Nigeria’s economy needs decisive policies to address the “new normal”, brought about by the sharp change in global and domestic economic realities, analysts say.
An improvement in execution or efficiency along the previous trajectory alone will not deliver the quantum of new investment activity, economic growth and job creation urgently needed to meet the yearnings of the populace, according to Atedo Peterside, Chairman of Stanbic IBTC Holdings.
“We believe Nigeria needs to find ways for public and private capital to effectively collaborate in order to deliver the tangible economic progress that is urgently required,” Peterside said at the start of the firm’s West Africa Investors’ conference yesterday.
“This has been made all the more important on account of the sharp reduction in government revenues.”
Nigeria gets 70 percent of government revenues and 95 percent of export earnings from oil and has been hit hard by the plunge in global oil prices.
The rules of engagement of private capital should be as clear as possible and must not be arbitrary or hinge on the unbridled fixation with keeping all inherited factor prices, subsidies and exchange rates constant, according to Peterside.
Nigeria’s new President Muhammadu Buhari has ruled out the removal of fuel subsidies in Africa’s largest economy, that cost up to $5 billion a year.
Yesterday in an interview with France 24 Buhari said he does not think the country’s currency, the naira, should be devalued again.
“I don’t think it is healthy for us to have the naira devalued further. That’s why we are getting the Central Bank to make modifications in terms of making foreign exchange available to essential services, industries, spare parts, essential raw materials and so on — but things like toothpicks and rice, Nigeria can produce enough of those,” Buhari said.
Some analysts say the Central Bank actions are increasing uncertainty for investors, as they are unable to project or understand how some of these measures can be sustained over time in the absence of severe financial repression.
Peterside, in his address noted that in order for investor confidence to return quickly, the new administration must focus on espousing clear and credible policy prescriptions that provide a credible pathway to fiscal stability, a framework for sustained infrastructural investment, accelerated agricultural reforms, a viable, effectively executed industrialisation plan and movement on oil and gas reforms.
Investors are increasingly concerned about a lack of direction on fiscal policy from Buhari, who took office nearly four months ago but has yet to name his cabinet or economic policy advisers.
Foreign portfolio investors’ outflows beat inflows for a second consecutive month on the Nigerian Stock Exchange and accounted for 33.00 percent of the total transactions in August 2015, according to data from the bourse.
JPMorgan Chase & Co.’s announced last week that Nigerian debt will be removed from its local-currency emerging-market indexes, tracked by more than $200 billion of funds, partly as a result of inaction from the new administration on concerns about lack of liquidity in the FX markets.
Some analysts say Standard & Poor’s, which rates Nigeria four levels below investment grade at B+ with a stable outlook, may downgrade the country when it releases a review of its assessment tomorrow (Sept. 18).
“The challenges around the global oil prices have not gone away and we expect the naira to continue to trade weaker to the US dollar. This will continue to pile pressure on the economy, until such a time when the benefits of a diversified revenue stream provide a buffer for the economy,” GTI Securities analysts said in a September 15 note.
By PATRICK ATUANYA
