- Country moves up to 169 in World Bank Doing Business ranking
- Five ministers head for investment roadshow in London
Obinna Chima with agency reports
Nigeria’s economy will probably contract this year as energy shortages and the delayed budget weigh on output, according to the International Monetary Fund (IMF).
“I think there is a high likelihood that the year 2016 as a whole will be a contractionary year,” Gene Leon, the fund’s resident representative in Nigeria, said in an interview with Bloomberg in Abuja recently.
While the economy should look better in the second half of the year, growth will probably not be sufficiently fast, sufficiently rapid to be able to negate the outcome of the first and second quarters, he said.
Africa’s largest economy shrunk by 0.36 per cent in the three months through March, the first contraction in more than a decade, as oil output and prices slumped and the approval of spending plans for 2016 were delayed.
A currency peg and foreign-exchange trading restrictions, which were removed last month after more than a year, led to shortages of goods from gasoline to milk and contributed to the contraction in the first quarter.
While conditions that impeded growth in the first half of the year, including shortages of power, fuel, and foreign exchange, as well as the higher price of dollars on the parallel market, may have been reduced, they still weigh on the economy, Leon said.
The Washington-based lender cut its 2016 growth forecast for Nigeria to 2.3 per cent in its April Regional Economic Outlook from 3.2 per cent projected in February. The World Bank lowered its forecast to 0.8 per cent last month, citing weakness from oil-output disruptions and low prices.
Last year’s expansion of 2.7 per cent was the slowest in two decades, according to IMF data. “Most people would agree that if you should fix one thing in this country, it should be power,” Leon said. “There is a need to start changing the power equation from 2016, from today, not tomorrow or later.”
Nigeria generated an average of 2,464 megawatts of electricity on June 6, according to information from the power ministry. This is less than half of the installed capacity of 5,000 megawatts for a nation whose population of 180 million people is the highest on the continent.
It compares to power generating capacity of more than 40,000 megawatts in South Africa, which has a population a third of the size.
While inflation will probably continue its upward trend through the end of this year, it is unlikely to exceed 20 per cent, Leon said.
Price growth accelerated to 15.6 per cent, the highest rate in more than six years, in May and probably quickened to 16.2 per cent last month, according to the median of seven economists’ estimates compiled by Bloomberg.
The central bank’s Monetary Policy Committee (MPC) “may be open to tolerating a little more inflation if growth emerges as the priority, as opposed to choking inflation and squeezing the little life out of growth,” Leon said.
“But the central bank, in conjunction with the MPC, needs to be clear to participants in markets what exactly their priority is.”
The Central Bank of Nigeria (CBN) left its benchmark rate unchanged at 12 per cent in May and will announce its next decision on July 26.
The MPC is likely to increase the rate by 500 basis points in the next year “to address the prevailing inconsistencies between an accommodative monetary policy and a more flexible exchange rate,” Goldman Sachs said in a note on July 8.
President Muhammadu Buhari signed a record budget of N6.1 trillion ($21.6 billion) with a deficit of 2.2 trillion, or 2.14 per cent of gross domestic product, in May after a delay of four months.
The fact that the budget was passed late means it’s likely not all the capital spending planned to boost growth will take place, or it will not be as prudent as initially set out, Leon said.
If growth falls to zero per cent “then that’s a huge gap the country has to fill,” Leon said. If expenditure stays as planned, and revenue is less due to the lack of growth “then we should see not smaller but potentially a larger deficit,” he said.
The naira, which was pegged at 197-199 per dollar until June 17, strengthened 0.16 per cent to 282.47 per dollar on the interbank market yesterday.
Meanwhile, Nigeria has moved up one spot on the World Bank’s Doing Business 2016 ranking to 169 out of 189 countries.
Nigeria’s lack of improvement in the global report means that Africa’s largest economy and among the 30 largest in the world is not making sufficient efforts to create the enabling environment and remove the obstacles to doing business in the country, reported Proshare yesterday.
The World Bank rankings were benchmarked to June 2015 and predated the liberalisation of the exchange-rate regime last month.
The rankings were based on 10 separate elements. Nigeria’s highest score was for protecting minority investors (20), and lowest for access to electricity and trade across borders (both 182).
The highest reflects both company law and capital market regulations in Nigeria. The dire ranking for access to electricity will not surprise anybody. Generation across the country is comparable to that of an European city (and not even a mega-city).
On the volume of trade across borders, the low ranking was based on the time and cost of imports and exports. The data are worse for imports into the country, as documentary and border compliance combined averaged 470 hours for imports and 291 hours for exports.
Among members of the ECOWAS region, Nigeria’s ranking in the report was poor. It was ranked below Côte d’Ivoire at 142, Burkina Faso (143), Sierra Leone (147) and Senegal (153).
According to the World Bank, respondents for the Nigeria section of the report were mostly accountants and lawyers, with a handful from the same firm in several cases.
The “producing” economy was lightly represented by engineering and construction firms, it said.
But as Nigeria fails to improve in the global ranking for doing business, the Minister of Trade and Investment, Dr. Okechukwu Enelamah, will be leading a trade delegation from the country on a four-day trade and investment road show in London, scheduled for July 11 to 15, 2016.
The trade and investment road show, organised by the UK Trade & Investment (UKTI), in collaboration with Nigeria Investment Promotion Commission (NIPC) and PricewaterhouseCoopers (PwC), will be attended by a group of officials from the federal and state governments.
They include the Minister of Transport, Mr. Chibuike Amaechi, and his counterparts in the Agriculture & Rural Development Ministry, Chief Audu Ogbeh; Water Resources Minister, Mr. Suleiman Adamu; and the Minister of State, Aviation, Capt. Hadi Sirika.
The weeklong activity, which will open with an industry event tagged “Nigeria Open for Business”, will highlight business opportunities in the energy, agriculture, transport, solid minerals, ICT and infrastructure sectors to UK investors.
According to the News Agency of Nigeria (NAN), organisers of the event said the main objective would be to create a platform for the Nigerian government to profile business opportunities to a UK audience, build relationships with international businesses, link into global value chains, and establish links to development finance with the view to developing stronger commercial ties between Nigeria and UK.
The Nigeria Open for Business event would feature keynote speeches by Enelamah and the UK Trade Envoy to Nigeria, John Howell, as well as presentations from key UK government agencies, namely, the UK Export Finance, Infrastructure and Projects Authority and multipliers.
UKTI is the British government department that helps UK-based companies of all sizes to grow and become more profitable by exporting their products and services.
UKTI also supports all types of overseas businesses and business people to establish a presence in the UK.
