Politics
THE Country Report on Nigeria by the Economist Intelligence Unit is quite comprehensive and should serve as a useful guide for the three tiers of government. Fortunately, the various issues raised in the report and the predictions had been raised in numerous national discourse. Perhaps, since the report is coming from the (EIU) the issues raised and the predictions contained in the report may receive the attention of the Nigerian authorities.
By Goddy Ikeh
THE country report of Nigeria by the Economist Intelligence Unit Limited says that insecurity is chronic in many areas, with the security forces too overstretched to counter multiple crises effectively. It also stated that high inflation, low economic growth and unpopular market reforms present substantial political stability risks and that Labour unions are likely to be active, with a high risk of industrial action that affects the economy.
The EIU predicted that economic growth will slow in 2024 as a new bout of inflationary pressure, a large currency devaluation and monetary tightening lead to a contraction in domestic demand. Growth will be higher in 2025-28 as monetary conditions ease and will be boosted by investment in the recently deregulated power sector.
On the fate of the naira, the EIU predicted a large devaluation of the naira in early February is likely to herald further depreciation, as inflation remains high and real short-term interest rates remain negative. A shortage of hard currency liquidity may eventually be addressed by a currency float. Foreign reserves will rise slowly in 2024-28.
On the oil and gas sector, it noted that although production is well below the boom years of the early 2010s, Nigeria’s oil and gas sector will remain crucial to the prospects of the wider economy, dominating the export profile and generating about half of government revenue.
On trade, it noted that Nigeria is a signatory to the African Continental Free-Trade Area agreement. But the government will take a protectionist approach to regional trade and will do little to encourage regional trade, beyond meeting its obligations on tariff cuts.
On key indicators, the EIU noted that following key changes since February 7th, it has revised up its 2024 economic growth forecast from 2.2% to 2.5%. “This is premised on higher than previously expected crude output and earlier than expected production from a new mega-refinery. The oil sector comprises about 6% of GDP.
“The higher growth forecast has come despite sharper than expected monetary tightening in February. We now expect the Central Bank of Nigeria’s policy rate to peak at 23.75%. This is 200 basis points higher than our previous forecast.
“The month ahead March 15th—Consumer price inflation data (February): Inflation reached 29.9% in January and is likely to continue climbing for the first half of the year at least, considering a hefty devaluation of the naira in February. We expect a full-year rate of 30.3%, which includes some disinflation in the second half of the year,” it said.
On political stability, the EIU expects President Bola Tinubu, of the All Progressives Congress, APC, to remain in power until at least 2027, when his first term ends, but his time in office will be highly challenging.
Despite having a weak mandate—only 8.8m Nigerians voted for him out of a population of 220m, Tinubu has embarked on the biggest economic shake-up in a generation, rapidly rolling out unpopular market reforms and dismantling vehicles for patronage and corruption. Upon coming to power, Tinubu quickly moved to deregulate petrol prices and float the currency.
“In theory, these reforms are needed to put Nigeria on a higher growth path, but implementation has been hasty and inflation has been allowed to rise to decades-long highs. As the crisis is distinctly policy induced, there is a serious risk of mass protests and strikes. Given the potential threat of industrial action on a scale not seen since 2012, the government has been forced to backtrack in some areas, notably on petrol subsidies. Attempts to stem the decline in the currency have become more desperate, and we expect policy to become increasingly erratic, particularly in the early part of the forecast period, as the need to stabilise prices takes on an existential dimension for the government. Constitutionally it would be hard for Tinubu to be removed from office, but there is an outside chance of him being ousted in an APC coup,” the EIU said.
According to the report, dissatisfaction with economic policy is being compounded by widespread, entrenched poverty, and ethno-religious divides (stemming from largely unsolvable issues such as high population growth and natural resource depletion) put Nigeria’s federal structure at risk. Boko Haram and Islamic State West Africa Province, two Islamist terrorist groups, will continue to present a threat in north-eastern and in parts of central Nigeria, and tension between farmers and herdsmen in the Middle Belt agricultural heartland is another source of violent conflict. With the security forces overstretched, emergencies will be triaged. In recent years banditry and kidnapping in the northeast have become a destabilising national crisis.
It observed that the perpetrators are well funded and have been developing links with terrorist groups and expanding the reach of their operations. In the oil producing Niger Delta, mistrust of the government runs deep and communities feel that they do not get their fair share of Nigeria’s oil wealth. Criminal activity linked to militant groups will continue to disrupt oil production and exports, at times seriously so.
“Our baseline assumption is that Nigeria’s federal government will assert control over “core” areas such as Abuja, the capital, and other places of political importance, at the expense of “periphery” regions that have long been mired in conflict. This will be enough to keep the seat of power safe, but governance will be minimal across much of the country,” it added.
The wider business environment will remain highly challenging, undermined by corruption, cronyism, rampant insecurity and a giant infrastructure gap. Multinationals are increasingly deciding to quit Nigeria or reduce their presence; we estimate there was a net withdrawal of foreign direct investment in 2023, to be repeated again in 2024 as naira losses exert pressure on balance sheets carrying large foreign liabilities.
The exodus includes oil majors who are selling onshore assets, which are high-cost and vulnerable to insecurity, leading to indigenisation of the sector over time. Although in principle this is positive for foreign-exchange accumulation, local companies will be unable to match the investing power of outgoing multinationals. We forecast that crude oil production will rise from 1.23m barrels/day (b/d) in 2023 to 1.48m b/d in 2028, although this remains about 250,000 b/d below the 2019 level.
The country report of the EIU on Nigeria articulated the current challenges confronting the current administration and the predictions of the report can hardly be faulted.
However, many of the challenges contained in the report had been subjects of discussion by many economic experts and stakeholders and in some cases, these discussions had often been dismissed as political and ethnic distractions by politicians.
For instance, the Center for the Promotion of Private Enterprises, CPPE, had blamed high energy cost for high local production and the products uncompetitive.
The Center, specifically noted that cement production is highly energy intensive with gas being the major energy source and unfortunately priced in dollars for manufacturers in the country, who in turn sell their products in naira.
Chief Executive Officer, CEO, of the CPPE, Muda Yusuf, while reacting to comments on the floor of the House of Representatives on cement price which portrayed cement manufacturers in very bad light, explained that energy cost is a major predicament for domestic manufacturers.
Yusuf points that the implication of that for production cost is better imagined, especially in the light of the plunge in the value of the naira.
He went on to state, that the logistics cost of cement distribution is humongous, given the escalating cost of diesel and the state of the roads.
“Exchange rate depreciation is taking a huge toll on the cost of imported components of production inputs, including spare parts and machineries. Cost of fund is mounting as the Central Bank of Nigeria, CBN continues its aggressive monetary policy tightening.” he said adding that the latest headline inflation for February was 31.7 per cent.
All these, he argued, are variables which are not within the control of the manufacturers and which have profound impact on production and operating cost.
On the issue of inflation, an economist, Paul Alaje, said that it would continue in an upward trajectory until the government brings in positive signalling to the economy.
According to him, the reason for the continued increase of inflation is because the country has not gotten to the point of deflection yet and that from his personal check and that of many others, inflation is more that the reported 31.7 per cent.
“For most economists, we thought inflation will grow not as high as was eventually reported by the Bureau of Statistics. Of course if you as many Nigerians they will say that inflation is far more that 31.7 per cent and like I said time and again that my personal inflation is actually beyond the average of what they said.
“I can tell you when we started taking survey of inflation in 2025, if you were to buy a pole of 20mm, 12 metres long by 20 inches, at that time it was N500,000, today the minimum you will see the same is N6 million. The truth is that for so many people, inflation figure is even much higher than this.
“The reason we got to this point and we have really not gotten to the point of deflection; that means inflation is still expected to go high until we bring in positive signalling to the economy such that the impact of inflation will reduce unlike what we are having today,” Alaje said on Channels Television’s Politics Today.
In a recent Leadership Editorial themed “Taming Rising Inflation Rate” the newspaper noted that pervasive thinking, across the Nigerian socio-economic strata, is that the economy, presently, is in turmoil. Predictably, it is also perceived to be worsening the living conditions of the average citizen as a result of high inflation rate that is depleting the incomes of the citizens amid high prices of basic items.
The impact of the decision to remove fuel subsidy was sharp and harsh on Nigerians as it increased the price of petrol with prices of other commodities skyrocketing even as the government is struggling to introduce measures to reduce the impact.
Another challenge to the economy is the unification of the exchange rate which has practically devalued the naira such that it hit N930 to a dollar last week before it was eventually mitigated by an intervention from the Nigerian National Petroleum Corporation Plc (NNPCL), which sought a loan of $3 billion dollars that shored up the naira, albeit, temporarily. However, experts are concerned about the sustainability of using borrowed funds to bolster a dwindling currency.
As a newspaper, we are compelled to note that the haste to float the naira to make it compete within the framework of market forces has, indeed, proved to be detrimental to the local currency because it lacked the basic security needed to thrive in such murky waters since the foreign reserve of the country, said to be one of its major anchors, had depleted so much. A recent Financial Report of the Central Bank of Nigeria (CBN) indicated that 40 per cent of the foreign reserve estimated at between $34 billion to $38 billion is borrowed funds.
Therefore, for a country like Nigeria that is import-dependent, we believe that floating the naira without adequate understanding of the economic parameters was ill-advised as it has given rise to high cost of imported items and subsequently higher inflation.
Similarly, it is trite to argue that one of the fundamental goals of a modern economic system is to keep prices of goods and services stable, otherwise the system itself will suffer severely with unprecedented impacts on the citizens. The attainment of this goal of ensuring that prices do not rise continuously, is very crucial because it is imperative to the attainment of the goal of economic prosperity.
In our opinion, Nigeria needs a strategic vision and technical competence to revamp the economy by investing massively in agriculture through mechanised methods. Local production must be revived in all sectors such as textile and manufacturing to reduce the over dependence on imported goods and services. The slogan from ‘Consumption to Production’ has to be given adequate financial backing to save Nigeria from imminent economic collapse.
A major part of the ugly development is the poor infrastructure that has hampered the transportation and even preservation of agricultural products and the worsening insecurity in the country in recent times. We are of the view that investment in food processing has to be given utmost priority as experts have advised that the country needs to connect farm-producing zones by rail so that the cost of bringing this food to cities and villages will be reduced.
The Nigerian security forces must be motivated and mobilised to tackle insecurity that has killed and displaced farmers in the country. According to the United Nations over 2.5 million Nigerians have been displaced as a result of the Boko Haram crisis since 2009. The level of food shortage this crisis had caused is perhaps unquantifiable.
We are persuaded to point out that high food prices in a dwindling economy with an annual population growth rate of about three per cent and a GDP growth rate that is hovering around a little over two per cent is a recipe for disaster and must be tamed before it is too late.
And for the director-general of the Lagos Chamber of Commerce and Industry, LCCI, Chinyere Almona, said recently that the decision of the Central Bank of Nigeria, CBN, to raise the benchmark lending rate by 400 basis points to 22.75 per cent, in what has been described as an aggressive regulatory intervention.
According to her, the move comes at a crucial time for the Nigerian economy, facing challenges such as elevated inflation, commodity price hikes, the foreign exchange crisis and rising cost of production.
“While the CBN intends to control inflation, the LCCI notes that the decision, particularly the fifth consecutive hike, raises concerns about its effectiveness in tackling the rising food inflation and the likely impact on businesses and economic growth,” she added.
She urged the CBN to continue with its FOREX market reforms to a conclusive end, as the high exchange rate against the naira is a major culprit in the skyrocketing inflation rates.
“On the fiscal side, the government needs to subsidise some productive sectors like agriculture, transport, and healthcare while keeping a stern eye on enhancing the country’s security profile. Other areas of intervention could be the adoption of a cheaper duty rate for the importation of agricultural inputs for local manufacturing and investment in building agro-industrial hubs across the country,” the Leadership newspaper quoted the director general of the LCCI as saying.
And reacting to the outcome of the MPC’s meeting, the CEO of CPPE, Muda Yusuf said that it would hurt the real sector of the economy, which is already contending with numerous macroeconomic challenges.
He noted that the increase of MPR from 18.75 per cent to 22.5 per cent; and CRR from 32.5 per cent to 45 per cent pose a major risk to the financial intermediation role of banks in the Nigerian economy, saying that the increase would constrain the capacity of banks to support economic growth and investment, especially in the real sector of the economy because the increases are quite significant.
Yusuf explained that “already, bank lending has been constrained by the high CRR which was until the latest review, 32.5 per cent (many operators in the sector claim that effective CRR is as high as 50 per cent for many banks), the discretionary debits by the apex bank.
“The credit situation in the economy is already very tight, with lending rates ranging between 25 per cent to 30 per cent. The Nigerian banks are yet to live up to their financial intermediation role because of these constraining factors.”
And to reverse the spiraling inflation, Yusuf urged the government to address security concerns causing disruption to agricultural activities; sustaining reforms in the foreign exchange market; address forex liquidity issues; fix the structural problems to boost productivity and competitiveness of domestic firms; among others.
A.
-March 19, 2024 @ 10:45 GMT|
Tags: Goddy Ikeh
