IMF: Nigeria’s Economy Remains Challenging Despite Signs of Relief

  •  Calls for coherent policies to enhance recovery

Ndubuisi Francis in Abuja and Jonathan Eze in Lagos

The International Monetary Fund (IMF) has declared that Nigeria’s economic backdrop remains challenging, despite some signs of relief in the first half of 2017.

It also noted that near-term vulnerabilities and risks to economic recovery and macroeconomic and financial stability remained elevated.

These were part of the preliminary findings following the visit of an IMF staff team to Nigeria.
According to a statement by the IMF Press Officer, Mr. Andrew Kanyegirire, the staff team led by Amine Mati visited Nigeria between July 20 and 31, 2017 to discuss recent economic and financial developments, update macroeconomic projections, and review reform implementation.

He stated that at the end of the visit, Mati, who is the Senior Resident Representative and Mission Chief for Nigeria at the IMF, issued the statement.

The team, according to the statement, noted that economic activity contracted in the first quarter of the year by 0.6 per cent, mainly as maintenance stoppages reduced oil production.

It said: “However, following four quarters of negative growth, the non-oil economy grew by 0.6 per cent (year-on-year), on the back of a rebound in manufacturing and continued strong performance in agriculture. Various indicators suggest an uptick in activity in the second quarter of the year.

“Helped by favourable base effects, headline inflation decreased to 16.1 per cent in June 2017 but remains high despite tight liquidity conditions.

“Preliminary data for the first half of the year indicate significant revenue shortfalls, with the interest-payments to revenue ratio remaining high (40 per cent at end-June) and projected to increase further under current policies. High domestic bond yields and tight liquidity continue to crowd out private sector credit.

“Given Nigeria’s low growth environment and the banking system’s exposure to the oil and gas sector, non-performing loans increased from 6 per cent in 2015 to 15 per cent in March 2017 (8 per cent after excluding the four undercapitalised banks).”

The IMF team noted that faced with these challenges, the federal government started implementing a number of important measures, adding that the Economic Recovery and Growth Plan (ERGP) was driving the diversification strategy, and security in the Niger Delta improved through strengthened engagement.

It said: “The new Investor and Exporter FX window has provided impetus to portfolio inflows, helped increase reserves above $30 billion, and contributed to reducing the parallel market premium. Important steps have also been taken in implementing the power sector recovery plan, introducing a voluntary income and asset declaration program and moving forward the 60-day national action plan to improve the business environment.

“Progress is also ongoing within the oil and energy sector through the implementation of a new funding mechanism for cash calls,” it stated.

It, however, pointed out that near-term vulnerabilities and risks to economic recovery and macroeconomic and financial stability remain elevated, adding that at 0.8 per cent, growth in 2017 would not be sufficient to make a dent in reducing unemployment and poverty.

“Concerns about delays in policy implementation, a reversal of favourable external market conditions, possible shortfalls in agricultural and oil production, additional fiscal pressures, continued market segmentation in a foreign exchange market that remains dependent on central bank interventions, and banking system fragilities represent the main risks to the outlook,” the IMF said.

It pointed out that acting on an appropriate and coherent set of policies to enhance an economic recovery remains urgent.

According to the IMF, “This includes implementing immediately, specific priorities that will help achieve the goals of the ERGP. In the near term, a stronger push for front-loaded fiscal consolidation through a sustainable increase in non-oil revenues would be needed to create space for infrastructure spending, social protection, and private sector credit.

“This should be simultaneously accompanied by a monetary policy that avoids direct financing of the government and is kept sufficiently tight, a unified and market-based exchange rate, and rapid implementation of structural reforms.
“Pursuing these policies would help reduce macroeconomic vulnerabilities and create an environment for a diversified private-sector led economy.”

The statement said while in Nigeria, the IMF team held productive discussions with senior government and Central Bank of Nigeria (CBN) officials. It also met with members of the National Assembly, representatives of the banking system, private sector, civil society and international development partners.

According to the statement, the views expressed by the IMF staff do not necessarily represent the views of the IMF’s Executive Board, adding that the IMF mission team will not result in a board discussion.

EPA Vital for Nigeria’s Economic Diversification

The European Union (EU) and ECOWAS Commission have urged the managers of the Nigerian economy to sign the Economic Partnership Agreement (EPA) to fast-track its quest for economic diversification and regional integration.

‎The Head of Trade and Economic Section, EU Delegation to Nigeria and ECOWAS, Filippo Amato, gave the charge to ‎the Lagos Chamber of Commerce and Industry (LCCI), stakeholders forum on EU-ECOWAS Economic Partnership Agreement in Lagos, Wednesday.

According to him, signing the EPA would accelerate Nigeria’s industrial development, discard EU tariffs on Nigerian exports, and protect domestic industries, agricultural and consumer products.

‎“All the goods that Nigeria can produce are excluded from the list to protect your industries and the goods to be imported are capital goods, machinery and inputs that are useful for the industrial sector. All West African exports will gradually reduce duties on 75 per cent of EU imports over a long transition period of 20 years,” he said.

Amato said manufacturers would also benefit from lower input prices under the agreement, adding that EPA would enhance cooperation on issues such as standards, trading, agriculture, investment and customs cooperation.

Also speaking at the event, the ECOWAS Commissioner, Trade, Customs and Free Movement, Laouali Chaibou, said the overall objective of the stakeholders’ forum was to sensitise key stakeholders on the content of the EPA, in order to better understand and disseminate factual information.

He said the advantages offered by the EPA tend to make the West Africa region the production centre for export to Europe, pointing out that the integration of ECOWAS and Nigeria in the global value chains involves the ability for Nigeria to attract investments from all walks of life either to transform local raw materials or to transform semi-finished products, saying that the EPA is one of the instruments to achieve this.

“The ECOWAS commission remains committed to building West Africa’s capacity on the EPA. We believe that the different stakeholders gathered here have a critical role to play in this process,” he said.‎

The President, LCCI, Chief Nike Akande, said the chamber had followed the debate on the EPA, maintaining that as members of the Organised Private Sector (OPS), it deemed it fit to provide a platform where all stakeholders could meet and discuss the issues.

“There are arguments for and against Nigeria’s endorsement of the EPA, but we believe we can find a middle ground. In international trade, competitiveness is paramount for any country to get a fair deal. We would, therefore, continue to stress the imperative of an enabling environment to deepen the competitiveness of firms in Nigeria,” she said.

Meanwhile, the National President of the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), Chief Alaba Lawson, has said as a country in the process of diversifying its economy, protectionism might hamper Nigeria’s quest to achieve a sustainable economy, stressing that at the same time, without adequate room to grow, certain sectors of the economy might be scuttled by global competition before they even got a chance to develop.

She said the European Union Partnership Agreement (EPA) offers a means of achieving Nigeria’s goal of diversification by shifting Africa, Caribbean and Pacific (ACP) groups of states, which Nigeria could benefit from, but, however, stated that the challenges facing the real sector such as poor infrastructure, high-interest rates and a devalued currency, make it difficult for the real sector to take full advantage of the EPA.

“The Nigerian economy stands a chance of truly benefiting from the agreement if the right measures are put in place first, as output from many sectors will be able to compete with imports from the EU. Consequently, we advocate that the EPA be put on hold until the infrastructure deficit challenge is properly addressed,” she said.