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Depleting reserves, threat to Nigeria’s economic growth – Citi Analyst

By CHINEDU IBEABUCHI

David Cowan, an Economist with Citi Investment Research & Analysis, a subsidiary of Citi Group Global Market Incorporated has expressed concern over Nigeria’s depleting reserves, declaring that this poses a serious threat to achieving the country’s economic growth programme.

“Rather than run large deficits and build up new debt to aid increasing government spending, the government has run down savings to the point where they are now virtually non-existent,” Cowan said, in his presentation titled, ‘Global economic trends: Where do Africa and Nigerian capital markets stand,’ at the June edition of the Securities and Exchange Commission, SEC, Learning Series in Abuja.

He further stated that there is an urgent need for the country to rebuild savings as a cushion for uncertainty.

According to him, given global economic policy, there is now a huge demand structurally for African assets.

“The key for Nigerian government is how to meet this demand, while at the same time meeting the needs of Sub-Saharan Africa, SSA, governments for the development of local capital markets; there is also need to focus on how to manage monetary policy and portfolio inflows; and how to get more companies to list,” he added.

Commenting on Africa’s growth prospect, Cowan said that most African governments are going to have to think clearly about closing fiscal deficits in the coming years as the bottom line is that spending has risen and will be difficult to curtail going forward; adding therefore, that the key need is to raise greater revenue.

He declared that in recent years, there has been a growing body of evidence, led by United Nations Conference on Trade and Development (UNCTAD) that shows that private sector investment in Africa is highly profitable.

He added, however, that the other side of this is that productivity levels in Africa are lower than in the rest of the world and investment does not seem to yield the same impact on economic growth in Africa as in other parts of the world.

He blamed this lower productivity on a number of reasons, saying, “First, there is the high cost of doing business in Africa, or the need to reduce the transactions costs for private enterprises. Second, the lack/weak state of infrastructure, the need to overcome the neglect of the 1980s and 1990s. There is a major need for a large infrastructure push and third, the lack of ‘real’ integration into the global economy.”

“The fundamental lesson of Asian growth is that trade and capital flows are key drivers of growth. Africa needs to fundamentally strengthen its ability to ride on the coat-tails of global, and arguably, Asian growth going forward.”

Cowan further stated that despite optimism about growth, going forward in Africa, it may be that, in the next few years, growth actually slows a little, or does not pick up significantly.

“This is because Asian growth is weakening a bit and the domestic policy stimulus has to be taken away. So it may not be logical to assume that growth will pick up towards seven per cent beyond the next couple of years, but it may seem to be stuck around the 5-6 per cent level in the next few years.


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