Despite having potential to become a major player in the global economy by virtue of its natural resources, Nigeria’s economy is still akin to a year-old child, learning how to walk, and still wobbling and fumbling.
Analysts say the country remains ill-prepared for volatility in crude oil prices and production as the structure of the economy is still largely consumption-driven and undiversified.
“In terms of the GDP, we had a fragile recovery in 2018,” Ayo Akinwunmi, Head of Research at FSDH Merchant bank said responding to Nigeria’s 2018 economic performance.
Despite an average oil price of $75 per barrel and increased oil production to 1.94 million barrel per day (mbpd) in Q3 2018, the rebound in oil prices which helped pivot Nigeria out of economic recession last year was not enough to prevent the oil sector from contracting in Q3 2018.
Figures from the National Bureau of Statistics (NBS) showed despite an overall GDP growth of 1.81 percent in Q3, 2018, the oil sector which the economy depends on for growth contracted in both Q2 and Q3 2018.
The oil sector which contributed about 9.38 percent to GDP in Q3 2018 contracted by -2.91 percent (year-on-year) in Q3 2018, and -3.95 percent in Q2, 2018.
“Oil prices were not high long enough to make meaningful impact, and falling oil prices now have coincided with the political cycle; as elections are due in a few months,” Rafiq Raji, chief economist at Macroafricaintel explained.
Uncertainty continues to cloud the outlook for oil prices in 2019 as the U.S. Energy Information Administration is forecasting an average oil price of $61 a barrel while Citigroup Inc., forecasts $60 a barrel.
Responding to the likely outlook for Africa’s largest economy will in 2019; Ayodeji Ebo, managing director of Afrinvest Securities limited said he expect the pace of growth to slow down in the first half of 2019 due to political uncertainties.
“However it should pick up in the second half; we may begin to see results of some of the gains in the non-oil sector while we expect the contraction in the oil sector to moderate on improved production but may be impacted on lower oil prices,” Ebo said.
Projecting the exact growth rate for the Nigeria economy, Omotola Abimbola, a research analyst at Ecobank said he expects growth in 2019 to increase slightly to 2.2 percent from an estimated 1.9 percent in 2018.
“Supported by both the oil and non-oil sector; the Oil and gas sector will benefit from higher oil production (2019f: 2.1mb/b vs. 2019e: 1.9mb/d), in view of expected on-streaming of Total’s 200kbpd Egina oil field and subsisting low-base effect in the sector,” Abimbola said by mail.
However, the Ecobank research analyst explained that tight monetary policy, structural fault lines of over-burdened infrastructure, weak ease of doing business metrics, and security challenges will continue to constrain activities in the industry, trade and agriculture sectors, thereby weighing on growth.
“However, cyclical uptick in demand related to the election-cycle, better FX liquidity, and increasing mobile phone penetration will help sustain ongoing modest expansion in manufacturing and services, helping to anchor non-sector growth above 1.5 percent,” he added.
Apart from the oil sector, 20 percent of the nation’s economy is still effectively shrinking as BusinessDay Quarter by Quarter analysis showed eight major sub sectors are still in recession, recording two consecutive quarters of negative growth rates in Q2 and Q3 2018.
The subsectors include Fishing, Coal mining, Metal Ores, Motor vehicle and assembly, Post and courier services, Publishing, Motion pictures, sound recording and music production and financial institutions.
In reality, the government has not carried out much economic reforms to entice investor’s to deploy capital which will boost economic activities as focus has remained mainly largely on inefficient Government spending even if it means borrowing more.
Fresh data from the prospectus for Nigeria’s $2.8 billion bond programme shows that Abuja spent $3.5 billion or N1.07 trillion paying interest on money borrowed from local and international sources in the first six months of 2018, which implies paying $584 million (N178.7 billion) monthly and $18.8 million (N5.75 billion) daily, according to Business Day calculations.
Also, figures obtained from the Debt Management Office (DMO) website revealed Nigeria total debt as at June, 2018 stood at $73.2 billion (N22.38 trillion).
The Monetary Policy committee (MPC) of the Central Bank of Nigeria (CBN) has left the country’s interest rate unchanged at 14 percent since the hike in July 2016.
BusinessDay survey of the policies and ideas that impacted positively on Nigeria economy in the past 3 years saw the setting up of the foreign exchange (FX) window for Investors and Exporters (I&E) topping the list.
The I & E window reforms however came after a stubborn refusal by the Central Bank to allow a flexible and market driven exchange rate regime, and other reforms by the FG have been few and far between.
The I&E window was established by the Godwin Emefiele led Central Bank of Nigeria (CBN) in April 2017 on the aftermath of the foreign exchange crisis that hit the country following the 2014 global crash in the prices of crude oil, Nigeria’s main foreign exchange earner, and the exit of foreign portfolio investors from the country.
The new FX window for investors and exporters quickly lifted investor confidence in the foreign exchange market, improved price discovery, helped to attract dollar inflows from Foreign Portfolio Investors (FPIs), initiated the gradual re-introduction of a liquid inter-bank market and boosted production capacity in the manufacturing sector.
ENDURANCE OKAFOR & DIPO OLADEHINDE
