By Emeka Anaeto,Economy Editor
Amidst continued pressures across all segments of the economy in the first month of 2016, more economists’ projections have pointed to a challenging policy environment in the year. Giving a glimpse of hope and positive sentiment economists at Afrinvest Group, a Lagos based investment house, said growth rate of Nigeria’s Gross Domestic Product, GDP, would be moderately up to 3.5 per cent in 2016, from average 3.05 achieved in the first nine months of 2015 and forecast 3.0 per cent for the full year.
Both the 2015 and 2016 estimates are far lower than the 6.3 per cent recorded actual in 2014 and also significantly lower than the four-year average historical growth rate of 5.31 per cent recorded between 2011 and 2014. The National Bureau of Statistics, NBS, actual recorded pace of GDP growth had shown a slow down in 2015 decelerating to 3.96, 2.35, and 2.84 per cent in first, second and third quarters respectively. NBS is yet to come out with full year, 2015 actual.
But the International Monetary Fund, IMF, estimates that the Nigerian economy, measured by real GDP grew by 3.0 per cent in 2015 while projecting it to grow by 4.1 per cent in 2016. In its Economic and Financial Markets Outlook 2016, released last week, Afrinvest Group stated “taking a cue from the projected impact of slower oil prices together with an expectation for depressed consumer spending and inflow from net exports, we project the pace of output growth to remain subdued in 2016.
“We do not expect significant improvement in investmentemt spending though we anticipate that increased government expenditure will cushion the effect of the overall drag in the system. “As a result we estimate GDP to grow by 3.5 per cent in 2016, slightly higher than 3.0 per cent in 2015”.Most performance indicators of Nigerian economy have been on decline since 2015 following, principally, the declining oil price which is Nigeria’s predominant source of government revenue.
Reflecting this scenario in its analysis Afrinvest said “as experienced in 2015 we believe that adjustment to lower crude oil prices, which is expected to be sustained, will remain a crucial theme for the domestic economy in 2016”. As policy response, the the federal government, in its 2016 budget, is planning a fiscal spending that is expected to be driven by non-oil revenue, with emphasis on efficiency among strategic ministerial agencies and parastatals such as the Nigerian Customs Service, the Nigerian National Petroleum Corporation among others.
In estimating the impact of lower commodities prices on performance of commodity export dependent economies, IMF in October 2015 projected that weak commodity prices could subtract almost one per cent on annual basis from the growth rate of commodity exporting countries between 2016 and 2017. The impact on energy exporters is projected to be more severe at about 2.5 per cent on the average over the same period.
Remarkably Afrinvest said a review of the performance of the Nigerian economy in 2015 indicated that the projections of IMF analysis has held true. In projecting the performance of Nigerian economy in 2016, Afrinvest analyzed the demand composition of the Nigerian GDP. Available data from the NBS as at second quarter 2015 indicates that Nigerian economy remained largely driven by private consumption expenditure which contributed 74 per cent to GDP while investment spending, government spending and net export accounted for 17, 6 and 3 per cent respectively.
Afrinvest stated “our reasoning is that from a demand perspective, the impact of lower oil prices will further drag government revenue, consumption spending, net export and overall pace of output growth in 2016. “We believe stronger consumption spending and net export in Nigeria remain linked to higher oil prices”. “Crude oil exports accounts for 90 per cent of Nigeria’s total export and increased employment level is seen to be highly consistent with oli boom among oil exporting countries”.
Afrinvest also stated that government spending which accounted for 6.0 per cent of GDP appears to be the only driver of growth in 2016. Fiscal spending is proposed in 2016 budget to total N6.1 trillion, with 30 per cent or N1.8 trillion expected to go into capital expenditure. According to Afrinvest “the downside to the budget proposal however remains the likelihood of further decline in oil prices which is benchmarked at USD38 per barrel together with somewhat optimistic non-oil revenue given the adverse effect of macroeconomic pressure on corporate earnings and taxable income”.
Expectations for increased borrowing and the gains of the Treasury Single Account, TSA, implementation is anticipated to cushion the downside to revenue projection. However, Afrinvest said “Investment spending which contributes 17 per cent of GDP may not improve significantly given the expansive borrowing plan by the government that may further crowd out the private sector investment and push interest rates higher.
“Furthermore, the current monetary policy environment which in our view does not incentivise foreign capital inflow may further slow down the pace of investment spending except this is reviewed later during the year”.