0.55 per cent in the second quarter of 2017. This was largely attributed to the increase in oil production and a recovery in oil price.

In this piece, AYOBAMI ADEDINNI takes a cursory look at the nation’s economy and a review into the monetary policy interventions in 2017 vis a vis 2018.

Crude oil prices are rising and the naira exchange rate is stabilising; the future looks bright for the economy.

However, the real sector especially sectors such as trade, manufacturing, finance & insurance and information technology is yet to recover fully.  Thus growth remains largely volatile, as it remains vulnerable to shocks.

The International Monetary Fund (IMF) had in October forecast a 1.9 per cent growth for Nigeria by 2018 and a moderate 0.8 per cent growth at the end of this year to retain economic lead on the continent.

Although the country’s consumer price index (CPI), which measures the rate of inflation dropped to 16.05 per cent at July end, the food index increased by 20.28 per cent, the highest level since 2009, mostly on account of the exchange rate thereby spiking food prices.

Economic and finance experts have expressed concerns over the Federal Government’s ability to manage the economy 2018 proposal, arguing that the current year’s budget performance has been below average.

The National Bureau of Statistics had last month announced that in Q3,2017 Nigeria’s Gross Domestic Product consolidated its exit from recession, by moving from the revised 0.7 per cent in Q2, 2017 to 1.4 per cent.

According to industry watchers, Nigeria remained vulnerable to exogenous shocks, a position posited in a recent Moody report on the country.

They however made a strong case for policy sustainability, which he believed was key but called on monetary policy makers to take a review of the interest rate regime in the country.

Speaking with Nigerian NewDirect, MD/CEO, Enterprise Stockbrokers, Mr. Rotimi Fakayejo said the Federal Government was expected to bring in more funds from the Excess Crude Account , (ECA) asides the one to be used for insurgency leading to more inflow into the system.

He said, “There is every tendency that they will release more funds to the states also and by so doing, it will increase the liquidity within the system and they will still have to mop up again. So, it’s not a very costly venture by the CBN and to the government as well,” he said adding that 2018 may not be as good as projected.

“Relating it with the equity market, I think the high interest rate definitely the market may not be the right destination,” he stated.

The $40bn reserve rhetoric

…CBN not getting it right

Earlier in December, the Governor of the Central Bank of Nigeria (CBN), Godwin Emefiele had disclosed that the foreign reserves were at $38.2 billion.

Barely a week after, the nation’s reserve was reported to hit $39.7 billion, after gaining about $1.6 billion within a week.

The increase according to experts signals the country’s return to being a favourite destination in international deals and enhanced confidence.

However, Rotimi Fakayejo believes what the Apex banking institution is getting a longer term fund to solve an immediate problem.

He said, “In actual sense, they are not telling us the entire truth. What they are actually doing is to add more dollars to be able to stabilize the foreign exchange market.

“So they are getting a longer term fund to solve an immediate problem which to me doesn’t make much sense because if you are getting money at such a rate and you are still funding local debts to as high as  16 per cent that means by the end of the tenure of the Eurobond, your local debt would have also doubled.

“Ordinarily, what one would have expected is a situation whereby how do we curb the local debt, how do we realize some of the Treasury Bills (T-bills) and limit the issuance of new ones.

“All these things are mindset but we have a system such that we believe exchange rate and inflation are the only parameters which they ensure stability within the system but everyone is talking about stability, no one is talking about growth and development which is why we have had a very sterile economy all the year.

“If the fiscal policy is not complementing the monetary policy, then it is going to be all struggles whatever the CBN is doing.

“They are not getting it right and the synergy is not yet there.

Finance inclusion and cashless policy

He said, “They have done much but not enough. I think a lot of people have lowered their guard concerning that. The kind of zeal that they had when we first started has actually reduced which is the area where the finance inclusion ought to have been more encouraged,

“For instance, banks are trying by doing mobile banking and also the ones that do not require internet.

“The payments system still needs a lot of improvement. When you get to some POS, you will find out they are not working, so you have to get back to cash. In reverting to that, definitely there will be more liquidity.  So, I think they still need to do more and take advantage of the population,” he added.

 

Banks’ performance

The outlook for the banking sector for full year 2017 and 2018, as the Nigerian finance market, remains a sweet and attractive spot for both foreign and local investors, according to, Group Managing Director/CEO, Ike Chioke,  Afrinvest West Africa Limited.

Chioke notes in the 2017 Nigerian Banking Sector Report that majority of the Nigerian banks have demonstrated their resilience within the last two years amid macroeconomic challenges that weighed on credit expansion, asset quality and capital adequacy, to record largely positive performance for the year.

However, Fakayejo believes otherwise.

According to him, although the sector has improved, he does not expect any major change in the last quarter adding that some of the bigger banks will not see better performance in the year.

2019 election and presumed accommodative policy viz massive capital flight

In a review , analysts noted that they assume and accommodate monetary policy ahead the 2019 elections in 2018, which would make the local currency trade N373 to the dollar in 2018.

“We assume accommodative policy in 2018, ahead of the February 2019 elections and expect the NGN to trend weaker to NGN373/$1 at YE18. That said, we think the naira will become less cheap, in real terms, in the short term,” they said.

“We think a stronger external sector and tighter monetary policy imply NGN appreciation risk in the near term (we revised our YE17 forecast to NGN332/$1 in our 11 September note, Nigeria: The naira – Short-term strength, weaker in 2018),” they added.

Fakayejo said, “for the fact that 2018 is very close to the election year, by the last quarter of 2018, everyone is already preparing for the election and looking at the direction which the election will swing.

And that also will imply a lot of things. We will see a lot of capital flight in both money and capital markets and that definitely is going to affect us. We may still have it good up to June but I think thereafter everyone has to be on the watch

 

 

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