Will Nigeria get out of recession in Q1-2017?

By Rafiq Raji, PhD

I think so. The headline growth figure is a year-on-year metric. Surely it is not unreasonable to reckon the economy would do better this quarter than it did during the same period last year. Q1-2016 was awful. Q1-2017 is not likely to be as bad. Thus, intuitively, on a year-on-year basis, the headline should be positive in 2017 because of a likely lower base.

Agricultural production, which is at least a quarter of GDP, is almost definitely set to expand above trend; principally driven by crop production. The agriculture sector grew 4.5% year-on-year (y/y) in Q3-2016, faster than the 3.5% y/y growth for the same period in 2015. Besides, there is anecdotal evidence to support likely better growth this year. For instance, the All Farmers Association of Nigeria (AFAN) says its members recorded a bumper harvest in the fourth quarter of 2016, confirming earlier comments by Nigeria’s president, Muhammadu Buhari. Not only that, farmers sold their produce at better prices in the most recent season, due to relatively higher demand, especially from manufacturers forced to backward integrate, as hitherto imported inputs have become difficult to acquire due to foreign exchange restrictions by the Central Bank of Nigeria (CBN).

But perhaps the main catalyst would be the Anchor Borrowers’ Programme (ABP) by the CBN. With about 40 billion naira in funds, the ABP has been providing loans to farmers at a single-digit interest rate of 9 percent. There have been some quick-wins already: beneficiaries’ progress in rice production is palpable at least, with about 1.1 million metric tons produced in one of the pilot states alone. There is currently about a 4 million metric ton local rice supply deficit. With the ABP and other incentives by the authorities, hopes are high that Nigeria may be able to meet total local demand for rice by 2018, potentially saving the country about $1.8 billion in foreign exchange currently used to import about 3.2 million tons of the staple food annually. Interventions for other crops are also ongoing.

The oil and gas sector, about 10 percent of GDP, would probably also recover. Crude oil prices are expected to remain above $50 per barrel for most of 2017, having closed at about $57 last year, after the decision by OPEC and non-OPEC members to cut production boosted prices. And thankfully, the authorities have been engaging with stakeholders in the restive Niger Delta region to stem disruptions to crude oil production from attacks on pipeline infrastructure. Crude oil production was as low as 1.4 million barrels per day (mbpd) – from above 2 mbpd hitherto – during the height of attacks last year. It is reasonable to expect there wouldn’t be as many attacks this year. That is, if President Buhari remains consistently conciliatory, after extending another olive branch to the militants in his New Year message.

Authorities need to act faster though
Many had hoped the authorities would fully launch their get-out-of-recession plan – the Economic Recovery and Growth Plan (ERGP) – before end-2016. I am still at a loss as to why Mr Buhari only gave highlights of the ERGP in his 2017 budget speech. There is a consistency I’m afraid in the Buhari administration’s disregard for the value of good timing. Businesses would have been more assured if the full details of the ERGP had been released together with the fiscal plan, as it would have fed into their 2017 business plans. With gaps likely now remaining in their plans for the year, they would necessarily be a little cautious. For instance, authorities recently announced increases in import duties on consumables like rice, sugar cane, salt, alcoholic spirits and luxury goods like SUVs and yachts, but reduced those on some key industrial inputs. One top executive wondered whether the measures would have a significant impact on inflation. I don’t reckon they would as much. This is because the said items do not represent a significant portion of the consumer price index (CPI) basket of goods and services, about 75 percent of which are food, non-alcoholic beverages, transport, housing and utilities. Imported rice is already being avoided because of a supposed ‘fake’or ‘plastic’ (synthetic) variety in circulation. Besides, most of the other items, including rice, are already being smuggled in. And as earlier highlighted, local rice production has increased. In any case, imported food constitutes only 13.3 percent of the CPI.

But the cogent issue is much more than that: are there other upcoming government policies that businesses should worry about? Releasing the details of the ERGP on time would provide some relief to business executives, who have been somewhat in a state of flux during this year’s planning season. They already have to worry about the recession, exchange rate and inflation. Without a doubt though, their greatest source of frustration is the acquisition of foreign exchange. Not only are there multiple exchange rates, there never seem to be enough FX in any of the markets. And with Mr Buhari only recently vowing (yet again) to resist further devaluation of the naira, the wide price differential between the official and non-official markets would probably remain, albeit the Central Bank of Nigeria (CBN) should have relatively more firepower to support the naira as crude oil prices recover. (Not that it should in a supposedly liberated FX market.) But surely, it would help a great deal if in addition to all these, businesses didn’t have to worry about potentially unfavourable government policies later in the year. They wouldn’t have to if the authorities would just lay them all out. On time.

Also published in my BusinessDay Nigeria newspaper column (Tuesdays). See link viz. https://www.businessdayonline.com/will-nigeria-get-recession-q1-2017/

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