Mr. Christian Wessel
The federal government needs to develop a long-term economic plan to help address the challenges facing the economy, writes Obinna Chima
Last week, one of the biggest global rating agencies, Standards & Poor’s (S&P) revised Nigeria’s sovereign credit outlook to negative, from the stable it was previously. Nigeria currently has a B+ rating by the agency. According to S&P, it took the decision because Nigeria’s foreign exchange policy was creating dislocations in product and financial markets.
Furthermore, it stated that the negative outlook it assigned to Nigeria reflected the possibility of downgrade in coming 12 months.
“If there is deterioration of Nigeria’s fiscal or external accounts,” the agency had warned.
The S&P’s outlook revision on the country came few days after another credit rating agency; Moody’s Investors Service placed Nigeria’s Ba3 government bond and issuer ratings on review for downgrade. Moody’s had also explained that the purpose of the ratings review was for it to assess the extent of the impact of the further fall in oil prices, which the agency said it expects to remain low for several years, on Nigeria’s economic performance and government balance sheet in the coming years.
As part of the review, Moody’s was expected to particularly assess the credibility and sustainability of the government’s plans and their ability to mitigate the impact of the lower oil price on Nigeria’s credit standing. A downward rating adjustment for Nigeria would most likely be limited to one notch. But Moody’s would maintain and confirm Nigeria’s current Ba3 rating if the rating review were to conclude that the government’s plans represent a clear, credible fiscal and economic policy response, which offers the prospect of containing the deterioration in the government balance sheet to contain the impact of the sharp fall in the oil price. It aims to conclude the review within two months.
In a related development, it was revealed last week that the country’s total merchandise trade fell to N3.65 trillion in the fourth quarter of last year compared to N4.02 trillion in the previous quarter. Also, Nigeria’s total merchandise trade reduced to N3.65 trillion in the fourth quarter of last year (Q4 2015) compared to N4.02 trillion in the previous quarter. This is according to the National Bureau of Statistics (NBS). This is just as the country’s consumer price index for February climbed to 11.4 per cent, a situation that has been a source of concern to all stakeholders.
With this, investor confidence has dropped as the country continues to record capital flight.
But despite the shocks to the economy and seeming gloomy economic outlook, experts, who spoke at the yearly economic forum organised by Rand Merchant Bank Nigeria (RMB), expressed optimism that with the right policies in place, Nigeria would come out of its predicament.
The Deputy Chief Executive Officer, TGI Group of Companies, Mr. Christian Wessel, believes that one of the ways for the country to come out of its present challenge is for policy makers to consciously improve the country’s ease of doing business.
According to Wessel, Nigeria has over the last years collapsed in its Ease of Doing Business. This, he pointed out means that systematically, the cost and the ease of doing business in the country is difficult.
“So, Nigeria prides itself of a ranking of 169 out of 189 countries. Hence, I was very pleased when I read a couple of days ago, when the Minister of Industry, Trade and Investment made this one of its focus areas. I say it is not only the scarcity of foreign exchange that is a challenge in the country, but I must say that the cost and time that it takes to actually establish and run a business has negative impact on domestic and foreign investments.
“The question of how we drive education. If we really believe that local manufacturing is the way forward, then we need a couple of people who know how to run the machines. As a German, growing up, we all had the impression that we needed to send people to study Masters in Business Administration (MBA). But at some point, we realised that it is not an MBA that can build a Mercedes because you need people who can systematically do it. That was why we started dual-educational programme to support local production. So, local manufacturing need to go hand-in-hand with a renewed effort on educating people,” Wessel recommended.
In addition, he noted that in Nigeria, both public and private sectors need to dramatically increase efficiency on how things are done.
He explained: “Everything seems to be difficult here and the resource allocation is simply inconsistent. I give you an example: Why is it that countries in Europe, they do have atomic power plant and atomic energy. But it is more important for them to turn off the light when the sun sets. Nigeria is blessed with a lot of sunlight, but at every meeting, the doors are closed and we prefer artificial light. This for me is an example of how we deal with resources in this country.”
In his contribution, the Chief Executive Officer and Regional Head, West Africa, RMB, Mr. Michael Larbie, urged government to develop a roadmap that would help address infrastructure challenges across all sectors in the country.
“We need structural changes in our institutions and ministries. It is important that performance scorecard is established for various ministries. It is also important that feedback or monitoring mechanism is implemented.
“For instance, the works department is responsible for registering companies, and there should be a target or quota like how many companies they supposed to register within a period of time.
“If somebody submits documentation for registration, how long should you turn it around? We need to give ourselves standard. We need to set targets and ensure we meet up to the target. If it’s two weeks and if after two weeks, it has not being done, there should be a good explanation,” Larbie added.
Also, the Managing Director, Graeme Blaque Advisory, Mr. Zeal Akaraiwe called for a long-term economic plan to help address Nigeria’s challenges, even as he cited the challenges posed by foreign exchange scarcity in the country.
Zeal stated that everybody fully appreciates that presently, the Nigerian economy is in a bad state. He said there was need for the country to ponder over the factors that pushed it into such a situation.
“We have a major cash flow problem. A lot of companies have a lot of local currencies sitting in their bank accounts, they have dollar obligations that have been due in the past six month, they have the naira to pay for it, but they cannot access the dollars to pay the obligation. So, it is largely a cashflow problem.
“In Nigeria, we export raw materials and import finished goods, which in itself is not bad and Nigeria’s manufacturing utility rate is estimated at 20 per cent. So, we are not manufacturing, we are not producing and we are not converting raw materials. When you put that in conjunction with where the economy is, then you are going to have job crisis, which we can see, you are going to have major foreign exchange crisis, which we can see.
“You cannot produce and you cannot do anything in an economy, without power and for some reason, we have not just agreed as a nation to solve the power problem. All the developed countries that have high local production, they all generate more than sufficient power,” he added.
But an analyst at RMB, Mr. Basil Rennias, who noted that risk management is always reactionary, said people would always want to hedge when it is almost too late.
“People always want to consider what to do when it is almost too late and that applies to Angola, Nigeria, and all commodity exporters. This also applies at the corporate level. The other issue you find is that people are always focused on solving the last catastrophe.
“Today, no one is looking at what is the next issue. So, there is a tendency to always keep your eyes focused on the immediate problem and no one is looking at the risk in the system and how to put a policy in place to manage these risks,” he added.
However, the CEO, Financial Derivatives Company Limited, Bismarck Rewane said the country was facing three distortions to its economic activities -the petroleum sector, power and the currency and expressed optimism that Nigeria would come out stronger.
“I can bet that this is cyclical and there would be a recovery. Two, the misalignment you are seeing today which has been exaggerated by fear, anxiety and panic and would correct itself and come back to equilibrium.
“What is required, is an exchange rate policy and not a devaluation. An exchange rate policy that would help the currency appreciate, when things improve and depreciate when things deteriorate. What has happened the past 20 years was that when there is drop in the price of oil, we depreciate the currency, when oil price recovers, we steal the surplus and so we are stuck in this race to the bottom,” he added.