One of the local markets in Lagos…traders are patiently waiting for the buyers
Buoyed by the need to get the economy back on the path of recovery and growth, analysts have been exploring strategies that could achieve the recovery and growth objectives. Olaseni Durojaiye writes
Given the dismal performance of the nation’s economy last year, signposted by various economic indices, including declining productivity in the real sector, sharp drop in oil receipts and production level, rise in inflation, unemployment rate, setting the economy back on the path of recovery and growth has expectedly generated discourse among attention among observers.
Though the economic challenges of the last year was largely blamed on shortage of foreign exchange in the system, many analysts argued that the Central Bank of Nigeria ((CBN) did little to instill investor confidence even with the adoption of a flexible FX regime, and the many other policy directives that were adopted to make FX available to critical sector including the real sector.
During the year it became apparent that the external sector needed sufficient and consistent supply of the greenback whereas the CBN could not meet the FX demand leading to the position that so other sources must be harnessed, encouraged and maximised. The argument being that with independent sources of FX inflow, including remittances, with more FX coming into the system, the exchange rate will find its equilibrium price. Hence manufacturers and traders will have access to FX and would be able to conduct their economic activities that will engender employment, value creation and induce productivity.
Besides, misalignment between both fiscal and monetary policies was also fingered as another drawback in the management of the economy last year hence the applause that trailed government’s plan, as contained in the 2017 budget proposal, to harmonise both policies so that macro objectives that could lead to economic recovery and growth could be realised.
There is also the argument that prompt payment of workers’ salaries and pension allowance has the potential to enhance household consumption which is the largest expenditure component of the nation’s real GDP. It will be recalled that falling real household consumption fell by 1.06% and 6% in the first and second quarter of the 2016 respectively fuelled the current recessionary pressure.
Even then, another school of thought held that the true catalyst for economic recovery and growth is enhanced labour and factor productivity, some observers insisted that a 2.5 per cent Gross Domestic Product (GDP) growth in 2017 could be achieved if daily oil production ramp up to about 90 per cent (2 mbpd) of the 2.2 mbpd projection considering that the oil sector has the potential for quick wins even as data from the National Bureau of Statistics appear to favour this position considering the recent bounce in price of crude to the neighbourhood of $60 per barrel.
Moody’s Prediction
Nigeria’s GDP will grow by 2.5 per cent in the current year, according to the Vice President and Lead Analyst for Nigeria Lucie Villa, adding that the on-going recovery in the oil production will trigger a bounce back in the nation’s economy.
“The government’s balance sheet is strong, with debt at around 16.6 per cent of Gross Domestic Product in 2016,” Villa said.
“Also, despite its interest burden rising to 19.8 per cent of revenue, Nigeria’s capital markets remain a reliable and captive source of liquidity and funding for the government.”
Moody, however, said Nigeria’s weak institutional framework, especially in terms of “the rule of law, government effectiveness and control of corruption,” would have a significant impact on its economic growth and fiscal strength, and thereby constrains the country’s B1 rating.
Inspiring Investor Confidence
According to a cross-section of analysts and economists, the monetary policy of the apex bank is critical to economic recovery and growth in 2017.They maintained that the CBN failed to inspire confidence in the minds of both foreign and local investor in 2016 and reiterated the importance of investor confidence, adding that the apex bank must inspire investor confidence if the economy must record recovery and growth in the new year.
Acknowledging the negative investor confidence, Economic Policy Analyst and Chief Executive of CFG Advisory, Adetilewa Adebajo, in an interview with a Lagos-based news agency noted the negative investor confidence, adding that there was need for “restructuring” and “shake-up” at the apex bank. He also insisted that more responsibility for economic growth lay with the federal government.
“I think there is a major need for restructuring and shake-up at the CBN. The apex bank has not inspired confidence in the financial markets in 2016. Both local and foreign investors were on the side lines watching what the government will do,” he told Channels Television.
In an interview with THISDAY, an economist and research analyst, Rotimi Oyelere, stated that, “Monetary policy of the Central Bank of Nigeria (CBN) is critical to economic recovery and growth. The apex bank must fully implement the FX policy introduced in June 2016. What is presently obtainable is exchange ‘rates’ but not foreign exchange regime. CBN must desist from FX ‘rationing and auctioning’. The Futures market is indolent because of rationing and auctioning by CBN that is not based on critical needs but rather enmeshed in value judgment and arbitrage.
Speaking further, Oyelere argued that, “monetary policies may need to reduce Cash Reserve Ratio and Liquidity Ratio. This will empower Deposit Money Banks (DMBs) to create credits. This is because commercial banks are not creating sufficient credits at the moment. The Monetary Policy Rate (MPR) may also need to be adjusted downwards as the inflationary pressure is less potent for now,” he argued.
Fiscal, Monetary Policies Alignment
Even though some economists contended that the true catalyst for economic recovery and growth is enhanced labour and factor productivity, some analysts argued that the current economic state in the country requires harmonisation of policies.
In this regard, Oyelere argued that “Monetary and fiscal policies are demand management tools and would need to be reinforced to address the supply side of the economy, structural issues and infrastructural inadequacies. Both must be seen to be working together and geared toward achieving same macroeconomic objectives particularly the BOP objective. Government should quickly come out with its new import tariff templates as quickly as possible as this will enable investors take position. More importantly, there is a need for a well- articulated trade policy; this will deal with international trade issues holistically rather than the piecemeal interventions currently adopted”, he stressed.
“On the fiscal side I think the government has to come up with positive measures, talking about the economic road map. So government need to ramp up on the revenue side, they need to ramp up on capital spending, last year they didn’t do that very well, may be because they started late, the government need to get the budget out early. The Lagos State government has passed its 2017 budget, the FG should follow that example, if the budget is passed by late January, it will send a very strong signal and then let them implement it; it’s not about plan, it’s about what you do.
“So the growth of the economy rests squarely in the hands of the government, if the government implements the right policies, we should see growth this year, if not it will be like last year. We might even see more than the 2.5 per cent predicted by Moody’s Investor’s Services, if they didn’t we may see less,” he stated.
