The saying, ‘desperate times call for desperate measures’ isn’t new to most people, including Nigerian policymakers. But a situation where the Nigeria monetary authority, the Central Bank of Nigeria (CBN), seems to imply it has little idea of the ravaging impact of the COVID-19 pandemic on Nigerian economy, leaves a sour taste in the mouth and makes one wonder how it can put desperate measures in place.
Often times, Nigerian policymakers have enacted policies that have conflicted with the country’s reality due to their poor perception or understanding of what the true state of the economy is.
To the surprise of most economists, the CBN stated clearly in a note published on its website that it expects Nigeria’s economic growth to decline by a meagre 1.03 percent. This is at variance with the thinking among analysts, economists, international bodies and even Nigeria’s Ministry of Finance.
The International Monetary Fund (IMF) in June revised further downward to 5.4 percent their economic contraction expectation for Nigeria from 3.4 percent. Zainab Ahmed, Nigeria’s Finance Minister, projected that the country would contract between 4 to 8.9 percent.
This begs the question as to what parameters the CBN’s optimism is based. We cannot but wonder whether the CBN has opted for ‘walk by faith’ rather than ‘by sight’ in what is glaring to all.
CBN’s second quarter outlook of seems to point to an almost certain possibility that Nigeria’s economy is headed for a V-shaped recovery after plunging quarter-on-quarter by 0.64 percent to 1.87 percent in Q1 2020.
This also creates a misleading illusion of Nigeria’s resistance to the COVID-19 pandemic. Hence, the question: Is the CBN insinuating a contraction by 1.03 percent is the worst impact the pandemic has on economic activities in Nigeria?
Given that the negative effects of the pandemic was felt more in the second quarter of this year, the CBN’s outlook is, at best, a wish and not realistic as factors that will support its optimistic stance are missing.
Nigeria’s Purchasing Managers Index (PMI) which is a leading indicator providing valuable insights into the state of the Nigerian economy in general and the manufacturing sector in particular, provides a picture of what the Nigerian reality is.
The PMI reading for Q2 2020 was below 50, signifying manufacturers and non-manufacturers pessimism on the state of the economy and this signals a contraction.
It was no longer business as usual for the Nigerian manufacturing sector which contributes over $30 billion to the GDP. COVID-19 induced disruptions in business supplies, fall in household demands etc, coupled with foreign exchange scarcity, took a toll on manufacturers in the last quarter. Many had to lay off staff while some cut salaries.
Worsened by rising inflation which has caused consistent weakening in households purchasing power amid job losses, many manufacturers and non-manufacturers , especially manufacturers of non-essential commodities, will see sales drop and profit margin shrink.
Also, Nigeria risks another year of underperforming budget as price of oil is yet to recover to levels above $60 witnessed in January 2020. As a result, the FG had to cut down its revenue expectation by 36.4 percent to N5.16 trillion.
Therefore, we employ the Nigerian authorities and policy makers to remain factual and realistic when reviewing and giving outlook for the economy. We hope that this will help drive policies and actions that will suggest the level of work that must be done in line with current reality.
We believe that CBN’s outlook is unrealistic given how its FX demand management activities and reluctance to unify Nigeria’s exchange rates have stifled business operations and driven away foreign investors from our markets.
Nigeria’s journey to recovery calls for desperate measures and we urge the CBN to start this by providing clarity on Nigeria’s FX rate position and how it hopes to clear dollar-demand backlog.