Few days into 2016, not a few Nigerians are optimistic that the economy leaves anything to cheer about given the different challenges besetting nearly all facets of the economy, reports Ibrahim Apekhade Yusuf
The received wisdom out there is that Nigerians will experience a pretty tough time this year, no thanks to the parlous state of the economy occasioned largely by the dwindling oil receipts and shrinking revenues across the board.
Interestingly, President Muhammadu Buhari’s seemingly innocuous remarks that Nigerians had better brace up for the worse, may have further fueled fears that this year may well be a bad one for Nigerians, economically speaking.
Echoing similar sentiments, Minister of Finance, Kemi Adeosun gave the indication that 2016 is going to be a tough and difficult year for the country. She spoke at the opening of the 7th Annual Bankers’ Committee retreat in Lagos recently.
Adeosun who acknowledged that the country is faced with some fairly significant micro-economic challenges that require some fiscal housekeeping, said: “It is going to be tough and we are going to have to make extremely tough decision. We have got the resilience and space to do that.”
Expatiating, she said: “To do so, we need to do some fiscal house keeping. We have to control the significant challenge we have around recurrent. If you look at recurrent at a percentage of our total budget with the just approved supplementary budget, it is about 90 per cent. If we continue in that trajectory, every penny we borrow will go into recurrent.”
The minister who was enthusiastic that Nigeria can overcome the challenges however warned that she is not attempting white wash everything or paint a rosy picture.
A budget of uncertainty
While presenting the N6.08 trillion budget for the 2016 fiscal year, the first under his administration, President Buhari said the 2016 budget proposal seeks to stimulate the economy, making it more competitive by focusing on infrastructural development, delivering inclusive growth, and prioritising the welfare of Nigerians.
Upbeat, Buhari said he hopes that the 2016 budget is designed to ensure that “we revive our economy, deliver inclusive growth to Nigerians and create a significant number of jobs.”
He added that the budget proposal, while helping industry, commerce and investment to pick up, will as a matter of urgency, address the immediate problems of youth unemployment and the terrible living conditions of the extremely poor and vulnerable Nigerians.
Specifically, the President said that his government aims to ensure macroeconomic stability by achieving a real GDP growth rate of 4.37% and managing inflation.
To achieve this, he said that they will ensure the aligning of fiscal, monetary, trade and industrial policies.
He explained that “as we focus on inclusive growth, we are conscious of the current rate of unemployment and underemployment.
“This is a challenge we’re determined to meet; and this budget is the platform for putting more Nigerians to work. I can assure you that this administration.”
Although the federal government proposed a national budget of N6 trillion for 2016 fiscal year, allocating 30 percent of the budget to the capital expenditure, it was predicated on $38 dollars of barrel of crude oil benchmark which looks uncertain judging by the fact that the international oil price is $30 and could further slide to $20 if the prediction of the International Monetary Fund (IMF) come to past.
However, speaking on the 2016 proposed budget, Dr A. O. Ogunyemi, a budget historian of Obafemi Awolowo University Ile Ife, said: “The country needs a budget of N6 trillion and maybe even more. Analysing the expenditure outlook of the government, this budget is reasonable because the economy needs to be jumpstarted. The growth rate is very slow at 3.4 and 3.6 percent when the projected growth is 6.7 percent, meaning the government needs to do something about spurring this along.”
The government, he said, “needs to change from an instrumental budgeting system to a zero-based system. With the zero-based budget you don’t give money based on the benefit of doubt. Every expenditure head that needs money must justify why he needs it. There are several benefits of this system including the blocking of wastage and leakage as well as ensuring transparency, accountability and value for money and the instrumental budgeting system we are utilising now does not permit all that.”
Unfounded fears?
The outlook for next year looks scary but economic managers have allayed fears of any foreboding of trouble.
Firing the first salvo, the Director General, Debt Management Office, Dr. Abraham Nwankwo, said that there is no cause for alarm over the debt profile of the country.
Nwankwo also justified the loans taken by the country saying that repayment period for most of the loans is spread for 40 years.
The DMO boss put the debt profile of the country at $64 billion with 84 per cent of it owed internally and 16 percent accounting for external debt.
He said, “We have been sensitising Nigerians that we need to do better because our tax GDP ratio is very low compared to countries in our debt role, their entire GDP ratio is about 18 percent whereas for Nigeria, it is about six percent which means that we are not being effective in collecting taxes to reflect the size of our economy.
“This has implications for debt service. Certainly there is the need to be careful even though there is space we need to relate debt service to revenue. The solution is that we have a big gap to fill because when we move upward from the 6 percent tax GDP ratio, we will have a lot of money to solve our problems including servicing our debts.
“For now our debt servicing GDP ratio is still very low but we are optimistic because there is room to collect tax from the existing level of economic activities.”
On the proposed borrowing in the Medium Term Expenditure Framework for the 2016 fiscal year, he said: “I want to assure you that what the government has done is in the right direction because even before the collapse of the oil prices, it has been estimated, more than five years ago that Nigeria needed a minimum of $25bn per annum continuously for up to 10 years to enable it to close its infrastructure deficit.
“That has been established by all relevant experts, and institutions. In addition, the collapse of the oil prices by our own estimate shows that public revenue from oil had dropped by about $16bn per annum.
“In this type of situation, what a responsive government should do, and which is what our government is doing is to make sure that cataract a continuous decline in economic activities.
“Borrowing is being done to achieve positive impact on the economy, it will lead to growth, creation of employment, and build solid capacity for the future which will help us to diversify our economy.
“What the government is planning to do now is to explore at least five out of the 34 solid minerals that we have. We will develop, and process them for export.
“From the Debt Management Office perspective, the MTEF/FSP as presented to the National Assembly, is perfect for the times and a good recipe for dealing with the challenges of the collapse of the oil prices and the need to rapidly develop and diversify the economy, build infrastructure, such that it would act as a strong base for growth in agriculture, solid minerals, petrochemical and others.
“For a country to achieve a sustainable development, it should not rely on only source. Aside revenue generated, there are openings in local and international borrowing. If we must borrow, we must have options.
“Most of the loans we take are 40 years but it is a good thing too to space. It is like giving it free. The crucial thing is to use it on investments that will last for years. It is not in every case that borrowing externally is bad.”
Plausible as the DMO boss may sound some analysts hold the view and very strongly too that Nigerians would be more convinced if all these soothing words would bring more food on the table.
Expectations for 2016
For the year 2016, there are a lot of expectations from the industry as private sector operators want government to take drastic steps to review its economic policies with the aim of turning around the sector for good. Director-General of the Lagos Chamber of Commerce and Industry (LCCI), Muda Yusuf, while forecasting 2016 highlights, said that the private sector operators were expecting to see a clearer macroeconomic policy from the Federal Government that will bring a rebound in the growth of the nation’s GDP. He said that the GDP rebound had been forecast slowly to reach about 3.5 per cent if the right mix of fiscal and monetary policies were put in place by government to stimulate the economy and attract domestic and foreign investments.
Yusuf said while the recovery is expected to be driven by increase in government expenditure, the growth in oil sector may still be constrained by low price and investment drive. The LCCI DG pointed out that the exchange rate volatility was expected to persist, fuelling high inflation of about 10-11 per cent in 2016. He, however, stressed that the private sector operators were gearing to see correction towards the Real Effective Exchange Rate (REER) in the form of exchange rate adjustment, which is likely in the first quarter of 2016, adding that this would reduce the pressure on external reserves.
Other 2016 highlights, according to the financial expert, are in the areas of expansionary fiscal stance; huge debt profile; improved power supply and infrastructure; Petroleum Industry Bill acceleration; downstream deregulation and blocking leakages through the Treasury Single Account (TSA).
Infrastructure is the pivotal frame on which a strong national growth structure is maintained. Therefore, any nation that wishes to accomplish any significant economic development must necessarily invest more on the provision and maintenance of basic infrastructural facilities. A healthy business environment can be essential for growth and poverty reduction and a prerequisite for trade and competitiveness. A good infrastructure, on the other hand, is an important element of the business and economic environment.
Mallam Shehu Mikail, National President, Constance Shareholders Association of Nigeria is worried that the economy has been on a lull in recent times.
Speaking with The Nation over the weekend, he lamented that Nigerians are hard up.”Most companies recorded unprecedented losses in the outgoing year and with the hopelessness expressed by President Muhammadu Buhari no one really knows how soon we will get through with this phase. Things appear getting worse by the day.
Mallam Mikail who bemoaned the current state of the market, explained that the major factor responsible for the persistent lull in the market was governments’ inability to come up with a clear blue print that would serve as a guide to both existing and prospective investors.
Going down memory lane, Mallam Mikail said: “The market lost about N2 trillion last year alone. Despite the economic meltdown that hit the local investors, they are not being encouraged to increase their participation in the market, instead, they depend on foreign investors that when there is problem, they will offload their portfolio and that is why the market continue to slide.
Investors’ in the nation’s capital market have bemoaned the perpetual lull and free fall of share prices in the stock market, stating that some regulatory oversights, as well as government inability to articulate a policy blueprint that would stimulate economic activities is seriously taking its toll in the stock market.
The Chief Executive Officer, Financial Derivatives Companies (FDC) Limited, Mr. Bismark Rewane, has said that the current downturn in the nation’s capital market will likely be sustained in the near term. Rewane, who stated this at the FDC Economic Bulletin, said that the money market rates were already at an all-time low, adding that it was expected to see a creeping up of rates as the level of government borrowing increases.
“While the increasing inflationary trends will have investors worry about their returns, the major drivers of stock market activities will be macroeconomic uncertainties and likely further increases in US interest rates. Furthermore, expected Q4 earnings will be another determinant of stock market performance.
The bearish trend in the stock market is expected to continue in the near term. “Nigeria’s external reserves are below $29bn. The anticipated adjustment in the exchange rate band is expected to slow down the rate of depletion, as the demand pressure eases. However, with oil prices still soft at $37pb, the likelihood of an accretion is slim,” he said.
Rewane projected a headline inflation of 9.5 per cent for December 2015, marginally higher than the 9.4 per cent recorded in November. “This will rank Nigeria as the country with the 12th highest inflation rate in Africa.
The 0.1 per cent increase estimated in the consumer price index is consistent with the moderate uptick recorded between November and December in both 2013 and 2014. “It will be the highest level since February 2013. Inflation rate increased nine times out of the 12 months in 2015. Is this rising inflationary trend transient or structural? Though the inflation rate may not be totally transient, a consistent but transient trend becomes self-fulfilling over time,” he said.
