Nigeria is experiencing its worst economic downturn in over a decade, with the country’s inflation at an alarming 15.6 per cent.
Government revenues are battered by a crash in oil prices and renewed militancy in the Niger Delta, and many states are now cash-strapped and unable to pay workers’ salaries. The Nigerian crisis has even spread to global airlines.
In the latest illustration of the economic crisis engulfing Nigeria, United Airlines is to discontinue daily flights between Lagos, the commercial capital, and Houston in the US at the end of the month. Iberia, the Spanish airliner, cancelled all four of its weekly flights to Nigeria in May.
Henry Boyo, economist, and Bismarck Rewane, CEO Financial Derivatives Company, spoke to CNBC Africa on the crisis.
“I don’t know if you can truly say they are guiding the economy back to the path of growth, especially when the indices don’t suggest so. The critical indices for growth are basic. You should have, to a very large extent, stable consumer demand or even increasing consumer demand, especially in the situation we find ourselves in, in order to stimulate and encourage investment.”
He added that “When there’s an increase in demand, investors will be willing to put their money out and produce and also employ people.”
“If the reality suggests that the consumer demand is depreciating and not only that, the people who are supposed to have the demand also are being constrained by other forces like the 15.6 per cent rate of inflation for this month. Also industrialist cannot produce because the cost of funds is rather high at 20-something per cent” he says.
“The budget of 2016 was predicated possibly at an inflation rate of about eight or six per cent, we’re now talking of about 15/16 per cent. Consequently you will find that the budget itself is totally misaligned as a result of this monetary index.”
“You must be very optimistic to believe that you’re on the path of growth when your inflation is trending at 15/16 per cent, cost of funds in the area of 20-something per cent, consumer demand is also deflating. You really need to be a magician to convince the public that you’re on the path of growth.”
Bismarck Rewane, CEO Financial Derivatives Company explained that “There’s a difference between a return to growth and a recovery. When you look at the trend, even if you had a negative growth of ‘x’ and now you have a negative growth of ‘y’, and if ‘y’ is more than ‘x’ it’s still a recovery even if you’re in the negative quadrant.”
adding that “I think the root to the path to recovery is predicated on fiscal stimulus, the timing and the spending. What has happened is that long rhetoric, short on deliverables, short on timing. The delay effect is more profound on economic activity and outcomes than the policy itself.”
He further stated that “The lag is between when you make decisions and when you implement them; you’re spending in June what you could have spent in January. The capacity of this economy to take that six trillion naira, which in any case, because the value of the naira has depreciated, is not that much in the rest of the world, the budget should be aligned with the depreciation of the naira.”
Credit: CNBC Africa