Nigeria’s economy cranks back to life despite FG’s failings

Africa’s largest economy is cranking back to life in a desperate race out of a debilitating recession and this is despite the failings of government, according to recent data and analysts opinion.

Nigeria remains without a fiscal budget, five months into the circle, its president has been working from home and stirring an unusually early scramble for power, leaving many at home and abroad to wonder who is really in charge.

Nigeria’s government was conspicuously absent at the just concluded meetings of the World Economic Forum on Africa, in Durban, one of the many consequences of a sub-optimum administration, according to delegates at the Forum and economic reform in Nigeria is waiting to gain momentum with only one asset – the now highly successful Eleme Petrochemicals – the only gas and oil assets so far privatised in almost 25 years.

Analysts and investors attending the WEF meetings in Durban say Nigeria’s remains a key attraction for foreign capital, especially given its size and potentials but regret the slow pace at which the government is running at a time the whole world has become impatient.

FX supply is improving, about 20% higher than the same period last year, FX rate is moderating, foreign reserve has built up to more than $31bn, enough cover for imports for seven months, inflation is declining and could come down to 16.5% in May, corporate earnings for Q1 are up about 45% compared to last year, stock prices rose 1% in April, compared to a .7% contraction in March, latest PMI up to 58 on manufacturing optimism and airline load factor is rising once again, mall traffic is up 25% and oil production is now said to be at the level of 2 million barrels a day.

The number of ships waiting to berth has risen to a healthy 34 while payment and settlement data show increased velocity of circulation, according to Bismarck Rewane who also says Nigeria’s balance of trade position will move from a negative of $0.5bn to a healthy $3.8bn in 2017/18. Rewane says Nigeria had a good showing at the recent World Bank/IMF meetings in Washington, with crucial support pledged for Nigeria’s power sector upgrade programme and the Financial Derivative company is forecasting an above 1% GDP figure for Q2.

But worries remain. Oil price has declined to the lowest in six months and consumer confidence remains low, while foreign portfolio investors are still not flocking back to take advantage of vastly improved returns in Nigeria.

According to Razia Khan of Standard Chartered Bank, “one thing is clear, investors have really given Nigeria a lot of the benefit of the doubt. Even with the fixed exchanged rate system, a lot of investors were still investing the time and the efforts in terms of visiting Nigeria and looking at what was happening in the country and waiting to see what happens when Nigeria does open up properly. They are waiting for that moment when they have re-assurances on the FX regime.

“So the investor interest in Nigeria is still very significant and it has not gone away. And credit to the country that that is still the case,” she told Businessday in Durban on the sidelines of the WEF meetings.

Ayo Teriba, CEO, Economic Associates, said, “We have seen an upturn in oil price and reserves also beginning to increase. This is what I call cyclically driven recovery of the Nigerian economy. The key question after this cyclically drive recovery is: what is in place in terms of policy or should we continue to rely on cyclical recovery.

“The development in oil price could be seen as cyclical as well, because of the Government engagement with the Niger Delta nationals. Unfortunately, the budget at the National Assembly couldn’t give a counter-cyclical response to the economic recovery because it is still dependent on oil revenue. Many of the sectors that can attract more FDI into Nigeria remain under government monopoly,” Teriba said.

Furthermore, in the view of the Gregory Kronsten-led analysts at FBNQuest, “a modest recovery is underway, based upon fiscal expansion, a pick-up in oil output in a less unstable Niger Delta, and investment in pockets of the economy such as petrochemicals and agriculture.

“We see the return to y/y positive growth, albeit marginally, in Q1 2017. A new negative this year has been the sense of drift as a consequence of the president’s ill-health. We are again in May and the budget has not yet been passed. This recurring institutional logjam is another obstacle to enduring strong recovery. The step-up in the CBN’s FX interventions has had a greater-than-expected impact.”

Taiwo Oyedele, Head of Tax and Regulatory Services and West Africa Market Tax Leader, PwC Nigeria said “the improvements we have seen in the economy have come as a result of events outside of the government. For instance, decisions of OPEC that have driven oil prices.

“The fundamental issue is that there are things the government needs to do to sustain the recovery in the economy. We cannot continue to depend of favourable external factors to drive our economy. No economy is built on luck. For Nigeria to attract investment, especially foreign direct investments (FDI), one of the immediate steps the government should take is to eliminate the unsustainable multiple foreign exchange regime. Fix the fiscal side of the economy”, Oyedele said.

The private sector seems to be leading the charge of economic revival, according to Muda Yusuf, director-general of the Lagos Chamber of Commerce and Industry.  “The government has not come to the party as expected and its particularly disappointing that the 2017 budget will suffer the same fate of the previous budget which was passed late, hurting the economy in the process,” Yusuf said.

Last week the Customs and Excise department joined the Federal Inland Revenue Service to disclose a significant gap in revenue collection in 2016 compared to targets for the agencies at a time more than 60% of non-oil revenues is taken by government interest payment. The near paralysis in government means that no one is doing the heavy lifting at the highest level with investors and a hapless citizenry waiting for direction.

 

Iheanyi Nwachukwu, Innocent Unah, and LOLADE AKINMURELE