LAGOS—Some of Nigeria’s finest will gathered today at
Economic Discourse to proffer solutions to the nation’s economic problem, especially in view of current declining price of crude oil which has fallen to below $50, the first fall since December.
This is against the backdrop of recent economic reports indicating a light at the end of the economy tunnel.
However, the new prices are still significantly above 2017 budget benchmark of USD42.50/pb, though recent pressures that forced the down side of the resistance point are still continuing.
Nigeria’s economy largely runs on oil revenue and the inflows have been uptrend since fourth quarter 2016 when oil prices began to rise and eventually crossing over and sustaining at above USD50/pb up until yesterday.
Industry observers said the development was indicative of the push-back pressures coming from energy consumers and producers outside the Organisation of Petroleum Exporting Countries (OPEC), factors totally outside Nigeria’s control.
This came as Nigeria’s economy enters a cross road going by recent indices, with leading economists, financial experts, corporate chieftains as well as political and public policy executives, today at the Vanguard Economic Discourse holding in Lagos, chart alternative course of actions at the backdrop of the Federal Government’s economic recovery action plans released this week.
The National Bureau of Statistics, NBS, has just released current gross domestic products, GDP, reports indicating mixed state of the economy while oil price, the main stay of the economy, suffered a setback in the international market, yesterday. Inflationary pressures are still in the economy, while budgetary and other fiscal measures 2017 expected to address all these are still pending.
Yet, there is also huge concern over monetary policy wing where foreign exchange crises have been very pervasive, undermining aggregate performance of the various sectors.
These also came against the roll-out of the Federal Government’s Economic Recovery and Growth Plan, ERGP, which received knocks and kudos, yesterday.
GDP contracts 2016 but up-looking for 2017
The fourth quarter 2016 (Q4:2016) and full year 2016 (FY’16) estimates of the GDP showed economic output declined in real terms for the fourth consecutive quarter by 1.3% year-on-year (Y-o-Y) in Q4:2016, thus bringing FY: 2016 GDP growth to -1.5% Y-o-Y, the first annual GDP contraction in 25 years.
This came with a 12.3% Y-o-Y decline in Oil GDP in Q4:2016 despite an 8.1% quarter-on-quarter (Q-o-Q) growth which was driven by improvement in oil production volumes from 1.6mb/d in Q3‘16 to 1.9mb/d in Q4‘16.
Non-Oil GDP also contracted 0.3% Y-o-Y in Q4‘16, reversing the 3 basis points (bps) Y-o-Y growth in Q3‘16, following a steeper and extended contraction in Services sector output to third consecutive quarter (-1.5% Y-o-Y in Q4‘16 from -1.2% Y-o-Y in Q3‘16) which offset sustained outperformance of the Agriculture sector.
On a positive note Agric sector grew +4.0% Y-o-Y in the period. Also there was a moderation in Industrial sector weakness (from -12.2% Y-o-Y in Q3‘16 to -6.7% in Q4‘16).
2017 Outlook – Recession eases out in Q2’17?
At the backdrop of this GDP report , the presidency has declared that the economy has reversed negative trend, adding that the recession has bottomed out.
Reacting to the NBS report, the Presidential Adviser on Economic Matters, Dr. Adeyemi Dipelu, stated: “These figures reflect the slow-down in the economy for most of 2016 but also show that the recession may have bottomed out because of an improving trend in several key sectors.
“The Social Investment Programme of the Federal Government and the relatively high level of infrastructural spending in late 2016 as well as 2017 capital spending plans should begin to have a multiplier effect on the economy.
“The trend in nearly all the sectors showed a growth improvement in nominal terms although such effects were outweighed by inflationary factors. The expectation is that this trend and the slowing down of month-on-month inflation will enable an early return to positive growth in the economy.
“This positive trajectory will also receive a boost from the positive news emerging from other parts of the economy. Notable in this regard is the release of the Economic Recovery and Growth Plan by the Federal Executive Council which sets the stage for further fast-tracking of recovery and economic diversification.
“In the same vein, the likely early passage of the 2017 budget estimates would also lend further momentum to economic growth.
“Similarly, the recent bond issue of US$1 billion which was subscribed to almost 8 times will reinforce the trend of increasing reserves. Indeed, foreign reserves rose from $23.9 billion in October 2016 to $27.8 billion in January 2017.
“Furthermore, there is a better outlook for revenues from the petroleum sector with revenues set to increase with oil production now over 2m barrels per day while oil prices holding relatively steady at an average of about $55 per barrel.
“This improved outlook for the oil and gas sector is closely linked to the on-going engagement and dialogue between the Federal Government and various communities in the Niger Delta.
“Overall, the Nigerian economy performed better than expected even though we are still in the early stages of recovery. It is indeed noteworthy that overall 2016 growth was higher with a contraction at -1.5% than the -1.8% predicted by the IMF.”
At the backdrop of the seeming green shoots in the economy some analysts’ outlook for growth in FY‘17 are more hopeful than last forecast update.
Of the three cyclical and structural factors listed by analysts at Afrinvest West Africa, a Lagos-based financial institution, as important in influencing Nigeria’s business cycle – oil production, oil prices and policy making, there have been substantial improvement in two – oil prices and oil output, until this week when prices tumbled bellow USD50 per barrel.
The combination of higher oil production and oil prices is positive for forex earnings, government revenue, oil GDP and ultimately aggregate growth.
However, analysts said they expect a less than -1.0% contraction in Q1‘17 but forecast GDP numbers to swing positive from Q2‘17 due to low oil GDP base in the last 9 months of 2016.
Consequently, analysts at Afrinvest revised their FY‘17 growth forecast upward from an earlier flattish projection to 0.85%.
However, gloomy signs still looms in Q1‘17. February Purchasing Managers Index (PMI) data released by the Central Bank of Nigeria (CBN) earlier in the week is a pointer of the subsisting weak level of confidence in the economy. Manufacturing PMI and Non-Manufacturing PMI activities of the private sector fell for the second consecutive month at a faster rate with the indicators declining from 48.2 and 49.4 in January to 44.6 and 44.5 respectively in February.
Other private sector verdicts
At the backdrop of the Vanguard Economic Discourse today, the experts would be joining issues not only with the public policy executives and outcomes but also the views already canvassed on these issues by some private sector leaders.
NESG worried over implementation of FG’s plan
Nigerian Economic Summit Group, NESG, yesterday, expressed concern over the implementation of the Federal Government’s ERGP, even as it lauded the objectives.
The Group also charged the government to intensify its effort towards enhancing the ease of doing business in the country as this will have positive ripple effect on the economic recovery effort.
While reacting on the recently released ERGP after briefing news men on the activities of the Group, Chairman of NESG, Mr. Kyari Bukar stated: “We laud government’s initiative as Nigeria has never lacked good plan, but our concern is on the implementation of the plan. It is better to aim high than nothing. But one of the things I like about the plan is the objectives; it is very fantastic as it started on the three aspects of the things that this government are pursuing starting from tackling corruption, job creation and macroeconomic stability.
Continuing he said: “The three broad objectives of the plan which are aimed at achieving the vision of the government is inclusive growth, restoring growth, investing in our people, and building a globally competitive economy. This is good. We have been in recession for some time, so having plan to restore growth is a nice one and investing on people to create job is in order. Also the ease of doing business is key, if we must be competitive. If we are serious and in all honesty about the ease of doing business the country would be far better. Government must quickly do that. I thank God that the Minister of Commerce and Investment is championing that course and pushing forward Nigeria will be far better.”
ERGP lacks specifics – Dr Aziegbemi
Making a presentation on “The Way out of Recession”, in Abuja, earlier this week, Dr. Anthony Aziegbemi, an Economist and management consultant said that the document contained too many words but failed to specify concrete actions in order to achieve the plan’s targets.
He said, “The major flaws I see in that document is that it contains too many words. It lacks specifics. No stimulus. We need to look at it deeper to see how we can attain 8 per cent growth rate target. The document did not say how. From what I saw, I didn’t see that happening and until we have those specifics, the programmes we need to undertake to come out of recession will not happen.
“Economics is a Social Science. It does not work based on the body language of anybody. You require actions to get results.”
NECA backs FG’s plan, canvasses openness to more options
However, the Organized Private Sector, OPS, yesterday, threw its weight behind the Federal Government’s ERGP insisting among others, that government should ensure a focused, concerted and effective implementation of all the actions and initiatives contained in the ERGP so that the benefits might quickly accrue to the economy, businesses and citizens, and the nation
Speaking through the Nigerian Employers Consultative Association, NECA, the body however, pleaded with government not close its door to other options and suggestions on how to rescue and grow the economy.
Briefing on Nigerian Economy and Policy Environment after a meeting of its Governing Council, President of NECA, Mr Larry Ettah,
called on government to aggressively provide incentives and support for non-oil exporters so that a sector that represents less than 9% of economic output will no longer provide virtually all our foreign exchange income, thus leading to the kind of foreign exchange constraints that the whole nation faced in 2016 and still faces.
Giving a comparative economy of seven countries including Ghana, Egypt, Russia, Indonesia Saudi Arabia and Angola, NECA President said: “We commend the Federal Government for releasing the Economic Recovery and Growth Plan (ERGP) which should provide some degree of policy certainty to domestic and foreign stakeholders on the policy direction of the Nigerian government for our economy. We appreciate the fact that the ERGP was produced through a process that involved consultations with the private sector and hope such consultative posture would be sustained. We share in the broad principles behind the plan – tackling constraints to growth, particularly fuel, power, unfriendly regulations, and foreign currency; leveraging the power of the private sector, promoting national cohesion and social inclusion and allowing markets to work.
“We also support some specific initiatives and targets stated in the document including the desire to increase oil production to 2.5million barrels per day by 2020; privatisation of specific enterprises and assets; reducing petrol importation by 60%; building a globally competitive economy; and improving infrastructure and the overall business environment.”
Oil falls below $50
Oil prices which resisted downward pressure against $50 for over three months now, eventually tipped over yesterday.
West Texas Intermediate, WTI, for April delivery dropped 74 cents, or 1.5 per cent, to $49.54 a barrel on the New York Mercantile Exchange, while Brent for May settlement fell as much as 2.2 per cent in New York to $49.20 after losing 5.7 per cent the previous three sessions.
Oil had fluctuated above $50 a barrel since OPEC and other nations started trimming supply for six months starting on January 01, 2017 to reduce a global glut. While US shale production has rebounded, larger-than-expected cuts elsewhere and signs of growing demand suggest stockpiles will decline, according to Goldman Sachs. “The bottom line here is you have wide compliance within OPEC with the production cuts and on the other hand you have increased production out of the US,” Hans Goetti, chief strategist for the Middle East and Asia at Banque Internationale a Luxembourg, said in a Bloomberg television interview. “The shale oil industry in the US has made great strides to cut costs.”
Saudi Arabia’s Oil Minister Khalid Al-Falih said this week global inventories are falling slower than expected, opening the door to extend the output-cut deal beyond its initial six months. US crude production increased for a third week to 9.09 million barrels a day, the Energy Information Administration said Wednesday. The nation’s output is projected to surge to a record 9.73 million barrels a day next year, according to the EIA’s monthly Short-Term Energy Outlook on Tuesday.