Is Nigeria In A Slow Down?

Economists say Nigeria has some tough decisions to take since oil prices are now lingering on 6 year lows, further causing a damaging reduction in revenues for African countries heavily reliant on the black gold. Brent crude, now trading at around 43 dollars per barrel, is now 10 dollars lower than Nigeria’s 2015 budget oil benchmark. 

Speaking to CNBC Africa, Bismarck Rewane, CEO of Financial Derivatives Company believes that the drop in oil prices to 2.3% from 6% indicates that the economy is underperforming all parameters. “South Africa technically is in recession, Nigeria technically is in a slow down.”

He said the poor performance in the first and second quarter could be due to policy uncertainty. “In the first quarter, the elections were postponed, in the second quarter we had the elections, production was down, Boko Haram issues in the North East also affected production, slow commodity prices.”

“We’ve had a bad first quarter, a bad second quarter and I think we’ll have a dreadful third quarter and then we will begin to pick up in the fourth quarter.” He said.

Rewane told CNBC Africa that our output came down to about 1.7- 1.8million barrels, we had unsold cargoes, now we are back to two million barrels a day- In terms of output, we are growing. In terms of revenue, we are down, at almost 30% lower than what we were in Q2. In terms of government spending, we have had a bailout and salary arrears and all these para meters point towards a perfect storm. A new cabinet, new policy direction, new stimulus, blocking the leakages is what is needed in Q3.

On having a new cabinet, Rewane advised that the incoming finance minister has to deal with a supplementary budget as we are already in excess of all the targets for 2015. He says there would definitely be a review of the oil bench mark since we are trading at 43 now and chances are the floor could be 35. In that case, the policy adjustments, currency, taxes and administrative measures will be up for review.

On devaluation of the naira, Rewane says adjusting the currency before subsidy is great chaos. Petroleum subsidy will reduce the pressure on the currency and therefore reduce the adjustments that have to be made to bring the currency. Nigeria needs a clear development mechanism which would throw up a rate and intervention into that rate to bring it to a stable level which is acceptable to you.
“It is good to have a strong naira but we don’t need to have a strong naira. What you need is more important than what is good for you.”
On the 2016 budget, Rewane advises that we stabilise spending for 2015 and plan effectively for 2016 and he is positive for a recovery in 2016.