2016: It’s intrigues, struggles for Nigeria’s economy

Year 2016 has indeed been a difficult one for the Nigerian economy as most indicators ended in negative note. DAVID AGBA reports

Year 2016 has indeed been turbulent for Nigeria’s economy as it suffered contraction all through. The nation’s gross domestic product (GDP) contracted by -0.36 percent in the first quarter and -2.06 percent second quarter 2016, further sinking into recession with -2.24 percent GDP in the third quarter of 2016, figures from the Nigeria’s National Bureau of statistics showed.

Experts have predicted that the fourth quarter of 2016 data is unlikely to be different.
“Nigeria’s Q3 GDP contraction was largely caused by declines in oil and manufacturing sectors’ outputs, down by -22.1 percent and -4.38 percent respectively. This reflects the continued foreign exchange shortages and sub-optimal crude oil output due to attacks on oil facilities in the Niger Delta,” said Rislanudeen Muhammad, an economist.
During the year under review, inflation peaked at 18.48 percent, the highest in over half a decade amidst rising interest rates which largely oscillated between the band of 24 percent and 30 percent.
For over half of the year, the Central Bank of Nigeria (CBN) maintained the lending rate or monetary policy rate (MPR) at 14.00 per cent amidst widespread calls for lowering of interest rates to simulate borrowing in a recessed economy.
Also for half of the year, the CBN maintained CRR at 22.5 per cent; Liquidity Ratio at 30.00 per cent; and the Asymmetric Window at +200 and -500 basis points around the MPR.

The apex bank argued that it kept the interest rate high to attract foreign capital (forex) into the Nigerian economy to stimulate local production/economic activity saying with higher interest rate, it would be lucrative enough to attract investment. But it does appear high interest rate alone wasn’t a good enough incentive as even the CBN acknowledges the capital inflows was disappointing. The CBN said in November that the total foreign exchange inflows through the CBN decreased by 31.85 per cent, from $1,404.84 million in September to $957.37 million in October 2016.
When the CBN announced a flexible exchange regime at the May 2016 Monetary Policy Committee (MPC) meeting, after 16 months of stiffness, businesses were excited hoping that would be the end to forex scarcity. But that hasn’t happened and would drift into 2017 as the country’s dollar earnings plummet in an environment of small forex inflows from investors.

Analysts at Afrinvest Limited, a Lagos-based investment advisory firm said, investors are still not as excited about the Nigerian market thus their apathy investing in spite of impressive lending rate that has been at 14 percent for four months and still counting.
It would be recalled that immediately the flexible FX regime was introduced, the CBN cleared all the backlog of about $4.02 billion pent-up demand through spot and forward sales with the Naira exchanging at 280 to the US dollar, at the time.
The Ag. Director Corporate Communications of the apex bank, Mr. Isaac Okorafor, had said in a statement that “the “CBN intervention in the market was in line with its desire to promote a transparent, liquid and efficient market, and in order to engender market confidence and ensure credible price formation,” but commitment has still inspired the market. Perhaps it would inspire in 2017.

In spite of that intervention, the market is still largely not liquid enough to wade off panic and put currency hoarders and speculators out of business. The CBN governor, Mr. Godwin Emefiele, had announced during the MPC meeting in May 2016 that the speculators would be out of business with the flexible FX regime, but rent seekers are still smiling to the banks as arbitrage persists while the naira suffers. The naira has continued to fall both at the interbank market and the parallel markets. Worst still, the gap between the interbank market and parallel market is so huge thus festering speculators. While the dollar sells at N305 at the CBN, and some N365 at the interbank market, its goes for about N500 at the street markets. The wide gap in rates has made millionaires as some Nigerians now only buy and trade in dollars.
The goings on in the economy also impacted deposit money banks as many banks struggled to break even. Reports suggest that many banks had their capital adequacy ratio impaired.
“With the Nigerian economy in recession, even naira loan repayments are becoming difficult. This poses the risk of worsening non-performing loans, already at 11.7 percent; above 5 percent CBN maximum risk tolerance level per recent CBN June 2016 financial stability report,” said Mohammad.
Also within the year, the CBN banned sales of forex to BDCs as part of measures to reduce the pressure on the nation’s foreign reserves. The banks also limited access to foreign transactions using the naira debit cards advising customers to use dollar or pounds debit cards. They also limited ATM forex transactions to $100.
Also within the year, CBN  licensed 11 new international Money Transfer Operators (IMTOs) to do business in the country’s foreign exchange market.

The spokesperson of the bank, Isaac Okorafor, had said the licensing was in furtherance of the regulator’s effort to liberalise the market and ensure liquidity by making foreign exchange more readily available to low end users.
Consequently, the CBN permitted BDCs to access forex from IMTOs.
It would also be recalled in a circular dated July 22, 2016 titled ‘Sale of Foreign Currency Proceeds of International Money Transfer Operators’, the CBN said the BDCs can access forex from international money operators. They were previously not allowed by CBN regulations.
The Anchor Borrowers Programme of the CBN gained traction as farmers witnessed huge harvests. Then CBN said the programme enhanced rice yield in excess of one million metric tones in N2 billion investments.
Also, remittances from Nigerians living abroad into the country hit $35 billion in 2016.
During the year under review, the federal government declared that henceforth, all Departments and Agencies (MDAs) of government must submit their budgets to the National Assembly for approval, this was announced via a new set of stringent policies aimed at checking revenue leakages in the MDAs.

Agencies that defile the new directive shall forfeit its budget for the year and be restricted to only payment of salaries until their budget is regularized.   Minister of finance, Mrs. Kemi Adeosun announced the new policy measure adding that, the new measure is backed by executive order of Mr. President.
The offences of the agencies, according to the Minister, include non–remittance and under-remittance of operating surpluses due to the Consolidated Revenue Fund account, operating without an approved budget; overstating of budget and spending above budgeted amount; under reporting of revenues; making payments without invoices and absence of payment receipts.  Other breaches committed by identified agencies are,   over payment of staff salaries and abuse of personnel grants and Payroll fraud and exaggeration of payroll costs among others.
She added the     recovery committee chaired by the Auditor General of Federation, Idris Ahmed is mandated to collect     outstanding N450 billion operating surpluses.
With the way things are going in the country, especially as 2016 winds down, the federal government has not put in place an economic blueprint that will move the country out of recession.

It is trial and error style that heralded this administration.
Fuel sells for N145 per litre, a bag of rice sells for about N20,000, Nigerians are still battling with estimated billing system in terms of power supply and consumption, the general prices of food items skyrockets daily, while the income level remains constant, the Naira exchanges for about $450 per Dollar, to mention a few.
Meanwhile, before the hike in the price of fuel, the government promised palliatives to ameliorate the hardship that will follow. But way down the line, there is nothing that looks like palliatives.
2017 looks bleak as observed by some analysts, moreso, as the government keeps rescinding on its campaign promises. However it is hoped that with over N7 trillion budget for 2017 and oil selling at about $55-$60 per barrel, there may be light at the end of the tunnel.