2016 will go down in
history as one of the most challenging years for the Nigerian economy and the
citizens alike. From countless job losses, closure of businesses to
shrinking
imports, the environment remained unfriendly.
As global crude
prices maintained a downward slide from January, dwarfing 2015 records, the
development hurt the N6 trillion 2016 budget as the government had pegged the
oil benchmark at $38 per barrel. But it crashed to an all-time low of $25 per
barrel, throwing the managers of the Nigerian economy into a constant panic.
The Federal
Government came under pressure to seek alternative revenue sources to reflate
the economy. Creative thoughts led to strengthened tax collection mechanisms,
massive investment in the agriculture value chain, investment in key
infrastructure, plugging revenue leakages, cutting down waste by abolishing
unnecessary foreign trips and using technology to unearth ghost workers, among
others. These have laid the foundation on which the government and private
sector hope to rebuild the economy.
The crash in crude
oil prices and the abysmal reduction in imports, obviously ruptured the
nation’s economic life raft.
Consequently,
without any contingency and rescue plan, amid depleted reserves, Nigeria was
thrown into its worst economic crisis in more than 20 years. Minister of Finance, Mrs. Kemi Adeosun, and
the Governor of the Central Bank of Nigeria (CBN), Godwin Emefiele, were forced
to accept that the country was in recession after the National Bureau of
Statistics (NBS) reeled out indisputable figures to show the economy contracted
in the first, second and third quarters of the year. The nation’s Gross
Domestic Product (GDP) contracted by -0.36 per cent in first quarter and -2.06
per cent in second quarter, further sinking into recession with -2.24 per cent
GDP in third quarter of 2016, statistics from the NBS revealed.
The contraction
worsened by more than expected in Q3, driven by a contraction in the oil
sector, which is the country’s largest source of revenue. The non-oil sector
posted flat growth in Q3 after contracting for two consecutive periods.
According to a
seasoned Economic Analyst and official of the Nigerian Institute for Fiscal
Studies (NIFS), Abuja, Rislanudeen Muhammad, Nigeria’s Q3 GDP contraction was
largely caused by declines in oil and manufacturing sectors output.
“They were down by
-22.1 per cent and -4.38 per cent respectively. This reflects the continued
foreign exchange shortages and sub-optimal crude oil output due to attacks on
oil facilities in the Niger Delta,” he explained.
According to the
NBS, 1.7 million jobs were lost to recession in 2016 with unemployment rising
from 9.48 million at the beginning of the year to 11.19 million by September
30.
The bureau also
revealed that while employed number of Nigerians rose marginally from 69
million at the beginning of the year to 69.47 by September 30, the number of
job hunters rose by 2.18 million from 78.48 million to 80.66 million.
The NBS also
revealed that unemployment was highest for those in 15-24 and 25-34 age
brackets representing the youth population in the labour force; while
unemployment and under employment were higher in women than men. Also in 2016, inflation peaked at 18.48 per
cent, the highest in over half a decade amidst rising interest rates, which
oscillated between 24 and 30 per cent.
For more than six
months, CBN maintained the lending rate or Monetary Policy Rate (MPR) at 14 per
cent amid calls for lowering of interest rates to simulate borrowing.
For over six months,
the apex bank maintained the 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 said
it kept the interest rate high to attract foreign capital (forex) into the
Nigerian economy to stimulate local production/economic activity, adding that a
higher interest rate would be attractive enough to rake in needed investments
to reflate the economy.
The CBN’s
permutations on the interest rate seemed not to have been sufficient incentive
as the apex bank itself acknowledged the capital inflows were below
expectation.
The CBN said in
November that the total foreign exchange inflows through its corridor decreased
by 31.85 per cent from $1,404.84 million in September to $957.37 million in
October 2016. Also, remittances from Nigerians living abroad into Nigeria hit
$35 billion in 2016.
Analysts at
Afrinvest Limited, a Lagos-based Investment Advisory firm, said investors were
still not as excited about the Nigerian market, which explains their inertia in
investing despite the impressive lending rate that has been at 14 per cent for
over four months running.
According to experts
at Focus Economics, a leading provider of economic analysis and forecasts for
127 countries in Africa, Asia, Europe and the Americas, forward-looking
indicators from Q4 show that business confidence surged to a 10-month high
while the manufacturing Purchasing Managers Index (PMI) improved but remains in
contraction. The output-cut agreement reached first by Organisation of
Petroleum Exporting Countries (OPEC) in late November and on December 10 OPEC and non-OPEC members should give
Nigeria’s beleaguered economy some breathing room since the deal exempts the
country from cutting production.
The economy,
according to them, is expected to rebound in 2017 after contracting for the
first time in over two decades in 2016.
The recovery,
however, will be fragile. Tight liquidity conditions, capital controls and
further militant attacks could dampen growth prospects. Also within the year,
the CBN banned the 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 $100.
The Acting Director,
Corporate Communications of the apex bank, Mr. Isaac Okorafor, had said in a
statement that, “the CBN intervention in the market was in line with its desire
to promote a transparent, liquid and efficient market, and in order to engender
market confidence and ensure credible price formation,” he noted.
However, CBN’s
intervention and other economic relating strategies, the market is still
largely not liquid enough to ward off panic and consign currency hoarders and
speculators into dumpsite of history.
For the first time
in the history of the country, there are 11 different dollar exchange rates in
a single economy. Pilgrims rate is
N197/$, Customs N285/$, budget rate is N305/$, interbank is pegged at N315/$,
fuel imports rate is N316/$ and international card rate is N319/$. Others are:
Travelex rate, N345/$, special funds for airlines, N355/$, Western Union,
N375/$, BDC, N399/$, and black market rate N488/$.
The ubiquitous rates
have created scores of lazy millionaires whose main preoccupation is buying and
reselling dollars.
Also within the
year, CBN licensed 11 new international money transfer operators (IMTOs) to do
business in the country’s foreign exchange market.
Dollar scarcity
remained a nightmare in 2016 despite CBN’s announcement of a flexible exchange
regime at the May 2016 Monetary Policy Committee (MPC) meeting, which ended a
16-month stiffness.
While businesses
were excited and hoped it would be the end to forex scarcity debacle, succour
has not come their way and there are pointers that the dollar scarcity headache
will not subside in early 2017 as forex inflows remain small.
Recall that
immediately the flexible forex 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 N280 to the US dollar at the time.
While encouraging
exports and self-sufficiency in rice production, the CBN’s Anchor Borrowers
Programe gained steam. Many states keyed into the programme with N16 billion so
far spent on the project. The results have started streaming in with rice
prices crashing from N24,000 to N12,000 in some states.
With more states
indicating interest in 2016, CBN expressed optimism that self-sufficiency and
exporting of rice may be achieved in 2017.
Panelists
participating in the Focus Economics Consensus Forecast projected that the
economy would grow at 1.4 per cent in 2017, which is down by 0.5 per cent from
last month’s forecast. They foresee a 3 per cent expansion in 2018.
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