The Nigerian Employers Consultative Association (NECA) on Thursday said that some wrong economic policies of the Federal Government and lack of clarity about its economic agenda contributed to the current stagnation and recession in the country.
Larry Ettah, President, NECA, who stated this while addressing members of the association at its annual general meeting (AGM) in Lagos, said that for the Federal Government to adequately tackle the current economic challenge, it must take decisive actions to approach the issues beyond rhetoric.
Nigeria has officially entered into its worst recession in 29 years as gross domestic product (GDP) contracted by 2.06 percent in the second quarter of 2016.
Ettah, who is also the Group Managing Director of UAC of Nigeria Plc, said that the Federal Government should take much stronger action to revive the economy, which would boost demand and bring about the long-delayed structural reforms to the nation’s economy without delay.
While noting that the drastic fall in government revenue due to the fall in the crude oil prices was another cause for the recession, he said, “While there is no doubt that the past administration was profligate in its management of our commonwealth, it is quite evident that the lack of clarity about the economic agenda of the current government contributed to the current economic stagnation and recession.
“In recent times at our AGMs, we have variously described our operating environment as challenging, unpredictable, unstable and energy sapping. These words are, of course, true and descriptive of what our members have experienced in keeping their businesses afloat.
“As I reflect on the events and situation of our economy in the past one year, I am truly short of appropriate words to capture the extremes of hardship and trauma businesses have had to contend with to remain standing. Suffice it to say congratulations to any enterprise whose head is still standing above the inclement weather of our operating environment.
“I wish to implore the government to look beyond the seeming good performance of a handful of ‘big’ businesses in gauging the state of the economy. The mortality rate of micro, small and medium scale businesses is alarming and, if we are going to get a firm grip of the panacea to the high youth unemployment in Nigeria, then we must pay heed to the imperatives for sustainable enterprise,” he stressed.
NECA president, who commented on the economy in 2015 and the outlook for 2016, said that with a growth rate of 2.79 percent in 2015, the year recorded a dramatic slowdown from the five to six percent growth, which had always been the record of the Nigerian economy.
He pointed out that 2016 would not be better, especially with the multiple economic challenges, which included depleted foreign reserves from USD29.9 billion in November 2015 to USD25.71 billion on August 19, 2016; naira depreciation by 31.7 percent from N197/USD in March 2015 to N330/USD in August 2016; high capital outflow, particularly portfolio investment; upward trend of inflation and increased interest rates.
According to him, the economy contracted in the first quarter of 2016 and also in the second quarter, which implied that the economy was now in recession, stressing that there should be investment in order to boost the nation’s infrastructural stock.
Ettah further stated: “We, therefore, welcome the thrust of 2016 budget of which recognises that meaningful gross domestic product (GDP) growth requires quality spending to reflate theeconomy.
“We need to invest in boosting our infrastructural stock; we need to reduce our domestic debt; and there is the need to spend to position our economy to be export oriented and less dependent on import.
“We hope this budget will be faithfully implemented as this is key to the revival of the economyfrom the current recession. The key national issues facing the economy include the perennial delay in the passage of the annual budget, as the national budget of a country shapes policy and sets the direction for the economy.
“It is, therefore, a grave concern that year after year, the passage of the budget is subjected to a long period of delay. While we commend adherence to the values of diligence, thoroughness and transparency in our budgetary process, we expect all arms of government to henceforth subscribe to the standard of ensuring timeliness in the budget process.”
Meanwhile, Financial Derivatives Company, in its monthly report for the month of August, believes that the report by the National Bureau of Statistics on Wednesday that the country is now in a recession has put the monetary policy committee of the Central Bank of Nigeria under pressure.
The fifth meeting of the committee will hold between September 19 and 20, 2016.
The report says with inflation increasing to an 11-year high, the central bank will be under intense pressure on the direction to adjust interest rates.
“This comes just after it increased policy rates to 14% per annum in July, in spite of negative growth and increasing unemployment. An important fact is that with the average Treasury Bill stop rate for 182- day and 364- day at 17.8% and 18.5%, respectively, in August, the MPR may be redundant as the anchor rate.”
It added that the GDP report for second quarter 2016 shows a negative growth of (-2.06%). This, it says, is weaker than expected.
“With inflation slowing, and Nigeria in recession, the CBN is more likely to pursue an accommodative stance at its next MPC meeting”, the report added.
According to Renaissance Capital (Rencap), the negative GDP growth is likely to linger for a long time on account of agriculture output likely to be affected by floods and production cuts in the oil industry due to vandalism and militancy in the Niger Delta.
Rencap specifically predicted that economic growth would further decline 1.4 percent in the second half of 2016.
“We revise down our 2016 growth projection to -1.4%”, said Rencap in its September update released Thursday.
Should this forecast pan out as predicted by Rencap, the country could well be on its way to experience an enduring recession.
The NBS announced 2.06 percent drop in GDP in second quarter of 2016 after a 0.36 drop in the preceding quarter to signal that the country has entered a recession, meaning “a negative economic growth for two consecutive quarters”, also known as “a business cycle contraction which results in a general slowdown in economic activity”.
In making its forecast, Rencap said the negative growth would be mainly due to hiccups in agriculture, which is the biggest contributor to GDP and a continued setback in oil output. The NBS had also fingered the oil sector while associating the decline to a weaker currency.
“We are likely to see the biggest contributor to growth, crop production, and slowdown in 2H16 because of an increased risk of flooding, according to a famine early warning network. Oil output is likely to remain depressed at c. 1.6mbd in 2H16, at best, vs 1.96mbd in 5M16”, according to Rencap.
Construction, manufacturing and the consumer sector will also continue to decline to the second half of the year, the report indicates. Construction would be constrained by the delay in funding, while consumer spending is muted by hikes in energy prices, devalued naira and rising interest rates, reveals the report.
“The execution of the FY16 budget from June may provide a lift to public administration. However, as the external financing required to fund Capex has yet to be raised, construction, which contracted by 6.3% year-on-year in 2Q16, is likely to continue declining in 2H16. A troubled consumer implies wholesale and retail trade, a proxy for consumption, may see its growth turn negative in 2H16. This may in part explain the decline of the largest manufacturing sector; food and beverages, for six consecutive quarters”.
Recaps forecast tally’s with John Ashbourne’s, Africa Economist at London-based Capital Economics. In a note distributed Wednesday, he said while the economic retraction will ease in the third quarter, it likely will continue to shrink over the duration of this year.
“More important than the headline number is the fact that almost all key sectors of the economyare now struggling,” Ashbourne said.
Many of the declines, apart from the oil sector, were due to Nigerian government policy, he averred as he also cited import restrictions that have harmed manufacturing and foreign exchange policies that have discouraged investment.
Meantime, the country’s sovereign dollar bonds fell across the curve to their lowest level in more than two weeks after the NBS contraction announcement on Wednesday.
The 2023 issue chalked up the biggest losses, down 0.728 cents to trade at 99.417 cents in the dollar – its lowest since August 15, according to Tradeweb data. The 2021 bond slipped by 0.489 cents to 102.156 cents while the 2018 issue lost 0.603 cents to trade at 101.167 cents.