The incoming finance minister has the herculean task of making hard policy choices if the economy is to achieve the desired growth, stimulate investment and reduce unemployment, say analysts.
The analysts add that the minister would have to hit the ground running, to reverse the growing disenchantment in an economy that is struggling to cope with oil prices which have slided by more than half, eroding purchasing power of the citizens. He will further have to deal with decaying infrastructure and currency restrictions, they add.
Some analysts said last night that the current challenge calls for a person with both local and international exposure, to provide the much needed synergy to prevent the economy going into recession.
According to Ayodeji Ebo, head investment research, Afrinvest, “The tough macroeconomic conditions currently facing the country, ranging from the dip in crude oil prices, to Forex challenges that have seen a lot of foreign investors pull out of the country and calls for a devaluation of the Naira, to the persistent rise in inflation, have only created a situation in which the selected minister has to hit the ground running in order to reflate the economy.
“Expectations are high, and as a first step, the market would expect him/her to work out a co-ordinated policy framework along with monetary authorities to respond to the macroeconomic challenges of slow growth, heightened inflationary pressure, declining reserve buffers and exchange rate uncertainty.
“This will go a long way in changing the current negative sentiments lingering over the country. Investors will also be looking out for the 2016 budget and MTEF documents.”
Some other analysts said that the current Naira crisis, haphazard implementation of the Treasury Single Account (TSA), forex restrictions on some items and leakages in the system, require urgent attention by a focused and team-player finance minister.
“I see a herculean task for the incoming minister, whoever the person might be, because we are currently down on almost all economic indicators,” says Friday Ameh, an energy analyst.
Bismarck Rewane, chief executive, Financial Derivatives Company, in the current summary of the Lagos Business School Breakfast Meeting, gave an outlook for the month, saying that “Naira weakness will intensify at the parallel market, with the authorities making the naira misalignment a subject of national debate. It will become clearer that the adjustment is inevitable, while inflation will creep to 9.5 percent.”
Rewane further stated that the external reserves would further decline to $28billion, while the states may receive another bail out package from the government.
Expressing the hope that the Central Bank of Nigeria (CBN) might lower Monetary Policy Rate to induce banks’ lending to the real sector, he however observed that bank loan impairment will increase to the extent that it may undermine the capital adequacy ratio, with the stock market remaining soft throughout the month.
He also said that international investors will shun the market, especially, after the fines on MTN and others by the regulatory authorities.
Uche Orji, managing director, Nigerian Sovereign Investment Authority (NSIA) sees the current high cost of naira as the biggest problem in the economy.
Orji said that diversification of the economy and looking inwards on the numerical strength with the bigger economy which has provided ready market could be part of the solutions to the problems.
The recently released CBN Manufacturing Purchasing Managers’ Index (PMI) indicates contraction for the month of October, as it pointed to 49.2 (from 50.7 recorded in September). In the review month, manufacturers recorded slower expansion in production activity (registered at 52.0 from 54.9 in September) amid further increase in input prices (from 52.8 to 53.8) and decline in new business orders (49.3 from 52.1), as well as expansion in raw materials inventories (from 49.0 to 53.1).
The general increase in input prices, according to some analysts, may have resulted from relatively high exchange rate regime, while the build up in inventories may be tied to contraction in both domestic and foreign new business orders. Also, there was greater decline in supplier delivery time (42.7 from 46.8;), and further decrease in employment level.
Analysts at Cowry Asset Management limited in their current financial market review and outlook said that the validation of foreign exchange transactions with BVN numbers became effective in the just concluded week, leading to further exchange rate differential between the official market and parallel market segments.
Consequently, they said that rates at the Bureau De Change market segment remain unclear, as many operators declined to bid at the bi-weekly USD60,000 auctions. The local currency lost 3.31% relative to the USD to close at N234/USD from N226.5/USD at the parallel or black market segment. However, the CBN clearing rate and interbank rate closed steady at N197/USD and N199.10/USD respectively in the period under review.
YAHAYA, SHEHU Yahaya, a member of the Monetary Policy Committee at the recent meeting observed that “During Q2 2015, the GDP growth rate in the country fell significantly to 2.35%, with projections for the year ranging from 2.5% to 5%, compared to 3.96% in the Q1 2015 and 6.33% in 2014. In addition to declines in the oil sector, manufacturing production has been particularly hard hit, with a fall of 3.12%.
This level of slow-down may have significant implications for job creation and the financial sector. Already, unemployment has edged up to 8.2% and underemployment to 18.3%, compared to 7.8% and 17.5% respectively in 2014.”
John Omachonu
