Eboh: Economy out of intensive care unit, but needs constant attention

Ayodeji Eboh, a financial expert rose through the ranks to become the Managing Director of Afrinvest Securities Limited. In this interview with CHIJIOKE NELSON, he expresses optimism that the economy would rebound, but warns that policy implementation and consistency must be paid due attention.

There are indications that the economy may be recovering from meltdown. Do you share this view?
Yes, that is very much in tandem with my perception of Nigeria’s current state as regards the ongoing recession, which has been in place since last year. Taking a step back to the root cause of this problem- the slump in global oil prices, as well as, production volumes, which inevitably created a huge gulf in foreign exchange earnings, and thus affected foreign exchange supply in the economy. We’ve witnessed improvements in global oil prices for the most part of this year and significant reduction in oil facility sabotage in the Niger Delta, alongside the exempt from the global oil cartel. These have restored production to near pre-crisis volumes. These have also led to upticks in foreign exchange earnings by the government, and also capacitated the Central Bank of Nigeria (CBN) in its periodic interventions in the FX markets, which have in turn boosted liquidity and caused the naira to appreciate significantly in the parallel market-from an all-time low of N520/$1 to N363/$1.
 
To further buttress improvement, inflation levels, which have been largely pressured by rising cost of imports upon, which the majority of manufacturing and consumption activities are dependent on, have shown improvements in the past three months with the figures for March, April and May at 17.26 per cent, 17.24 per cent and 16.25 per cent respectively. Also, Purchasing Managers’ Index (PMI) data by the CBN, with the figures for April and May at 51.1 per cent and 52.5 per cent respectively, have indicated improvements in general manufacturing operations in the country. I believe these improvements are indicative of the likelihood of an economic resurgence in the near term.

Can this tempo be sustained?
Yes, the current momentum seems sustainable, but premised on several factors. Firstly, oil prices have to remain above the $40 psychological line, and oil production around the two million barrels per day levels.

Secondly, the recent development in the FX market to have a market determined rate- set up of the Investors & Exporters window- and eventual convergence of the FX rates is required to sustain this recovery momentum.

Thirdly, the recent effort of the Federal Government to improve the ease of doing business in Nigeria is also critical to attract foreign investment into the country. Improved allocation to capital expenditure, as well as, social intervention programmes launched by the Federal Government should boost the recovery process.

Where did we get it wrong ab initio?
Quite frankly, I believe the economic recession was self-inflicted and avoidable, traceable to policy choices of the monetary and fiscal authorities. Apparently, the delay in the decision making process of the Muhammadu Buhari-led government, and tactless confrontation with militants triggered this problem.

On the monetary side, the decision of the CBN to peg the exchange rate at a level for a long time despite the pressure on the naira eroded investors’ confidence in the Nigerian economy. This created an avenue for round tripping and all sorts of unethical practices in the foreign exchange market. It further created significant uncertainty in the economy as companies became unprofitable due to the volatility in the foreign exchange rate, as well as, limited access to FX to purchase input for production.

What are the likely risks overhang?
The major risk at this time is the volatility in oil prices, which could stifle foreign exchange earnings. It is common knowledge that oil earnings account for over 70 per cent of government’s foreign revenue and 80 per cent of FOREX earnings. Thus, the possibility of steep falls in global oil prices remain a downside risk to the sustainability of government revenue and FX liquidity in the economy. Also worth mentioning are incoherent and inconsistent FX management policies by the monetary authorities, which have affected FX availability and liquidity in the past, as well as, poor implementation of policies and steps directed at diversifying the economy and attracting capital inflows to the country.Foreign exchange remains at the centre of the ongoing economic crisis.

What is your assessment of the market till date?
Since the CBN began the periodic intervention sales in the FX markets, there has been significant appreciation in the value of naira at the parallel markets and near convergence of the different rates in the various windows. However, since the introduction of the I&E window – where rates are driven by market dynamics – we’ve witnessed significant increase in capital inflows to the country, which therefore suggests that foreign investors are more receptive to a market-determined exchange rate devoid of interference or control, that allows them to conveniently convert or repatriate their funds. Thus, I reckon that while the CBN’s periodic interventions and aggressive drive towards the convergence of the rates in the various windows is commendable, a more effective option would be to allow market dynamics play out.

How do you assess the recently released economic blueprint?
The Economic Recovery and Growth Plan (ERGP) in itself is a good plan, particularly because it focuses on the need to develop the country’s infrastructure and diversify the economy, through the exploitation of key growth sectors like agriculture, power and manufacturing. A major area of concern, however, is that the plan appears a little over reliant on oil earnings, which as aforementioned, is subject to volatility in global oil prices – as a primary means of funding the large number of the key items.

Also, the issue of proper implementation, which the Nigerian government has a track record of performing deplorably, remains vital to the efficacy of the plan. The blueprint failed to provide clear timelines and milestones for the implementation of each of the items, which raises huge concerns on how the progress and performance of the plan would be effectively tracked and measured.

What do you consider as the major factors militating against the country’s growth and development?
In my opinion, Nigeria’s greatest challenge to growth and development at this time is the repugnant level of corruption across board that has effectively debilitated the system of governance and repressed the prevalence of patriotism, social good and prudence in the administration of duties and responsibilities of those in public offices. In addition, policy inconsistency has also continued to dampen foreign investor confidence.

What about the country’s rising debt profile?
Nigeria’s rising debt profile certainly raises a bit of concern. As of May 31, 2017, Nigeria’s total debt stood at N19.6 trillion, which translates to an addition of N2.3 trillion since the beginning of this year. Whilst looking towards financing major projects through debt has been an inevitable decision for the government, especially since the decline in oil earnings, the very fact that total government revenue as at this time is largely dependent on oil earnings – which we know is subject to volatility – undermines the government’s ability to sustain its debt obligations. Nonetheless, we believe that if the debt proceeds are properly utilised in the development of sound infrastructure and capital projects, the yields on these investment in due course would provide appropriate coverage of the debt obligations.

Where do you see the economy in the next 12 to 18 months?
At this time, I am fairly optimistic of Nigeria’s economic resurgence in the near term. If this happens to be the case, I envisage the economy to be fully recovered from the recession in the next 12 to 18 months, with increased collaboration ensuing between the public and private sectors in addressing infrastructure deficits as well as, revamping the economy towards self-sufficiency via economic diversification.