Nigerian economy remains vulnerable, warns NBS’ Yemi Kale


October 3, 2017 | 2:00 am
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Nigeria can not afford to take its foot off the gas in seeing through badly needed structural reforms, as the economy slowly recovers from its worst slump in a quarter of a century, says Yemi Kale, head of state-funded National Bureau of Statistics (NBS) which publishes macroeconomic data.

The Nigerian economy, which vies with South Africa’s as the continent’s largest, expanded 0.55 percent in the second quarter of 2017, after five successive quarters of contraction since Q1 2016, as oil prices stabilised at $50 per barrel and production inched up some 500,000 barrels to 1.7 million a day, from as low as 1.2 million in 2016, according to OPEC data.

While some government officials are breaking bread over the economy’s exit from recession, Kale is having none of it, rather he warns of a greater turbulence ahead if the fragile recovery blunts the hunger to restructure the economy.

“The structure of the economy was responsible for the recession and if that is not changed, the economy remains vulnerable,” Kale, who was guest speaker at an event organised by the Nigerian-South Africa Chamber of Commerce, said to a roomful of local and foreign investors at the Eko hotel, Thursday.

The fragile recovery in Q2 was primarily as a result of base effects, according to Kale.

“If you compared the economy with 2014, stripping it of 2016’s low base, then we are still in recession.
However, whether the economy stays out of recession depends on what we do from now, and we can’t afford to take our foot off the gas,” added Kale, who once headed the research team at Stanbic IBTC Bank and served as an equity analyst and quantitative analyst at Goldman Sachs and Merrill Lynch respectively.

“Coming out of recession is just the beginning. We need to sustain reforms. About 48 activities are still in recession, or not growing substantially,” Kale said with a sense of concern.

Most notable of sectors of the Nigerian economy that remain in doldrums is the services sector, which accounts for the single largest share of Gross Domestic Product (54 percent). Services have been hammered by double digit inflation and an almost 40 percent naira devaluation.

Flowing from this, the economic recovery leaves much to be desired when placed in proper context.

The impact of government policy is conspicuously absent in the recovery narrative, and private capital has hardly been tapped to engender the sustainable and inclusive growth required for Africa’s most populous nation, which has produced people at an average of 3 percent per annum in the past decade.

The exit from recession was most substantially accounted for by the significant swing from a 15.6 percent contraction in the crude petroleum and natural gas sector in Q1 to a 1.64 percent growth in Q2.

But for this 17.24 percentage point change in the crude oil and gas sector, Nigeria would have remained in recession in the second quarter of 2017.

“The bottom-line is that we do not yet have a policy-driven, sustainable recovery, but one aided by events beyond our control- oil prices,” Opeyemi Agbaje, chief executive officer of Lagos-based RTC advisory service, said in his weekly column in BusinessDay this month.

Kale agrees.

“As much as I would want to say the economy expanded in Q2 on the back of government policies, the story is stable oil prices and production,” Kale said.

Kale however commended government efforts to improve the ease of doing business, which he admits will yield some positive fruits in due time.

The government targets to be within top 100 by 2020 in the ease of doing business ranking, from a lowly 169 among 190 countries surveyed by the World Bank in 2017.

The oil price rout that started late 2014 and its negative impact on net exporting countries forced the hands of countries from Saudi Arabia to Russia and Nigeria, to diversify their economies away from oil and further open up their shores to investment capital.

Nigeria’s economy has been left exposed by the oil turbulence, particularly as a result of its dysfunctional economic structure, according to Kale, who carefully unpicked the structural loop holes in the economy.

There are three sectors that form the economy, according to the NBS chief, as against the much touted narrative that the economy is made up of the oil and non oil sectors, each of which account for 9 percent and 91 percent respectively.

“We have the oil and non oil sectors, as well as the “oil dependent non-oil sector, which accounts for 52 percent of the 91 percent accounted for by the non oil sector,” he said.
“The sub sectors that belong to the latter include the manufacturing, construction and trade sectors. They are all greased by foreign exchange from oil proceeds and it is no wonder they have been hard hit by the collapse in oil prices,” Kale said.

Despite contributing only 9 percent to GDP, the oil sector accounts for almost 90 percent of foreign exchange inflows into Nigeria and 70 percent of public revenue, another concern, Kale noted.

Worse still, the economy is consumption-led, which is not bad in itself, until the country’s unflinching appetite for imported items is put in perspective.

“Consumption accounts for 70 percent of GDP by expenditure. That’s fine, but the problem is the preference for imported items which then stokes dollar demand and puts pressure on the exchange rate,” Kale observed.

All of these structural imbalances must be addressed if Nigeria must return to the days of robust growth of 6 percent and create the jobs required for its teeming youth population, said Kale.

The government publicised a blue print last March, which outlines how it intends to redress the structure of the economy. The blue print was tagged “The Economic Recovery and Growth Plan” ERGP.

The plan aims 7 percent growth by 2020, much of which will rely on pumping more crude to hit 2.5 million barrels from a current 2.2 million.
The ERGP targets a 293 percent increase in oil GDP to N63 trillion by 2020, from N16 trillion in 2017.

The non-oil GDP is only expected to grow 18 percent to N117 trillion from N99 trillion, according to a presentation made by Udoma Udo Udoma, the national planning and budget minister. The ERGP also targets 15 million new jobs and a reduction in unemployment rate to 11 percent by 2020. Unemployment rate hit a six- year high of 14 percent in the fourth quarter of 2016, according to data compiled by BusinessDay and sourced from the NBS.

Sharing his outlook for the year ahead, Kale points to the possibility of slower growth as another election cycle kicks in and investors cut back on spending.




October 3, 2017 | 2:00 am
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