Buhari’s strategies inadequate to deal with Nigeria’s economic crisis

Posted by John Omachonu | 15 August 2016 | 3,122 times

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Nigeria is technically in recession and data from the International Monetary Fund show the economy has contracted to $296 billion in GDP value, putting the country back to the position of Africa’s third largest economy behind South Africa and Egypt.

However, signals from President Muhammadu Buhari’s government seem to be showing conflicting and inadequate steps to take the economy away from recession anytime soon, analysts say.

“We are estimating an increase in the YoY inflation rate to 17.4% in the month of July from 16.5% in June. If our estimate is accurate, this would be the highest rate in 11 years,” says Bismarck Rewane, chief executive of Financial Derivatives Company (FDC) in the current Bulletin released at the weekend.

More worrisome is the fact that Nigeria’s per capita income has dropped from $2400 to $1300, as well as losing the position of top oil producer in Africa to Angola.

Also from 7-8 percent GDP growth in 2013/2014, the country is in recession at negative -0.4% in the first quarter of 2016, while the citizens are stuck at home as foreign airlines flee.

But Yemi Osinbajo, vice president, while acknowledging the slump in Nigeria’s Gross Domestic Product, Foreign Portfolio Investment into the country, and decline in power generation and output, gave the assurance that the challenges would be addressed.

However, analysts said that tackling recession requires synergy and unity of direction among monetary, fiscal and budgetary policies and managers.

Inflation has hit 16.5 percent, while household wallets are growing increasingly empty due to woes that were initially triggered by the crash in oil prices and revenue, but accentuated by delays in making critical fiscal decisions.

“We need the right mix of policies to achieve the desired outcomes.  At a time like this, we should do all that we can to attract private capital, both from the domestic and the global investing community,” said Nike Akande, president, Lagos Chamber of Commerce and Industry.

Other analysts who spoke to BusinessDay said that the current situation whereby the finance ministry distances itself from monetary policy measures and conflicting comments on the state of the economy by ministers who are supposed to be abreast with issues pertaining to economy and budgeting leaves much to be desired.

Bismarck Rewane, in his August 3 Executive Breakfast Meeting note said: “Six weeks after the flexible exchange rate policy with the naira at N400/$, Nigerians are scratching their heads with two questions on their lips. Where is the bottom? Why is the market value of the naira much weaker than its true value?

“The answer is that whenever policy statements conflict with policy signals, the uncertainty premium increases. The naira has since been a victim of mixed signals, losing 60% of its value. With the much expected inflow of dollars yet to materialise, the impact of a weak naira on prices, output, investment and unemployment remains profound.”

Robert Omotunde of Investment Research, Afrinvest, said: “The economy is in a recession already. The Minister of Finance already called a recession in her last speech on the economy, though we still await Q2:2016 GDP figures to confirm this.

“We do not have any issue with the fiscal team made up of the ministers of Finance, Budget & National Planning and others, they are already an economic team. However, we have issues with lack of co-ordination of some of government policies and pronouncements, more so that they seem not to synchronise with that of the monetary policy authority.

“Perhaps, they may be getting it right soon, given the recent engagement with renowned industry economists that could help out in some of their policies.”

Another analyst with an oil and gas company who pleaded for anonymity, said, “Nigeria is in the middle of an economic recession and there seems to be no clear strategy for economic recovery on the part of government.

“National Assembly members are going on recess during this time when the economy is bleeding. There are conflicting statements from both Finance and Budget ministers. Lack of coordination between fiscal and monetary policies.

“There is need for clear statements or a spokesperson on the economy, with particular reference to revenue, expenditure and monetary policy/price stability. There is also the need for a coordinating minister of the economy. Someone to hold responsible for economic policies.

Bolade Agbola, executive director, Cashcraft Asset Management limited, in an email response to BusinessDay inquiry said, “restoring an economy to the path of growth from recession is like a war .We need two main but simple weapons to achieve the goal; We need a clear roadmap or plan and a leadership that is ready to think, focused and ready to make sacrifice.

“For a secular state like ours, no matter where the pendulum of power is now, the leadership must be focused and balanced .The talents to manage every segment of our society are all over the country waiting to be mobilised.”

Razia Khan, managing director, chief economist, Africa, Global Research, Standard Chartered Bank, called for synergy between fiscal and monetary policy measures.

A financial analyst sees government as reneging on its promised stimulus budget to lift the economy. “Where is government spending going to and how come they are not spending their way out of recession as they promised,” he queried.

In June, the Central Bank of Nigeria (CBN) allowed the naira to devalue, after a 15-month currency peg curbed investment and contributed to a 0.4 percent contraction in the economy in the three months through March, Bloomberg reports.

With inflation at a six-year high, the CBN may probably raise borrowing costs by 400 basis points by the end of 2016, according to Standard Chartered.

The four-month delay in passing the record N6.1 trillion  ($21.6 billion) budget, which was meant to stimulate growth in the country by spending on roads, ports and electricity generation, will reduce its efficiency, according to the International Monetary Fund.

Buhari’s vision to diversify the economy of Nigeria, which relies on oil for more than 70 percent of revenue has not translated into big investments, and infrastructure to support local manufacturing doesn’t exist yet, as the 2016 budget is yet to commence full implementation.

Nigeria is facing a revenue squeeze as earnings from oil fall, due to lower prices and taxes crimped by unimpressive corporate performance.

A resurgence of militant activity destroyed installations in the crude-producing Niger River delta, leading to unprecedented power shortages, piling woes on local firms, while also slashing oil output to an almost three-decade low.

•Sourced from BusinessDay Nigeria. Photo shows President Buhari.

Source: News Express

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