Steady as it goes

By Rafiq Raji, PhD

It would be recalled in my column of 3 January 2017 (“Will Nigeria get out of recession in Q1-2017?”), I suggested Nigeria would likely get out of recession in the first quarter of this year. After the vindication of my 2016 1.5 percent growth contraction forecast, one feels more confident that this would likely be the case: at least my clients should be, after worries back then that such a view seemed somewhat optimistic. Authorities have also joined their voices to this possibility. My reckoning is that economic growth would be between 1-3 percent year-on-year in Q1; albeit my actual forecast is closer to 3 percent than to 1 percent. Yes, I am an optimist. Subsequently, I reckon the conversation, amongst ever so many pundits these days, would shift to whether technically getting out of a recession is the same as being out of recession in reality. No matter. What is more important is that once out of recession, stakeholders in the Nigerian economy would have their ‘mojo’ back: confidence is contagious.

Commentary since the release of the authorities’ economic recovery and growth plan (ERGP) has been mixed though. Some say it reads like a self-motivational book. If it does and in fact motivates the relevant stakeholders, that might not be such a bad thing. Others suggest the forecasts and goals are a little ambitious, considering the short timeframe and all. Well, better a plan than none at all. And yes, those who say the document was poorly drafted have a point. But that is the extent of our agreement. There is nothing in the ERGP that is farfetched. The problem has never been one of plans – and there have been better ones than this current one – but that of political will.

So as the Nigerian economy turns a corner, especially as much of its woes hitherto were policy induced, it behoves Nigeria’s monetary authorities to at least ensure nothing is done to upset the recovery. And the recent dip in headline inflation – which fell to 17.8 percent in February from 18.7 percent the month before – heartwarming as it is, should not spur even the slightest consideration of lowering interest rates; benchmarked currently at 14 percent. To do so would be premature, at this time. Firstly, prices continue to accelerate intensely: monthly inflation was 1.5 percent, the highest in eight months; not even the opportunistic price increases during the festive December and January months were enough to push the month-on-month inflation rate that high. But is year-on-year inflation going to continue on a downward trend? Almost certainly, yes.

Uhuru, uhuru
Crude oil prices, have remained by and large above US$50, boosting the central bank’s foreign exchange reserves: the level beat the $30 billion mark in March. In turn, the Central Bank of Nigeria (CBN) has ramped up FX supply. The naira has appreciated in the black market consequently, narrowing the premium to the official rate by a bit. But is it sustainable? Quite frankly, it all depends on the crude oil price outlook. If oil prices continue to rise, the CBN would be able to continue defending the currency. Are oil prices expected to continue on an upward trend? Most of the indicators suggest this is likely. Compliance by OPEC members to production cuts announced at their last meeting has been encouraging, with Saudi Arabia going the extra mile, cutting its output by more than it promised. And non-OPEC members have been reasonably compliant as well, fulfilling about half of their production cut commitments. Besides, there is a surfeit of dollars in domicilliary accounts: banks are reportedly now pushing dollar sales to avoid losses.

Needless to say, the CBN’s recent aggressive FX interventions have begun to unnerve speculators – from the average bank customer to the big corporate – who hitherto were expectant of a devaluation. And despite suggestions in the ERGP of an eventual free-floating exchange rate, this is not likely. Not only would support for the naira likely continue, FX bans on about 41 imported items would likely remain. This much, CBN governor Godwin Emefiele, asserts. Besides, having held on to its unpopular FX policies during the period of sub-$50 oil, it would be almost irrational for it to now change course at just the point it could claim victory.

Hunger games
Indications are that the ailing Nigerian leader, Muhammadu Buhari – recently returned from a 7-week medical vaction in England and soon to return for another round of medical checks and probably routinely thereafter – would not be able (or allowed) to run for a second term in office. Violent incidents, leaks of private correspondence to the press, and all sorts of mischief are already about to ensure that this is the case. President Buhari’s health condition is enough reason for him to take a bow after he concludes his first term. Those gunning to replace him are not taking any chances, however. The problem is that there are many potential candidates – most in middle age – from the north, the region expected to keep the presidency for eight years to 2022 at least. May the odds be ever in our favour.

Also published in my BusinessDay Nigeria newspaper column (Tuesdays). See link viz. https://www.businessdayonline.com/steady-as-it-goes/

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