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Experts Insist Policy Option, Timing Fail Nigeria’s Economy

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  • Experts Insist Policy Option, Timing Fail Nigeria’s Economy

Professionals in the financial industry have insisted that policy choices and timing, particularly in the fiscal and monetary space, have failed the country. This was in response to the assertion by the International Monetary Fund (IMF) that Nigeria’s efforts to save the naira crumbled, resulting to aggravated economic issues.

The country was affirmed recessed in August 2016, two years after its major revenue earner- crude oil, lost value in the international commodity market. Thereafter, Nigeria has been flickering between monetary and fiscal policies that many believe have not helped economic activities.

The analysts, like the IMF, said government’s response-timing and decisions, were far from the solution, but rather worsened productive activities and general price of goods and services.

IMF Managing Director, Christine Lagarde, had in its policy paper on macroeconomic developments and prospects in Low-Income Developing Countries (LIDCs) recently, lambasted Nigeria and other countries for “delayed and poorly managed policy adjustment” in the face of commodity price shock.

“Inflation has risen to troubling levels in a handful of cases, concentrated in sub-Saharan Africa. Among commodity exporters, large exchange rate depreciations were a key contributor in Mozambique, Nigeria, and Zambia,” she said.

For the analysts, the key feature of Nigeria’s struggles has been blamed on currency policies, which they tagged, “controversial” and questions the apex bank’s independence.

In a poll of nine financial experts by The Guardian, only two said the dramatic turn of Nigeria’s economic activities would overwhelm any intelligent person.“In such situation, there is no readymade and quick fix strategy. Everything would be short term target and it would take nothing less than six months to change decision, otherwise speculations and uncertainty will naturally follow,” one that pleaded anonymity said.

After insisting on a fixed exchange rate in a bid to manage depleting reserves, the apex bank adopted flexible rates regime but the analysts insisted the market trends show the currency has never been fully floated.

Already, World Bank’s Ease of Doing Business ranked Nigeria 169th out of 190 countries; inflation at 18.55 per cent; interest rate 14 per cent; exchange rate at N305/4 and N490/$ at official and parallel markets respectively; and unemployment 13.9 per cent in third quarter of 2016.

Vice President Yemi Osinbajo, yesterday, in far away Davos, Switzerland, admitted that there is a need to close the gap between the official and black market rates for the naira against the dollar “very soon.”“The gap is not helpful. If you look at the economic recovery and growth plan, it is the expectation that this is a conversation we are having with Central Bank,” he said.

An economist, Dr. Uzochukwu Amakom, said the so-called “efforts” that failed must be anchored on policy thrust for it to make meaning.“So, where is the policy thrust? Does Nigeria have any economic blueprint on which monetary and fiscal policy will align? As long as I am concerned, the efforts have not been made, it is only intelligent guess work that is ongoing and everything is failing,” he said.

Executive Director, Corporate Finance, BGL Capital Limited, Femi Ademola, recalled that in 2011, IMF Staff Consultation Report, advised Nigeria to relax the semi-fixed exchange management system and adopt a more flexible exchange rate policy.

“With the current economic recession, high inflation and weakened exchange rate despite the consistent monetary tightening since 2011, it would be very valid to conclude that the Nigerian monetary policies have failed.

“I have argued consistently that sustained sharp and arguably miscalculated monetary policy tightening would push the economy into a recession where consumers tend to cut down on spending to as low as subsistence.

“Besides, there would be business production declines, leading to layoffs and low investments; and foreign appetite for the country’s exports may fall while foreign investments declined significantly. The recent slowdown in the GDP growth is indicative in this regard,” he said.

For a financial analyst at WSTC Financial Services Limited, Olutola Oni, said a breakdown of domestic output by income also revealed the lull in economic activities across sectors.

According to him, although the non-oil sector grew by a negligible 0.03% in the third quarter of 2016, a reflection of improved access to foreign exchange by some after change of policy, but trend shows that the exercise is only a shift of the peg from N198/$1 to N284/$1, and then to N305/$1.

“Lack of price discovery in the foreign exchange market and restrictive policies constricted inflows, while outflows outpaced inflows in all the four quarters of the year. This impacted negatively on external reserves.

“The tightly managed foreign exchange stance discouraged capital importation and remittances into the country. The spike in foreign direct investment to $340.64 million in the third quarter compared to an average of $180 million in the first two quarters, after the change in policy further supports this premise,” he said.

A Research Associate at Economic Research Southern Africa, Nonso Obikili, also raised a challenge of credibility against the apex bank, asking it to remove controls.He said: “Fiddling with the foreign exchange market is a recipe for economic collapse. The controls and multiple markets need to go and a proper functioning market without price controls needs to be implemented.

“The economy is at the lowest it has been in terms of confidence in a long time and needs something of a morale boost – a major reform in one of the sectors could be that boost.”

Also, an analyst at SBM Intelligence, Cheta Nwanze, said the elusive political will is now needed to carry out crucial reforms, otherwise Nigeria will still hinge its economic stability on OPEC’s fragile production deal.

“But that’s not the only deal critical to Nigeria’s economy in 2017. To take advantage of higher oil prices occasioned by the OPEC agreement, Nigeria will also need to cut a deal with militants in the Niger-Delta to ensure its daily oil production target is met. In all, given the permutations, significant growth appears unlikely in 2017,” he said.

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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Crude Oil

Crude Oil Rises to $72 a Barrel on Strong Demand Recovery

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Brent crude oil - Investors King

Oil prices rose on Friday to fresh multi-year highs and were set for their third weekly jump on expectations of a recovery in fuel demand in the United States, Europe and China as rising vaccination rates lead to an easing of pandemic curbs.

Brent crude futures edged up 13 cents to $72.65 a barrel to 1145 GMT, a day after closing at their highest since May 2019.

U.S. West Texas Intermediate (WTI) crude futures were up 14 cents to $70.43 a barrel, a day after their highest close since October 2018.

U.S. investment bank Goldman Sachs expects Brent crude prices to reach $80 per barrel this summer as vaccination rollouts boost global economic activity.

The International Energy Agency said in its monthly report that OPEC+ oil producers would need to boost output to meet demand set to recover to pre-pandemic levels by the end of 2022.

“OPEC+ needs to open the taps to keep the world oil markets adequately supplied,” the Paris-based energy watchdog said.

It said that rising demand and countries’ short-term policies were at odds with the IEA’s call to end new oil, gas and coal funding.

“In 2022 there is scope for the 24-member OPEC+ group, led by Saudi Arabia and Russia, to ramp up crude supply by 1.4 million barrels per day (bpd) above its July 2021-March 2022 target,” the IEA said.

Data showing road traffic returning to pre-COVID-19 levels in North America and most of Europe was encouraging, ANZ Research analysts said in a note.

“Even the jet fuel market is showing signs of improvement, with flights in Europe rising 17% over the past two weeks, according to Eurocontrol,” ANZ analysts said.

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Energy

Africa Oil Week Remains Force of Good for Africa

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Crude oil - Investors King

Hyve Group Plc, organisers of Africa Oil Week have confirmed that business opportunities and discussions at the 2021 edition will remain focused on driving investment into Africa for its sustainable socio-economic development, as it has done for the past 27 years.

The event which will temporarily move to Dubai for 2021 due to COVID-19 restrictions in South Africa will take place on 8-11 November 2021 and has support from key African stakeholders.

Atty. Saifuah-Mai Gray, CEO of National Oil Company of Liberia said “As an oil and gas hub, Dubai represents a huge opportunity for Governments to meet a high concentration of investors with the financial and technical capability to partner in our national upstream”

Africa Oil Week is known for driving deals and transaction across the African oil and gas sector, and after being forced to host the 2020 edition virtually, confirmation that a live event will take place in 2021 has delighted clients.

Miriam Seleoane, Assistant Director at the Department of Trade and Industry and Competition said

“The DTIC has supported the Africa Oil Week for many years. For 2021 we will be taking a delegation of 20+ companies to the Oil Week to advance partnership and investment dialogue between our South African businesses and international partners. Africa Oil Week remains a huge platform for the DTIC and our South African private sector”.

The event will run under the theme “succeeding in a changed market”, and it will be the only large-scale oil and gas event focused solely on Africa to run in person in 2021.

In a previous statement, the organiser cited Dubai as the “next best location” after Cape Town due to the exceptional progress made in the UAE’s vaccination programme. Dubai is also the leading financial centre in the Middle East, Africa and South Asia and presents an opportunity for attendees to meet with new capital holders, further driving investment into Africa.

The 2022 event will return to Cape Town, where organises have said it is the event’s “natural home” and to which they are strongly committed for the long-term.

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Crude Oil

Crude Oil Rebounds on Thursday After Slipping on U.S Weak Demand

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Crude Oil - Investors King

Oil prices rose on Thursday a day after slipping on data indicating weak U.S. driving season fuel demand as investors eyed upcoming U.S. economic data.

Brent crude oil futures were up 18 cents, or 0.25%, at $72.40 a barrel, holding just shy of a high not seen since May 2019.

U.S. West Texas Intermediate oil futures rose 11 cents, or 0.16%, to $70.07 a barrel, staying near its highest since Oct. 2018.

“The market is recovering impressively from yesterday’s dismal weekly EIA report, the drop in weekly gasoline demand was particularly disappointing,” said Tamas Varga, analyst at PVM Oil Associates.

“It will interesting to see whether the monthly OPEC report due out later will confirm last month’s upbeat demand assessment for the second half the year. If it does, as expected, it should support oil prices.”

Varga added that U.S. inflation data and jobless claims would provide more direction on the health of world’s biggest economy and clues as to whether the Federal Reserve might start tapering stimulus.

U.S. crude oil stockpiles that include the Strategic Petroleum Reserve (SPR) fell for the 11th straight week as refiners ramped up output, but fuel inventories grew sharply due to weak consumer demand, the Energy Information Administration (EIA) said on Wednesday.

Crude inventories that exclude the SPR fell by 5.2 million barrels in the week to June 4 to 474 million barrels, the third consecutive weekly drop. But fuel stocks were up sharply, with product supplied falling to 17.7 million barrels per day (bpd) versus 19.1 million the week before.

Implied gasoline demand fell to 8.48 million bpd in the week to June 4, down from 9.15 million bpd from the week before, but up from 7.9 million bpd a year ago, EIA data showed.

Weighing on prices, India’s fuel demand slumped in May to its lowest since August last year, with a second COVID-19 wave stalling mobility and muting economic activity in the world’s third largest oil consumer.

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