- 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.
Gold Gained Ahead of Joe Biden Inauguration 2021
Gold price rose from one and a half month low on Tuesday ahead of President-elect Joe Biden’s inauguration on Wednesday.
The precious metal, largely regarded as a haven asset by investors, edged up by 0.2 percent to $1,844.52 per ounce on Tuesday, up from $1,802.61 on Monday.
He said, “The key factor appears to be the (U.S.) currency.”
As expected, a change in administration comes with the change in economic policies, especially taking into consideration the peculiarities of the present situation. In fact, even though Biden, Janet Yellen and the rest of the new cabinet are expected to go all out on additional stimulus with the support of Democrats controlled Houses, economic uncertainties with rising COVID-19 cases and slow vaccine distribution remained a huge concern.
Also, the effectiveness of the vaccines can not be ascertained until wider rollout.
Still, which policy would be halted or sustained by the incoming administration remained a concern that has forced many investors to once again flee other assets for Gold ahead of tomorrow’s inauguration.
Crude Oil Holds Steady Above $55 Per Barrel on Tuesday
Brent Crude oil, against which Nigerian crude oil is priced, rose from $54.46 per barrel on Monday to $55.27 per barrel as of 9:03 am Nigerian time on Tuesday.
Last week, Brent crude oil rose to 11 months high of $57.38 per barrel before pulling back on rising COVID-19 cases and lockdowns in key global economies like the United Kingdom, Euro-Area, China, etc.
While OPEC has left 2021 oil demand unchanged and President-elect Joe Biden has announced a $1.9 trillion stimulus package, experts are saying the rising number of new cases of COVID-19 amid poor vaccine distribution could drag on growth and demand for oil in 2021.
On Friday, Dan Yergin, vice-chairman at IHS Markit, said in addition to the stimulus package “There are two other things that are going with it … one is of course, vaccinations — in the sense that eventually this crisis is going to end, and maybe by the spring, lockdowns will be over.”
“The other thing is what Saudi Arabia did. This is the third time Saudi Arabia has made a sudden change in policy in less than a year, and this one was to announce (the) 1 million barrel a day cut — partly because they are worried about the impact of the surge in virus that’s occurring,” he said.
Also, the stimulus being injected into the United States economy could spur huge Shale production and disrupt OPEC and allies’ efforts at balancing the global oil market in 2021.
Crude Oil Pulled Back Despite Joe Biden Stimulus
Crude oil pulled back on Friday despite the $1.9 trillion stimulus package announced by U.S President-elect, Joe Biden.
Brent crude oil, against which Nigeria’s oil is priced, pulled back from $57.38 per barrel on Wednesday to $55.52 per barrel on Friday in spite of the huge stimulus package announced on Thursday.
On Thursday, OPEC, in its latest outlook for the year, said uncertainties remain high in 2021 with the number of COVID-19 new cases on the rise.
OPEC said, “Uncertainties remain high going forward with the main downside risks being issues related to COVID-19 containment measures and the impact of the pandemic on consumer behavior.”
“These will also include how many countries are adapting lockdown measures, and for how long. At the same time, quicker vaccination plans and a recovery in consumer confidence provide some upside optimism.”
Governments across Europe have announced tighter and longer coronavirus lockdowns, with vaccinations not expected to have a significant impact for the next few months.
“The complex remains in pause mode, a development that should not be surprising given the magnitude of the oil price gains that have been developing for some 2-1/2 months,” Jim Ritterbusch, president of Ritterbusch and Associates, said.
Still, OPEC left its crude oil projections unchanged for the year. The oil cartel expected global oil demand to increase by 5.9 million barrels per day year on year to an average of 95.9 million per day in 2020.
But also OPEC expects a recent rally and stimulus to boost U.S. Shale crude oil production in the year, a projection Investors King experts expect to hurt OPEC strategy in 2021.
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