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Only diversification’ll rescue Nigeria’s economy from recession- Analyst

Lukman Otunuga is a research analyst with FXTM, a leading forex broker. His specialty is currency, stocks and commodities trading. With BSc (Hons) in Economics from the University of Essex, UK, and MSc in Finance from London School of Business and Finance, the debonair, articulate and young-looking Otunuga answered questions from Vanguard’s Oboh Agbonkhese on Nigeria’s economy.

What impression have recent developments in Nigeria’s economy given you?

Lukman
Lukman

Unemployment is rising, inflation is sky-rocketing and oil prices are falling considerably. Combine these with the appreciating Dollar rate, and the impression is that Nigeria might go into recession in Q2.

It is common knowledge that Nigeria is heavily dependent on crude oil export and most of government’s revenues have been through high oil prices. So the economy is under pressure, Q1 growth haven shrunk. However, I expect the Central Bank of Nigeria, CBN, to move the N200 band to a flexible rate of N285. This should reduce the pressure on the economy. But in the bigger picture, I expect CBN to do more.

Aside these moves that could stabilise the economy, what is the long term way out?

Diversification. Nigeria must look to agriculture, tourism and manufacturing to get out of these shackles. You know where this country used to be. It can still get there. However, in the meantime, CBN should allow the Naira to free flow so it can finally find equilibrium. I am not talking devaluation, because that is a very delicate one. This administration could have done that when it just came in. Right now, President Muhammadu Buhari might not want to do it because the common man will suffer more, Nigeria being import-dependent.

Then again, expectations of executing the 2016 budget is dropping because renewed militancy in the south has reduced oil production from about 2.2 million to about 1.5 million barrels per day. Our credit ratings have been slashed as well, so we cannot even get funding—not even if we want to diversify. It is a very tough position. Nigerians should brace up.

The CBN Governor and the President have held meetings and reached out to other countries. How do you think these will rub of off on the economy?

CBN simply provided a sense of relief with the possibility of implementing a flexible exchange rate. But I feel they were worried that if they hiked rates, the market could have gone wild. There is so much uncertainty, which may increase. But the thought that Nigeria could potentially devalue was enough to make people start investing in risky assets, hence the fall in Naira and rise in stock.

The President’s visit to China was an attempt by CBN to add the Yuan to the basket, since most of Nigeria’s import come from there. But the effect cannot be felt until about a decade. Furthermore, there is lack of transparency so nobody knows anything.

Are they peculiarly Nigerian problems?

No. We must not forget that beside Nigeria’s peculiar issues, globally 2016 has been a very turbulent year so far. There is been a slowing down of the economy in Asia, Europe, America and UK. For instance, Brexit is going to affect everyone, including Nigerians. This is because the Pound Sterling is volatile right now. Trade on it is increasing because of hopes that Britain will remain in the European Union. But if it leaves, the Pound will crash over uncertainty.

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