By Babajide Komolafe
Nigeria and Nigerian institutions risk significant decline in foreign aid and assistance from multilateral donor agencies and developed countries, economic experts have said.
Speaking at the Finance Correspondents Association of Nigeria (FICAN) Roundtable on the Economy, with the theme “Nigerian Economy in 2013: Issues and Expectations”, experts said that the uncertainties in the global economy and the planned rebasing of Nigeria’s Real Gross Domestic Product (GDP) could lead to decline in foreign aid and support to the country and institutions in the country that depend on such aids.
In a paper titled, Global Economic Outlook in 2013: Implications for Nigeria, Professor Akpan Ekpo, Director General, West African Institute for Financial and Economic Management (WAIFEM), said that some advance countries have started reducing funding of key multilateral financial institutions, who also have indicated intention to reduce aid given to developing economies like Nigeria and institutions in such countries that depend on such aids.
On his part, Mr. Bismarck Rewane, Managing Director/Chief Executive, Financial Derivatives Company (FDC) Limited, said that the planned rebasing of Nigeria’s real GDP could lead to decline in foreign aid to the country and magnify income inequality.
The real GDP is the total output of goods and services produced in an economy at the prices of a particular year, called the base year. Currently, Nigeria’s real GDP is calculated using 1990 prices. But the National Bureau of Statistics plans to increase the base year to 2008 hence real GDP will be calculated using 2008 prices.
In a paper titled, “Monetary Policy and Economic Growth in 2012 - Outcomes and Prospects in 2013,” Rewane observed that this move is not economically expedient and it is for political mileage, adding that it is like wearing high heel shoes to increase ones height.
He said that the rebasing will result in an increase in the nominal GDP to an estimate of $400 billion from the current estimate of $273.8 billion while Real GDP growth rate could decline from seven per cent to five per cent in 2013.
He noted that when the maximum deficit to GDP ratio of 3.0 per cent is applied, the rebasing will increase the amount of money government can borrow, as three per cent of $400 billion is higher than three per cent of $273.8 billion.
He said that the higher nominal GDP figure will lead to a shift in Nigeria’s status to Middle income country from that of a low income country and hence lose the foreign aid and support usually given to low income countries, but will still meet the convergence criteria for ECOWAS.
Meanwhile Nigeria’s foreign trade improved sharply in the third quarter of 2012 with $12 billion surplus occasioned by 42 per cent decline in imports. The surplus represents 43 per cent increase when compared with the surplus of N8.62 billion recorded in the second quarter of the year.
According to the External Sector report of the Central bank of Nigeria (CBN) for the quarter, the sharp increase in the trade surplus was occasioned by 42 per cent decline in aggregate imports, and 8.2 increase in aggregate export.
The report also shows that foreign investment rose by 87.39 per cent to $6.07 billion in the second quarter from $3.43 billion in the first quarter. The apex bank however expressed concern over the continued domination of portfolio inflows (investment) in the foreign investment in the country. According to the apex bank, portfolio investment accounted for more than three quarters of the total foreign investment during the quarter.
The report stated, “Nigeria’s trade balance improved significantly from US$8.62 billion in Q2, 2012 and $1.60 billion in Q3, 2011 respectively to US$12.37 billion in Q3, 2012. Aggregate exports rose by 8.2 per cent from US$22.53 billion in Q3, 2011 to US$24.37 billion in Q3, 2012 while aggregate imports (CIF) declined by 42.7 per cent to US$11.99 billion in the review period.
“The trade balance position improved due to lower imports of goods and services and increased exports earnings. The external reserves exceeded the international benchmark of 3 months of imports cover. However, the rising external debt stock remains a major concern. Most importantly, the debt service payments should be monitored in order not to constrain the financing of key development programmes.
Also, the slow global recovery continues to dampen world demand for commodities and possibly lower prices could cause adverse trade shocks. Government therefore should address gaps in domestic production and investment in critical infrastructure in an effort to curtail the nation’s heavy dependence on im-ports. Finally, the observed increase in the inflow of foreign direct and portfolio investment over the last two quarters suggests the need to put in place measures against capital reversal.
“The estimated current account balance posted a surplus of US$5.03 billion or 7.61 per cent of gross domestic product (GDP) compared with US$5.0 billion in the pre-ceding and against a deficit of US$3.86 billion in Q3, 2011. The performance was largely explained by the lower import bills, increased export earnings and decreased out-payments in respect of dividends and distributed branch profits to foreign investors.
“Further analysis revealed that imports of goods declined by 21.67 and 45.29 per cent below its level in Q2, 2012 and Q3, 2011 respectively. While earnings from exports of goods rose by 4.15 and 8.16 per cent when compared with the recorded levels in Q2, 2012 and corresponding quarter in 2011, respectively. The export earnings were largely driven by oil receipts which accounted for 97.4 per cent of total. The non-oil exports continued to under perform owing to high cost of production.
“The aggregate foreign capital inflows was US$6.07 billion in Q3, 2012 com-pared with US$3.43 billion and US$3.24 billion, recorded in Q2, 2012 and Q3, 2011, respectively, representing increases of 87.39 and 77.09 per cent, respectively. Of the total capital inflows FDI accounted for 23.79 per cent while PI accounted for 76.21 per cent. Further analysis showed that both FDI and PI inflows increased over their levels in Q2, 2012 by 81.0 and 75.9 per cent, respectively. The continued dominance of portfolio investment in aggregate foreign capital inflows suggests the need to put in place measures against capital reversal.”