As Nigeria undergoes transition from oil producer to a more diversified economy, the quality of its economic management team and the strength of its fiscal and monetary institutions are being scrutinised, BusinessDay interactions with stakeholders show.
The consensus by economy watchers is that Nigeria would need to invest heavily in infrastructure, institutional reforms aimed at enhancing the credibility of monetary and fiscal institutions, as well as the ability to attract greater foreign portfolio inflows, among others, so as to give impetus to the new vision.
But some analysts are more worried about the lack of clarity on the economic agenda and sectoral basis of the diversification.
“With Nigeria in the process of transitioning from its oil dependency, the perceived quality of economic management is likely to emerge as a much stronger influence on the naira’s value in the future,” says Razia Khan, chief economist, Africa Global Research, Standard Chartered Bank.
“Confidence in economic management, rather than expectations of oil-related inflows, will be a key determinant of Nigeria’s ability to attract stable, long-term financing for its much-needed diversification effort.”
According to Khan, in the current publication, ‘on the ground,’ (OTG) Nigeria’s decision to liberalise its FX regime, as well as adopting a managed float last month, has created much more interest in its monetary policy.
In the medium term however, with Nigeria becoming less reliant on oil -related inflows to prop up its currency regime, deeper policy changes are likely to be needed.
“Institutional reforms aimed at enhancing the credibility of Nigeria’s monetary and fiscal institutions may go further than expectations of oil inflows in attracting sustained external financing,” she added.
Some analysts say that this is because in real terms, Nigeria’s policy rate is negative (the Central Bank rate is 12%) official CPI inflation accelerated to 15.6% y/y in May.
Across its local currency yield curve, real yields are also negative, excluding short-lived spikes at primary auctions.
Titus Soetan, president, The Institute of Chartered Accountants of Nigeria (ICAN) said that the economy is redeemable but it will take some decisive steps by the managers, such as blocking loopholes and punishing all corrupt people, adding that there is no agenda for now beyond diversification and fighting corruption.
Soetan advised the CBN to ensure adequate monitoring of the new forex policy, adding, “It needs effective and adequate monitoring to serve the purpose for which it is being introduced, which is largely to stimulate foreign investment.”
Total foreign investment inflow to the country dipped to its lowest in nine years, in the first quarter of 2016, as inflows slumped by 54.34 percent to $710.97 million, data by the National Bureau of Statistics (NBS) show.
Sliding investment inflow has exacerbated the waning foreign reserves of Nigeria, which now stand at less than $26 billion, an equivalent of five months of import.
In the face of dwindling crude price, “Every avenue to generate sustainable revenue should be explored,” he said.
According to the ICAN president, “The diversification of the economy has become so urgent in the face of the global oil crash.”
Bola Agbola, executive director, Cashcraft Asset Management limited said, “The transition from oil producer to diversified economy has to be accelerated before another oil boom resurfaces.
“The economic planners must evolve a bold and pragmatic import substitution policy that must be on two basic planks of food self sufficiency and local production of basic human needs, from our endowment with large population that must be fed, housed and clothed , vast oil deposits and perhaps one of the largest arable lands in sub-Saharan Africa.”
JOHN OMACHONU
