Rising incidence of protectionism, rising global interest rate, increasing global debt levels and vulnerabilities in emerging markethave all combined to affect Nigeria’s economy. But the Central Bank of Nigeria (CBN) says it’s not relenting as its outlook for 2019 has shown; BENJAMIN UMUTEME reports.
As we approach the end of 2018, a number of recent developments on the global scene have noticeably impacted outcomes and outlooks especially in emerging market economies including Nigerian.
These include: Rising global interest rate due to sustained tightening stance in advanced economies, rising incidence of protectionism, nationalism, and anti-globalisation, especially in the western hemisphere, and the uneven growth of the global economy accompanied by a tepid short-term outlook.
These have likely implications for the Nigerian economy; and in other not to be dragged back into the dungeons of recession, Nigeria’s monetary authorities, the CBN have been making projection for fiscal year 2019.
Speaking at the annual dinner of the Chartered Institute of Bankers of Nigeria (CIBN), the CBN Governor, Godwin Emefiele, noted that “given the structure of the economy, the Apex Bank’s attention is primary focused on three factors, including rising trade tensions between the US and China could taper global growth, and by extension demand for commodities such as crude oil.”
“How to ensure that the economy is insulated from the adverse consequences facing emerging and frontier markets, due to rising rates in the United States; the likely impact on the crude oil market from the sharp rise in US oil production, which currently stands at 11.7 million barrels per day and is likely to rise to over 14 million barrels in two years?
“As you may recall, Nigeria’s political-economy experienced significant challenges over the last few years revealing it’s structural deficiencies particularly with regards to its dependence on
crude oil, as a major source of its revenue and foreign exchange, as well as over dependence of our people on imported items even when these goods could be produced locally. The 60 per cent decline in crude oil prices between 2015 and 2016 helped shape the trajectory of our economy, ultimately triggering the economic recession in Q1 of 2016.”
Outlook, policy thrust for 2019
Global growth projections both for 2018 and 2019 have been revised downward to 3.7 per cent from the 3.9 per cent earlier projected.
Growth momentum in the USA is projected to remain strong as fiscal stimulus continues into 2019. In emerging markets, growth forecasts for Argentina, Brazil, Iran, Turkey, and South Africa have been revised downward reflecting country-specific factors, uncertainties in the financial conditions, and rising geopolitical tensions as well as higher oil import bills.
In light of the current developments in both the global and domestic economies, and based on extensive simulations, the CBN boss believes that the short-term outlook of the economy remains good.
“We expect that monetary policy stance will remain judicious, research driven, adequate and supportive of the real 36 economy subject to underlying fundamentals.
“The current tight stance is expected to continue in the near-term, especially in view of rising inflation expectations and Exchange market pressures. Though we will act to appropriately adjust the policy rate in line with unfolding conditions and outlooks, the CBN will continue to ensure that the policy interest rate is delicately set to balance the objectives of price stability with output stabilization,” Emefiele said.
With favorable oil price developments and continued efforts at driving indigenous production in high-impact real sector activities, especially agriculture and manufacturing, GDP is expected to pick-up in the remaining two quarters of 2018. This will be buoyed by the anticipated budgetary and electioneering spending in the near-term.
From 1.5 percent in quarter two of 2018, growth is projected toquicken to 1.7 per cent in quarter three and 1.9 by the fourth quarter.
Inflation expectations are rising on the backdrop of anticipatedpolitically-related liquidity injections. For the rest of 2018 and towards mid-2019 Nigeria’s rate of inflation is projected to rise
slightly to about 11.4 per cent and then moderate thereafter.
Though the CBN has so far managed to maintain exchange rate stability, the current capital flow reversals from emerging markets is expected to continue to exert considerable pressure on market rates.
This pressure could be amplified by the forthcoming elections, especially as the political market place heats up. Notwithstanding these pressures, Emefiele said the CBN is determined to maintain its stable exchange policy stance over the next few months given the relatively high level of reserves. Gross stability is projected in the FX market given increased oil related inflows and contained import bill, “sustaining a stable exchange rate is of overriding importanceto us even as we continue to put measures in place to shore up reserves”
Balance of payment
Overall our balance of payments is expected to remain positive in the short-term. Hoping that oil prices continued to recover, we expect the Current Account Balance to strengthen even further. This will be supported by improved non-oil performance as diversification efforts begin to yield results to reduce undue imports.
Supporting domestic production
Given the remarkable success that has been achieved in stimulating domestic production of goods such as rice, cassava and maize, as a result of the restrictions placed by the CBN on access to forex for 41 items, the CBN intends to vigorously ensure that this policy remains in place, and additional efforts would be made to block any attempts by unscrupulous parties (both individuals and corporates) that intend to find other avenues of accessing forex, in order to import these items into Nigeria.
He noted: “The CBN’s Economic intelligence and Banking Supervision Departments will work very hard with the EFCC to expose and sanction any, bank, company or FX operator that colludes with unscrupulous individuals/companies to undermine the policy on 41 items. Such sanctions will include, but not limited to prohibiting the banks from maintaining any bank accounts for such institutions or persons in Nigeria.”
Given the global and domestic headwinds Nigeria faces, and the volatility that is being experienced in the crude oil market, there is no other option, as leaders interested in the progress of this country, but to work very hard to spur job creation by reviving agricultural and industrial activities in the country.
If the country continue to support the growth of small holder farmers, as well as help to revive palm oil refineries, rice mills, cassava and tomato processing factories, you can only imagine the amount of wealth and jobs that will be created.
“These could include new set of small holders farmers that will be engaged in productive activities; new logistics companies that will transport raw materials to factories, and finished goods to the market; new storage centres that will be built to store locally produced goods; additional growth for our banks and financial institutions as they will be able to provide financial services to support these new businesses; and finally, the millions of Nigerians that will be employed in factories to support processing of goods.
“If we turn a blind eye to the opportunities that are being created as a result of our policy on 41 items, we will be spelling doom for our nation. We can no longer afford to depend solely on imports given the size of our population, and the need to create jobs for our people. This is precisely the purpose behind our intention to restrict access to forex on 41 items, and I urge all stakeholders to 41 come onboard, as we intend to be vigorous in our pursuit of this objective,” he further said.
The Bank will explore the possibility of leveraging technology to enhance credit to critical sectors of the economy, especially, agriculture and manufacturing. The Bank’s policy to refund portions of Credit Reserve Ration (CRR) to banks that are financing new projects (or expanding existing ones) in agriculture and manufacturing sectors will be intensified and enriched in the coming years as it will bolster job creation while “supporting our agenda to correct Nigeria’s imbalances and vulnerabilities.”
Open to foreign investors
As the monetary and fiscal authorities continue to work tirelessly to support the recovery of the economy, it is important to acknowledge some of Nigeria’s enduring strengths, which offer significant rewards for current and prospective foreign investors. Notwithstanding the impact of the recession, Nigeria’s economy remains the largest in Africa by the size of its GDP, with a very well diversified mix of opportunities across different sectors, such as ICT, manufacturing, solid minerals, trade and agriculture.
“The Central Bank and indeed the federal government is open to foreign investors who are keen to support our efforts at unlocking the immense opportunities in our economy, knowing that it offers mutual gains to both the investors and the nation. Investors can be assured that their investments in Nigeria would be duly protected by the authorities, as we are fully aware of the various advantages they can provide to our economy in terms of capital and technological know-how. We hereby re-affirm our commitment to investors that Nigeria is indeed open for business,” the helmsman of the banking sector regulator further said.