• Friday, March 29, 2024
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Border reopening, FX liberalisation seen lifting retail sector out of recession

Inflationary pressure, others slow trade sector’s growth in Q2

Border reopening, liberalisation of foreign exchange (FX) market, improvement of infrastructure and good policies have been identified as some of the policies that can lift the wholesale and retail trade sector, Nigeria’s second biggest sector by output contribution, out of recession.

BusinessDay findings from the recently released third quarter (Q3) 2020 GDP report by the National Bureau of Statistics (NBS) show that the sector recorded yet another negative contraction for the sixth consecutive time.

The sector, which can be likened to the barometer of consumer purchasing power, has been in and out of negative growth territory since 2016, but at a marginal level over myriad challenges ranging from unpredictable government policies to weak consumer demand.

According to Muda Yusuf, director-general, Lagos Chamber of Commerce and Industry (LCCI), the way forward is to address all the constraints affecting the sector.

“We need to liberalise our FX a bit more, make it more market-driven so that more people can have access, rather than this restrictive allocation of FX and excluding all sorts of products from the market,” Yusuf said.

The trade sector, which contributes roughly 15-16 percent to the GDP, has been touted by economists as an important tool in the quest for development. It also contributes 16.9 percent to total employment, Financial Derivatives Company, a financial advisory firm, noted in a monthly report.

Damilola Adewale, a Lagos-based economic analyst, says policies that would help lift the sector from its present state are mostly fiscal than monetary, noting that the monetary authorities need to team up with their fiscal counterparts to address the issue of inflation.

“First, reopening borders might help moderate pressure on food prices, but won’t eliminate the fact that food inflation is still high. Insecurity in the Northern part of Nigeria should be addressed. Our road infrastructures too need to be improved,” he further said.

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The persistent quarterly contraction in trade reflects the sustained weakness in consumer real disposable income, and indicates living standards are worsening and the poverty rate is rising. And with this, analysts now question the capacity of the current administration in lifting 100 million Nigerians out of poverty by 2030.

“Trade is highly dependent on FX liquidity because of foreign trade, and it is also dependent on consumption spending because of domestic retail trade. So, for trade to recover or go back to pre-crisis level, we need to see a very strong rebound in consumption spending that will now favour retail trade. And we also need to see improved FX liquidity to help boaster foreign trade,” Omotola Abimbola, a macro and fixed income analyst at Lagos-based Chapel Hill Denham, said.

Around 82.9 million Nigerians are extremely poor, constituting 40.1 percent of the total population with real per capita expenditure below N137,430 in 2019, according to the NBS’ Poverty and Inequality report in May 2020. The World Bank predicted that there would be 95.7 million Nigerians living below the poverty line by 2022.

Also, the NBS headline inflation, which serves as a measure of consumer prices, rose at a faster pace for 14 consecutive months, reaching a 31-month high of 14.23 percent in October, while Nigeria’s unemployment rate came to 27 percent in Q2 2020, as more and more were rendered jobless from the impact of the pandemic.

Ayorinde Akinloye, a consumer analyst at CSL Stockbrokers, said, “What kills the consumer is when prices continue to increase and income declines. So, if you are able to take care of those price increases, then you can now go back to the consumer and ensure that you create policies, employment and other overall consumer welfare that will ensure that their incomes are consistent with price growth.”

And with consumer purchasing power getting weaker in the light of rising domestic prices and the Federal Government continued decision to shut land borders, analysts expect trade to record negative growth in subsequent quarters, thereby leading to a depression, if its growth catalysts still weak.

Ayodeji Ebo, senior economist/head, research and strategy, Greenwich Merchant Bank, said, “We have six negative growth and we need two more. So, it is not impossible for the sector to slip into depression.”

Economists define depression as an extreme recession that lasts for at least three years. Nigeria has been battling substantial increases in unemployment, high inflation, poverty, among others, which are some of the economic factors that characterise a depression.