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Beyond ‘change’ mantra: The economic challenges, expectations


forex reservesThe need for change arises when the going gets stuck. Of course, the economy has in recent months been in muddy waters, but with the coming of the “Change” revolution, how soon will the change arrive, given the various business expectations?

NO doubt, the nation’s economy needs change. But change on what? Of course, change in all economic indices- external and internal. These include our foreign exchange (forex) rate, forex reserves, reversal of outflow of Foreign Portfolio Investors (FPIs), other macroeconomic fundamentals, but mostly, the nation’s mode of prioritization of expenditure and allocation of resources.

Already, businesses may have received a fresh vista in the near term, as damning speculations on the elections, which raised apprehension by local and international observers, waned with peaceful and successful turn out of the exercise.   Worth noting is that in the last few weeks, the terms “Change” and “Transformation” have been mentioned more than at any other time, though the former has prevailed against the later.

For the business community, the Nigerian economy and financial market demand more than the mantra. This has also become ever important as the strength of the mantra has dominated leadership positions again at the just concluded elections at the sub-national levels- states and House of Assembly.

Before now, uncertainties have rubbed off negatively on the financial market as investors became overtly cautious, as they jettisoned any positive fundamental for fear of the unknown. Indeed, some investments were halted, while other investible funds stayed on the sideline.

Now that the dreaded polls have turned out successful, is Nigeria open for business again? How soon will this Change come?  However, the small business operators, lamenting that the economy has nosedived so much, noted that there is so much to be done to correct the anomalies.
Already, the general price levels have assumed upward trend as the effects of the election spending and the associated marginal costs of the devaluation trickles down into the economy.

The general price level inched higher by 0.2 per cent in January and February to settle at 8.4 per cent in February 2015, against eight per cent inflation rate in December 2014.   “We attribute this hike in general prices to increase in price of imported goods resulting from pressure on foreign exchange rate.

Ultimately, we suspect that pressure on price level will mount regardless of the election outcomes. We retain our 9.5 per cent average inflation for 2015.

“Even as the decline in oil prices remains the most potent threat to domestic macroeconomic stability in the medium to long term, the socio-political uncertainties associated with politicking ahead of the general elections have increased the risk profile of the Nigerian Economy, leading to the volatility in the Equity Market as foreign investors stay on the sideline,” analysts at Afrinvest Securities, said.

The operator of Maumit Plaza in Festac Lagos, Mrs. Stella Minette, said from the devaluation challenges, increasing poverty, rise in prices to the falling purchasing power of the people, the hands of the new leadership will be full of tasks.

“The way we use to sell our items has changed. It is currently marked by low patronage and increased prices. Of course, people are changing their preferences, not because they want to, but to make ends meet. There is high unemployment, while some are losing their jobs as well.

Who then will patronize us?   “We only hear about loans for Small and Medium Enterprises, but access to the loans has ever become difficult. Even when it is accessible, the interest rate is still not encouraging.

There is not much new businesses springing up and those trying to make efforts are speedily winding up. In fact, there is very much to be done.

The system needs serious help and change as well,” she said.   A beautician, Promise Uzoho of the Beauty World Salon in Festac Town, readily averred that things have changed in recent months leading up to the elections, with prices of their cosmetic items taking an upward swing.

“We have been affected very much. Some of our customers have suddenly become economical with their expenditure patterns, opting for low cost hairdo and even taking more time to renew it. Some cosmetic item remain unsold with us more than necessary and these rubs off on our income,” she explained.

However, a beverage dealer, made up of local and foreign drinks, Kingsley Edebiri, said he is yet to see the effect of the devaluation on the price of the items he stocks.

According to him, the issue of price change is a function of the buyer and seller’s disposition, as many tend to take advantage of every situation to exploit others.

“A mere marginal increment is not enough to change prices to disproportionate level. The period when the price was low, did we tell the buyers about the change? Again, panic buying cannot be totally blamed on devaluation too. Granted, there is leadership challenge, but we do not need to create difficulties for ourselves,” he said.

Since the beginning of announcement of the Presidential results to the governorship elections, there have been resurging confidence in the economy, ranging from the return of some foreign investors, increased capital market indices to rising fortunes of the naira.

To build on the resurging confidence at the instance of the election results, Afrinvest Securities Limited, said the issue of national security should be urgently addressed through a well-trained, adequately equipped and goals driven Serious Crime Squad to combat terrorism, kidnapping, armed robbery, militancy, ethno-religious and communal clashes nationwide;

There is also need to make our economy one of the fastest growing emerging economies in the world with a real Gross Domestic Product growth averaging 10 per cent yearly, to be driven by Information Communications Technology, manufacturing, agriculture and entertainment, under a sound macro-economic policy environment, run by an efficient government, which preserves the independence of the Central Bank.

Already, experts are of the opinion that formulation of a private sector led industrial base for the economy, entrepreneurship promotion, economic diversification and heavy investment in Research and Development, speedy passage of the much-delayed Petroleum Industry Bill, ensuring that local content issues are fully addressed and making Nigeria the world’s leading exporter of LNG through the creation of strategic partnerships, should be given priority.

It may also look like a tall order to pursue plans to generate, transmit and distribute power from current 5,000MW-6,000MW to at least 20,000MW of electricity within four years and increasing it to 50,000 MW with a view to achieving 24/7 uninterrupted power supply within 10 years, but it is not impossible generally speaking.

While simultaneously ensuring development of  sustainable/renewable energy, the construction of 3,000 kilometres (km) of superhighway, including service trunks and building of up to 4,800km of modern railway lines, there is need to actively evolve a strategy to effectively tap from the enabling Public Private Partnership (PPP) arrangements and provisions of Acts of Parliament.

Afrinvest, in its Note titled: “Corruption and the Rule of Law: Personalities to Effect Changes in Institutions,” noted that one of the mantra of the APC campaign was to fight corruption and ensure adherence to the rule of law.

“Since democratic transition in 1999, the Nigerian Government has established several state agencies targeted at tackling corruption and also embarked on measures to block leakages.

Cynics however, point to political interference, inefficiency, underfunding and poor conviction rate of these corruption fighting institutions as a reflection of the deeper problems left untouched. We do not expect the new government to establish new parallel agencies due to challenges of fiscal revenue, but to focus on building on the present institutions and implementing measures that will encourage transparency, accountability and adherence to the rule of law.

“One of such measures is public declaration of assets by pubic office holders, as promised by the President-elect on campaign stumps. Also, important to note is General Buhari’s reputation of being frugal, assertive, and strong-willed, which will create a template to benchmark his cabinet and also build the moral psyche of the nation.

Given his experience as Petroleum Commissioner, we anticipate that the President-elect will focus on reforming the petroleum industry and shedding it off the reputation of opaqueness.

That may further draw out the passage of the PIB law, but will eventually sail through with an APC majority in the National Assembly.   “We expect the exchange rate to stabilize at an average of N200/$1 at the interbank market as electioneering wraps up. The depleting rate of the Nigerian external reserves may taper as we expect increased foreign portfolio in the near term.

The eventual stop of the revenue leakages in the oil and gas space before the end of the year would increase the accretion of the external reserves.  Renaissance Capital, in its Note, also corroborated other analysts, as it projected a potentially longer term benefits of the new government for the oil and gas sector and the banking system, largely around improved transparency.

“What we will like to see however, is improved collaboration between the monetary and fiscal authorities in economic management- tackling corruption, reducing wastages, reducing revenue leakages, among other things, which could lead to a quicker easing of significantly tight regulations, such as the Cash Reserve Requirement on the Nigerian banks. We think near term, the monetary policy environment is likely to remain tight, which is our base case expectation,” the company said.

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