Nigeria: Escaping from economic anxiety

Unsure Nigerians, who are yet to experience reduction in prices of major food items, are wondering whether the talk about the country heading out of recession is just propaganda or a reality. CHIMA NWOKOJI compares statements by government officials on recession with available facts.

AFTER the Federal Government declared that Nigeria was officially in recession, the Central Bank of Nigeria (CBN) through its governor, Mr. Godwin Emefiele, stretched it further by explaining that “in reality, Nigeria’s economy is currently facing a classic case of ‘stagflation’; a situation which occurs when a country’s Gross Domestic Product (GDP) is falling or stagnant, while unemployment and inflation are rising, all at the same time.”

Economists describe Gross Domestic Product as one of the most widely used measures of an economy’s output or production. It is defined as the total value of goods and services produced within a country’s borders in a specific time period – monthly, quarterly or annually.

It therefore follows that the starting point to believing that the economy is coming out of recession as being claimed in several quarters is to be sure that economic activities are picking up and that GDP is no longer declining.

The National Bureau of Statistics (NBS) is expected to release GDP figures soon, but a source who claimed not to be speaking for the bureau made it clear that Nigeria is still in recession based on what is currently going on in the country. The source faulted sources of data claiming that the country is out of its economic hardship, saying such data did not emanate from the bureau.

Most commentators said they don’t foresee the country coming out of recession so soon, because average Nigerians are still suffering and wondered what it means to be out of recession. They say that politicians are reading a book different from the one the masses are reading. Some claim that prices of food items are still high, that there are still many people who do not have a place to live, people that do not have food on their table, and people that have not been paid their salary in the last few months.

However, a herd of stakeholders and economic experts, who insist that anxiety in the economy is dying down, have pointed out evidences of recovery using data generated from Nigeria by Nigerians. The first of these came from the National Bureau of Statistics (NBS), which indicated that inflation came down from 18.72 per cent in January to 17.78 per cent in February and 17.26 per cent recorded in the month of March 2017.

According to Nigeria’s finance minister, Kemi Adeosun, “We will get out of recession because we are following the right type of policies. Our objective is not just to get out of recession, our objective is to grow and grow sustainably.” Also, former Deputy Governor of CBN, Dr Obadiah Mailafia on May 1, said Nigeria is on its way out of recession with the prediction of international organizations and the current economic outlook. He said that the International Monetary Fund (IMF) had said the country might be out of recession as growth had gone back to 0.8 per cent toward the end of the year.

“In 2016, it was negative growth, -1.8 per cent. But the IMF and World Bank are saying growth is likely going to be 0.8 per cent; still that is positive.

“It is positive even if it is small, it shows that we are no longer regressing; we are registering some positive growth.”

Also, several experts from a number of investment banking, research and securities companies have even predicted further reduction in Nigeria’s inflation rate.

For instance, ahead of the expected release of Nigeria’s inflation rate for the month of April 2017 by National Bureau of Statistics (NBS) on May 16, 2017, FSDH Research, under the umbrella  of FSDH Merchant Bank Limited, forecast that  April 2017 inflation rate (year-on-year)  will drop to 17.11 per cent. According to FSDH, the appreciation of the Naira in the inter-bank market and the drop in the prices of food at the international market led to a moderation in the prices of consumer goods in Nigeria, and is expected to continue positively.

The Bismark Rewane-led Financial Derivatives company (FDC) Limited estimated that inflation data will likely show a decline to 16.8 per cent while others hope it will come down to a little above 16.4 per cent.

According the FDC think tank, Nigeria is escaping from economic anxiety. It noted that the nation’s recovery will be driven by a recovery in oil production, continued growth in agriculture, and higher public investment.

FDC says that both First Bank of Nigeria (FBN) and the Central Bank of Nigeria (CBN) Purchasing Manager’s Index (PMI) improved in April to 58.2 and 51.1 respectively. CBN PMI now is within the growth region while all the five sub-indices in the FBN PMI were in the positive territory. To stakeholders, April’s PMI highlights improvement in business activity and reaffirms economic recovery.

Other indicators of recovery according to FDC  are: GDP growth, which is  expected to expand by 0.8 per cent in 2017, and to expand further in Q2 to 1.5 per cent driven by improvement in oil production and forex liquidity; Oil production increased to 1.55mbpd; The average oil price in Q1 was $55pb from the low of $28 pb; forex availability and price is 20.39 per cent better than in Q4, 2016; average effective forex rate in Q1 is N326/$, but N342/$ in Q4 while  Q2 average rate is forecast at N314.8/$.

Others are: ships awaiting berth up to 34 and average inventory levels higher in April; payments and settlements data show increased velocity of circulation, evidence of increased economic activities.


Data as a ray of hope

Recently, the Minister of Information and Culture, Lai Muhammed, said that the country in a week’s time would be out of recession based on a statistical data emanating from the National Bureau of Statistic (NBS).

The Central Bank of Nigeria (CBN) recently released the Purchasing Managers’ Index Report for April, with data showing an upturn in manufacturing activity in the first month of the new quarter. Buoyed by knock-on effects of the significant improvement in fiscal balance and the FX market – particularly related to FX liquidity – April manufacturing PMI expanded to 51.1 points (relative to 47.7 points in March 2017) after three consecutive months of contraction, settling in the positive region for the first time in 2017. The major drivers of the expansion in Composite PMI were Production Level (58.5 points), New Orders (50.1 points), and Inventories (50.6 points) sub-indices which grew 7.7ppts, 4.5ppts and 1.5ppts M-o-M respectively to more than offset sustained contraction in Employment level and relapse in Supplier Delivery Time which posted an increase in March.

Similarly, the effect of the improvement in business sentiment was evident in the performance of the following sub-sectors of the Manufacturing sector; Appliances & Components (63.4 relative to 55.4 in March), Food, Beverage & Tobacco Products (55.9 relative to 51.9 in March), Textile, Apparel, Leather & Footwear (54.1 relative to 46.3 in March), Chemical & Pharmaceutical Products (53.1 relative to 41.8 in March), Cement (52.1 relative to 44.1 in March), Nonmetallic Mineral Products (52.1 relative to 49.1 in March), Printing & Related Support Activities (51.2 relative to 41.0 in March), Furniture & Related Products (51.0 relative to 43.3 in March), Electrical Equipment (51.0 relative to 38.9 in March), and Plastics & Rubber Products (50.6 relative to 45.5 in March) as they all expanded in the month.

“Whilst we believe that the improvements recorded in the Manufacturing and Non-Manufacturing sectors reaffirms the fact that the economy is on the path to recovery in the Second Quarter, as other macroeconomic indicators also suggest, the decline in the Employment sub-index of the Manufacturing and Non-Manufacturing sectors remains a concern.

“This could suggest business owners are still utilizing existing underutilized labor or remain uncertain of future economic condition. May PMI data will give more clarity on that but in the interim, we are positive on short term economic condition on the back of 1) rebound in cyclical anchors of the business cycle – oil production and prices, 2) improvement in FX liquidity and 3) increase in fiscal revenue and recent actions taken to ease condition of doing business for SMEs,” analysts at Afrinvest West Africa Limited told investors in a note.


Challenge of implementation of new fiscal, monetary reforms

In the week before last, as part of measures to bolster real sector economic activities in the country and attain the objectives of the Economic Recovery and Growth Plan, both the fiscal and monetary authorities announced complementary reforms aimed at restoring investor confidence in the economy. The Presidential Enabling Business Environment Council (PEBEC) announced it had concluded the 60-day Action Plan on Ease of Doing Business in Nigeria. Key areas of reform include registration of business name, incorporation of businesses, immigration, cross border trades, obtaining construction permits, getting electricity, registering property, getting credit and paying taxes.

According to the PEBEC, a basic reform included the reduction in the number of days required for registration of new businesses in Nigeria from 10 days to two days. The reform facilitates business name search by prospective business owners on the Corporate Affairs Commission’s portal in such a way as to avoid duplication of names, prevent the selection of prohibited names, thus reducing the cost of business name registration as the new procedures no longer requires Small and Medium-sized Enterprises to hire the services of lawyers to prepare registration documents.

Further reforms include the introduction of CAC single incorporation form (CAC1.1) in order to save time and reduce cost of incorporating businesses; the integration of an FIRS e-payment solution into the CAC portal to enable e-stamping; and the empowerment of CAC internal lawyers to certify company incorporation forms and conduct statutory declaration of compliance for a fixed fee of N500.

Other reforms which analysts are confident will help in economic recovery and reduce anxieties include simplified visa-on-arrival process, infrastructural improvements at the Abuja airport, and the new immigration regulation. With regards to trading across borders, some of the completed reforms include palletisation of imports, advanced cargo manifests, reduction in documentation requirements and scheduling of joint physical examination by the Customs service. It is expected that the reforms will be followed by keen monitoring and implementation.


Monetary sector

In the monetary sector, the CBN, armed by increasing build up in external reserves and in continuation of its intervention efforts in the foreign exchange market, recently created a special window to further boost foreign exchange liquidity and to ensure timely execution and settlement for eligible invisible transactions – such as loan repayments, loan interest payments, dividend/income remittances, capital repatriation, management services fees, consultancy fees, among others. While international airlines ticket sales remittances were excluded, it included portfolio investors, exporters, authorized dealers as eligible participants.

In the new arrangement, foreign exchange rates are expected to be determined by market forces which the Robert Omotunde-led analysts at Afrinvest West Africa Limited believe will improve investor confidence, particularly foreign portfolio investors as the market-determined rates are expected to result in rates convergence with the alternative market segments.

In related development, Nigeria’s external sector looked set for improvement in the short term as Shell Nigeria Exploration and Production Company Limited (SNEPCo) reopened the 225,000 barrel-per-day capacity Bonga deepwater oilfield.  This follows a scheduled turnaround maintenance on the Bonga Floating, Production, Storage and Offloading (FPSO) vessel. However, Bonga cargo according to experts is not expected to be included in the export loading programme until around midyear.