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Buhari’s economy, one year after

By Emeka Anaeto, Economy Editor

As Nigerian’s mark Presdident Mohammadu Buhari’s first year of assumption of office, we articulate the economic trajectories that sign-post the past 12 months of Nigeria’s history.

President Buhari
President Buhari

Much has happened but our concentration here would be on the macro-economic indicators which are the policy outcomes that may have defined the character of the regime’s actions or inactions regarding the economy in the past one year.

Key objective indicators that reflect all interests of every stakeholder in the Nigerian economy includes:

Gross Domestic Product, the headline indicator; Inflation Rate; Manufacturing Index; Capital Importation metrics; External Sector/ Reserves and; Employment/ unemployment rate.

Obviously, there could be many more macroeconomic variables of interest but the above six sum up about 90 per cent of all that would be determinants of the economic status and performance not only for Nigeria, but any other country.

Economy: Growth rate – GDP

A nation’s growth rate reflected in the gross domestic product, GDP, mirrors   the productive health of the economy, and this represents the summation of every economic policy outcome.

According to the National Bureau of Statistics, NBS, in the second quarter, Q2 2016, within which Buhari had done one year in office, GDP expanded 2.35 percent on an annual basis, compared with 3.96 percent a quarter earlier, which indicated a slower growth rate started in the earlier    quarter of the year.

However, the sluggish trend worsened such that by First Quarter of 2016, the nation’s GDP had plunged into negative at -0.36 per cent (year-on-year) in real terms. This was lower by a massive 4.32 percentage points from growth recorded in the corresponding quarter of 2015.

NBS report on the economy released last weekend indicated that the economy was not only in contraction but is now entering recession as second quarter is also projected to turn out far worse GDP position given some recent developments.

The last time the economy contracted was in the second quarter of 2004, according to data on the website of the Central Bank Nigeria, CBN.

Inflation Rate:

Inflation rate or consumer price index reflects the average cost of living, and somehow resonates in standard of living of the populace.

The combination of supply related bottlenecks continue to put an upward pressure on food and other goods and services in the inflation basket as at the time Buhari took over mantle of leadership in May last year.

Though the inflationary pressure at 9.0 per cent in May 2015, was still within CBN’s tolerance point, the pressure had, however, heightened to 9.2 per cent in his first month in office.

Indicating a worsening situation, the Consumer Price Index (CPI) released by NBS previous week indicated that as at end of April 2016, inflation rate had galloped to 13.7 per cent, far ahead CBN’s 9.6 tolerance point.

Analysts posit that persistent rise in prices remained driven by lingering structural constraints in the economy, as electricity rates, kerosene prices, vehicle spare parts, other import products and prolonged petrol crisis drove core inflation. As a result, real interest rate worsened to -1.7 per cent in April from -0.8 per cent in March, 2016.

Purchasing Manager Index (PMI):

Manufacturers’ Purchasing Index or PMI reflects the state of the real sector, the backbone of all economic activities.

PMI measures the state of manufacturing activities in an economy with 50 as mean average while points above reflect improving performance and points below 50 as adverse performance. It gauges production level, new orders, employment and inventory level and raw materials’ availability.

Poor performance in GDP and other wrong-headed policy factors in the past one year have resonated in Composite Purchasing Managers Index, PMI, in Nigeria averaged 52.35 in 2015, reaching an all time high of 54.50 in December of 2015.

However, the Manufacturing Purchasing Manager’s Index (PMI) in Nigeria had dropped to 43.7 by April 2016, compared with over 52 recorded just before the commencement of Buhari’s administration in 2015. This implies that the manufacturing sector declined at a faster rate during the review period.

According to analysts at Afrinvest West Africa, a Lagos based financial institution, “the data released by the CBN and NBS – April 2016 Purchasing Manager’s Index (PMI) – revealed very disappointing numbers. Besides, the fact that the weak numbers reflected poorly on business activities and investment confidence, they further reinforced market perception that weakening domestic fundamentals is yet abating”.

Nigeria’s Capital Importation Update

The level of capital importation or foreign investment reflects the conduciveness of the economic environment for inflow of resources into the economy, and the actual inflow.

Capital importation into Nigeria’s economy had began to suffer a decline in the fourth quarter of 2014 following concerns in the international community over the election season and outcome, hitting a low of USD2.67 billion in the first quarter of 2015, just on the heels of the success recorded in the election. The electoral success robbed off on the capital importation figures which spiked to USD3.14 billion by end of second quarter   of 2015 when Buhari’s administration was about a month old.

However, things began to go down afterwards following some economic policy lethargy of the regime. Consequently by end of first quarter 2016 capital importation was USD710.97 million, a fall of 73.39 per cent fromUSD2.67 billion recorded in the corresponding period of 2015.

NBS data indicates that Q1 2016 capital importation is the lowest level since the series began in 2007.

Developments in the External Reserves:

External reserves’ position mirrors the credit worthiness and global standing of an economy in the international market.

Though CBN’s data showed that the nation’s Foreign Reserves was about USD29.61 billion as at May when the tenor of the former president, Goodluck Jonathan expired, two months later Godwin Emefiele, the governor said the reserves had gone up to USD31.8 billion.

However, what happened afterwards has been unpleasant as the reserves began unabated decline hitting USD26.5 billion by last week.

CBN had continued with the use of the external reserves to defend the value of the Naira via intervention in the order-driven quotes at the inter-bank segment of the foreign exchange market.

It is estimated that the current external reserves can cover less than four months of imports, significantly short of the six-month standard.


Exchange Rate:

In the early weeks of Buhari regime, the various administrative measures put in place by the CBN in the foreign exchange market seemed to be achieving the desired results. Although the measures have been criticised by many analysts, the exchange rate at the official window remained stable while the parallel market rate was adverse.

The CBN had restricted some items from the market, closed the two-way quote in the interbank market and encouraged the banks not to accept cash dollar deposits from customers.

The average exchange rate at the official market depreciated by 0.51% to stand at N196.97/US$1 in July 2015. The inter-bank market rate also depreciated by 0.50% to stand at N198.99/US$1 for the month of July 2015, while the parallel market shed 0.45% of its value to 238.96/US$1 in July 2015.

However, by early 2016 the measures had hit the rocks as the official window had ceased to be an effective determinant of market prices while interbank market, in the true sense of it, was practically dead.

Consequently, the pressure came on the parallel market which massively crashed Naira value to almost N400/ USD1 before a moderation set in to tone it down to N320/USD1, a point where it had stayed till last week’s foreign exchange policy overhaul by CBN, which admitted a failure of all the measures it had taken in concert with the Presidency since Buhari assumed duties as the President.

The new policy about to be in force has thrown the Naira to the market forces, a development, when in place, is expected to massively depreciate the local currency to an unprecedented level.


Unemployment Rate:

Unemployment rate/employment generation reflects real growth or otherwise in the economy, its sustainability and living standards of the populace.

According to the NBS, the number of unemployed in the labour force had increased by 9.58 per cent in Q2 2015 when Buhari took over, resulting in an unemployment rate of 8.2 per cent in Q2 2015 from 7.5 per cent in Q1 2015.

Also the number of underemployed in the labour force in Q2 2015 increased by 11.16 per cent or 1.36 million, resulting in an increase in the underemployment rate to 18.3 per cent (13.5 million) in Q2 2015, from 16.6 per cent (12.2 million) in Q1 2015.

As bad is this development was then, things have taken a bend for the worse by end of first quarter this year as the escalating economic crises in the country resonated in the labour market with unemployment rate rising further to 12.1 per cent.

According to the labour market report released last week by the NBS, the number of unemployed in the labour force increased by 1.45 million persons and with this figure, under the previous methodology of NBS, Nigeria’s unemployment rate would be 31.2 per cent, the fourth highest in Africa behind Djibouti, Congo and Kenya.

The report also indicated that, there were a total of 24.5 million persons between the ages of 15-64 that were willing and able to work and actively seeking for job that were either unemployed or underemployed.

The report also indicated that a total of 528,148 persons lost their jobs in the first quarter of this year alone.

Accordingly, 56.1 per cent of Nigerians in the labour force (not entire population) aged 15-24 years were either unemployed or underemployed in Q1 2016.

This is the profile, the score-card of Buhari’s economy as it enters its second year.




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