The need to quickly embark on economic policy reforms by newly elected Nigerian President Muhammadu Buhari has gained urgency as Africa’s largest economy grew at the slowest pace since its return to democracy in 1999.
Nigeria’s GDP expanded 2.35 percent on an annual basis in Q2 2015, compared with 3.96 percent a quarter earlier, Yemi Kale, head of the National Bureau of Statistics (NBS), said on his Twitter account on Tuesday.
“An all-out effort is needed to diversify Nigeria’s fiscal base away from oil. In the context of an economic downturn, raising revenue will be difficult. But fiscal reforms, especially a rise in the rate of VAT, creating a more stable revenue base, will be necessary for long-term sustainability,” Razia Khan, Managing Director, Chief Economist, Africa Global Research, at Standard Chartered Bank, said in response to questions.
“Priority expenditure will need to be protected. While capital expenditure boosts growth, it is necessary to reduce the amount of recurrent expenditure,” Khan said.
Nigeria’s economy, which expanded by 6.54 percent a year earlier (Q2 2014), and an average of 8 percent over the past decade, has been hurt by a halving in oil prices and economic uncertainty, ahead of presidential elections this year.
Buhari who was sworn in on May 29 and held sway for one of the three months of the quarter (April – June), has yet to name a cabinet, despite the global commodity sell-off and Emerging Market (EM) turmoil.
This has failed to re-assure jittery investors.
Nigerian Stocks entered a bear market (a 20 percent or more drop from recent highs) on Wednesday as equities retreated for a third day in a row.
The NSE all share index closed at 28,137.65 points down -21.2 percent from the highs of 35,728.12 points reached on April 2.
Nigerian equity investors have seen N1.64 trillion wiped out from their portfolio’s this year with the benchmark index down -18.8 percent year to August 26.
There are a number of issues building up for the President Buhari, which investors need attention to.
Oil revenues fund 80 percent of Nigeria’s budget and up to 95 percent of dollar reserves, but the price of the commodity has fallen below the $45 mark, down by more than half in the past year, with attendant pressure on Government finances.
There is the fuel subsidy crises and shortages, fiscal problems at the Federal and sub national levels with about 18 states unable to pay salaries. That has a potential negative trickledown effect on consumption, the Central Bank’s struggle with defending the naira and FX curbs that are hurting manufacturers and threats of JPMorgan kicking Nigeria out its Emerging Markets (EM) bond index.
“Onshore market sentiment has turned less constructive, reflecting concerns about the exchange rate outlook and the wider USD-NGN parallel market rate, and the realisation that foreign inflows may take time to materialise if the FX regime is not adjusted soon,” Samir Gadio head, Africa Strategy and FICC Research at Standard Chartered Bank said.
The CBN raised its key interest rate to a record high of 13 percent in November, while inflation for June of 9.2 percent has accelerated beyond the bank’s target band of 6 to 9 percent.
Manufacturing contracted by 3.8 percent during the quarter, compared with growth of 14 percent a year ago, and the oil industry contracted 6.8 percent, Kale said.
Reforming the oil industry is a priority for Buhari, because it has the potential to impact the lives of Nigerians the most, if leakages are blocked and gas resources harnessed for power.
“Our economic structure…perpetuates poverty, unemployment, inequality and social exclusion in Nigeria…With the pattern of domestic production (GDP), government spending, exclusion of MSMEs from financial sector lending and dominance of oil and gas by the public sector through an un-structured NNPC,” Opeyemi Agbaje, CEO of consulting firm RTC Advisory services, said.
PATRICK ATUANYA
