Fixing Nigeria’s economy

As Nigeria faces continued declining earnings from oil, recent reports from the Nigerian National Petroleum Corporation show that India and the United States have slashed imports of Nigerian crude. This translates to a loss of about 88 billion naira. CNBC Africa’s Didi Akinyelure spoke to Manji Cheto, Vice President Teneo Intelligence for more on this

Given that the Nigerian economy is expected to further contract in Q2, what are the key concerns for you when it comes to your outlook on Nigeria?
CHETO: In my conversations with investors who have exited or are thinking of exiting the country, one key issue they continue to cite is the policy credibility and policy confidence. We know it took the government more than a year to effectively take a decision on foreign exchange which is what investors have been calling. Now, the decision has been taken and we are heading a step in the right direction but unfortunately, we are so far behind what the investors have been asking for, so I think the big thing that Nigeria is facing is the policy credibility crisis. It is obvious that there are a lot of things happening that are beyond the government’s control; crude oil prices, the situation in the Niger-Delta and the government unfortunately, has not done much to help itself by a way of having policy credibility.

In your opinion, what is the key to navigating the Nigerian economy out of the dip in spite of the low oil price environment?
CHETO: One of the things the government needs to come out and be very clear about is looking at outlining what the policy is for the next six to twelve months, giving timelines against what it plans to do. It is obvious giving the fiscal hit the government has taken as a result of lower export and lower crude production that it has to borrow. Unfortunately, the timings as to when the borrowing will happen have continued to move. We first heard news earlier this year that they were going to borrow from the African Development Bank and the World Bank about three billion dollars; we haven’t heard any progress update on that, we also know that the government was planning to borrow nine billion externally in total for the year, we still have no timings on when that is going to happen. There has been talk about a Eurobond issue coming in September but those timelines have moved so there is really no priority on what the direction of the economic policy would in the next six to twelve months. Investors need that and they need the government to stick to that plan for them to actually feel confident and get their money invested in Nigeria. Until the government does something about policy credibility, I doubt we are going to see an economic turnaround soon.

Are there signs of a silver lining in the horizon for the Nigerian economy?
CHETO: If you look at the number of Nigerians from a share market potential point of view, I think that the FMCG sector will continue to remain the most attractive sector and there are still lots of opportunity for companies that are operating in consumer goods sectors. The needs to be a little bit more nuance analysis of what constitutes the actual growth potential. If you are working in the consumer goods sector, you need to be more selective about what proportion of the consumers you are targeting and also particularly in what cities. So from a long term perspective of the market, the consumer goods sector will always remain an attractive one but there just needs to be a level of nuance in terms of the way investors approach it.

In what way do you expect the central bank’s FX reforms to support the economic performance in the third and fourth quarter of the year?
CHETO: Monetary policy can only do a degree of heavy lifting for the economy so I think the central bank has taken the right steps. It has come a little bit late but you need to get complimentary policies coming from the fiscal side and I think as far as where the central bank could go it needs to hold the line on the reforms that he has taken and needs to see them through but it absolutely needs to get support from the fiscal side before we can get a turn around. This cannot be simply a central bank’s decision in terms of turning the economy around. It is only so far the central bank could go and the government needs to realise that.