By Omoh Gabriel
On August 31, 2015 in this column, we warned the nation that in the absence of a fiscal policy, the economy is heading toward recession. Last Tuesday, the CBN Monetary Policy Committee warned also that the economy is sliding toward recession. As of today, the President is yet to appoint ministers and the waiting game continues. This is what we said on August 31.
As crude oil prices dived lower threatening to dip below $40 a barrel for the first time since the financial crisis of 2008, and notching their longest losing streak since 1986, economies around the world are catching cold.
Investors across the world are losing their investments in stock and property owners are also suffering losses as a result of depreciation in currencies. With deepening gloom over demand growth from the world’s second-biggest oil user, and expectations for a significant build-up in surplus oil stocks this year, most oil traders are unwilling to stabilize crude oil prices. The market seems to be stuck in a relentless downward trend.
The collapse of oil price is already taking its toll on the Nigerian economy. As it stands, there is no light at the end of the tunnel yet. Nigeria’s situation is further worsened by the current government’s delay in appointing ministers and forming a government. This has left an economic vacuum as there seems to be no policy direction at the moment.
The vacuum created by lack of fiscal policy has left the Central Bank of Nigeria with no option than to attempt to combine monetary and fiscal policies in an attempt to direct the economy. The lack of apparent policy direction of the present government has left a lot of decisions hanging.
Investors are playing a wait-and-see game; some have pulled out their funds in the capital and bond markets. Because there are no ministers, all activities are in the presidency.
This in itself has one implication, delay in decision-making in government circles as there is little the President alone can do in a day in the economic and political arena. It is sad that the gains all Nigerian financial markets had from the election outcome have proved to be short-lived. The naira which appreciated immediately after the elections has suffered reversal, the same with the capital market.
As at today, the global hazy clouds and the impatience of some investors with the new President have brought about a market reversal in Nigeria’s financial markets and the economy. Looking at the way things are, it is worrisome that the 2016 budget will be difficult to put together. Nigeria’s policy-makers do not expect to be rescued by a strong pick-up in the oil price any soon. Oversupply in the market, China worries and the Iran deal militate against a recovery before 2017.
So it is apparent that the 2016 budget has to be lean and Nigerians should not expect any major improvement in their welfare in the immediate term. Already, some quarters in the international community are calling for a third devaluation of the naira. But the CBN/MPC at the moment, is not disposed to doing so, rather, it favours a managed rate, and may well introduce more administrative measures for this purpose.
Ongoing happenings in the international currency market and the widening gap between the parallel market and the inter-bank rate may compel the monetary authorities to adjust the exchange rate to N210 to the dollar before long. The previous two devaluations have eroded consumer spending, impoverished Nigerians more and increased the cost of production in the country. This has started to have adverse effects on the economy. Figures released by the National Bureau of Statistics last Thursday attest to this.
The data indicated that the economy is going down the slope and if corrective measures are not applied soon, by the end of the year, it will enter into recession. In the second quarter of 2015, the nation’s Gross Domestic Product (GDP) grew by 2.35 per cent in real terms. This was lower by 1.61 per cent from growth recorded in the preceding quarter. It is also lower by 4.19 per cent from growth recorded in the corresponding quarter of 2014.
During the quarter, aggregate GDP stood at N22.859 trillion at basic prices. Compared to the second quarter of 2014 value of N21.7348 trillion, nominal GDP was 5.17 per cent higher. Nominal GDP growth was also higher relative to growth recorded in first quarter of 2015 by 0.85 per cent. The Nigerian economy can be more clearly understood according to the oil and non-oil sector classifications. During the period under review, oil production stood at 2.05 million barrels per day; 5.9 per cent lower than production in first three months of 2015.
Oil production was also lower relative to the corresponding quarter in 2014 by 7.3 per cent when output was recorded at 2.21mbpd. Growth in the non-oil sector was largely driven by the activities of trade, crop production, construction and telecommunications. The non-oil sector grew by 3.46 per cent in real terms between April and June of 2015. This was 2.13 per cent lower than that of January to March of 2015 and 3.26 per cent lower than the corresponding quarter in 2014.
In real terms, the non-oil sector contributed 90.20 per cent to the nation’s GDP, marginally higher from shares recorded in first three months of 2015 (89.55%) and that of April to June of 2014 (89.24%) The economy, to those who understand trends and cross data analysis, needs attention and appropriate policy measures to fix it. This seemingly directionless government had better rise to the occasion or the gains of rebasing the economy will be lost.
Looking at the way the economy is drifting, and no decisive action is being taken on the fiscal side, very soon, workers will begin agitation for wage increase, prices will go up, cost of living will rise further. The cost and the burden on the general welfare of the Nigerian people will be such that it will spark off general protests that will be common place in 2016 and beyond. A stitch in time, they say, saves nine.