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Topmost Global Rating Body: Nigeria’s Economy Will Improve 2017

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Moody's
  • Topmost Global Rating Body: Nigeria’s Economy Will Improve 2017

One of the world’s leading credit rating agencies, Moody’s, has cheerful news for Nigerians in 2017. It says the country’s economy and her dollar earnings are expected to improve in the new year.

The US-based top rating firm’s Vice President and Lead Analyst for Nigeria, Lucie Villa said Nigeria’s economy would bounce back to 2.5 percent in 2017 from its 1.5 per cent contraction in 2016.

Last July, the Minister of Finance, Kemi Adeosun, had said that Nigeria was “technically” in recession and that militant activities in the Niger Delta had affected government’s revenue. But Adeosun had also been upbeat about the chances of an economic improvement, saying, “We are going to come out of it and it would be a very short one because the policies that we have would ensure that we don’t go below where we need to go.”

The minister’s positive outlook was also echoed by Villa who said, “We expect Nigeria’s economic growth to bounce back to 2.5 percent in 2017, supported by an ongoing recovery in oil production.

“The government’s balance sheet is strong, with debt at around 16.6 per cent of Gross Domestic Product in 2016. Also, despite its interest burden rising to 19.8 per cent of revenue, Nigeria’s capital markets remain a reliable and captive source of liquidity and funding for the government.”

Villa’s optimistic outlook largely agreed with the projections in Moody’s latest report, released last December. In the report, which rates Nigeria’s economy B1 (stable), the agency noted that the “stable outlook” was supported by the strength of the country’s balance sheet. In 2017 and 2018, the credit rating agency said it expected Nigeria’s balance of payments to move back into surplus.

Moody’s, however, said Nigeria’s weak institutional framework, especially in terms of “the rule of law, government effectiveness and control of corruption,” would have a significant impact on its economic growth and fiscal strength, and thereby constrain the B1 rating.

“The country is still exposed to political risks arising from both the conflict with Boko Haram and recurrent attacks on oil infrastructures in the Niger Delta,” Villa added.

Moody’s also predicted that the Federal Government’s deficit would remain around two per cent in 2017 and 2018.

It said, “We forecast a general government budget deficit of three per cent of GDP in 2016, comprised of a two per cent of GDP Federal Government budget deficit and one per cent deficit split between state and municipal governments. We still assume that the authorities will not breach the statutory limit of three per cent imposed by the 2007 fiscal law, based on our view that they will reduce spending on a net basis if revenue collection underperforms.”

Moody’s stated further that two-thirds of 2017 real growth would come from the oil sector rebound alone, with a strong base effects expected in the second and third quarters.

“Nigeria’s large hydrocarbons reserves remain a key credit support: it has an estimated 37 billion barrels of oil (about 28 per cent of total African reserves) and nearly 34 billion of oil-equivalent in gas. Oil and gas exports tend to account for over 90 per cent of goods exports and a significant share of fiscal revenue (60-70% prior to the current oil shock). Our current oil price forecast are $45 per barrel in 2017 and $50 in 2018, compared to prices above $100 on average between 2010 and 2014,” Moody’s said.

Nigerian experts expressed similar views about the economy in 2017. According to the economists, the recovery will be slow, but if government increases productivity and implements the budget, Nigerians will have reasons to smile again.

An economist, Bismarck Rewane, said, “In terms of the economic outlook, it is going to be a very slow recovery towards the middle of the year, but it will be consistent and steady. So, we are likely going to see some improvements but (it would be) very slow. You would see that happening about the second quarter of 2017.

“There is hope as long as we are more productive (in 2017). The economic outlook can be considered positive as long as everyone contributes to the productivity of the country. It is a good thing that violence across the country is being curtailed. People can work under peaceful conditions, especially those who were displaced from their homes. There is hope because the Federal Government is demonstrating strong commitment to curb corruption.”

A former Head of Economics Department, Obafemi Awolowo University, Ile-Ife, Osun State, Prof. Abayomi Adebayo, also agreed with Rewane. According to him, Nigerians should be hopeful because the 2017 budget appears credible.

He said, “I believe there is hope because the budget appears to have credibility. There is hope because I believe this government will act appropriately and respond to active management of the economy to ensure sustainability and development.”

Similarly, an Associate Professor of Economics at the Ekiti State University, Abel Awe, said increased productivity would bring some cheer to the economy.

He said, “There is hope for the economy in 2017. With increased productivity, we can expect the recession to decline. The Federal Government should adequately address issues in the real sector, foreign exchange and encourage foreign investments.

“The economic outlook for 2017 will remain positive as long as the government and those directly involved in managing the economy pay proper attention to the key drivers of the economy,” he said.

However, other economic experts who spoke on the recession did not express as much optimism as Moody’s did.

They stated that there were many challenges the Federal Government must overcome before any ray of hope could be sighted on the horizon, adding that so far, the government and its economic handlers had not fully demonstrated the will and know-how to get the economy out of the woods.

A professor of Economics at the Olabisi Onabanjo University, Ago-Iwoye, Ogun State, Tella Sheriffdeen, said, “The current economic outlook of Nigeria is gloomy. There is nothing to cheer about it right now. If nothing is done to re-direct our economic path, we should expect harder times in 2017. The finance ministry and the Central Bank of Nigeria need to harmonise their contradicting policies to the extent that there will be liquidity in the system, which will enable people to borrow money and expand their businesses — there is the need to synchronise the fiscal and monetary policies.

“This also means that the Central Bank must bring down the interest rate. That expansion will increase goods output, which will consequently bring down the inflation rate in the country. There is the need for such alignment for the economy to move forward. Government has to do something about the exchange rate also. I have suggested to the Federal Government to change the colour of our currency’s higher denominations. This will make the naira to firm up again. India did that recently and it was successful.

The professor said more importantly, Nigeria needed to start producing goods, with the CBN encouraging credit.

He said, “Non-oil sector should be widened to include not only agriculture but other aspects of the economy. The 2017 budget must be passed on time before the end of the first quarter so that money for capital projects can be released as quickly as possible — that is something that can generate employment and promote production of goods in the New Year. Maybe, if all these are done properly, we will come out of the recession by the end of 2017. But if the central bank continues to tighten its monetary policy because of inflation, I don’t know what the result will be. Inflation is not caused by monetary policies alone. It is caused by the absence of goods in relation to demand by the people.”

To stimulate the economy further, he stated that the country’s capital market should encourage and appeal to organisations like telecommunication firms to list on the stock exchange.

According to him, having such companies listed gives credibility to the stock market which will in turn attract foreign investors.

However, the Director General of the West African Institute for Financial and Economic Management, Nigeria, Prof. Akpan Ekpo, offered hope but with a caveat.

He said, “If the government implements fully what it promised to do, around the third quarter of 2017, the recession might be abated. Therefore, 2017 still looks bleak. Unless the policies of the government, as contained in the 2017 budget, are effectively implemented, Nigerians will have to face the recession till the third or fourth quarter. To me, the economic outlook for 2017 is gloomy. But if they can implement the things they claimed they would do in the 2017 budget, we might start seeing some good signs in the economy next year (2017). Before then, the country has to continue to brace for hard times. There is no miracle against that.”

A Kaduna-based economist, Shadrack Madlion, painted a harsher picture, saying that government had failed to plan properly for the future.

He said, “2017 will prove that a man who fails to plan has planned to fail. In terms of agriculture, Nigerians are going to face hunger because we are right now in the dry season. No nation survives on rainfall-dependent agriculture — that is what we have focused on for many years. Now, the Federal Government made a pronouncement that the nation would plant and eat what it grows. But that is not supported with action.

“We have more SUVs (Sport Utility Vehicles) in Nigeria than farm tractors. We have arable lands to produce enough food to eat but $12bn is depleted on food importation (annually). So, the economic outlook for 2017 speaks for itself: Nigeria’s economic outlook for 2017 is bleak. There is no correlation between what government says and what it does.”

Responding to inquiry concerning the country’s 2017 economic outlook, the International Monetary Fund told our correspondent that the organisation’s country team for Nigeria would soon meet the Federal Government to deliberate on the economy and likely policy options.

It is only after the meeting, the global financial body stated, that it would be able to have informed responses as to whether Nigeria’s economic outlook for 2017 would be bright or bleak.

“As we have said before, Nigeria’s economy has been affected by a range of domestic and global developments, particularly lower oil receipts from the decline in both oil prices and oil production. The response to this requires an internally consistent and credible package of sustainable economic measures involving fiscal discipline, monetary tightening, banking sector strengthening, and structural reform.

“IMF staff are planning to conduct the annual Article IV discussions with the authorities during the first quarter of 2017. After that, we should have updated details on the authorities’ plans for economic recovery and the country’s economic outlook and growth plan for 2017,” a spokesperson for the IMF told our correspondent.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

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Commodities

Increased Demand Paves The Way for Expansion of Africa’s Sugar Industry

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Sugar - Investors King

Africa, June 2021:  A new focus report produced by the Oxford Business Group (OBG), in partnership with the International Sugar Organization (ISO), explores the potential that Africa’s sugar industry holds for growth on the back of an anticipated rise in regional demand. The report was presented to ISO members during the MECAS meeting at the Organization’s 58th Council Session, on June 17th 2021.

Titled “Sugar in Africa”, the report highlights the opportunities for investors to contribute to the industry’s development by helping to bridge infrastructure gaps in segments such as farming and refining and port facilities.

The report considers the benefits that the African Continental Free Trade Area (AfCFTA) could deliver by supporting fair intra-African sugar trade efforts and bringing regulatory frameworks under a common umbrella, which will be key to improving competitiveness.

The increased international focus on ESG standards is another topical issue examined. Here, the report charts the initiatives already under way in Africa supported by green-focused investment with sustainability at their core, which will help to instil confidence in new investors keen to adhere to ESG principles in their decision-making.

In addition, subscribers will find coverage of the impact that Covid-19 had on the industry, with detailed analysis provided of the decrease in both worldwide sugar production and prices, as movement restrictions and social-distancing measures took their toll on operations.

The report shines a spotlight on sugar production in key markets across the continent, noting regional differences in terms of output and assessing individual countries’ roles as net exporters and importers.

It also includes an interview with José Orive, Executive Director, International Sugar Organisation, in which he maps out the particularities of the African sugar industry, while sharing his thoughts on what needs to be done to promote continental trade and sustainable development.

“The region is well advanced in terms of sugar production overall, but several challenges still hinder its full potential,” he said. “It is not enough to just produce sugar; producers must be able to move it to buyers efficiently. When all negotiations related to the AfCFTA have concluded, we expect greater investment across the continent and a clearer regulatory framework.”

Karine Loehman, OBG’s Managing Director for Africa, said that while the challenges faced by Africa’s sugar producers shouldn’t be underestimated, the new report produced with the ISO pointed to an industry primed for growth on the back of anticipated increased consumption across the continent and higher levels of output in sub-Saharan Africa.

“Regional demand for sugar is expected to rise in the coming years, driven up by Africa’s population growth and drawing a line under declines triggered by the Covid-19 pandemic,” she said. “With sub-Saharan Africa’s per capita sugar consumption currently standing at around half of the global average, the opportunities to help meet increasing domestic need by boosting production are considerable.”

The study on Africa’s sugar industry forms part of a series of tailored reports that OBG is currently producing with its partners, alongside other highly relevant, go-to research tools, including a range of country-specific Growth and Recovery Outlook articles and interviews.

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Gold

Global Demand for Investment Gold Plunged by 70% YoY to 161 Metric Tons in Q1 2021

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gold bars - Investors King

Last year, investors flocked to gold as stock markets crashed on a gloomy economic outlook due to the spread of the COVID-19 pandemic. In the second quarter of 2020, global demand for investment gold surged to over 591 metric tons, the second-highest level since 2016. However, the investors’ demand for gold has dropped significantly this year.

According to data compiled by AksjeBloggen, global demand for investment gold plunged by 70% year-over-year to 161 metric tons in the first quarter of 2021.

The Lowest Quarterly Figures after Record Gold Investments in 2020

In 2016, the global gold demand amounted to 4,309 metric tons, revealed Statista and the World Gold Council data. By the end of 2019, this figure rose to 4,356 metric tons. Investment gold accounted for 30% of that amount. Worldwide gold jewelry demand volumes reached 2,118 metric tons that year. Central banks and technology followed with 648 and 326 metric tons, respectively.

Statistics show the global demand for investment gold surged amid the COVID-19 outbreak, growing by 35% YoY to almost 1,800 metric tons in 2020. Demands for gold used in technology also rose by 17% to 383.4 metric tons, while central banks and other institutions bought 326.2 metric tons of gold in 2020, a 50% plunge in a year.

However, after record gold investments in 2020, the global demand for gold for investment purposes dropped to the lowest quarterly level in years.

The Price of Gold Dropped by 5% Since January

The average gold value tends to increase during a recession, making it an attractive investment in uncertain times. In February 2019, a troy ounce of gold cost $1,320.07, revealed the Statista and World Gold Council data. By the end of that year, the price of gold rose to $1,479.13.

The gold price continued growing throughout 2020, reaching an all-time high of over $2,000 in August. By the end of the year, the precious metal price slipped to $1,864 and then rose to over $1,950 in January 2021.

However, the first quarter of the year brought a negative trend, with the price of gold falling to $1,684 by the end of March. Statistics indicate the price of gold stood at around $1,860 last week, a 5% drop since the beginning of the year.

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Gold

Gold, Other Safe Haven Assets Plunge Ahead of Fed Rate Hikes

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Gold and Bitcoin - Investors King

Gold and other safe-haven assets plunged last week as the Federal Reserve signals the possibility of raising interest rates twice in 2023 given the ongoing economic recovery post-COVID-19.

The price of gold dropped by 6.04 percent last week as investors rushed to move their funds out of safe-haven assets including the new gold, cryptocurrency.

The entire crypto space sheds $898 billion in market value to hover around $1.625 trillion last week, down from $2.523 trillion recorded on Wednesday 12, 2021. Its highest market capitalisation till date.

The Federal Reserve raised inflation expectations to 3.4 percent and shifted the year it is expected to increase interest rates from near-zero to 2023 from the previously projected 2024.

The new hawkish stance of the central bank led to capital outflow from safe havens and subsequently boosted dollar attraction.

The United States Dollar gained across the board with the dollar index that tracks its performance against six major currencies, rising by 0.63 percent to 91.103 last week.

However, on Monday morning the gold showed signs of recovery, gaining 0.5 percent to $1,772.34 per ounce following the retreat in U.S. treasury yield that boosted the attraction of non-yielding metal.

Bitcoin, the most dominant cryptocurrency coin, pared losses to $33,245 per coin, up from the $32,658 decline it posted last week.

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