Re­ces­sion: fear of job losses height­ens

Daily Trust - - BUSINESS -

The Cen­tral Bank of Nige­ria (CBN) Gover­nor, God­win Eme­fiele, didn’t mince words af­ter last month’s mon­e­tary pol­icy meet­ing (MPC) that the coun­try’s econ­omy may re­cede in 2016, if no ad­di­tional proac­tive fis­cal mea­sures are in­tro­duced by the yet-to-be con­sti­tuted Eco­nomic Man­age­ment Team of the Pres­i­dent Muham­madu Buhari ad­min­is­tra­tion.

Gover­nor Eme­fiele said the warn­ing had be­come nec­es­sary be­cause of the fragility of the Nige­rian econ­omy as a re­sult of the slow growth in the first two quar­ters of this year.

Eme­fiele and the Bankers Com­mit­tee ex­plained that growth had come un­der se­vere strains aris­ing from de­clin­ing pri­vate and public ex­pen­di­tures in the coun­try.

Econ­o­mists have de­scribed re­ces­sion as a pe­riod of tem­po­rary eco­nomic de­cline dur­ing which trade and in­dus­trial ac­tiv­i­ties are re­duced, gen­er­ally iden­ti­fied by a fall in gross do­mes­tic prod­uct (GDP) in two suc­ces­sive quar­ters. Nige­rian eco­nomic an­a­lysts agreed with the CBN gover­nor say­ing, given the re­cent trend of the coun­try’s GDP per­for­mance, the worry about pos­si­ble re­ces­sion is jus­ti­fi­able.

The GDP rate de­clined from 6.23 per cent in the third quar­ter of 2014 to 5.94 per cent in the fourth. The growth rate fur­ther de­clined to 3.95 per cent in the first quar­ter of 2015 and 2.35 per cent in the sec­ond.

It is in the view of this fright­en­ing free fall of fig­ures, com­pounded by no hope in the short to medium term in rise of crude oil price on the in­ter­na­tional mar­ket, that there is vir­tual panic among the CBN gover­nor, the Bankers Com­mit­tee and eco­nomic an­a­lysts that the econ­omy ap­pears headed to a re­ces­sion un­less there is a dras­tic re­view in eco­nomic poli­cies, and more im­por­tantly, sin­cer­ity of pur­pose by ad­min­is­tra­tors in their im­ple­men­ta­tion.

The Di­rec­tor-Gen­eral of the La­gos Cham­ber of Com­merce and In­dus­try (LCCI), Mr Muda Yus­suf, iden­ti­fied a num­ber of fac­tors as re­spon­si­ble for the neg­a­tive trend.

Yus­suf said some de­gree of un­cer­tainty char­ac­ter­ized the econ­omy in 2015, an elec­tion year, and af­fected the tempo of eco­nomic ac­tiv­i­ties. The con­se­quences, he stated, have been ad­versely im­pact­ing on the gen­eral eco­nomic per­for­mance.

He, of course, men­tioned the price crash of crude, which, over the years, the coun­try’s ad­min­is­tra­tors have made Nige­ria’s main cash cow. The crash, the LCCI chief main­tained, can­not but af­fect fis­cal plan­ning in the ab­sence of vi­able al­ter­na­tives.

He fur­ther pointed at the un­cer­tainty of the pol­icy di­rec­tion of the cur­rent ad­min­is­tra­tion which, he said, has damp­ened the en­thu­si­asm of some in­vestors. He added that many of such in­vestors are wait­ing to have a clear un­der­stand­ing of the di­rec­tion.

To him, the CBN has, with its cur­rent for­eign ex­change con­trols and ad­min­is­tra­tive al­lo­ca­tion of for­eign ex­change, sig­nif­i­cantly dis­rupted many eco­nomic ac­tiv­i­ties and cre­ated ma­jor con­fi­dence crises for many do­mes­tic and for­eign in­vestors. This, he ar­gued, has neg­a­tively im­pacted on the tempo of eco­nomic ac­tiv­i­ties in the last two months.

Dr Ikechukwu Kelekume, a de­vel­op­ment economist with the Pan At­lantic Univer­sity, told our cor­re­spon­dent that the spec­u­la­tion over ex­pected re­ces­sion in the coun­try was borne out of the fact that the cur­rent gov­ern­ment has not ap­pointed min­is­ters who will help steer the na­tion’s eco­nomic di­rec­tion.

Said Dr Kekelume, “This spec­u­la­tion is caus­ing fur­ther volatil­ity in the stock mar­ket be­cause most in­vestors are won­der­ing how they can in­vest in the Nige­rian econ­omy when they are un­sure of gov­ern­ment’s pol­icy di­rec­tion. We can­not for­get that gov­ern­ment is the big­gest spender, but now gov­ern­ment is not spend­ing.”

The economist was em­phatic that pri­vate sec­tor per­for­mance in the first and sec­ond quar­ters of 2015 has been neg­a­tive.

“I have looked at 16 fast mov­ing con­sumer goods (FCMG) com­pa­nies and they are all record­ing neg­a­tive profit-af­ter-tax re­sults for the first and sec­ond quar­ters. What that tells you is that the econ­omy is in a cri­sis,” he added

Another point the MPC noted was that the Trea­sury Sin­gle Ac­count (TSA) im­ple­men­ta­tion and other re­cent fis­cal poli­cies the new ad­min­is­tra­tion in­tro­duced like the loans re­con­struc­tion for states and credit to the energy sec­tor - may en­dan­ger the Nige­rian econ­omy to the ex­tent of push­ing it to a re­ces­sion in 2016.

Eco­nomic watch­ers fear that the TSA could trig­ger huge job losses among banks and shrink their ca­pac­ity to lend to the real sec­tor.

Dr Dan Okehi, a fi­nan­cial an­a­lyst, ar­gued that the gov­ern­ment does not have to mop up all gov­ern­ment funds into the CBN to be able to fight cor­rup­tion.

The CBN, in its tight mea­sures to check in­fla­tion, had re­tained most of the key rates like the Mon­e­tary Pol­icy Rate (MPR) at 13 per cent and the liq­uid­ity ra­tio at 30 per cent, in ad­di­tion to re­duc­ing the Cash Re­serve Re­quire­ment (CRR) to 25 per cent from its for­mer level of 31 per cent, fol­low­ing its mop­ping-up of public sec­tor de­posits in com­mer­cial banks. The apex bank has, how­ever, early in the week pumped N740 bil­lion back into the banks to ease their liq­uid­ity prob­lem as the TSA ef­fects bite hard.

But Dr Okehi ar­gued the CRR re­duc­tion falls be­low in­dus­try watch­ers’ ex­pec­ta­tion as some felt the apex bank would move the cash re­quire­ment to a sin­gle digit level of 9 per cent

Bis­mack Ril­wane, an eco­nomic an­a­lyst posited, in sup­port of the TSA, that it should not be an is­sue be­cause the funds mopped up would be used to pay con­trac­tors and the funds would, in turn, find its way back to the com­mer­cial banks.

Dr Kelekume didn’t re­ally find com­fort in ar­gu­ments like Re­wane’s on the re­ces­sion out­look. “The drop in the sec­ond quar­ter GDP from 3.94 to 2.6 showed that our out­put is con­trast­ing and this is a prob­lem be­cause to­wards the end of 2015, there would be mas­sive job loss, so the time to act is now,” he warned.

An economist, Mr. Olawale John­son ad­vised that the gov­ern­ment should pay se­ri­ous at­ten­tion to CBN’s alert on likely eco­nomic re­ces­sion in 2016.

John­son was, how­ever, pos­i­tive that the na­tion’s econ­omy may re­gain its strength when Pres­i­dent Buhari’s min­is­ters fully swing into ac­tion.

He told our cor­re­spon­dent, “By the time min­is­ters, ad­vis­ers and all the nec­es­sary peo­ple that will work with the pres­i­dent re­sume we might have a bet­ter pol­icy that would drive the econ­omy.”

He be­lieved that though the in­tro­duc­tion of the TSA may not be an at­trac­tion to some gov­ern­ment of­fi­cials and, even may not be a plus to the econ­omy cur­rently, it would re­duce cor­rup­tion and ul­ti­mately, there would be enough funds for gov­ern­ment to de­velop the econ­omy.

John­son ex­plained that, “By the time gov­ern­ment sta­bi­lizes, the in­tro­duc­tion of the TSA will block all the leak­ages in min­istries, paras­tatals and agen­cies and money will flow when gov­ern­ment be­gins to em­ploy more peo­ple, and pays con­trac­tors for cap­i­tal projects.”

He added that CBN can be of help to gov­ern­ment in cre­at­ing poli­cies that will drive in­vest­ment in Nige­ria. “One of the CBN ob­jec­tives is to act as fi­nan­cial ad­viser to the gov­ern­ment and if it ad­vises gov­ern­ment on nec­es­sary steps to take and when to take them the re­ces­sion we are talk­ing about can be averted,” he main­tained.

A La­gos-based stock­bro­ker, Mr Tunji Wa­siu, said the TSA pol­icy is al­ready hav­ing its “pre­dictable ef­fects.”

He said liq­uid­ity is low in the bank­ing sec­tor and in­ter­est rates are es­ca­lat­ing and por­tend­ing lower in­vest­ments.

Say­ing for­eign in­vestors are di­vest­ing from the Nige­rian Stock Ex­change (NSE) and crude oil prices are likely to re­main low for the whole of 2016, Wa­siu sug­gested a so­lu­tion gov­ern­ment should con­sti­tute an eco­nomic team com­pris­ing the CBN, Se­cu­ri­ties and Ex­change Com­mis­sion, Min­is­ter of Fi­nance, Min­is­ter of In­dus­try, fi­nan­cial ex­perts and pro­fes­sional bod­ies “to work as­sid­u­ously and nip in the bud the im­pend­ing re­ces­sion.”

Also, Mr. Em­manuel Ben­jamin, a banker, be­lieved the CBN can re­verse the likely re­ces­sion. “What it needs to do is to work with gov­ern­ment and cre­ate an en­abling in­vest­ment en­vi­ron­ment for both for­eign and lo­cal in­vestors.

“If our man­u­fac­tur­ers can ac­cess easy and low rate funds from banks, there will be em­ploy­ment op­por­tu­ni­ties and the econ­omy will grow. The CBN doesn’t need to keep TSA money de­posited with it. What it needs to do is give it out to peo­ple to fi­nance and pro­pel busi­nesses that will grow our econ­omy,” Ben­jamin said. Amid the grow­ing con­cerns, the In­ter­na­tional Mon­e­tary Fund (IMF) while not dis­miss­ing the warn­ing, yesterday pre­dicted ‘a less deep re­ces­sion’ in 2016 for the Nige­ria.

The IMF, its ‘World Eco­nomic Out­look (WEO) re­port re­leased yesterday, ex­pects a par­tial nor­mal­iza­tion of con­di­tions in de­vel­op­ing coun­tries re­sult­ing from the stronger pickup in ac­tiv­ity in ad­vanced economies, and the eas­ing of sanc­tions on the Is­lamic Re­pub­lic of Iran.

Lower oil and other com­mod­ity prices, which although ben­e­fit­ing com­mod­ity im­porters com­pli­cate the out­look for com­mod­ity ex­porters, some of whom al­ready face strained ini­tial con­di­tions, in­clud­ing Rus­sia, Venezuela and Nige­ria, the re­port said.

IMF chief economist Mau­rice Ob­st­feld said in a state­ment ac­com­pa­ny­ing the WEO “The ‘holy grail’ of ro­bust and syn­chro­nized global ex­pan­sion re­mains elu­sive.”


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