Nigeria’s misery index, which has risen to an all-time high of 47.7 per cent, has sparked Nigerians panic about the state of the economy.
The Managing Director/Chief Executive Officer, of Financial Derivatives Company Limited (FDC), Mr. Bismarck Rewane, in his monthly economic news and views presented at the Lagos Business School’s (LBS) executive breakfast meeting titled: “Policies Daunting, Markets Uncertain, Citizens Groaning”, said the development is threatening political stability and social cohesion.
Misery index is a measure of economic well-being for a specified economy, computed by taking the sum of the unemployment rate and the inflation rate for a given period. An increasing index means a worsening economic climate for the economy, and vice versa.
A survey had placed Venezuela top spot on the 2015 misery index. The report had also shown that Venezuela was closely followed by Argentina, South Africa, Greece, Ukraine, in that order.
Nigeria’s real Gross Domestic Product (GDP) growth rate declined to -0.36 per cent in the first quarter of this year, compared to 2.11 per cent in fourth quarter of 2015, the National Bureau of Statistics (NBS) had stated.
The economy had contracted to 3.86 per cent and 2.35 per cent respectively in first quarter of 2015 and second quarter of 2015 before rebounding to 2.84 in third quarter 2015 and further shrunk to 2.11 per cent Q4 of 2015. The current decline represents the first contraction since June, 2004, a 12-year-low.
Unemployment rate in the Nigerian economy climbed to 12.1 per cent in the first quarter of this year, compared to 10.4 per cent in Q4 of 2015 and 9.9 per cent in the third quarter of 2015.
The monetary policy committee (MPC) resumed the tightening cycle at the July meeting when the monetary policy rate (MPR) raised by 200 basis points to 14 per cent. The move was primarily to contain price inflation and reduce regulatory arbitrage.
Treasury bills rates have risen to record levels of 18.5 per cent per annum.
“Banks were borrowing from CBN at 14 per cent and lending to federal government at 17 per cent. Driven by continued supply shocks, corporate performance declined across all sectors,” he added.
He estimated that the amount to be share by the Federation Account Allocation Committee (FAAC) for August would be N700 billion, highest level in 30 months.
Average opening position of Nigerian banks was put at N257.2 billion. Nigeria’s credit ratings remained unchanged after the downgrade by Fitch last month. Average oil price between Jan – July is now $41.86pb with production levels yet to recover to pre-militant attack levels
According to Rewane, lower agric commodities prices being eroded by naira depreciation as average decline in agric commodities was 6.83 per cent in July, compared to naira depreciation of 8.55 per cent.
“Ships awaiting berth increased to 45 in July. There have been higher international trade activity, forex availability and settlement of backlogs. Ships awaiting berth expected to increase to 50 boosted by budget implementation, flexible exchange rate. The knock-on effect of forex policy is seen in prices of imported items,” he added.
But the economist pointed out that substitution to cheaper/local brands was expected, adding that lower real income was likely to reduce traffic in retail stores as shelves are expected to thin out more due to higher import cost.
“Record rates at treasury bills auction of 18.5 per cent (364-day) is crowding out equities. Pension Fund Administrators (PFAs) are scrambling for treasury bills. Retail investors and mutual funds also shorting equities,” he disclosed.
The vacancy factor index remained high at 172.
“In many areas in Lagos, rents have remained very high despite the supply glut. Vacancy rates of commercial properties have remained stable. Dollar denominated rents becoming less prevalent. In dollar terms, rents are sharply lower.
“The increase in inflation rate to 16.5 per cent is likely to reduce future demand for housing. Individuals will face budget constraints. Will increase the number of rental defaults in the market. Real returns in the stock market have been negative. Real estate as an asset class still offers positive returns. Investors will rather divert funds to such markets.
“Demand for housing is expected to shrink due to lower disposable income. We expect a move from prime areas to more affordable housing (mainland areas). We expect to see new developments coming into the market. Positive changes in the sector are expected from 2017 onwards as we see demand growing through expatriates coming into the country,” he argued.