Depleting external reserves as harbinger of anaemic growth

Recently the Central Securities Clearing System [CSCS] took a serious look at the country’s economy in its yearly economic outlook seminar held recently in Lagos.

CSCS is the Clearing and Settlement House of the Nigerian Capital Market and the Nigerian Stock Exchange (NSE). It was incorporated on July 29, 1992 and commenced operations on April 14, 1997. CSCS facilitates the delivery (transfer of securities from seller to buyer) and settlement (payment of bought shares) of securities transacted on the approved Nigerian Exchanges.

It enables securities to be processed in an electronic book-entry form thereby substantially reducing the period it takes a transaction to commence and end.

The theme of this year’s edition of the annual Economic Outlook is very apt: “Growth Opportunities in Challenging Times: Creating Competition for Oil,” when considering the fact that this is the issue on every lip among the stakeholders of the country.

Speaking at the event, Dr. Biodun Adedipe, a financial consultant attempted to run through the issues and challenges facing us as a country, the implications and trajectory, what the government intends to do about the situation and what he is convinced is the way to go.

He explained that economy is diversified by GDP contributions, saying over dependence on hydrocarbons for foreign earnings and government revenue threatened source of foreign earnings and government revenue.

According to him, while OPEC members are defending market share, government recurrent expenditure is bloated with the attendant effects of high unemployment rate, which is largely youth dominated. (ten per cent new rate and trending up).

Adedipe decried depleting external reserves. ($28.37 billion), high cost of doing business and high cost of living. (Inflation at 9.55 per cent in November 2015).

Talking about growth versus development, Adedipe explained that growth was robust until end-2014, averaging an annual 6.4 per cent during 2001 to 2014.

As at end-September 2015, it had grown to 3.05 per cent annualized, dragging the 15-year average slightly down to 6.18 per cent. But the growth was non-inclusive and extenuated inequality, same as the global pattern and resulted in dismal development indices.

According to him, by GDP size, Nigeria ranked 22nd in 2014 with GDP of $594.26 billion, coming from 26th in 2013 (at $510 billion) when her GDP was rebased.

It was $568.51 billion and 22nd globally, by World Bank Indicators for 2014.

‘’It is obvious that economic growth that places Nigeria well in terms of GDP size is not as important as growing the economy inclusively, it however, is often said to be non-diversified as it is highly oil-dependent in foreign earnings and government revenue’’, he said.

Petroleum oil accounted for 97.28 per cent of the value of exports during 2000 to 2013 and 77.8 per cent of foreign earnings during 2001 to 2010, and 74.4 per cent of government revenue during 2000 to June 2014. But the oil economy is delinked from the non-oil economy, as the bulk of the revenue goes to fund recurrent expenditure rather than to strengthen the non-oil economy.

‘’Unfortunately, the oil economy is weakening and endangered’’, he said.

He explained further that apart from competing African producers, OPEC members no longer collaborate as they did, Iran is off the sanctions regime that kept it out of the oil market till end-2015, USA has resumed oil export after some 40 years of legislative/strategic restriction, and of course, shale oil producers are aiming to achieve a break-even price of $28 per barrel.