- 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.
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