By Goddy Egene
Some financial analysts said at the weekend that the Nigerian economy has long term value for investors despite the current headwinds. In April the International Monetary Fund (IMF) trimmed its growth forecast for the Nigerian economy to 2.3 per cent citing foreign exchange (FX) related constraints and the lower commodity.
However, analysts at Afrinvest (W.A), an investment banking firm, said despite near term risks of low-growth and high inflation, Nigeria still portends long term value.
“We believe that the exchange rate adjustment, more stable oil prices, coupled with renewed vigour to pursue structural reforms in the energy sector would aid the economy to ride out the business cycle,” they said in a report obtained by THISDAY.
According to them, at a time when emerging and frontier markets appeared to have reached an inflection point as commodity prices soared and systemically important central banks retained dovish policy outlooks, economies which had taken proactive policy measures to rebalance via currency adjustment mechanism, structural reforms and fiscal policy, are benefitting from the renewed confidence in emerging market assets.
“The MSCI Emerging Markets Currency Index has appreciated 7.7 per cent from its January low, while MSCI Emerging Markets and Frontier Markets Indexes have gained 25.8 per cent and 9.8 per cent respectively,” they said.
The analysts said they were not surprised by the IMF’s view on Nigeria, saying that in line with heir our projection that there is an increasing likelihood that gross domestic product (GDP) may only improve 0.4 per cent for 2016 as against 2.8 per cent in 2015.
However the pace of GDP growth weakened from 2.1 per cent in Q4:2015 to -0.4 per cent in Q1:2016, marking the first contraction in 13 years as the delay in the passage of the 2016 budget coupled with persistent energy shortages dragged economic activities in the country. We have placed a high probability on a second consecutive contraction in GDP in Q2:2016 – which would confirm the economy to be in a recession – as the lingering challenges from Q1:2016 lasted for a greater part of Q2:2016. The 2016 budget was finally passed in May and it is expected that the spending impulse would support a growth recovery in H2:2016. Also, the challenges associated with the fuel scarcity which had more or less become a recurring decimal were addressed and the much touted reforms in the FX market were implemented at the tail end of the quarter,” they said.
