Report: Investment-led Strategy Critical for Economic Recovery

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•Predicts further depreciation of naira, fiscal deficit spike to N4.3tn

By Obinna Chima

The Managing Director, Financial Derivatives Company Limited and a member of President Muhammadu Buhari’s Economic Advisory Council (EAC), Mr. Bismarck Rewane, has said an investment-led strategy is critical to stimulate economic growth in the country.

Rewane made the proposal in a report titled: “Consolation in Isolation: The COVID-19 Scourge,” which he presented online to members of the Lagos Business School’s executive breakfast session, a copy of which THISDAY obtained at the weekend.

According to him, investment has a multiplier effect on aggregate income.

He canvassed the support of the private sector in rebuilding the economy, just as he predicted further exchange rate depreciation.

He said the country’s fiscal deficit was expected to spike as revenue crashes faster than expected at N5 trillion.

“The Excess Crude Account (ECA) has already been fully ransacked, while the sovereign wealth fund is expected to provide temporary relief.

“Debt service ratio is now 6.9 per cent of Gross Domestic Product (GDP) and Eurobond pricing is not friendly as the rating downgrades hurt costs,” he added.

He projected that some projects in this year’s budget would either be delayed, shelved or cancelled as the country continues to push for debt relief and restructuring terms aggressively.

“Monetary policy will be determined by dynamic equilibrium objectives. There will be an attainment of fiscal neutrality and balance. The current rate of N390 could adjust to reflect market reality.

“The economy is already on the way to a recession as economic activities contract in response to COVID-19 remedial measures.

“Underemployment is expected to spike due to a near collapse of informal sector (trading),” he explained.

He predicted that the country would record a negative GDP growth of -2.10 per cent in the first quarter of 2020 and -2.95 per cent in the second quarter of 2020. Fiscal deficit will also spike to N4.3 trillion.

Rewane said Nigeria was faced with a tough choice of life, death and the economy.
According to him, industries to be hit severely by the pandemic include travel, hospitality, tourism, retail and luxury goods.

He also listed industries to benefit from the disruption caused by the pandemic to include health care, pharmaceutical, e-Commerce, media and telecoms.

“Brent crude average is now projected to be $40 per barrel in 2020; production quota enforcement and discipline will force Nigeria to 1.4 million barrels per day.

“Economic recovery will be ‘U-curve’ rather than ‘V-curve’. Structural reforms with transformational impact and long term benefits are needed and sector-based targets are also essential,” he added.

Rewane, while speaking recently on Arise Television, the broadcast arm of THISDAY Newspapers, had said the challenge the country was faced with would provide an opportunity to reset the economy so as to unlock its potential GDP, which he put at $1.5 trillion.

He added that the impact of the economic contraction would be severe in Nigeria because of lack of buffers.

He explained that the slump in crude oil prices presently hurting Nigeria was not necessarily because of the country’s dependency on oil revenue, but because it lacks buffers and that it policy makers did not anticipate the impact of exogenous shocks on the country.

“It serves no purpose for us to start saying the government should have done this or that, but our focus should be on how to deal with the current crisis.
“The reality is that Nigeria is a natural wealth economy and not a produced world economy.

“Now, this is an opportunity, and I think the federal government is fully aware of this, and nobody is deceiving themselves about that, that this is the time to press the reset button.

“What do I mean by that? I mean it is time to alter the levers of control of this economy to ensure that we use this opportunity to deal with the rent-seeking, crony capitalism structure that exists and allow for an economy that would respond to market forces and therefore unlock the investment potential and entrepreneur instinct in Nigeria, so as to unleash rapid growth and bring this economy to its full potential which is over $1.5 trillion,” he stated.