The Managing Director, Cowry Asset Management Limited, Mr. Johnson Chukwu has said that the Nigerian economy in the current year, 2017 will not be as bad as that of 2016 even as he encouraged Nigerians to expect some level of improvement in the economy this year.
Chukwu who made this disclosure in an interview with our correspondent in Lagos last week noted that some factors were already pointing to that reality as he said that the nation’s external reserve had gone back to about $28.9 billion as well as a noticeable a improvement in the price of crude which according to him was a very critical element in Nigeria’s economic wellbeing.
He explained that with the price of crude oil now hovering around $55 and above and with the expectation that the federal government would be able to reach some level of compromise with the Niger-Delta militants, there could be an improved production of crude which in turn would translate to better economy in 2017.
According to him,” Well, if you ask me, I want to believe that this year is not likely going to be worse than last year, head or tail, we should expect some level of improvement. Some of those factors are already obvious, we are seeing that the reserve had gone back to about $28.9 billion, but most importantly, we are seeing an improvement in the price of crude which is a very critical element in Nigeria’s economic wellbeing. We have seen crude trading about $55 and above. We also hope that this year, the government will be able to reach some level of agreement with the Niger-Delta militants so that we can improve production. So, if we improve production with the hope that crude will remain at $55 per dollar we will just be fine.
“So, I do not think that this year’s situation will be worse than that of 2016 rather we should see some level of improvement. Already, the IMF has started predicting 1.5% growth in 2017 for Nigeria”.
On actions coming from the federal government so far to suggest that it was already on its toes to better the economy in 2017, he said,” For a start, the National Assembly had approved the Medium Term Expenditure Framework, the budget is being debated. If you cast your mind back, the budget for 2016 was approved in May 2016, then we are seeing the likelihood that the budget may be passed into law and signed into law by February 2017. That will be improvement in timing. We saw a budget provision of N7.3 trillion, in dollar terms, that is a decline from $30 billion to about $24 billion but that notwithstanding, the Naira effect of the N7.3 trillion expenditure will be felt if the implementation starts on time and it is effective.
“So, the tool that the government has and the government also is saying that they are going to come up with many economic blueprints on what will trigger recovery in the economy. Most of these policies, the government had said are still in the works but the critical fiscal tool which is the budget is undergoing approval process and for me, the fact that part of the last year’s challenge was that we lost five months and we are not going to lose that five months, that already in itself an improvement”.
He however posited that the economy didn’t do well in 2016 as it started the first quarter with a contraction of 0.36%, 2.06% contraction in the second quarter and then 2. 44% contraction in the third quarter even as he said that it was an economy that ended the year with an inflation rate of 18.55%.
“We saw an economy that ended the year with the unemployment rate of 13.9%, we saw an economy which the exchange rate devalued from N197 per dollar that was the official rate to N305 and eventually at the parallel market we are talking about an exchange rate close to N500 per dollar, we saw an economy with the manufacturing PMI 44% which is the contractionary region. These are parameters that are all negative. So, in summary, all the parameters by which you measure economic performance showed that the economy did not do well in 2016”, he said.
On what the level of implementation of last year’s budget had been, he observed that although government officials had been parading some figures around to show that there were improvement in the implementation of the 2016 budget, not much had been felt by the man on the street as they expected to see constructions going on or fully completed.
He said,” But if you ask me, I want to believe that most of the money that had been released went into payment of arrears of debts that were owed contractors and therefore have not manifested in terms of new development. I want to believe that if they have cleared the arrears of debts, then subsequent expenditure will now be felt. But on the average, one will think that the implementation of the budget had not been so obvious to the man on the street”.
The Cowry Asset MD maintained that the inflation pressure witnessed in the past couple of months in the country was largely not driven by excess liquidity in the system adding that what the monetary policy authorities had done was that to jerk up rate and maintain them.
“For instance the MPR at 14%, cash reserve ratio at 2.5% and liquidity ratio has been put at 13% with the intendment that that will shore up liquidity in the system and reduce the pressure on the exchange rate but that has not been the case because the pressure we are seeing on inflation is coming from external challenges particularly the exchange rate and so, the moderation you are going to see in inflation this year will not be because the Central Bank adopted a contractionary monetary policies. It is just because of what you call the base effect, that the inflation rate last year were already high and since inflation is measured by year on year, by the time you get to May, where inflation rate for 2016 was about 15.6% , the increment beyond that 15.6% will be minimal, we may see the inflation rate moderating to lower level, a little above 10% but it is not because of contractionary policy, it will be because we are already having, we will be seeing in this current year, a high base effect on the inflationary trend”, he stated.
He therefore advised Nigerians to be conscious of the fact the challenges were not over yet thereby urging them to prepare for a bumpy ride especially as there would be pressure on the price level particularly as it relates to the prices of refined petroleum products.
“The government will be forced to review the pump price of petroleum products and that will have a negative effect on the income of Nigerians. But having said that, I want to believe that every other factor, all thing being equal, we should have an economy that will be in the recovery trajection unlike what we had last year that was on the contractionary trajection”, he concluded.
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