The Managing Director of Cowry Asset Management, Mr. Johnson Chukwu has said that a positive growth in agriculture, a positive growth in oil and gas as well as a positive growth in manufacturing will eventually take the Nigerian economy out of the current recession.
Speaking in an interview with Primetime Reporters in Lagos, Chukwu explained that getting out of recession simply mean that in a single quarter, the Gross Domestic Product (GDP) growth rate turned positive adding that that would not be too far from now.
“If you look at the major factors that we had in the GDP that led to the contraction, one which is oil and gas which accounts for between 15 and 16 million of the GDP, in the third quarter, oil and gas contracted to about 22% and in the fourth quarter, oil and gas contracted to about 17%. So, I want to believe that with the level of production we are having now and in price, we should have a growth in the oil and gas sector but even if we don’t have any growth, the contraction will be marginally stable this time around.
“If we do not have the level of contraction in oil and gas and the supply of FX to the economy leads to the improvement in the manufacturing activities because manufacturing accounts for between 9% and 10% of the GDP, agriculture has already remained positive and we have seen gradual improvement in the financial services industry in terms of GDP performance. So, if you have positive growth in agriculture and we have a positive growth in manufacturing and positive growth in oil and gas, you will have the economy come out of recession”, he submitted.
On what was responsible the gain recorded by the nation’s currency against major currencies in the world, he attributed the development to the change in policy made by the Central Bank of Nigeria to supply Dollar to an invisible sector of the demand market.
According to him,” Like I have always said at different for a, the demand for FX for invisible purposes is almost inelastic because they are demands out of necessities of life. For people who are sending their children overseas for schooling, irrespective of the exchange rate, they are going to sell their properties to pay their children’s school fees. For those who have medical challenges and the only place they can get medical attention is abroad, they will see anything on earth to buy dollar at any rate.
“So, by taking out those two critical elements of demand from the parallel market, we saw an appreciation in the exchange rate. But subsequently, what has happened was that when the appreciation gets to a certain level, those who have unmet demand for visible trade will bring back their demand to the parallel market. Therefore, a lot of people who have letters of credence that are not negotiated, debt obligations that have not been paid, opened account that they need to pay, who have been waiting for CBN to open official window at a certain exchange rate at the parallel market, they considered the parallel market as a substitute to the official market and because they did at some point got to that level, the demand from visible trade segment came into the parallel market and then that was why we saw some depreciation in the exchange rate”.
On whether or not the injection of dollars into the system will be sustainable, the Cowry Asset Management Limited boss replied,” what I will say is this, if we maintain the peace in the Niger-Delta and our production is close to 2 million and the oil price remains above $50, we should be able to earn enough to meet our current demand for FX and with that, we are not going to run into crisis. A crisis will be as a result of depletion in the reserve occasioned by the fact that we are spending more than we are receiving. But if we have an improvement in crude production like I said, oil price remains in our favour, then we are not going to see any major erosion in the reserve”.
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