Report: Economic Recovery Will Be Slow, Painful


By Obinna Chima

As Nigeria continues to search for the right policy prescriptions to lift her economy out of recession, the Chief Executive Officer, Financial Derivatives Company Limited, Mr. Bismarck Rewane has stated that economic recovery in the country would be slow and painful.

Rewane stated this in the February 2017 edition of the Lagos Business School’s executive breakfast session titled: “Economic Reform: Resist Now and Regret Later,” obtained at the weekend.

The International Monetary Fund (IMF) recently predicted a slim rise in Nigeria’s Gross Domestic Product (GDP) to 0.8 per cent in 2017. The IMF was more bullish in its 2018 economic growth expectation from Nigeria as it predicted a 2.3 per GDP growth for the country. On the other hand, the World Bank predicted a one per cent GDP growth for Nigeria in 2017.

Although Nigeria’s fourth quarter 2016 GDP estimate is expected to be released this month, the country’s third quarter 2016 GDP had contracted by 2.26 per cent from -2.06 per cent in the second quarter of this year, and -0.36 per cent in the first quarter.
But Rewane, in the report, pointed out that “Nigeria will be more prone to inflation than recession. Economic recovery will be slow and painful, driven by low oil production and government revenue.”

He opined that the economy was strangulated by pricing distortions in the forex market, which was exacerbated by delayed and inadequate policy decisions, inconsistency and political interference in monetary policy environment of investor confidence and dwindling capital inflows.

The report showed that the corporate profitability of top 10 listed companies declined by 17.4 per cent in 2016 and their turnover was affected by: increasing finance costs – average finance cost of top companies has increased by 45 per cent; distribution and logistic costs have grown by 28.6 per cent; forex costs and exchange rate losses; as well as alternative power costs -diesel price up 22 per cent since January 2016.

The report predicted that in 2017, there may be further forex market liberalisation, accommodative interest rate stance, minimum wage revision, concession of four international airports, refinery project, and Lagos-Ibadan rail project.
In addition, the report anticipated that a supplementary budget could be introduced if revenue projections fall below expectations, that government may explore sale and repurchase agreements on selected assets, seek funds from multilaterals, export credit agencies & launch concession programmes, increase VAT rate from five per cent  to 7.5 per cent, improve compliance and effectiveness of revenue collecting agencies and also broaden the tax base.

In the World Commodity Outlook, it also predicted that: “spending to surge, but not in Nigeria. Capital spending in North America expected to grow by 27 per cent according to Barclays. Barclays’ assumptions of investment growth were based on oil price of $50pb. Citi Bank’s assumption for 2017 is $55pb. Raymond James is more bullish and sees $65pb in first quarter of 2017.”
“Nigeria is now the fourth largest exporter of LNG; contributes 14 per cent to Nigeria’s major exports. South-east Asia will be a key region of growth in LNG imports. Low domestic prices will encourage LNG usage in China. The EU will absorb much of the new supply in 2017-18. Africa’s production will rise in 2017-18.”
Furthermore, it forecast that the Federation Account Allocation Committee (FAAC) fund would increase in 2017 as uptick in disbursements signals the recovery ahead. This prediction was based on higher oil prices

“Production also increased by 8.7 per cent. Forcardos to reopen in the second quarter of 2017. But N400 billion is still a far cry from 1-year high of N559 billion. Recent slash of import duties will spur demand for inputs.
” Illiquid foreign exchange market remains an impediment to full recovery in shipping position. London is the city with the highest spending visitors globally. In 2015, Nigerians were the sixth highest spending visitors in London, UK. Despite the downturn, data shows Nigerians spend an average of £1,626 (N1.02m) per visit,” it added.