NIGERIA IN 2017 ...DISSECTING THE EXPECTATIONS FROM REALITIES
he year 2016, as it draws to a close, will go down as one of the toughest and most challenging year for many Nigerians. Coming out from the heated general elections and political transition of 2015, one might have heaved a sigh of relief and hoped that the worse was over; however the reverse was the case. The experiences of most citizens and business operators in 2016 will be etched in our minds and hearts for a long time for very many reasons – ranging from marked devaluation of naira against other major currencies to inflationary pressure and harsh business environment.
By the end of December 2016, it is possible that the negative fourth quarter growth figures will mean that the year saw one of the worse GDP slumps in 12 years. Data from the National Bureau of Statistics (NBS) have shown a consistent decline in the country’s aggregate output in the first three quarters (Q1 = -0.36%; Q2 = -2.06%; Q3 = -2.24) of the year with the country officially entering recession in the second quarter of the year. The persistent decline recorded in the 2016 was in stark contrast with a prolonged 5% - 7% GDP growth rate recorded between 2005 and 2014.
To many observers, it was a matter of time before the country hits this economic iceberg. Having successfully averted cataclysmic political predictions of 2015, the next major hurdle on the horizon of this era was navigating an impending recession. During the presentation of the 2017 budget to the national assembly, President Buhari himself characterized this experience as the worst economic crisis in the history of Nigeria, who will argue with that?
If 2016 was dismal in terms of economic performance, what can we expect in 2017? How realistic is our expectations that 2017 will be better? Let’s look at some pointers and try to decipher that question.
Outlook for 2017
True, the shockwaves of the crude oil price drop and deep slide in domestic output were the major culprits for the recession but the caliber and timeliness of policy responses stoked the fire. Nevertheless there seem to be some silver lining. Based on IMF projection, the current negative trend is expected to reverse in 2017 as Nigeria is expected to grow at 0.6% from annual estimate of -1.7% in 2016. Also, International Energy Agency (IEA) revealed that the perceived glut in the market driven by high crude oil reserves in the major importer/consumer countries will gradually begin to recede. This will lead to price recovery that is projected to reach or even surpass $60 per barrel mark. As we speak, prices have edged up to $56-$57 per barrel. But that is just one side of the equation. The supply side will witness some positive trends too, thanks to OPEC production cuts – an agreement that has been long overdue.
In the home front, what factors can we expect to influence economic growth and impact lives in 2017?
Tamper your expectations - It is quite normal that coming out of a bitter 2016, with such excruciating pains, most people will hope for a healthy rebound as fast as possible - well think again. Whereas Nigeria is poised to grow in 2017, the pace will only make up for part of the decline in 2016. Only in 2018/2019 can we realistically attain positive economic shift that would compensate for where the country was in 2014/2015. This is more so, taking into account lost productivity and foregone investment opportunities. Sectors like Agriculture, Mining, IT/Telecommunication, Financial Services, New Media and Music/Movie industries would experience accelerated recovery than say Construction, Housing, Manufacturing, Transportation/Logistics, Oil and Gas, Power etc. Persistent high interest rate regime coupled with low Naira exchange rate plus forex scarcity could conspire to throw a monkey wrench into any rapid rebound. So better mellow with our expectations in other not to be too disappointed. Entering into the second quarter and beyond it is possible that conditions will normalize, if CBN lowers benchmark Monetary Policy Rate (MPR) from the current high of 14% and inflation reverses course from the sustained uptrend.
Spending Nigeria out of Recession - The caption 2017 budget submitted to the national assembly in late December was “Budget of Recovery and Growth”. A good sign of recovery is that the budget was even submitted on time unlike 2016 when unnecessary acrimony and bickering on the "budget padding” delayed the enactment till April/May. The size and structure of the budget at N7.2 trillion is also quite encouraging. Over 30% is earmarked for capital expenditures, which is a shift from the norm. With the key ministries like Housing, Power and Works getting N527 billion and Transportation - N262 billion. The impetus does exist for massive infrastructure spending that could catalyze growth and job creation. The proposed bench mark oil price of $42.5 per barrel and target output level of 2.2 million barrels per day is very critical to achieving the desired results. The key question is how worse can it get than what we witnessed in 2016? Radical reforms like repeal of Land Use Decree, enactment of National Free Compulsory Basic Education Law, plus passage of the long pending Petroleum Industry Bill (PIB) will be lasting legacies of the Buhari administration, if he can pull that off - 2017 should be a year of reckoning in that regard.
Ease Pressure on Naira - More forex inflow from crude oil exports means a much desired breather for the local currency in the short run. Added to that will be some measure of progress with agricultural output and diversification of the economy especially with rice production. It should be noted that rice importation is amongst the top 5 forex expenditures of the country, so with many states beginning to invest in rice growing and milling, it is a matter of time before Nigeria becomes self-sufficient and even export rice. The same can be said about processed agro products and other intermediate raw materials and solid minerals that are increasingly sourced locally. That will truly loosen the demand for forex. But that naira rate can recover to pre-2016 level will be a pipe-dream. Exchange rate stability, predictability and forex availability will be major investment decision drivers moving into 2017.
Social Service and Quality of Life not Looking Good Yet - I can boldly say this because it will take many years of sustained investments in social and economic infrastructure to make a dent on poverty, joblessness and overall well-being in Nigeria. The gap remains quite deep from years of neglect in the education, healthcare, and power sectors. The situation has worsened by the precipitous devaluation of the naira, erosion of purchasing power and degrading asset value. Not even with Nigeria becoming the largest economy in Africa or recording consistent 5-7% growth rate for almost a decade; have we seen a steep decline in poverty and unemployment. Although, allocation of more resources to Education sector (N448 billion – Recurrent and Capital) and Healthcare sector (N303.9 billion - Recurrent and Capital) in the 2017 budget could signal some effort to address poverty and inequality. It will take much more than one year budget. Internal crises in the North-East and the Niger Delta region are all outcomes of prolonged policy of neglect and misplaced priorities. That might not remain the status quo for too long without severe consequences on the very existence of the country. It is worth acknowledging that the singular greatest investment with the most multiplier effect on social progress in the long run is education.
Political Stability and Regulatory Environment Translates to Greater Economic Prosperity – This is a simple logic and prism that have been proven in several countries including in Africa. The outcome of elections and peaceful transfer of power, coupled with clear and predictable policy/regulation pretty much can determine how well a country performs. Nigeria scaled that barrier in 2011 and again in 2015. If policy attitude in 2016 leaves much to be desired, 2017 should and must be better. Both from the body language and flurry of criticisms, it is hoped that the economic team has learned some vital lessons. The investment community won’t for much too long condone the policy summersaults and misdirected efforts of 2016 without voting with its wallet. In such a circumstance, no amount of high oil price will save Nigeria from a repeat of the recent debacle. Thankfully some progress has been made, but the road is still long to travel.
To sum up, 2017 will be another banner year in the annals of Nigeria but far better that 2016, hopefully. Lessons learnt in 2015/2016 should be worth remembering moving forward. It will be naïve to project that 2017 will be rosy or that the malaise of previous years are gone forever. Economic trend is cyclical and Nigeria has been here before. If we fail to plan and save for the rainy day, re-occurrence of current recession is possible. Though there is no saying when next recession would hit and how deep it could get.
Wishing everyone the best of 2017 and beyond.
Chamberlain is the Executive Chairman of Xcellon Capital Advisors Ltd, Lagos, Nigeria