Nigerian Economy Risks Being stuck in Low Growth, High Unemployment
The numbers are weak, some analysts have said. The petrol-powered economy key performance indicators are resting at the hot zone in the macroeconomic space, from the nation’s high debt stock which currently closed at N24.39 trillion, having projected to grow further.
This is in addition to superfluous headline inflation rate of 11.4%, analysts explained.
Also, worrisome unemployment rate still stands at 23.1%, as the macroeconomic narrative continues to be unsavoury for already battered citizens.
The monetary policy rate was cut from 14% to 13.5% recently but average lending rate still hovering at 30% at best.
Analysts said this translated to low private investment in the real sector of the economy through the first half.
In Nigeria, significant numbers of people live below $1.25 dollar a day.
That is, five hundred and forty naira if converted at N360 to a dollar at the parallel market.
At the moment, stock market performance has dropped significantly despite the fact that two telecoms giants came on board.
In a “normal” economy, investors and other stakeholders use movement in stock market to gauge economic temperature but if this is true for Nigeria, it means the country is really sick, analysts said.
Some investment banking firms, economists and other stakeholders have also observed that the economic growth has continued to underperforming surge in numbers of people.
Unfortunately, many experts had expected government to have doubled up the amount in the budget, an expenditure cut underscore austere government fiscal plan for 2019.
Understandably, government revenue has continued to be pressured, taking hit from debt service cost and uncontrollable variables that determine size of revenues.
Due to revenue issues, federal government invariably cut the amount budgeted per head, same time when population hits 200 million.
The move which has been criticised by economic observers as lacking intention to achieve broad base economic success.
These, couple with ballooned debt profile which is attracting significant amount in the budget as service cost, leaving less than desire for capital formation or expenditure are estimated to drag down growth potential in 2019.
Though, global economy performance has been identified as a key driver of the recent macroeconomics headwind, but analysts said this may last longer.
Meanwhile, as the growth trajectory continues to drag, with fiscal centre is yet to come up with strong economic blueprint that would raise the performance bar.
Some experts have again registered their disappointments and estimate bleak future for the economy.
In its second half review, Afrinvest said, “We are more concerned about the direction of the economy over the next four years with President Buhari’s continuity”.
Other economist who talk to MarketForces said that “It sadden my hearth that the government is trying to entrench poverty in the land.
“It is like they are used to it. Because you don’t need economists even as an individual to know that interest rate obligation must be managed effectively.
In a forum organised by MarketForces, analysts said FG is ramping up debt without planing what happens next.
“You don’t borrow because you have access.
“When an economic agent use about 50% of its budget to service debt, and continue to borrow, then something is wrong”, analysts explained.
FG continues to maintaining its expansionary stance, but the revenue side has continued to underperforming its estimates.
Total oil receipts still account for about 90% of government inflow, though stable FG stands the risk of probable fall in the global price of oil.
The controllable variable being production volume of oil has not being impressive even with Niger-Delta region cooperation.
In its reference to debt management, FSDH Research said that in order to manage the high interest expenses on the debt relative to FG current revenue, it should consider issuance of zero-coupon bonds.
FSDH said such bonds and other bond issue going forward, should be tied to specific projects that have economic value addition to the country.
“In our view, without implementing necessary reforms, the economy risks being stuck in the cycle of low growth, high unemployment and high poverty.
Should the current economic situation subsist, investors will, as seen in the first half of 2019, maintain a risk-off approach to the equities market and consequently take solace in the haven of fixed income securities”, Afrinvest stated.
Foreign direct into Nigeria was reduced by 43% in in 2018, closed the year at $2 billion as against $3 billion for Ghana.
The scarcity of this much needed capital contributed to slow growth but FG is yet to come up with enhancing policies that would attract investors into the country.
Available data from the CBN shows that Foreign Direct Investment (FDI) accounted for only 11% of the total capital importation into the country between 2010 and 2018;
Foreign Portfolio Investment (FPI) accounted for 70% of the total capital importation during the period while other investments accounts for 19%.
FSDH Research stated that the high FPI reduces the effectiveness of any exchange rate management regime because of the distortions that are usually associated with FPI particularly in a developing country like Nigeria.
It said that Government should engage Nigerians in diaspora and sell investment opportunities to them, both debt and equity in government instruments and entities in order to drive foreign remittance inflow.
Afrinvest stated that, “This plausible eventuality guided our sentiment which imagined “Next Wave of Inertia” that may not augur well for macroeconomic prospects, ditto attraction of much needed capital to catalyse portfolios to the realm of positivity.
“We reason therefore that investment strategy for second half in 2019 had “Better be Safe than Sorry”; hence, we preach overweight allocation to fixed income assets”.
The investment banking firm said barring any assurances of possible implementation of delayed structural reforms that will attract investment and boost Nigeria’s competitiveness, the firm retained its view of weak growth trajectory in the short to medium term.
“Critical reforms are inevitable to get back to historic levels of growth which averaged 7.1% between 2000 and 2014”, analysts said.
Afrinvest said on the economic front, growth at 2% in first quarter of 2019 is still below potential and population growth of 6-7% and 2.7% respectively.
It noted that inflation has trended downwards from 16.5% in 2017 to an average of 11.3% in May 2019, but this is still sticky due to unresolved security woes which have affected agriculture activities and caused high food prices.
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Recent data also show that unemployment remains elevated at 23.1% from 8.2%.
In the first quarter of 2017, GDP growth was negative at 0.9% before it moved to 0.7% positive in the second quarter of 2017.
Thereafter, GDP growth did 1.2% and 2.1% in third and fourth quarter respectively.
Then it dropped to 1.9% in the first quarter of 2018, with a further drop to 1.5% in the second quarter from where it picked up to 1.8% and then 2.4% in the third and fourth quarter of 2018.
It was noted that the fact that the cabinet is yet to be formed, makes it difficult to have a clearer view of economic policies under fiscally important ministries such as finance, trade and investment, petroleum, infrastructure, education, power and health.
The President’s democracy day speech offers only scanty details.
“While we know that the focus of fiscal authorities would still be on the economy, security and anti-corruption, the strategies to improve outcomes in these areas has not been spelt out”, Afrinvest added.
In its economic and financial market outlook 2019 titled “On the Precipice”, Afrinvest noted that Nigeria desperately needs structural and market-driven reforms, human capital and infrastructure investments to put Nigeria on the path of sustained growth and prosperity.
Afrinvest reiterated resolve that the performance of the economy over the medium-term would depend on the policies of the winner of the presidential elections.
It then noted that the firm retain its base case forecast of 2.5% in 2019, which is below population growth rate of 2.7% and unsupportive of job creation.
“We expect sustained expansion in the non-oil sector to support growth. In the oil sector, we expect a recovery in growth due to base effect as oil production for the last three quarters of 2018 was weak”, Afrinvest added
In the same line of thought, FSDH Research agreed that the economy is in need of boosters.
FSDH is of the view that there are more compelling reasons now than before for the government to remove the petroleum subsidy and channel the money into some other social intervention programmes.
Nigerian Economy Risks Being stuck in Low Growth, High Unemployment