•Re-state strengths, risks to watch
The Nigerian business community has charted a policy direction for President Goodluck Jonathan as he starts the second leg of his presidency this month.
Though optimistic of a “fruitful” tenure, the business class nonetheless notes that President Jonathan’s political survival depends on his economic performance and the need to grow the economy. He also needs to carry the Northern part of the country along in the implementation of his development programmes. The business leaders also call on the president to address gross domestic product (GDP) growth rate and mind issues of high income inequality, which are recipe for political instability. They note that income inequality is already playing up in the country.
A school of thought in the business community for instance is very optimistic that the new administration will progress with the power sector reform – sale of six power generating firms (gencos) and 11 distribution firms (discos) to be concluded and the establishment of a new power tariff regime by the Nigeria Electricity Regulatory Commission (NERC). This is expected to improve the economics of power generation for the private sector.
“Successful power reform could easily push growth rates to double digits and also attract new investment to the upstream and downstream sector,” said Bismarck Rewane, CEO, Financial Derivatives Company Limited.
Going by the enormous challenges facing the new administration, speculators in the business community foresee a situation where government may approach the international debt market for additional funds, while noting also, the unlikelihood of fiscal discipline in spite of the high oil prices.
At a Lagos Business School Executive Breakfast Session, Rewane outlined the challenges, options and possible outcome of a new economic dispensation in Nigeria. The session for instance revealed that oil at $124per barrel and production at 2.3million barrels per day (mbpd) guarantees export earnings of $98.8billion and trade balance of $50.8billion.
“Nigeria’s credit rating could improve if fiscal discipline is observed. LNG which contributed 7.8 percent of exports in 2009 is expected to grow to 10 percent in 2012,” Rewane continued, noting however, the possibility of significant government spending on the rehabilitation and building of physical infrastructure.
The Financial Derivatives Company Limited CEO meanwhile noted risks to watch. These among others, according to him, are: “Too many IOUs to insatiable political godfathers; fiscal discipline needs a strong and assertive leadership; a possible and precipitate fall in oil price to below $70per barrel could jeopardise the economic game plan; naira exchange rate is both a tool for external equilibrium and for inflation management; macro-economic divergence between state and Federal Government strategies could disrupt economic outcomes; state governments as approximately 40percent of the aggregate economy.”
Rewane also noted that Central Bank of Nigeria (CBN) will maintain its ‘contractionary’ policy stance as it grapples with inflationary pressures and continues its active open market operations to mop up excess liquidity.
He stated that the risk of maintaining exchange rate stability at the expense of foreign reserves which is now at about $33.8bilion will show “CBN’s ability to sustain the prolonged naira stability, which comes into question.”
Explaining the need for income redistribution among the entire regions, Rewane explained that per capita income the South is twice that of the North. According to him, “The alignment of the political and economic map is needed to bring stability. The far North has an income per capita of $718per annum compared to $2,010 in the South-South,” he said.
To do this balancing act, Rewane said the President Jonathan-led new administration needs a team to increase national productivity and manage resources efficiently.
“Jonathan ran on a platform of continuity, Buhari on credibility and Ribadu/Adeola on capacity. The new administration is expected to ensure the passage of the Petroleum Industry Bill (PIB). This will make the Nigeria National Petroleum Corporation (NNPC) an autonomous self funding institution, and enhance local content participation,” Rewane said.
He added that “The demand for foreign currency has put increasing pressure on the Naira. The Naira depreciated by 1.0 percent over the last month. A Naira depreciation and adjustment in excess of 4 percent that is N6/$ could increase its proneness to instability. We expect demand for foreign currency to ease post election. CBN could be in a position to rebuild reserves.”
Suggesting lower budget expenditure; need for recurrent and capital spending to be tightened; focus on key reforms in power, oil and gas and agriculture, all of these Rewane says are essential ingredients for the new administration’s forward-focus.
