The Nation Newspaper

Tag: GDP

  • ‘Nigeria’s GDP will grow at 7.5% this year’

    FBN Capital Limited has said the nation’s Gross Domestic Product (GDP) will grow at 7.5 per cent this year on the basis of the resilience of the non-oil sector of the economy.

    The firm in a report entitled: Economic Outlook: Riding the larger waves, said though the world will be spared a rapid fall in oil price on the scale of what happened in late 2008, Nigeria cannot escape the global headwinds.

    The firm said it is less confident about the on-going discussions between the Federal Government and the governors to replace the excess crude account with the Sovereign Wealth Fund (SWF) initiative.

    It said the decision of the Monetary Policy Committee (MPC) to strengthen naira is not in tandem with the realities of the global economy.

    “ The fear is that the global downturn feeds into a lower oil price, which upsets Nigeria’s macro balances by fuelling currency depreciation and domestic inflation.

    Our views is that the Central Bank of Nigeria(CBN) favours managed rates, but is not dogmatic about its levels. We see another small adjustment to the midpoint in H2,”it said.

    The firm observed that fiscal policy remains the weakest because it is marked by poor implementation and poor management. It said the government has a tough medium-term policy framework in place till 2015, adding that the government could transform its fiscal stance if it adheres to the policy.

    According to the firm, the government climbed down in part over fuel subsidies in January because Nigerians do not trust its ability to use the proceeds of the subsidies well.

    “This government is not the first in Nigeria to suffer from lack of credibility. It could make good this weakness by providing consumers with regular power for the first time in a generation,” the firm added.

     

  • Budget 2013: Experts condenm zero allocation to sector

    Budget 2013: Experts condenm zero allocation to sector

    Insufficient allocation to housing in budgets has been a major problem. The government is yet to match its talk on adequate housing with action. Last year, the allocation to the sector was N24.9 billion. So, it was with high hopes that stakeholders waited for the 2013 Budget, which President Goodluck Jonathan presented last week, believing it would, at least, be an improvement. But their hopes were dashed; the budget was silent on the sector. OKWY IROEGBU-CHIKEZIE writes that the sector may not witness any growth next year, except some measures are taken by the government to lift it. Stakeholders also criticised the government on the ongoing 24,000 housing units projects and the 6,000 units deal with states, saying they are insignificant in the face of the huge deficit of 16 million units

    Budget 2013 termed “Fiscal consolidation with inclusive growth,” may have taken care of or boosted some sectors of the economy, but not so with the housing sector because it neglected its challenges.

    In developed economies, the sector is used to measure the Gross Domestic Product (GDP) but not in Nigeria where its contributions to the GDP is minimal that it is not reckoned with.

    Although the government has introduced some programmes to provide affordable housing to a large percentage of the population, they remain a rhetoric because their impact has not been felt.

    While presenting the 2013 Budget at the National Assembly, President Goodluck Jonathan said: “The provision of affordable housing is one of the administration’s strategic imperatives for guaranteeing our citizens’ productivity and well-being. We are creating an enabling environment for the private sector to produce the much needed housing, while creating jobs in the process.

    “To facilitate this, I will be holding a presidential retreat on housing in early November, to discuss policy and modalities for dealing with land titling issues, developing an affordable mortgage finance system and reducing the high cost of housing construction.”

    He said under various housing programmes, about 2,000 housing units have been completed, while over 24,000 others were at various stages of completion. These are aside the houses being constructed for the use of the Armed Forces and paramilitary services.

    In addition, the President said the Federal Government had entered into partnerships with some states to provide 6,000 housing unit.

    So far, about 600 housing units under the direct construction scheme of the Federal Housing Authority (FHA) in some states have been completed.

    According to him, these will ensure that more Nigerians enjoy the benefits of having their own homes.

    Observers are wondering how all these, especially when there is no budgetary figure tied to housing, will make a difference in the face of a bourgeoning housing deficit and growth of slums in the cities.

    In the 2012 Budget, Lands, Housing & Urban Development received N24.9 billion but, this year, no figure was allocated to it. Analysts are wondering what may have given rise to such neglect. While some attributed the anomaly to the government’s lack of understanding of the complexities of the sector, others believe the government does not attach importance to the welfare of its citizens in terms of their accommodation and has, therefore, left each one to take his destiny in his hand.

    A developer and Managing Director, Fine Homes Ltd, Mr Afam Icheku, while criticising the paltry figures of housing projects by the Federal Government, which didn’t add up to 30,000 units in the face of a need of over 16 million houses, said nothing in the budget suggested that the government was working towards encouraging home ownership.

    He predicted that there would be an increase in slums with only the rich able to build and own decent houses.

    The National Public Relations Officer of the Nigeria Institute of Builders (NIOB), Mr Kunle Awobodu, in his assessment of the 2013 Budget as it relates the housing sector, said there was no reason to cheer in the sector.

    He criticised the government on the planned one million houses proposed for this year, which never saw the light of day, wondering how the huge housing gap could be closed.

    Awobodu berated the government for not taking housing seriously. In addition, he criticised governments for not engaging professionals to deliver the little they are doing in the sector, to maximise the resources put into such projects.

    A former President of the Nigeria Society of Engineers (NSE), Mr Kashim Ali, was not happy with the government for positioning the housing ministry as an implementation agency rather than a policy organ.

    He regretted the zero budget on housing and asked the ministry to sit up and reposition agencies, such as the Federal Housing Authority (FHA) and Federal Mortgage Bank, to operate like commercial enterprises to deliver on their mandates.

    Ali urged the ministry to offer incentives to the private sector with easy access to land, tax holidays, and reduced cost of building materiald to engineer them to provide affordable housing.

  • IMF hinges Nigeria’s 7% growth on oil output

    IMF hinges Nigeria’s 7% growth on oil output

    • Forecasts 5% for Sub-Saharan Africa

    THE International Monetary Fund (IMF) yesterday hinged Nigeria’s ability to achieve an overall Gross Domestic Product (GDP) growth rate of seven per cent in 2012, on a rebound in its oil output.

    “In Nigeria, non-oil GDP growth will moderate with the softer external environment and tighter macroeconomic policies. But a slight rebound in oil output will keep overall GDP growth at 7 per cent, “ the Fund stated in its October 2012 World Economic Outlook released yesterday in Tokyo, Japan, venue of the on-going World Bank/IMF Annual Meetings.

    The latest forecast by the IMF, is in line with the Central Bank of Nigeria’s (CBN’s) projection that Nigeria’s Gross Domestic Product (GDP) is expected to grow by around seven per cent this year. The CBN Governor, Sanusi Lamido Sanusi had said Nigeria now has the right policy makers pushing forward reforms, which would ensure Nigeria achieved a significant rise in growth in the coming years.

    The real risk in Nigeria is that of policy, adding that we have achieved an average of seven per cent growth for the last decade, and this is without steady electricity supply or adequate infrastructure,” Sanusi said early this year.

    “GDP can easily move into double-digits If we implement all the things planned. There will be a major step change in growth rates in the next two to three years,” he added.

    Driven by non-oil sector growth, Nigeria’s economy grew 6.28 per cent in the second quarter of this year, up slightly from 6.17 per cent in the first quarter. Historically, from 2005 until 2012, Nigeria’s GDP growth rate averaged 6.8 per cent, reaching an all time high of 8.6 per cent in December of 2010 and a record low of 4.5 percent in March of 2009.

    The GDP growth rate provides an aggregated measure of changes in value of the goods and services produced by an economy.

    Average daily crude oil output from the country also rose marginally to 2.38 million barrels per day (bpd) in the second quarter from 2.35 million bpd in the first quarter.

    Christened, “Coping with high debt and sluggish growth,” the IMF said growth in the oil-exporting economies is projected to remain high, near six per cent in 2012, adding that increased oil production in Angola will expand its GDP by close to 6¾ per cent this year.

    “In the baseline scenario, under which strains in the euro area remain contained and the global economy expands by 3¼ to 3½ per cent this year and next, growth in Sub-Sahara Africa, will continue above five per cent during 2012–13,” the Fund said.

    Noting that external shocks remain elevated, the IMF advised policy makers in the region to use the window provided by strong growth to rebuild budgetary space and normalize monetary conditions to be better prepared for downside risks.

    “Economic activity in sub-Saharan Africa (SSA) has expanded by more than 5 per cent in each of the past three years -continuing a decade-long run of strong performance that was only briefly interrupted by the global downturn in 2009.

    Most SSA economies are participating in this solid expansion, with the notable exception of South Africa, which has been hampered by its strong linkages with Europe, as well as some countries in western Africa affected by drought and civil conflict.

    “ More recently, some food importers in the region have also been hit by the sharp increase in global food prices for a few major crops -leading to higher headline inflation and widening trade imbalances – although so far with less severe effects than during the 2007 -08 food price shocks. The region’s recent growth has occurred against abackdrop of difficult external conditions, including the escalation of the euro area crisis.

    “But apart from South Africa, financial spillovers from Europe to the region have been modest. Export diversification has reduced exposure to weak demand from advanced economies, and high commodity prices have supported the region’s commodity exporters and boosted investment in resource extraction.

  • ‘Insurance contributes only 0.7% to GDP’

    ‘Insurance contributes only 0.7% to GDP’

    The insurace sector contributes 0.7 per cent to the Gross Domestic Product (GDP), a Consultant to the World Bank, Vyasa Krishna Burugupalli, has said.

    Burugupalli, who spoke at a forum organised by nchor Insurance Company Limited,in Lagos, said the Nigerian insurance market is largely untapped, adding that with over 150 million people, Nigeria has an insurance density of just about five to 10 per cent.

    He said in some other developing countries, insurance density is 40 -50 per cent; in the developed economies, it is as high as 90 – 98 per cent.

    Insurance, he said, can contribute significantly to the economic development of Nigeria as it is being witnessed in the developed world, if practitioners will lay emphasis on customer service delivery.

    Burugupalli, who is Country Director, Micro Ensure, India, and Consultant to Price Waterhouse Coopers in Sri Lanka for a World Bank/IFC project, was presented by Kunle Aduloju, a Senior Lecturer, Department of Actuarial Science and Insurance, University of Lagos.

    He said in the lecture, entitled: “Agriculture and micro insurance: A new vista for deepening insurance penetration in Sub-Saharan Africa,’’ despite the effort of the National Insurance Commission (NAICOM), insurance penetration in Nigeria remains one of the lowest in the world.

    He said exploring micro agric insurance remains about the best option if Nigeria is to record any appreciable level of insurance penetration soon, adding that agriculture, as the mainstay of the economy, contributes about 45 per cent of GDP.

    He stated that the agric sector employs about two-thirds of the country’s total labour force and provides a livelihood for about 90 per cent of the rural population.

    He said 75 per cent of Nigerians live in rural and semi-urban area, a ready-made market for micro insurance to thrive, so with 150 million people, the largest in Africa, and a fast-growing economy, taking insurance to them is the right way to go, he said.

    “Microinsurance simply put is a low premium approach to insurance for those at the bottom of the pyramid, that is the poor. The innovative part of microinsurance is that it reaches an area of the population that is still deemed ‘unbankable’ or physically unreachable to the normal banking or conventional insurance activities.

    “Micro-insurance is the ‘protection of low-income people against specific perils in exchange for regular premium payments proportionate to the likelihood and cost of the risk involved.

    The guest lecturer said development institutions, such as the World Bank and the United Nations, see in it a potential to secure poverty reduction. He listed risks covered by micro-insurance to include: crop micro insurance, livestock micro insurance, life micro insurance and health micro insurance. Others are disability micro insurance, property micro insurance and health micro insurance.

    Comparing the traditional with the micro insurance, Burugupalli, said: “In equivalence with regular insurance, the central underlying principle is the pooling of risks, which implies that financial contributions are collected from the members of an insurance scheme, and the loss of one individual is spread among all members in case of risk occurrence.”

    The main difference between micro insurance and regular insurance, he explained, was that the former isw targeted at low-income people, who have limited financial resources and often irregular income flow.

    He said the Food and Agriculture Organisation (FAO) has indicated that five billion people live in developing countries, out of which 57 per cent live in rural areas, adding that 49 per cent of these rural dwellers are employed in agriculture.

    He said the number of micro-insured people was estimated at 78 million, which is not a particularly high number, given that China and India are both among the 77 countries. The lecturer explained that due to the high population numbers in these two countries, the Asian region accounts for 86 per cent of the global outreach of micro-insurance. He said only 2.7 per cent of the poor population in Asia was covered by micro-insurance, while the coverage of the poor in Africa and Latin America was 0.3 per cent and 7.8 per cent.

    This low coverage is reflected in the level of penetration (premiums in per cent of GDP) and density (premiums per capita).

    He said in a world survey of insurance density, out of 78 countries analysed, South Africa ranked 32, Namibia ranked 44, Angola ranked 74, Kenya ranked 82, while Nigeria ranked 86.

  • ‘Nigeria’s debt to GDP ratio hits 17%’

    Nigeria’s debt to Gross Domestic Product (GDP) ratio has hit 17 per cent, Managing Director, Financial Derivatives Company (FDC) Limited, Bismark Rewane, has said.
    The FDC Economic report for September, said the total amount of government debt outstanding in Nigeria is N6.89 trillion, representing a mere 17.9 per cent of GDP.

    He explained that although Nigeria‘s debt is not yet at the 30 per cent debt to GDP threshold set by the government, two alarming trends are beginning to develop. The first is the rate at which Nigeria‘s debt level is currently rising and the second, is the rising cost of government’s borrowing.

    Currently, the cost of government borrowing is above 12 per cent on three,, five and 10 years bonds, and N559.6 billion has been budgeted for debt servicing this year. While Nigeria is still a fair distance from reaching the government‘s 30 per cent threshold, he insisted that it is important for policy-makers to recognize these trends and learn from our past mistakes and the mistakes of European countries.

    He said the percentage does not include Asset Management Corporation of Nigeria (AMCON) and sub-national bonds. He said that if these are to be added, Nigeria‘s debt-to-GDP percentage is in the mid 30s. “Nonetheless, currently, Nigeria’s debt-to-GDP ratio of 17.9 per cent is comparatively low, relative to the debt to GDP ratio of Ghana (41.2 per cent) or South Africa (38.8 per cent),” he said.

    Rewane said Nigeria’s debt to GDP financial crisis has led to a sharp increase in global government debt as governments scramble to save their financial systems from collapse. According to International Monetary Fund (IMF) figures, the aggregate net government debt in the world rose to $54 trillion in 2011 from $22 trillion in 2007, an increase of 145 per cent in four years.
    However, to curb the increasing debt, governments have implemented austerity measures and increased taxes. In reaction to such policies we have seen riots across Europe, as citizens pro-tested in response to the effects of these policies, which included increased government cuts and rising unemployment.

    “What has become clear from the euro-zone sovereign debt crisis is that rising government debt can no longer be ignored due to its direct impact on economies and citizens. In the last three years, two important lessons have been learnt from the European sovereign debt crisis: When government debt levels are rising it is difficult to anticipate when the threshold will be crossed, leading to the debt level spiraling out of control; When investors lose confidence in a government’s ability to afford its debt, problems can compound and potentially lead to a funding crisis,” he said.

    According to him, the two main factors that determine the interest burden on government debts are investor demand for debt and the amount of outstanding debt. Germany and the United States, he said, are selling 10 years of government debt at historically low yields of 1.16 per cent and 1.42 per cent respectively.

    a sign both of investors’ confidence in those governments’ ability to repay the debt, as well as being a product of the artificially low interest rate set by these governments. Consequently, these countries are perceived as safe havens by investors.

    He said that while the debt in Nigeria may be lower, there is a key difference with other advanced economies. “Instead of using debt for investment in government capital expenditure projects or fundamental transformations to essential services, the majority of the Nigeria‘s debt has been used to plug holes in its budget, while the rest has been spent on recur-rent expenditure.,” he said.

    Rewane argued that the 2012 budget deficit stands at N1.11 trillion, the majority of which will be financed through debt. The deficit is 2.85 per cent of GDP, in line with the provisions of the Fiscal Responsibility Act 2007, which pegs it at three per cent of GDP.

    He insisted that Nigeria‘s increasing debt-to-GDP ratio has not been matched by investments in infrastructure projects, or by increased spending on healthcare or education. “If the government deficit is spent on infrastructure, basic research, public health and/or education it can increase its potential output in the long run. There are also issues surrounding the crowding out effect of the private sector,” he said.