‘Nigeria’s growth may remain subdued till June’

The nation’s economic growth may remain stunted till the end of the first half of the year with prevailing macroeconomic headwinds, which include budget delay, sustained foreign exchange challenges, out-of-target rising inflation and the trickling effects of petrol scarcity.

With economic activities at low ebb as contained in the February Purchasing Managers Index, where productivity, manufacturing, employment and general business activities were reportedly decreasing at faster rate, the development would be aggregated in the growth rate.

Besides, challenges to monetary and fiscal policy responses have been assessed to be part of the critical concerns in the economy that may serve as facilitators to the poor growth, which has been projected to be lower than expected.

Year-on-year inflation was on a sustained rise throughout 2015, breaking the target band of six per cent-nine per cent in June 2015, as it touched 9.2 per cent.

While remaining at 9.6 per cent year-on-year in January 2016, increased import costs from currency depreciation and volatility at the parallel market in February, together with the noticeable rise in food prices are expected to push inflation figures further in March.

Consequently, it will impact negatively on consumption pattern of individuals, as well as lower corporate earnings going forward and reducing the real returns on investments.

The Associate Research at Eczellon Capital Limited, Mustapha Suberu, said the prospect for the Nigerian economy in the first quarter of 2016 is still unclear, as according to projections, GDP growth may come lower than the 2.11 per cent achieved in the fourth quarter of 2015.

“This is on the back of record low oil prices at the beginning of the year and oil production challenges witnessed so far in the year. Similarly, the foreign exchange crisis coupled with rising inflation and the inability of some states to meet their salary obligations would depress consumer demand further and thus, weaken the non-oil segment of the economy.

“We however expect a gradual rebound in economic activities in the second quarter, largely on the back of the start of the implementation of the 2016 budget, which should spur economic activities in targeted sectors,” he said.

Suberu, who noted that while Nigeria may not be the only frontier/emerging economy facing economic challenges on the back of the rout in commodity prices, “we are of the opinion that the actions and inactions of the economic managers” may worsen its case, particularly, the official exchange rate issues.

As the Monetary Policy Committee (MPC) of the CBN sits on the 21st and 22nd of March, it is imperative for it to provide guidance on the management of the nation’s currency.

“This should entail the development of a roadmap that would allow for flexibility in the pricing of the naira, preferably through a managed floating system. Added to this would be the need for adequate support from the fiscal authorities to complement monetary policies. This support has largely been absent in recent times. This would invariably attract the needed investment into the country and set the economy on a sustainable growth path,” he added.

According to Ayodeji Eboh, an investment researcher and analyst at Afrinvest, already the Nigerian Stock Exchange in its January 2016 report on domestic and foreign portfolio participation showed a 23.9 per cent month-on-month decline.

There was also a fall in total value of transactions in January to N84.1 billion from N110.56 billion in December 2015, while it fell 55.7 per cent from N189.72 billion year-on-year.

Foreign inflows, though declined at a slower rate of 0.2 per cent to N17 billion compared to the 30.2 per cent decrease in outflows to N26.4 billion from N34.3 billion in December 2015.

“Although, foreign portfolio investments, also known as “hot money” are mainly invested in financial instruments, the direction of capital and the performance of the local stock market reflect the wellbeing of the economy,” he said.

Recent macroeconomic numbers have been painting challenging a picture for the economy and it investment landscape, with issues like high unemployment, weakening consumer spending, alleged poor monetary and fiscal responses and waning financial market sentiments headlining.

An analysis of the non-oil and oil divisions of the economy indicated that while the non-oil sector grew 3.8 per cent year-on-year in 2015, the oil sector declined 5.5 per cent after recording a single growth for the year in the third quarter.

In the non-oil sector, the Services and Agriculture sub-sectors rose by 4.8 per cent and 3.7 per cent year-on-year respectively.

“Weaker performance of the Industry sector suggests that the sector remains pressured by unfavourable monetary and fiscal policies despite government’s intentions to engender domestic productivity’” he added.