Economy begins slow recovery from recession

• CBN retains rates, pursues exchange rate convergence
• GDP report excites OPS, predicts recovery in Q2

The nation’s economy has begun a slow recovery from recession although the Gross Domestic Product (GDP) contracted again by 0.52 per cent in real terms in the first quarter of 2017.

The National Bureau of Statistics (NBS) disclosed yesterday that this contraction, which represented the fifth in the quarterly series, starting from the first quarter of 2016, raised hopes that recovery is on the way.

The nation’s inflation, which has moderated for the third consecutive time, has appeared discriminatory, as some items in the food index, which are patronised by the masses, have remained on the high side.

The GDP at -0.52 per cent, is 0.15 per cent higher than the rate recorded in the comparable period of 2016 at -0.67 per cent and higher by 1.21 per cent points from rate recorded in the preceding quarter at -1.73 per cent.

The economy recorded a yearly growth drop of 1.5 per cent last year, as oil price crisis plunged the country’s revenue to a record low and affected the general spending and consumption with the attendant shortage of foreign exchange.

Already, there are renewed hopes for better times soon, as analysts say there are signs of resurgence and growth in the troubled oil sector.Average oil production inched up from the fourth quarter of 2016 by 0.07 million barrels per day (bpd) to 1.83 million barrels in the first quarter, NBS said.

According to economist Bismarck Rewane, the growth numbers are positive in the sense that the level of contraction has drastically reduced and most economic activities are improving.

However, he warned that “we are not there yet”, as what is happening is that the economy is moving in the right direction, but for now this “will be a slow and painful recovery.”

He also commended the Central Bank of Nigeria (CBN)’s decision on rates, adding: “When in doubt, do nothing or wait and see or tell the truth. The best thing is to play safe, just as they did.“I remain cautiously optimistic, but in terms of direction, they are in control. I’m beginning to see signs that things are getting better.”

Meanwhile, the CBN yesterday retained all previous decisions, keeping the Monetary Policy Rate (MPR) at 14 per cent.It also retained Cash Reserve Requirement for banks at 22.5 per cent; Liquidity Ratio, 30 per cent; and the asymmetric corridor- the short- term fund window rates with banks at +200 and -500 basis points around the MPR.

While unveiling the communiqué of the meeting yesterday, CBN Governor, Godwin Emefiele, said the committee was swayed by lingering challenges facing the domestic economy, as well as the uncertainties of the global environment.The committee said that loosening the rates would exacerbate inflationary pressures and threaten the gains so far achieved in the exchange rate of the naira, as well as increase the negative real interest rate, by widening the gap between the nominal interest rate and inflation.

“The decision is intended to allow the existing policies to fully achieve their targeted goals and objectives,” he said.He also said that the bank was fully geared towards achieving exchange rate convergence, which would see to the end of the spread between the black market and official foreign exchange rates, but would not want it at the rate that is currently emerging.

“We would prefer a convergence that will go southward rather than northward, but the fact that we have seen the convergence moving southward gives us a lot of hope that things are working in the right direction,” he added.

Research Analyst at Cyprus-based FXTM, Lukman Otunuga, said although remaining in recession zone would continue to weigh on sentiments against Nigeria, the performance is the best seen in the last four quarters.

“With many sectors of the Nigerian economy turning positive, the overall outlook still looks encouraging with the bullish impacts likely to be realised in the second and third quarters of this year,” he said.

But speaking on the Monetary Policy Committee meeting, he said it was a logical decision to maintain key interest rates at 14 per cent as the nation marches towards stability and continues its ongoing quest to diversify beyond oil.“I believe that the hardship and pressure Nigeria continues to face may aid its evolution, with an end result that may shock the global arena,” he added.

Similarly, the Organised Private Sector (OPS) hoped that the worst may be over, with high optimism for improved indices by the end of second quarter. According to them, the Economic Recovery and Growth Plan (ERGP) agenda, foreign exchange interventions by CBN, and the establishment of the Presidential Enabling Business Environment Council (PEBEC) would improve business environment in Q2.

The non-oil GDP grew by 0.72 per cent to record the best performance in four quarters, when compared to -0.33 per cent in Q4 2016 and -0.18 per cent in Q1 2016, as NBS attributed the sector’s growth to activities in the Agriculture Sector (Crop Production), Information and Communication, Manufacturing, Transportation and Other Services.

According to the Statistician-General of the Federation, Dr. Yemi Kale, many sectors of the economy turned positive, but failed to get the country out of recession.To the Director-General of the Lagos Chamber of Commerce and Industry (LCCI), Muda Yusuf, the report is a reflection that the country is on the verge of getting out of recession.

“The good thing is that it is an improvement from Q4 figures. We still have a lot of work to do though but the policies initiated by the Federal Government will reflect in Q2 report of 2017. There is still a lot of hangover from last year till the Q4, 2016. The improvement in forex, PEBEC, ERGP will manifest in Q2 2017.”

The President of Manufacturers Association of Nigeria (MAN), Dr. Frank Jacobs, expressed optimism that the processes and procedures required to fully actualise the objectives of PEBEC would be effectively implemented so as to permanently remove constraints to the ease of doing business, and improve the global ranking of Nigeria by the World Bank.

“MAN therefore urges the Federal Government to sustain and consolidate all the achievements recorded within this short period by removing all trade facilitation constraints and attract foreign capital inflow to the country. Government should also ensure that other aspects of the objectives that are currently work-in-progress are properly implemented with a view to improving Nigeria’s competitiveness. On our part, we will continue to encourage our members and other investors to take advantage of these initiatives to increase their investments.

“To enable the private sector to effectively key in and benefit from an overall lower cost business environment, there is the need for government to expand the scope of this programme and take cognisance of other constraints to businesses,” he added.

Besides, an analyst with InvestData Limited, Gabriel Omodion explained that the country is almost recovering from recession, going by the negative 1.77 per cent posted in the last quarter.

He noted that the CBN’s special forex window initiative has impacted positively in productivity across all sectors.According to him, if government would implement its structural reforms and roll out incentives, it would go a long way to boost the CBN’s efforts and reposition the economy.

“The figure showed that we are on a recovery note. The effort of CBN intervention in forex has encouraged productivity, the first quarter result posted by listed firms showed that every sector is bouncing back.

“But no economy can stand without government efforts, we need the government to come up with their structural reform to boost what CBN is doing so that purchasing power will improve,” he added.