World Bank Cuts Nigeria’s Growth Projection to 1.9%
CBN allays concerns over declining reserves
The World Bank has once more reduced its growth projection on Nigeria in 2018 to 1.9 per cent, down from the 2.1 per cent it had estimated for the country in April.
The Bank hinged its decision on the contraction in the agricultural sectoras a result of the farmers and herders’ crisis recorded by the country most part of this year.
It explained: “In Nigeria, declining oil production and contraction in the agriculture sector partially offset a rebound in the services sector and dampened non-oil growth, all of which affected economic recovery.”
“Nigeria’s recovery faltered in the first half of the year. Oil production fell, partly due to pipeline closures.
“The agriculture sector
contracted, as conflict over land between farmers and herders disrupted crop production, partially offsetting a rebound in the services sector and dampening non-oil growth.”
This is coming as the Central Bank of Nigeria (CBN) yesterday allayed worries over the fluctuation in Nigeria’s external reserves, assuring that with its current level at over $44 billion, there is no cause for alarm.
The multilateral institution stated this in its October 2018 ‘Africa Pulse,’ a bi-annual analysis of the state of African economies released yesterday.
In April, the World Bank had predicted growth of 3.1 per cent, up from 2.3 per cent last year.
But it anticipated that growth in the region would increase from 2.7 per cent in 2018, to 3.3 per cent in 2019, rising to an average of 3.6 per cent between 2020 and 2021.
"The slower pace of the recovery in sub-Saharan Africa (0.4 percentage points lower than the April forecast) is explained by the sluggish expansion in the region's three largest economies, Nigeria, Angola, and South Africa.
“In Nigeria, declining oil production and contraction in the agriculture sector partially offset a rebound in the services sector and dampened non-oil growth, all of which affected economic recovery.
“A decline in oil production, due to underinvestment and key fields reaching maturity, weighed on growth in Angola. South Africa’s economy slipped into a technical recession following two consecutive quarters of contracting economic activity, with agriculture, mining, and construction acting as major drags on growth,” it added.
The World Bank noted that several oil exporters in the Economic and Monetary Community of Central Africa (CEMAC) saw an uptick in growth. With higher oil prices and an increase in oil production, both Chad and the Republic of Congo were expected to climb out of recession.
According to the Washingtonbased institution, growth in non-resource-rich countries remained solid, supported by agricultural production and services on the production side, and household consumption and public investment on the demand side.
“With fiscal deficits narrowing, government debt levels appear to have stabilised, but vulnerabilities remain. Compared to 2012 to 2013, the median public debt level remains high, especially in oil-exporting countries. Debt rose in about two-fifths of the countries in 2017 and was above 60 per cent of GDP in one-third of the countries.
“The external environment facing Sub-Saharan Africa is more challenging for several reasons. These include moderating economic growth among its main trading partners, the stronger US dollar, heightened trade policy uncertainty, and tightening global financial conditions.
“While the tightness of oil supply suggests that oil prices are likely to remain elevated through the rest of 2018 and into 2019, metals prices have been softer than previously forecast and may remain subdued in 2019 and 2020 amid muted demand, particularly in China.
“Against this backdrop, the economic recovery in Sub-Saharan Africa is expected to continue at a gradual pace, supported by a rebound in oil production in Nigeria and Angola, the easing of drought conditions that had depressed agricultural output, and a rise in domestic demand in some countries,” it stated.
“Growth in the region is projected to increase from 2.7 per cent in 2018 to 3.3 per cent in 2019, rising to an average of 3.6 per cent in 2020–21. However, per capita income growth would remain below its long-term average in many countries, highlighting the need for comprehensive policy measures to raise potential output.
“The inefficiencies in the way the region combines its factors of production has become increasingly relevant in explaining Sub-Saharan Africa’s lower aggregate productivity compared to industrialised countries.”
CBN Allays Concerns over Declining Reserves
In a related development, the Central Bank of Nigeria (CBN) yesterday allayed worries over the fluctuation in external reserves, assuring that with its current levels at over $44 billion, there's no cause for alarm.
The apex bank further assured that it will continue to ensure that finance is provided for all Small and Medium Scale Enterprises (SMEs) which may require support to be able to produce and grow the economy.
CBN acting Director, Corporate Communications, Mr. Isaac Okoroafor, said not only does the apex bank have the reserves to defend the naira, it is also sufficient to encourage small businesses to produce to boost the economy.
He further explained that the current instance of reversal of capital flows was not peculiar to the country as some other economies are also affected following the recent hike in interest rate by the United States' Federal Reserve.
Speaking at the CBN special day at the ongoing 13th Abuja International Trade Fair, the apex bank’s spokesman added that the country's current reserves level could support between 17 to 20 months of import compared to the international standard, which stipulated for at least three months of import to remain at a comfortable level.
“And I also want to make it clear: it's also on social media that our reserves dropped by $1.45 billion in one month...We are not politicians- of course, I want you to understand that the reserves level is a moving figure; at times, it rises and other times, it comes down. And as we speak, it's a little over $44. Giving reasons for the fluctuation in external reserves, Okoroafor said,"You'll recall that there was a time we survived on even $23.2 billion; the economy was running. “Now, we are over $44 billion and the reason why it is going down gently is because there's a global squeeze on emerging markets: the Central Bank of the USA which is the FED had been raising interest rate and you know international capital goes to where it earns better returns.
"So, those who came into our economy to take advantage of the returns here seems to have found better returns in the US- and it's not just in Nigeria- it's happening to South Africa, Egypt, Pakistan, Iran, Argentina, Brazil, Turkey even China."
According to him:"China has lost over 1.3 per cent of its currency, Argentina lost 134 per cent; Iran, India, some of them lost 18 percent, 17 percent- but here in Nigeria, our currency has gained 6 percent in the last one year.
"You can see that the reversal of capital flows which is eating most economies and bringing about depreciation in their currency is not affecting us for two reasons- we've built enough buffers of reserves to be able to tackle situations like these.
"Secondly, we are using the reserves to defend the value of our currency- so that also accounts for why it's dropping.
"Investors who brought in dollars- of course, we've a capital importation policy- if you bring your dollars, when you're leaving, we give it to you. And so they brought their dollars and they want to leave to the US, we give them because our word is our bond and so that has tended to make the reserves drop a little."
He, however, assured that, "At $44 billion, we still have between 17 and 18 months of import cover, meanwhile, the international standard is three months of import cover.
"We are very comfortable- we have the reserves to defend the value of the naira, and we have the local support to also encourage our SMEs to go into production."
The CBN director also seized the opportunity to counsel the trade fair participants on how best they could access the various interventions by the bank.
He said,"Unfortunately, we cannot do it (the financial interventions) directly, we've to do it through banks.
"And that's why we say again, people who engage in business should open an account with a bank, run that account and demonstrate that you are in business.
"Once you keep your record and you show evidence that you are in business, banks will always give you loans.
"But in a situation where people do not keep records, and there's no difference between the money in their pocket ad their working capital, it'll be difficult for banks to be able to do an examination and given you loan."