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Nigerian Economy And Its 2017 Outlook (PART II)

[ctt_author author=”12175″ name=”AKPAN H. EKPO” template=”1″ link=”0tNZU” via=”no” ]The economy would recover from the recession by the 3rd quarter of 2017 if 80-85 per cent of the projects in the budget is implemented[/ctt_author]

 

According to the government, the 2017 Budget is designed to partner with the private sector to ensure the growth of the economy. The objectives of the budget, indicating areas which should interest businesses, households and families in Nigeria, include: (a) emphasis on critical on-going infrastructural projects such as roads, railways, power, ICT; (b) using special economic zones and industrial parks as vehicles to fast-track domestic economic activity for innovation and wealth creation; (c) contributing to food security and creating a platform for agro-business; (d) establishing a Social Housing Fund. This would not only deepen the mortgage system but also generate employment; (e) encouraging and stimulating the growth of small and medium-scale industries for innovation, job creation, productivity and health creation; and (f) providing social safety nets for poor and vulnerable citizens.

If the above objectives are met, 2017 would provide opportunities for businesses, particularly large and medium-scale firms. These objectives also allow for new domestic and foreign investors. Furthermore, the economic recovery and growth plan stresses macroeconomic stability, competitiveness, growth, and diversification, social inclusion as well as governance as drivers that would restore growth.

Specifically, businesses in 2017 would be encouraged to remain afloat (some have closed shops due to the recession) under the following conditions:

  • Better macroeconomic management. It is important to have stability in the foreign exchange market. The wide misalignment between the official and the parallel market rates is not only killing the economy but also sending wrong signals to potential domestic and foreign investors. Hence, the Central Bank of Nigeria, CBN, must continue to find ways to stabilise the foreign exchange market. The challenge is stability at what level and in whose interest. The CBN has a dilemma because the problem in the foreign exchange market is inadequate supply.

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In the short-term, the CBN is trying to manage the market but in the long-run, the economy must earn foreign exchange through various sources to reduce dependence on oil revenues. Better macroeconomic management must ensure that economic fundamentals are moving in the right direction and that monetary and fiscal policy is well coordinated.

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Within the context of monetary policy, the cost of doing business is quite high. Lending rates average about 25 per cent.

  • Competitiveness: Without ignoring the crucial role of government as an economic agent, a competitive environment is necessary for growth. In the 2016 Global Competitive Index, Nigeria ranked 124 out of 140 countries. The low ranking was attributed to rankings in selected categories stated below:

In order to attract and nurture expectations of business in Nigeria, efforts must be made to improve the country’s rankings. The World Bank’s Ease of Doing Business also scores Nigeria very low.

  • Corruption: The fight on corruption must be sustained to reduce the cost of doing business in Nigeria. Businesses that have to bribe officials to get things done normally pass some of the burdens to consumers via higher prices of goods and services. The present government, generally, has done well in fighting corruption among the elites. The published amounts looted from the government’s treasury are unprecedented in the country’s history.
  • Security: A secured environment is crucial for potential investors. There are conflicts in certain parts of the country particularly the insurgency in the Northeast and the militants in the Niger Delta. The resolution of these conflicts would be healthy for business.
  • Good Governance: It is important for the government to ensure transparency, accountability, and comprehensiveness in the conduct of government business. The role of government, among others, is to surprise the private sector while the latter tries to predict government.
  • Policy Implementation: Government must strive to implement its policies and programmes with minimum or no delays. Lags in implementing policies have adverse effects on the economy with implications for potential investors.

The above expectations, notwithstanding, businesses must design strategies to survive the recession. It is on record that small scale and medium-size businesses which depend on foreign exchange have closed shop; others have reduced costs, particularly laying off workers, so as to survive the recession.

Businesses need to explore and exploit the opportunities created by the Government as a result of the recession. The government’s policy on diversification portends advantages in the areas of agriculture and agro-industries. The policy of buy “made in Nigeria” goods and services is another action in the right direction. The Nigerian economy is a large enough market to absorb domestic production of goods and services. Business should show interest in sectors with more local content to avoid the foreign exchange constraint.

The economy would recover from the recession by the 3rd quarter of 2017 if 80-85 per cent of the projects in the budget is implemented. There would be a positive but marginal growth of GDP, thus ending the recession technically but the structural problems of the economy would remain. In addition, the rising rate of unemployment would remain a challenge. Therefore, it is important that government takes seriously the diversification of the economy, particularly the process(es) towards industrialisation.

Businesses would expect a friendly environment conditioned by better macroeconomic management, reflecting a moderate rate of inflation, low lending rates, better infrastructure, especially power, good governance, security, among others. It is, therefore, crucial that businesses seize the opportunity of the recession to be innovative, explore and exploit government policies regarding agriculture and buy made-in-Nigeria goods and services…

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