‘Why transparency, policy choices matter to Nigeria’

With Nigeria facing three-fold uncertainties that may arise from oil price, Britain’s exit of European Union (Brexit) and the United States-China trade war, there is need for transparency and clear-cut policy choices by government.

A research analyst at FXTM, Lukman Otunuga, during a media roundtable in Lagos, described the country’s dependence on oil as a substantial risk, noting that once oil price falls, the economy immediately takes hit from exchange rate and reserves depletion.

“About 90 per cent of Nigeria’s export earnings come from oil. The Naira also remains influenced by oil prices. Although rising Oil prices will be a welcome development for the Naira in the near-term, the currency’s outlook remains impacted by domestic conditions and geopolitical risk factors across the globe,” he said.

Noting that the U.S. has successfully countered the oil production cut of the Oil Producing Exporting Countries with Shale oil, he said that substantial increase in the price of the commodity is not likely in the near term, hence Nigeria must be strategic in its diversification.

He noted that the diversification effort is still below confidence level, but requires more to boost productive activities locally and attractive to foreign investments.

“Government should be concerned about transparency and policy choices, because even with low interest rate, investments may be elusive due to economic uncertainties,” he said.

He said that Brexit holds mixed fortunes for the country, as investments would be negotiated directly with the United Kingdom, leading to increased transactions, but opens up new negotiations for the rest of other European nations.

According to him, transparency and clear policy options will be the direction and attraction for investors and may even discourage investments if right decisions are taken.

Otunuga also pointed out that the U.S.-China trade war is worrisome because both countries are major trading partners of Nigeria, adding that negative impacts in their respective economies may affect their capacity to invest outside their territories, particularly the Emerging Markets economies, where Nigeria belongs.

He said that the Central Bank of Nigeria may innovate new ways of easing the economy, especially now that the United States’ Federal Reserve and Bank of England shelved rate hike talks.

“It is encouraging that Nigeria’s inflation eased further to 11.31% in February, down from the 11.37% recording in January, despite increased government spending and election costs.

“While it remains too early to suggest the possibility of a rate cut anytime soon, consistent signs of cooling inflation this year should encourage the CBN to act by the final quarter of 2019.

“The initial argument against a CBN rate cut was the fact that the Federal Reserve was on an aggressive hiking path. However, with the Fed seen leaving rates unchanged for an extended period of time and even possibly cutting rates by year-end, the CBN may be offered a window of opportunity to stimulate economic growth further by cutting rates,” he added.