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Stats: 1,303 members, 11,683 Topics. Date: November 17, 2018, 11:14 pm

Concerns Grow Over Oil Induced Economic Growth

BiafraSay Forum | BiafraSay General | #Politics* | Concerns Grow Over Oil Induced Economic Growth (98 Views)

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…Agric Minister Bemoans High Interest Rate
A worrying decline in the non-oil sector, which is the largest contributor to the economy, is muting excitement about the economy’s second expansion in seven quarters. The non-oil sector, which contributes some 90 per cent to Gross Domestic Product (GDP), contracted by 0.76 per cent year-on-year in the third quarter, according to the current report released by National Bureau of Statistics (NBS).
According to Bolade Agbola, Lagos based analyst, “The GDP growth figure of 1.4% in the third quarter as against 0.72 % in the second quarter confirms the fact that the economic recovery process will be slow, tedious and fragile. The recovery pattern is uninspiring but most welcome development because all operators in the economy need to be put under pressure to find ways to truly diversify the economy and, pursue an inclusive and sustainable economic growth strategy.
“The inflationary rate is still very high at about 15% while the unemployment rate is frightening. We are still reliant on the crude oil export for our external and internal balance. This is the time to be creative, prudent and evolve systems and processes that will truly grow the economy.”
Razia Khan, Managing Director, Chief Economist, Africa Global Research, Standard Chartered Bank, London said, “From the weak Q3 GDP print, it is clear that action to boost the economy is needed. What is less clear is the form that the action should take.”
Bismarck Rewane, Chief Executive, Financial Derivatives Company, in the current FDC Commodity Update said, “Brent is trading treacherously above $61.48pb. The need for alternative export revenues to mitigate oil price volatility is now imperative for Nigeria. This is why LNG revenue could be a near substitute to oil. Nigeria currently earns in excess of $7bn from LNG, and is the world’s 4th largest exporter of the product.
“Interest rate sensitive sectors shrink, GDP numbers show vulnerability to exogenous shocks, OPEC strict enforcement may hurt Nigeria in Q4.”
Rewane further said that it was a matter of concern that the non-oil sector contracted by 0.76% in real terms, adding that the biggest losers were Transportation (-6.25%), Finance & Insurance (-5.96%), Telecoms (-5.68%) while the biggest gainers were Agriculture (3.06%) and Construction (0.46%).
Specifically, he said seven out of the 10 biggest non-oil sectors recorded negative growth, suggesting that growth continues to be driven by oil, and raising “some concerns about sustainability.”
Yvonne Mhango of Renaissance Capital (Rencap) in his November 21, note,” Nigeria: 3Q17 GDP —Uneven growth recovery,” expressed concerns that the “non-oil sector’s growth slipped back into negative territory; -0.8% YoY vs zero growth a year earlier, despite agriculture’s consistent growth. Uneven growth explains why Nigeria’s growth recovery is fragile. We maintain our 0.7% growth forecast for 2017, and expect capex and a pick-up in demand to help lift growth to 2% in 2018. The lopsidedness of the recovery implies downside risk to growth.”
Another area of concern was the fact that “manufacturing’s growth slipped back into negative territory 3Q17 – when it declined by 2.9% YoY vs a contraction of 4.4% YoY in 3Q16 – after emerging from it in 1H17. This was largely due to oil refining, which sharply declined by 45% YoY in 3Q17 vs a 1% YoY decline a year earlier.”
According to him, the biggest manufacturing sector – food, beverages and tobacco – grew by modest 0.6% YoY, following a 5.8% YoY decline a year earlier, but this is its slowest growth since it emerged from negative territory in 1Q17.
The services sector recorded negative YoY growth in 3Q17, for the sixth consecutive quarter, of 2.7% vs a decline of 1.2% a year earlier. As the sector accounts for half of GDP, this has meaningful implications for growth. Services’ deepening decline was largely due to telcos, real estate, trade, finance and road transport.
Also, finance contracted by 6.5% YoY in 3Q17 vs 2.8% YoY a year earlier, in line with the sharp slowdown in YoY credit growth to -2.9% in August, from 22% a year earlier. Telcos – the third biggest sector – recorded its worst performance this decade, in 3Q17, when it declined by 5.7% YoY, vs growth of 0.9% YoY in 3Q16. Real estate – the fifth biggest sector – remains in recession; it grew by -4.1% YoY vs -7.4% YoY, over the same period.
“Nigeria’s recovery has largely been driven by the oil sector. Outside of agriculture, the remaining two-thirds of the economy is sluggish. Manufacturing’s return to negative growth territory highlights the fragility of this recovery. That said, we think GDP growth remains on track to meet our 0.7% forecast for 2017. We expect the stepping up of government capex and pick-up in demand, on the back of improved FX liquidity, to help lift growth to 2% in 2018,” added Akinyanmi.
Godwin Emefiele, CBN Governor said at the Monetary Policy Committee (MPC) meeting that overall “non-oil real GDP contracted by 0.76 per cent in Q32017, giving credence to the argument that more work is required to consolidate the recovery process; by putting in place policies that will boost growth through the non-oil sector.”
Emefiele further said that while net domestic credit (NDC) expanded by 1. 18 per cent annualised to 1.42 per cent, driven primarily by net credit to government, which also expanded by 47.60 per cent against the programmed growth of 33.12 per cent, credit to the private sector, however, contracted by 0.24 per cent in October 2017, compared with the provisional benchmark of 14.88 per cent.”
But Audu Ogbeh, Agriculture Minister, in an article “Interest Rates, Foreign Direct Investments and Indigenous Agro-Enterprises,” wondered the preference of the country’s economic managers for foreign direct investment (FDI) against the development of the local economy.
Nigeria, like every other developing economy, needs quantum of funds for investment, economic growth and industrial development. The way it is, we welcome foreign direct investment (FDI). Every developing country does that. It is a welcome development for a country that wants to grow and grow speedily. But it has other complexities, which are not always visible and noticeable to observers.
“Take the problem we face now, that is nearly impossible for any Nigerian investor to have access to substantial credit to make any major investment, say in the agro-industrial sector where we operate now.
At interest rates of between 25 and 32 per cent, what – on God’s green earth – can you do? You can’t do much. But these foreigners can borrow at two per cent, bringing a hundred or two hundred million dollars to invest. Of course, they will create some jobs but essentially low level jobs – for out growers and others. In a sense, they are jobs. But the way we are heading, what it means is that if these interest rates persist for much longer, the only people who will dominate agro-industry, and indeed major industrialisation in this country are foreigners.
“Is that necessarily a good thing? It’s good in some ways. But if they take absolute control, then we are in danger. This is the complexity. And I keep complaining, for instance, about the interest rates, although many people don’t seem to agree with me. Where in the world have interest rates remained at over 25 per cent for 30 years and that country still claims the economy is growing? How does it grow?
“Or how does it develop its industries? Where in the world is the MSME industry flourishing when it is impossible to access credit? So, young people are reluctant. Retiring civil servants who want to create something can’t do anything. Those within the productive bracket who want to create and do things can’t do anything. We are facing a problem, and something has to be done very quickly about the entire interest rate regime.
A massive nationwide debate has to take place between the bankers, the CBN, businessmen, manufacturers’ association, agricultural engineers, input producers and suppliers, policy economists and others. Questions on FDIs and interest rates need to be pondered upon. Are we doing the right thing? Or, why is it then necessary to have preferential interest rate for agriculture at nine per cent? We seem to agree that if it hadn’t happened, some of the progress made in the last two years would have been impossible.
“Even the nine per cent is still too high. The highest in the world today is India, at 3.5 per cent. In the rest of the world, it is two per cent, or 2.5 per cent. So these are very serious problems, although people may skip over them and pretend that all is fine, but all is not really fine. All is not fine; especially as our population is growing and our credit is still a crucial issue. We thank God power seems to be stabilising. That is good news for us. But credit is a crucial part of the effort we want to make to stabilise the economy.
“Leaving everything to only foreign direct investments is also not safe because they come with certain strings which are not always very easy. They will have to repatriate their profits. The other issue is, if agriculture doesn’t grow as fast as it should and agro-industrial exports and raw materials don’t happen as quickly as they should, when the oil and gas era is gone, what will be our source of foreign exchange? Again, that is something we need to deal with. And it’s all very complicated.”

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