By Nse Anthony-Uko
(Sundiata Post) — Nigeria’s economy has made significant improvement from what it was at the beginning of 2017. Most prominent is that the economy grew for the first time in the second quarter after recording negative growths for over a year. The recovery also gained momentum in the third quarter.
No doubt, these growths were spurred by certain events which took place within the economic landscape during this period.
Some noteworthy events of economic relevance occurred during the year. While some of them have been engendered by good policies others were just stumbled upon. Here is a summary of the key events:
1. Oil sector resurgence,
Nigeria has had a fair amount of good luck in 2017 as oil prices strengthened, and production levels have surpassed 2 million barrels per day threshold.
Specifically, the Brent crude oil prices on December 12, jumped above $65 per barrel after the shutdown of the Forties North Sea pipeline knocked out significant supplies from a market that was already tightening due to OPEC-led production cuts. Though it has reduced slightly since then, the sustained improvement in oil prices since the beginning of the year has impacted significantly on the nation’s earnings, reserves and exchange rate.
Oil output averaged 2.03 million barrels per day (mbpd) in the third quarter, which was above the revised 1.87 mbpd recorded in Q2 (previously reported: 1.84 mbpd). Greater production combined with higher oil prices drove the oil sector to grow by a robust 25.9% annually, significantly above Q2’s 3.5% expansion. Oil production largely returned to normal in Q3, after the completion of repair work earlier in the year. In addition, an improved security situation in the key oil-producing Niger Delta region helped stabilize output.
This stability in oil sector production was instrumental to the CBN’s ability to ceaselessly intervene in the FX market. Armed with oil proceeds, the CBN by sheer force of will, dragged down the exchange rate from about N520 to the current N360 levels.
2. Nigeria’s Foreign Reserves Hit 39-month High at $38bn
Nigeria’s foreign reserves on December 5, 2017, stood at $38.2 billion, hitting a 39-month high on the back of rising oil price of crude
The Central Bank of Nigeria, CBN, Mr. Godwin Emefiele said “We have seen reserves move up from the $23 billion I talked about in October 2016, but as I speak today, external reserves are $38.2 billion.”
The governor said the restriction of foreign exchange to the 41 items by the bank made the construction of the plant a reality.
3. Senate Approves FG’s $5.5bn Borrowing Plan
The Senate on November 14, 2017 approved the federal government’s plan to secure two external borrowings totalling $5.5 billion and which will allow the government to pay down the equivalent of $3 billion dollars in domestic debt.
The external borrowings in the form of the Issuance of $2.5bn in International Capital Market through Eurobonds or a combination of Eurobonds and Diaspora bonds for the financing of the Federal Government of Nigeria’s 2017 Appropriation Act and capital expenditure projects in the Act as well as the Issuance of Eurobond in the ICM and/or loans syndication by the banks in the sum of $3bn for refinancing of maturing domestic debts obligations of the Federal Government of Nigeria,.
4. Nigeria Emerges from Recession
In September, the National Bureau of Statistics, (NBS) said Nigeria economy was out of recession as Gross Domestic Product, (GDP), returned to positive growth of 0.7 per cent in real terms in the second quarter of 2017.
Economic recovery also strengthens in the third quarter on higher oil production as he GDP expanded 1.4 per cent annually. Higher oil production drove the acceleration in Q3, which was also likely aided by increased public spending and an improved exchange rate
5. 2018 Budget Submitted To National Assembly
President Muhammadu Buhari presented a N8.612 trillion 2018 Budget proposal to National Assembly on November 7, 2017 with a benchmark of $45 per barrel at an exchange rate of N305 to a dollar in 2018, the budget would consolidate on the achievements of previous budgets to aggressively steer the economy to the path of steady growth.
“With the economic recovery made so far, it is clear that we made the right decisions. And I urge you all to support the Federal Government’s policies towards economic recovery,” he said.
6. The Investor and Export FX window
In April, 2017, the Central Bank of Nigeria launched the Investors’ and Exporters’ FX window. The establishment of this market was in response to calls for the CBN to liberalize the FX market and float the currency. The CBN, considering other factors including the feed-through of a weak exchange rate to inflation – which would have had severe effects on Nigeria’s import-dependent economy –, opted to liberalize a portion of the market while maintaining control of the other segments.
This would ensure that major parts of the economy are insulated from exchange-rate-related disruptions. Prices in the I&E window are market determined. We believed that this compromise by the CBN to market forces was highly commendable and timely in facilitating the gradual return of confidence to Nigeria’s FX market and financial system as a whole. It sets a foundation on which more robust economic recovery can be made. Investors and other bulk FX users are now better able to access FX for transactions such as capital, profit and dividend repatriations.
Businesses can now also make their foreign loan and interest repayments, and other trade-related payment obligations. The good thing about this market is that it has now snowballed in to a nearly $4billion market, after being midwifed by the CBN. Participants now trade with each other, as the CBN reduces its activities in the market. Due to the new-found confidence brought about by this market, MSCI (Morgan Stanley Capital International), decided to leave the country in its frontier index until at least November.
An exist from this market would have been bad future FX inflows, considering that Nigeria had already been exited from JP Morgan & Chase’s Government Bond Index for Emerging Markets (GBI-EM) in September 2015, and Barclays emerging markets local currency government bond benchmark in February 2016.
7. The 2017 budget
The National Assembly passed the 2017 budget on Thursday May 11 after a lot of drama, as usual. The budget of N7.44 trillion is the highest ever by any Nigerian government, and was premised under the assumptions of oil price at $44.5 a barrel production 2.2mbpd. This budget, which is meant to be reflationary is supposed to be the means through which President Buhari’s ambitious economic recovery plan will be executed. Despite the good intentions articulated in the Economic plan and the budget, there are serious concerns.
The first of this is Revenues. It is almost impossible for Nigeria to attain its ambitious revenue targets, if precedents are anything to go by. Non oil revenues will crawl up at snail’s pace, while oil revenues are constantly being threatened by low global prices and threats of production disruption from the Niger Delta.
The Nigerian economy is heading out of the woods, mostly because of the peace brokered by Ag President Osinbajo. But this peace is increasingly fragile as the government continues to delay on implementing its promises to the Niger Delta region.
Another worrying trend regarding the Budget is the amount set aside for debt servicing – a precarious N1.84 trillion, 24.7% of the total budget and 36.3% of revenue projections for the year. N2.18 trillion was set for capital expenditure, which although is small. However, it will do some good if the government actually implements it. Speaking of capital expenditure implementation, Minister Fashola’s idea of focusing capex on a few projects to achieve 100% completion rather than frittering it on hundreds of tiny projects that will not be completed sounds like a noble idea. It is our wish that the NASS gives him a chance.
8. 2017 Appropriation Act Signed By Presidency
On June 12, 2017 Acting President Yemi Osinbajo signed the 2017 appropriation bill into law in the absence of President Mohammadu Buhari who was then away on a medical vacation in the UK.
The total budget figure signed is put at N 7.44 trillion.
The budget was considered a milestone by the presidency in the implementation of the Economic and Growth Plan Programme in April.
The National Assembly had passed the 2017 Appropriations Bill on May 10 increasing the total sum by N143 billion from the N7.28 trillion earlier proposed by President Muhammadu Buhari in December last year, to N7.44 trillion.
9. Nigeria taps international debt markets, launches first diaspora bond, first sukuk bond, raises Eurobonds
Nigeria accessed the international debt market very liberally in 2017 to raise funds which it said were utilised to finance the capital components of the 2016 and 2017 Budgets.
The latest borrowing foray was in November when $3 billion Eurobonds were issued at the International Capital Market (ICM). This was part of the $5,5 billion approved by the Senate.
In October, the federal government raised another N100 billion through Sovereign Sukuk Bond and subsequently released the funds to road contractors to facilitate the construction and rehabilitation of 25 priority road projects across the six geopolitical zones.
Nigeria successfully raised $300 million in June in its first ever diaspora bond at a coupon rate of 5.6% for a tenor of five years. The bond was over-subscribed at 130%.
It earlier in March it had raised $1.5 billion Eurobond this year ($1 billion and $500 million separately). Both issues were vastly oversubscribed.
10. Executive Orders Galore
Acting President Yemi Osinbajo signed 4 Executive Orders in a bid to fast track reforms. They are:
• Executive Order On the Voluntary Assets and Income Declaration Scheme (VAIDS). VAIDS is a nine (9) month window of opportunity to allow taxpayers who are owing taxes to voluntarily declare their Asset and Income and pay the taxes due on them. In return for this, they get a pardon and wont pay the interest.
• Executive Order on Budgets which mandates MDAs to prepare and submit their schedule of revenue and expenditure estimates for the next three financial years on or before the end of May every year, to the Minister of Finance and the Minister of Budget and National Planning
• Executive Order On Support for Local Content in Public Procurement by the Federal Government
• Executive Order On the Promotion of Transparency and Efficiency in the Business Environment.
The Executive Orders convey the feeling that the Ag President is serious and wants to be speedy in the achievement of reforms. This is very commendable, however, a key concern is if these orders will be adhered to.
While their aims are noble, and while the affected MDAs may want to comply, we feel that there may be systemic issues that need to be addressed if the EOs will yield result. In many cases, organizational structures of the MDAs will need to be tweaked significantly for compliance with the EOs to be complete.
This will take considerable time. Furthermore, the rocky relationship between the Executive and the Legislature may prove to be an adverse factor for the achievement of the Ag President’s wider reform goals.
11. President Buhari Launches Economic Recovery and Growth Plan
President Muhammadu Buhari in April launched the Nigeria Economic Recovery and Growth Plan, (ERGP), which seeks to restore the nation’s economic status following the high rate of inflation and recession.
The ERGP focuses on agriculture with a view to ensuring adequate food security as well as energy, industrialisation and social investment.
The ERGP is an ambitious plan that seeks to achieve a 7 per cent economic growth by the year 2020 and put it on the path of strength and growth, away from being an import dependent nation.
12. The Etisalat Saga
Another event that made the headlines in 2017 was the incredible fall of Etisalat Nigeria. The Telco giant fell into a debt crisis, owing $1.2 billion to 13 Nigeria banks. Etisalat eventually defaulted on its loans, leading the banks to consider calling in their collateral which unfortunately includes seizing the assets of the company, including its shares.
The parent company – Etisalat UAE pulled out completely from the Nigerian unit, while regulators replaced the company’s key officials with CBN administrators. The now former Parent company has said that its brand name should seize being used in Nigeria, as it has terminated its management agreement with the Nigerian business.
Three weeks have been given before the brand is completely phased out in Nigeria. Etisalat Nigeria’s story throws up several lessons: it is a lesson in how a bad macro-environment can be caustic to business; it is also a lesson on how sub-par management can bring down an industry giant.
The regulators designated Etisalat as a systemically important telecommunications company with over 20 million subscribers and 4,000 staff, stating that if the Etisalat situation was not well handled, the banking system itself may be severely affected.
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