On the global scene, the world is still smarting from the global crisis that engulfed most economies in the aftermath of the 2008 financial crisis. World output growth was continually revised downwards by the International Monetary Fund (IMF), from 3.2% in their World Economic Outlook (WEO) released in April, to 3.1% in July, and 2.9% in October. Emerging specters of hope across the globe, however, suggest 2013 might be the trough, with 2014 global activity expected to accelerate.
The cautious optimism for 2014 is indeed warranted as the US continues to lead the recovery charge amongst the advanced economies, with their 4.1% Q3 activity growth rate fastest since the end of 2011. This was largely due to stronger consumer spending and higher nonresidential investment; US unemployment rate also hit a five-year low of 7% in November. The Euro area finally emerged from a record 18-month contraction in Q2 2013, as the bloc’s GDP expanded by 0.3%. This was followed by a marginal 0.1% growth in Q3, suggesting that activity in the area is still struggling to gain the much needed momentum. In Japan, Shinzo Abe’s three arrows aimed at expanding the economy while curbing the effects of deflation, and improving capacity and productivity, seem to be yielding the much needed fruits. The economy expanded by 0.9% in Q2 and 0.5% in Q3 2013, and Prices are also emerging from a protracted period of deflation, moving closer to their 2% target.
In the emerging economies, China continues to grow, but at a slower rate. The 7.7% activity growth recorded in the first nine months of 2013 is the slowest in 23 years, although it’s higher than Beijing’s growth target of 7.5% for 2013. In Brazil, disappointing growth is the new normal, as 2013 estimated growth in the world’s 7th largest economy was again revised downwards to 2.5% from the 3% earlier projected. This is however, an improvement from the 0.9% growth recorded in 2012. In India, output growth in 2013 continues to disappoint, recording 4.6% growth for the first nine months, the lowest since 2004.
On the domestic scene, coming off the back of a challenging 2012 that started with the New Year gift of partial fuel subsidy removal and the ensuing upheaval, followed by the mid-year transition into the second phase of the electricity multi-year tariff order, and ended with flooding taking out a significant portion of output, it was indeed a trying year for many households. This saw household consumption drop by 14% in 2012 compared to 2011, and as a proportion of output, it dipped from 60% to 47%. A 2013 devoid of the challenges of the previous year, therefore, held so much promise for many households. Indeed, available proxies for household spending suggest an improvement over 2012.
The monetary conditions remain tight, as the monetary authorities succeeded in their key responsibility of maintaining the value of the Naira both domestically- inflation, and internationally- exchange rate. Inflation is poised to remain in single digit through 2013, and touched a five-year low when it dipped below 8% in October. The Naira/USD exchange rate at both the official and interbank markets remain within the set band, although the BDC and Parallel markets’ rates have since crossed the band once the CBN introduced more stringent measures to curb speculative attacks on the Naira.
The Fiscal conditions, however, remain loose, as Nigeria failed in many respects to capitalize on the global tailwind that prevailed throughout the better part of 2013. Federal government revenue fell short of projections mainly due to dwindling oil production numbers despite Nigeria’s reference oil price averaging above $110 per barrel through the year. The foreign reserves that started the year at $44.3bn, and touched $48.9bn as early as April, is now down to $44.1bn. The Excess crude account that started the year at $9.5bn is now at $3.3bn. At the same time, government borrowing continues at an unsustainable rate. In failing to shore up the buffer for the uncertain electoral cycle, year 2013 would therefore be remembered as the year of lost opportunity.
Although activity grew for the first nine months of the year by 6.5% over 2012, this is just 0.1 percentage points better than 2012 growth for the same period. A better performance was expected in 2013 due to the complexities and challenges witnessed in 2012 which were absent in 2013. Slowing telecoms, and wholesale & retail growth rates are sore points in the 2013 activity numbers. In terms of expectations, and potential, output in 2013 failed to deliver.
Regarding financial flows, and financial markets, foreign direct investment estimated at $8.9bn for 2013 affirms Nigeria as the destination of choice in Africa. Net foreign portfolio investment continues to be positive, and Diaspora transfer remains healthy at $21bn- this is about half the size of Nigeria’s liquid foreign reserves. The Nigerian All Share index has also benefited from both foreign and domestic patronage, returning about 46% so far this year.
From all indications, 2014 promises to be a better year for many countries. On the global scene, we expect recovery to continue steadily, albeit at a slow pace in the advanced economies. The commencement of tapering in the US in January 2014 at $10bn a month still leaves $75bn injection into the economy on a monthly basis. We, however, expect an increase in the size of the tapering in H2 2014. Activity in many of the emerging economies is also expected to pick up in 2014; although it is projected that China’s economy will slow in the coming year.
In Nigeria, monetary policy is expected to remain tight as the monetary authorities will most certainly be pre-occupied with managing the fallout from loose fiscal environment. The three tiers of government are expected to increase spending as the election year beckons which will put pressure on prices, and the Naira, but we expect inflation to remain in single digit, and the Naira to stay within the current band for at least the first half of the year barring any unforeseen shock.
Oil price is expected to stay above the budget benchmark, but production projection at 2.39million barrels per day is overly optimistic, and unlikely to be met. Activity in Nigeria is expected to grow between 6.7% and 7.2% in 2014 using the 1990 base year. The rebased GDP numbers, expected in February, will see growth rate slow, off a larger base.
All in all, I hope for a better and brighter Nigeria, devoid of rancor, ethnic, and religious tension.
By: Olugbenga A. Olufeagba
