FG Must Address ‘Pressure Points’ in Economy, FSDH Says

  • FG Must Address ‘Pressure Points’ in Economy, FSDH Says

Following the conclusion of the presidential election, analysts at FSDH Merchant Bank Limited believe there are pressure points in the economy that the federal government must quickly address to stimulate broad-based and inclusive growth.

According to the Lagos-based financial institution, the Nigerian economy has not been expanding enough to lift its citizens out of poverty.

Owing to this, the bank in a report stressed the need for the economy to expand faster than it is at the moment.

Providing insights on the report, the Head of Research and Strategy at FSDH Merchant Bank Limited, Mr. Ayodele Akinwunmi, listed the economic pressure points to include weak disposable income in the country; high unemployment rate; weak infrastructure development in the economy that may not support the growth ambition of the federal government; economic depression in the real estate sector; fragile foreign exchange market and weak revenue generation for the federal government, which has led to large fiscal deficits.

Akinwunmi listed policy option to address the economic challenges to include the removal of all administrative delays in obtaining licences and approvals.

This, he stated includes titles to landed properties for building and agricultural purposes.

He urged the federal government to support the provision of long-term mortgage loans at concessionary terms for workers, in order to activate economic activities in the real estate sector in Nigeria

Furthermore, he recommended investment in data generation in the solid mineral sector.

“Government can sell the data to potential investors interested in the sector. This will reduce the risk inherent in this untapped sector of the Nigerian economy

“Urgent restructuring, deliberate and consistent investments in the nation’s educational system to enable it provide relevant trainings that are needed in the modern digital age.

“We observed critical skill gap in the nation’s educational system, particularly in the public schools at all levels. The sector can create more jobs for teachers and administrators and can also attract foreign investments and save foreign exchange earnings.

“There is the need for human capacity building in business management and leadership. This must not be left to business schools, which are only affordable to a few people

“Establishment of well-funded technical training centres in all local government areas in the country in conjunction with private sector operators,” he added.

In addition, Akinwunmi called for investment in infrastructure (through partnership with the private sector) that would reduce risks involved in agriculture and agro-allied industries.

He also advised the government to reduce import duties on imported manufactured cars. This, according to Akinwunmi, would help avoid high cost associated with brand new cars in the country so that Nigerians are not pushed to buy fairly used vehicles with their associated negative environmental impacts.

“While we understand the need for the government to use the import duties to encourage investments in the local auto industry, a graduated import duty policy for a few years, say five years, will be appropriate

“Investments in affordable public healthcare system to increase productivity of workers, reduce brain-drain and reduce foreign medical tourism with its associated drain on foreign exchange earnings

“Adjustment of the electricity tariff to reflect current costs in the economy and to enable the sector attracts investments and guarantee efficient metering system

“The removal of the ‘subsidy’ on the Premium Motor Spirit (PMS) to free up more resources to critical sectors of the Nigerian economy and to drive competition among the operators and attract investment in the sector,” he added.

According to him, the Central Bank of Nigeria (CBN) needs to maintain its tight monetary policy stance to ensure price stability.

In addition, he said the CBN may also consider the removal of its multiple exchange rate system.

Continuing, the FSDH report projected that February 2019 inflation rate would drop marginally to 11.31 per cent, from 11.37 per cent in January, even as it anticipated that inflation to remain in double digits.

“The external reserve dropped consistently in the month of February. However, we observed that the external reserves have been rising since the beginning of March largely driven by portfolio investment. The current position of external reserves continues to provide short-term stability for the value of the naira.

“Capital importation via Foreign Portfolio Investors (FPI) in the Investors’ and Exporters’ Foreign Exchange Window (I&E window) increased for the second consecutive month in February 2019. This provided support for the foreign exchange rate

“The medium-term stability in the foreign exchange market will depend on the country’s foreign exchange receipts from both crude oil and non-oil products. Appropriate policies, some of which we have mentioned above, to attract Foreign Direct Investment (FDIs) into Nigeria, will be necessary to guarantee medium-term to long-term stability in the foreign exchange market,” it added.

About the Author

Samed Olukoya
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 long experience in the global financial market. Contact Samed on Twitter: @sameolukoya

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