Criticisms trail management of Nigerian economy

Sat, Jan 23, 2021
By editor
8 MIN READ

Economy, Featured

The rising inflationary pressures alongside fragilities in the balance of payments, low agricultural output due to security challenges and the predictable drop in crude oil receipts may likely frustrate any efforts at exiting recession in the first quarter of this year.

By Goddy Ikeh

THE high foreign and domestic debt stocks, rising inflationary pressures alongside fragilities in the balance of payments, the upward review of the Value Added Tax, high electricity tariffs and the plunging of the economy into a second recession in five years have attracted criticisms from economists and other stakeholders on the management of the Nigerian economy.

But the minister of finance, budget and national planning, Zainab Ahmed, assured Nigerians on Monday, November 23, 2020, that the country would exit recession by the first quarter of 2021.

Speaking at the 26th Nigerian Economic Summit, organised by the Nigerian Economic Summit Group and the Federal Ministry of Finance, Budget, and National Planning in Abuja, Ahmed said that the COVID-19-induced recession followed the pattern across the world where many countries had entered economic recession.

“Nigeria is not alone in this, but I will say that Nigeria has outperformed all of these economies in terms of the record of a negative growth,” Ahmed said.

Nigeria entered its second recession in five years in the third quarter of this year as the Gross Domestic Product (GDP) fell for the second consecutive quarter.

According to figures released by the Nigeria Bureau of Statistics (NBS) cumulative Gross Domestic Product (GDP) for the first nine months of 2020, therefore, stood at -2.48 percent just as it recorded a -6.10 percent in the second quarter.

Despite the assurances of Ahmed of an early exit from recession, the Lagos Chamber of Commerce and Industry, LCCI, said that Nigeria’s inflation rate, which had risen for 15 consecutive months so far, would continue its climb in 2021.

Muda Yusuf

The director-general of the LCCI, Muda Yusuf, said in the chamber’s Economic Review for 2020 and Outlook for 2021 in Lagos that the forecasted inflation rate would be a result of rising food prices due to food value chain disruptions caused by insecurity, energy costs, lack of FX liquidity and others.

“We, however, believe a broad-based harmonisation of fiscal and monetary policies towards addressing the identified structural constraints will significantly help to moderate inflationary pressure in the medium term.”

On the general economic performance, Yusuf said that Nigeria’s economic performance was deeply affected by Covid-19 disruptions, citing that the poor economic trend would persist till the first quarter of 2021.

However, he warned that the rising second wave of the pandemic would lead to disruptions in Nigeria’s oil and non-oil economy.

He said the LCCI expected growth in ICT and Financial services for the 3rd quarter 2020 GDP figures.

 “We expect Information and Communication Technology, financial institutions, and agriculture to drive growth in the non-oil sector in the short-term; while the country’s commitment to Organisation of Petroleum Exporting Countries, OPEC, agreement is expected to dampen recovery prospects of the oil sector,” local media reports quoted Yusuf as saying.

Yusuf observed that the Nigerian Economic Sustainability Plan, NESP, will expire in the first half of year 2021, and called on the federal government to initiate a new plan to address key economic and policy concerns in the country.

“To foster economic resilience in year 2021, quick implementation of structural reforms including review of the foreign exchange management framework and significant investment critical infrastructural developmental projects are imperative. “Looking forward, the following will shape the outlook for 2021: (a) Covid-19 resurgence (b) African Continental Free Trade Area (c) Power sector reforms (d) Finance Bill 2020 (e) Passage of Petroleum Industry Bill (f) External Sector trends and (g) new national economic development plan to shape government’s policy direction in the coming year. “The Federal Government must be broad-based in its approach in developing a comprehensive development plan that addresses key economic and policy concerns in the country.

“We expect the new development plan to cover critical issues including macroeconomic stability, employment generation, investment, poverty reduction, financial empowerment, infrastructure development, ease of doing business, human capital development, industrialization, and security.”

In the same vein some Nigerian economic analysts have projected that 2021 would be challenging and that there would be light at the end of the tunnel.

Rewane Bismarck

Rewane Bismark, chief executive officer, Financial Derivatives Company Ltd., who spoke during the interactive zoom webinar, organized  by the Nigerian-British Chamber of Commerce with theme, “ 2021 Economic Outlook’’, said that 2021 would be a year of economic reform with gradual recovery in the domestic economy.

“In Nigeria, we went from virus to lockdown, to recession, double digit inflation and low interest rates. Nigeria also has an inflation situation. There were high Premium Motor Spirit, PMS, prices, electricity tariff hike, low interest rate, #End SARS protest and insecurity.

“We had negative growth of -3.62 per cent, high inflation of 15.7 percent and in January 2021, it is expected to be at 16.1 percent. However, 2021 it’s going to be different because we are going from disruption to eruption,” he said.

He predicted that 2021 will still be challenging, but that there will be light at the end of the tunnel.

According to him, it will be a year of economic reform and there will be a gradual recovery in domestic economy, likely increase in the Diaspora remittances and positive growth in the third quarter of 2021.

For Rewane, inflation will remain a problem, currency pressure will persist and adoption of exchange rate flexibility is expected. He sees that the drivers of change in 2021 as the African Continental Free Trade Area, AfCFTA, ECOWAS protocol, changing trading partners, FOREX rationing, domestic refining capacity, removal of subsidies and political squabbling.

And for the consumers in 2021, Rewane believes that consumer disposable income will remain squeezed due to VAT increase at 7.5 percent, electricity tariff hike and increase in price of petrol.

However, he lists manufacturing, ICT, telecommunications, construction, trade and agriculture as the sectors with vast opportunities in 2021.

 “Manufacturing will benefit from the Central Bank selling of foreign exchange, intervention programmes and AfCFTA; companies like Nestle, Unilever, Dangote group will increase their production and export across the boarders and get the benefits.

“Telecommunications will also experience considerable growth and trade, wholesale and retail trade, which is about 16 per cent of the Gross Domestic Product, GDP, will expand.

“Agriculture needs to be supported because of the disruption due to herdsmen.

“There will be gradual recovery in manufacturing, trading and the real estate sectors, while sectors that will struggle initially are education, aviation and real estate.

“But as the year goes by, all the sectors will begin to move,’’ the report by the News Agency of Nigeria, NAN, quoted Rewane as saying. Nigeria

In its third weekly analysis of the Nigerian economy, Cordros Research, a unit of Cordros Securities, noted that the Monetary Policy Committee, MPC, is expected to hold its first meetings of the year on the 25th and 26th of January 2021 and that the Committee is expected to assess the developments in the domestic and external macroeconomic and financial markets since its last meeting in November and provide guidance on the path of monetary policy in 2021.

“Although rising inflationary pressures alongside fragilities in the balance of payments present a strong case for monetary tightening, we believe it is rather too early for such a stance given the need to support economic recovery. More importantly, it would contradict previous heterodox policies targeted towards improving the flow of credit to the real sector of the economy and prolong the recovery phase.

“Monetary policy tightening will also create severe financial market turbulence and amplify deficit financing pressures for the government. On a balance of factors, we believe the Committee will keep policy rates unchanged and affirm the use of unorthodox measures such as CRR debits, Loan-to-Deposit Ratio, LDR, and direct intervention in employment-stimulating sectors to influence macroeconomic outcomes and ultimately attain macroeconomic stability,” the report by Cordros Research said.

Prof. Kingsley Moghalu

Speaking recently on the management of the Nigerian economy, a former deputy governor of the Central Bank of Nigeria, Prof. Kingsley Moghalu, said that the economy was obviously not well managed.

“The best way to improve it is a constitutional restructuring back to real federalism. That will create an incentive for wealth creation. With the current structure, the only incentive is one for “sharing” a cake that is not baked properly, and for rent-seeking and arbitrage. The state is trying to play too large a role in the economy without the capacity to do so, and I believe the economy needs clear philosophical direction and intellectually sophisticated management,” he said.

On the impact of the 2021 Budget on the wellbeing of Nigerians, Moghalu told Realnews in an interview that “no real change from what we know because it has a high deficit, which will be funded by borrowing, and it is anchored on the price of oil which is volatile”

– Jan. 23, 2021 @ 16:29 GMT |

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