Outlook 2008:Let us have the direction
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While the government is expected to its best to respond to the economic, social and political requirements of the Niger Delta crisis, it will be expected to define the parameters of its economic reforms and its policy for the funding of important infrastructural projects in the country. The excuses of last year will not be tenable.
The world economy is strongest for 30 years, although growth has slowed in the US, Europe and Japan, and Oxford Economics forecasts that oil price will drop to about US$70 dollars during 2008.
The government will expect the economy to benefit from the continued high oil price. Crucial to this, from Nigeria’s perspective is whether the situation in the Niger Delta improves this year or not. If the situation in the Niger Delta improves, it will help improve the economic performance of the country in two respects. First, it will help improve production levels to daily capacity. Second, the improvement in the Niger Delta will help towards achieving government targeted level of reserves this year.
On macroeconomic stability, the government has argued repeatedly for the continuation of the pursuant of sound macroeconomic policies in the context of the National Economic Empowerment and Development Strategy (NEEDS). The details of the government approach will be in NEEDS 2 to be published in March this year. It is expected that the government will pledge its commitment to continue the reforms of the last few years.
Although the document was ready in May 2007, the present have had to set new realistic targets and harmonised it with the president’s seven point agenda and now plans to make it the foundational document for the aim of making the Nigerian economy one of the top 20 economies by 2020.
In pursuant of macroeconomic stability, the government hopes to keep deficit below 3 percent of GDP, proposing a debt service of N372.3 billion for 2008, an increase 27.3 percent, relative to 2007. Domestic debt service will gulp N306. 2 billion while foreign debt service will take N66 billion.
The overall increase inn debt service requirement for 2008, when compared to 2007 is a reflection of the increase in the domestic stock element of total government debt in the last two years. This increase has come as a result of the frequency of the federal government to the capital markets in the form of FGN bonds. The trend is expected to continue this year, helping to deepen the capital market in the process. In addition, the federal government is expected to fund some aspects of its deficits though oil signature bonuses and proceeds from privatisation.
Although the federal government plans to spend over N130 billion on infrastructures, including power, this year will be defined by policy initiatives to solve the nagging and perennial problem. The government recognises it has not enough money to solve the problem, and the president promised in his budget speech that the interrupted installation and construction of the National Independent Power Projects (NIPP) will be funded differently from the approach adopted by the last administration. It is expected that the government will give a definite method of funding these projects in the next few months, depending on when the Energy Review Committee (ERC) submits its report of the sector.
Businesses are sure looking forward to the effective deployment of this fund and the direction the government will follow on infrastructure projects. One of the approaches that has often been mentioned is Public Private Partnership (PPP). On PPP, more details will come out this year on the proposed PPP on key federal roads such as the Lagos – Ibadan and Sagamu – Benin Expressways.
On the reforms, it is quite unclear what the timetable and how deep future reforms will be. Despite the scope and speed of the last set of reforms that covers fiscal, the civil service, monetisation of benefits, and procurement procedures etc, there is much scope for reforms in many other areas of the economy.
The government believes the recent growth rate is to continue in 2008. Indeed, the government believes the economy will expand by 7 – 8 percent this year. The contributions to this growth will come, broadly, from the oil and the non oil sectors. The government expects double digits growth rates this year in the agricultural, telecommunications, real estate and business services sectors of the economy. The contributions of the agricultural sector to economic growth in 2008 will depend on good weather conditions and the implications of the non-signing of the economic partnership agreement (EPA) with the EU.
Real estate is to continue its growth trend, based on the increase in income in the economy, itself as a result of recent economic growth, favourable external conditions, and the appreciation of the Naira. The same explanation is applicable to demand in services.
In addition, the government expects significant improvement in the contribution of the manufacturing sector to economic growth, through improved capacity utilisation in the industry. Analysts, however, believe this is only realisable if the power situation improves in the country.
Businesses and investment decision makers will be concerned about inflation and interest rates in 2008. More importantly, they will be concerned with the deficit financing and the national debt. The effect of the slight increase in government budget deficit on inflation, interest rates, and exchange rates is expected to be mild. It depends so much on how monetary policy responds to support fiscal policy in short and medium term.
While the economy has made much progress in the last four years, especially at the back of economic reforms initiated by the last administration, it is still a very long way towards solving the massive economic problems of our country that include widespread poverty, unemployment, and disease. These are the implications of the economy not harnessing all the potentials of its human and material resources. We hope in 2008 that the governments will direction on how we will move forward economically.
On exchange, I think the Naira will appreciate to reach about $1 to N105 in the first quarter of this year if the present circumstance in the global economy should continue. It is very unclear how the non oil export will respond but it surely going to be challenging for the sector, especially agriculture.
Although I expect portfolio to continue this year, I suspect the international community is more cautious and awaiting government’s approach to reforms this year.
The world economy is strongest for 30 years, although growth has slowed in the US, Europe and Japan, and Oxford Economics forecasts that oil price will drop to about US$70 dollars during 2008.
The government will expect the economy to benefit from the continued high oil price. Crucial to this, from Nigeria’s perspective is whether the situation in the Niger Delta improves this year or not. If the situation in the Niger Delta improves, it will help improve the economic performance of the country in two respects. First, it will help improve production levels to daily capacity. Second, the improvement in the Niger Delta will help towards achieving government targeted level of reserves this year.
On macroeconomic stability, the government has argued repeatedly for the continuation of the pursuant of sound macroeconomic policies in the context of the National Economic Empowerment and Development Strategy (NEEDS). The details of the government approach will be in NEEDS 2 to be published in March this year. It is expected that the government will pledge its commitment to continue the reforms of the last few years.
Although the document was ready in May 2007, the present have had to set new realistic targets and harmonised it with the president’s seven point agenda and now plans to make it the foundational document for the aim of making the Nigerian economy one of the top 20 economies by 2020.
In pursuant of macroeconomic stability, the government hopes to keep deficit below 3 percent of GDP, proposing a debt service of N372.3 billion for 2008, an increase 27.3 percent, relative to 2007. Domestic debt service will gulp N306. 2 billion while foreign debt service will take N66 billion.
The overall increase inn debt service requirement for 2008, when compared to 2007 is a reflection of the increase in the domestic stock element of total government debt in the last two years. This increase has come as a result of the frequency of the federal government to the capital markets in the form of FGN bonds. The trend is expected to continue this year, helping to deepen the capital market in the process. In addition, the federal government is expected to fund some aspects of its deficits though oil signature bonuses and proceeds from privatisation.
Although the federal government plans to spend over N130 billion on infrastructures, including power, this year will be defined by policy initiatives to solve the nagging and perennial problem. The government recognises it has not enough money to solve the problem, and the president promised in his budget speech that the interrupted installation and construction of the National Independent Power Projects (NIPP) will be funded differently from the approach adopted by the last administration. It is expected that the government will give a definite method of funding these projects in the next few months, depending on when the Energy Review Committee (ERC) submits its report of the sector.
Businesses are sure looking forward to the effective deployment of this fund and the direction the government will follow on infrastructure projects. One of the approaches that has often been mentioned is Public Private Partnership (PPP). On PPP, more details will come out this year on the proposed PPP on key federal roads such as the Lagos – Ibadan and Sagamu – Benin Expressways.
On the reforms, it is quite unclear what the timetable and how deep future reforms will be. Despite the scope and speed of the last set of reforms that covers fiscal, the civil service, monetisation of benefits, and procurement procedures etc, there is much scope for reforms in many other areas of the economy.
The government believes the recent growth rate is to continue in 2008. Indeed, the government believes the economy will expand by 7 – 8 percent this year. The contributions to this growth will come, broadly, from the oil and the non oil sectors. The government expects double digits growth rates this year in the agricultural, telecommunications, real estate and business services sectors of the economy. The contributions of the agricultural sector to economic growth in 2008 will depend on good weather conditions and the implications of the non-signing of the economic partnership agreement (EPA) with the EU.
Real estate is to continue its growth trend, based on the increase in income in the economy, itself as a result of recent economic growth, favourable external conditions, and the appreciation of the Naira. The same explanation is applicable to demand in services.
In addition, the government expects significant improvement in the contribution of the manufacturing sector to economic growth, through improved capacity utilisation in the industry. Analysts, however, believe this is only realisable if the power situation improves in the country.
Businesses and investment decision makers will be concerned about inflation and interest rates in 2008. More importantly, they will be concerned with the deficit financing and the national debt. The effect of the slight increase in government budget deficit on inflation, interest rates, and exchange rates is expected to be mild. It depends so much on how monetary policy responds to support fiscal policy in short and medium term.
While the economy has made much progress in the last four years, especially at the back of economic reforms initiated by the last administration, it is still a very long way towards solving the massive economic problems of our country that include widespread poverty, unemployment, and disease. These are the implications of the economy not harnessing all the potentials of its human and material resources. We hope in 2008 that the governments will direction on how we will move forward economically.
On exchange, I think the Naira will appreciate to reach about $1 to N105 in the first quarter of this year if the present circumstance in the global economy should continue. It is very unclear how the non oil export will respond but it surely going to be challenging for the sector, especially agriculture.
Although I expect portfolio to continue this year, I suspect the international community is more cautious and awaiting government’s approach to reforms this year.
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