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Omodele Adigun
As the country’s current debt stands at over $22billion. Nigeria has over-borrowed! This is the verdict of Mr Marcel Okeke, a former Chief Economist of Zenith Bank Plc.
According to him, “we may compare with our peers and say we are doing well.No we are not doing well.We are over borrowing.”
Okeke, who is now the Lead Consultant of Mascot Consult Limited, was at a public forum recently where he disected the economy and proffer way forward.
Excerpts.
ERGP
I hope you have heard of the Economic Recovery and Growth Plan(ERGP).That is the plan of the sitting government.So any discussion of the economy should start from there. It is there they laid out what is guiding them to achieve this target and achieve that target.
But whenever you are looking at the economy, it is better you give what is called economic development plan, rather than having growth. In Economics, growth is a subset of development. You can have growth without development but you can not have development without growth. If a sitting government is only looking for growth, at the end of the day, how has it impacted you– your own well being? So they are talking about growth without development.
They said in 2016. GDP would grow at 1.54 per cent; 2017, 2.19 per cent ; 2018 ; 4. 8 per cent.But where we are , at no time did the GDP grow at that rate. But rather in 2016 and 2017, the country was in recession, And when it came out, the economy was growing at 1.17 per cent.
Inflation
But see inflation, this is where we could say the government has done well. But a lot of things has to be suppressed for that to happen. They were targeting 15. targeting 12, but we already see it come down to 11, which means if the lower inflation level is stable, the better for the economy. But when we have an abnormal situation in our hands where poverty is ravaging everybody, we can still do with that inflation level. As an underdeveloped or developing economy, we need the money.This is what give rise to inflation. We can still do with more inflation so that this economy can move forward. But when the government has a tight monetary policy, hold everything; hold everything and everything is being squeezed, that is why they have 11.44 inflation that ended that year 2018.
Diversification
As for the oil, there was no alternative because of NNPC projections. As for export growth, which export are we talking about? It is only oil. This is a mere mantra. In actual practice, there is no diversification. Again, the economy is still facing challenges of ineffective diversification: near sole dependence on oil comes with a variety of shocks and distortions.
External reserves
Let me tell you. External reserves essentially is a function of oil price. If the price of crude oil goes up, so much dollar would now come in and it will have a positive effect . Gratuitously, the price of oil went up, nobody expected it. And because our economy is oil price dependent, money came in. And we started responding to positive approach. Then there was marginal increase in our oil sector performance That was why we have that inflation level in 2018. We are now in 2019.
The external reserves have been going up and down depending on the movement of the oil price. But foreign exchange reserves decreased to $41.99billion in November, from $42.13billion in October 2018.
The reserves inched up to $42.54 billion at the end of December, representing a decline of $5.25 billion, compared with the $47.788 billion it was as at the end of June, 2018. It stood at $43.28 billion as at January 21, 2019.
Capital flight
The combination of rising yields in advanced economies, particularly in the U.S,coupled with growing concerns about the global economy due to the trade spat between the US and China have led to a reversal of capital flows in emerging markets. What that means is that somebody has to lift this economy because the developed economies started tinkering with their interest rates in such a way that people who left those climes because of lower yields when they invest have to move back to those economies. As a matter of fact, you cant compare Nigeria with the US when you want to invest. But if you consider only returns what you are going to get, you would say ‘ okay let me come to Nigeria because of the yields. But as soon as what you are getting there improves even if marginally, you just pull your money from this economy and move to that side.
There is already elevated tensions in the political economy of Nigeria, which will further compound the concerns of foreign investors. Most of my friends here who are covering the capital market have already known that most of the portfolio investors have pulled out and migrated to safe haven in advanced economies..
Exchange Rate
The average naira exchange rate remained relatively stable and converging at both the Bureau-de-Change (BDC) and the Investors and Exporters’ (I&E) window segments of the foreign exchange market by November 2018. The introduction of the I &E window was like a magic wand on the impact of the foreign exchange market. The exchange rate at the I&E window opened at N364.00/$ and closed at N363.90/$ with a daily average of N363.87/$ between September 26 and November 16, 2018. At the BDC segment, the exchange rate opened at N360./$ and closed at N361.85/$, with a daily average of N360.98/$, over the same period.
The Bilateral Currency Swap Agreement (BCSA) with China and the inflow of $2.8 billion Euro bond helped in stabilising the forex market during the period. Well it is coming small, small but the impact is not yet seen .We are still at the pilot stage.
Stock market
The bearish trend in the equities segment of the capital market persisted over much of 2018
Thus, All-Share Index (ASI) decreased by 8.70 per cent from 34,848.45 on August 31, 2018 to 32,058.28 on November 16, 2018 and closed the year at 31,430.50
Similarly, market capitalization decreased by 8.72 per cent from N12.72 trillion to N11.70 trillion during the same period; and stood at N11.72 trillion at end of December 2018.
When we talk about these drops, it should be clear to you that it is people that are losing money.
These developments largely reflect the sustained profit taking activities by portfolio investors as foreign yields become increasingly more attractive abroad.
The political tension in Nigeria plus the security situation continues to be serious concerns.
Borrowing
As at June 30, 2018, Nigeria’s debt stood at $22.08billion and at the January 2019 Monetary Policy Committee (MPC)meeting, the MPC cautions the Federal Government on the debt profile. That abracadabra of saying we underborrow, let me tell you , it is easier to compare with your peers. But is there any country that rear leaders like Nigeria? What of human factors? As they say in Economics, the issue is not borrowing money. But what you borrow money to do, how is it handled? But the truth is that when you borrow money in Nigeria, before it gets down to finance the project, even if it gets there at all, 90 per cent of it might have gone. We may compare with our peers and say we are doing well.No we are not doing well.We are over borrowing. Unfortunately in 1990, when we started FICAN, the issue was debt.The first person we invited to our roundtable discussion was Chief Olu Falae, the then minister of Finance, to come and discuss Nigeria’s debt problem and how to come out of it. So you can see! The same thing today is still debt!
Global trends
There is an increasing obsolescence of oil.Oil is becoming obsolete because we are talking of cars that will be moving on electricity. And here we are, talking about oil. What about the growing irrelevance of OPEC ? Qatar is about to exit the cartel.We could even have the bandwagon effect when Qatar leaves. Another will have reason to leave.And before we know it, OPEC will be standing on one leg!
Brexit roils markets, devalues the pound. Another referendum likely? What is now happening about Brexit, nobody expects it and what will happen, nobody knows. Macron succumbs to socialist pressure and its effects on Francophone Africa .There are nine French speaking countries in west Africa and it will come to us should that happen.
Rising protectionism as championed by Trump, meaning that instead globalisation, impacting the whole world, it is now America first. ‘we want our own’. US-China disagreement risk blowing into a trade war.
Reversal of financial flows: leading to a full blown financial crisis .What that means is that if the US keep on with their interest rates and the global economy pull back their money from going into these developed economies. The rest of the world will be starved. The so-called emerging economies will be in crisis.
Outlook
Recovery in 2019 depends on both Internal and external factors The External Factors that will afeect us this year include signing of the African Continental Free Trade Agreement .Whether we sign or not, it will still impact Nigeria•Other external factors include:maintenance of the Economic Partnership Agreement (EPA); full implementation of ECOWAS Common External Tariff (CET) and progress towards ECOWAS common currency in 2020.Among the internal factors that will affect the economy this year include payment of salary arrears and wage increment ;increased purchasing power; stable foreign exchange rate; deepening of mobile payment and maintenance and payment of outstanding Export Expansion Grant (EEG).
Others are rising inflation(both imported and domestic) arising from electioneering expenses and developments in the foreign exchange market as well as poor agricultural yields.
However, we should expect stronger consumer purchasing power aided by year end activities and outcome of wage negotiation with the Federal Government plus electioneering expenses.
Again, we should expect heightening unemployment, with the current level standing at about 23 per cent, rising from 18 per cent a year ago.
As for Gross Domestic Product, we might see shrinking GDP due to unfavourable external and internal factors. The world bank has projected that Nigeria’s GDP growth rate for 2018 would be two per cent. But the GDP grew by 1.95 per cent in the first quarter of 2018 and it came down to 1.5 per cent in the second quarter, and rose slightly to 1.81 per cent in the third quarter..
