FOREIGN INVESTORS LOSE HOPE IN BUHARI’S UNCLEAR POLICIES

Foreign investors steadily lost confidence in the government’s ability to manage the declining economy during President Muhammadu Buhari’s first year in office, partly because the president backed the central bank’s insistence on maintaining the currency peg and its decision to implement foreign exchange controls that exacerbated a dollar shortage.

The central bank finally decided to allow for a more flexible exchange rate in June as it bowed to pressure from markets and investors.

But analysts and bankers continue to question the functioning of the market. The exchange rate hovered at just below N280 to the dollar for the first four weeks of the new system, but it then fell in late July and sat at N322 at the end of last week.

A former government official from Katsina says that in the northern state civil servants’ salaries had consistently been paid on time since the country made the transition from military to civilian rule in 1999.

But this year, in Katsina and many of the country’s other 35 states, local administrations have been delaying monthly wages.

“These are uncertain times,” the former official adds.

The central bank finally decided to allow for a more flexible exchange rate in June as it bowed to pressure from markets and investors.

But analysts and bankers continue to question the functioning of the market. The exchange rate hovered at just below N280 to the dollar for the first four weeks of the new system, but it then fell in late July and sat at N322 at the end of last week.

Analysts say that a truly free float would involve the exchange rate weakening even further for a time as the market clears pent-up demand for several billion dollars.

As oil-dependent Nigeria slides towards recession for the first time in more than two decades, the effects of the downturn are being felt across the country — in local markets, factories, government offices and among informal traders.

Economy contracts

The International Monetary Fund last month sharply slashed its growth forecast for Africa’s largest economy, saying it would contract by 1.8 per cent this year, down from its estimate in April of 2.3 per cent growth for the year.

The Washington-based lender cut its 2016 growth forecast for Nigeria from 2.3 percent projected in April, according to its World Economic Outlook update released on Tuesday. The projection for next year was reduced to 1.1 percent from 3.5 percent.

The Nigerian economy will contract for the first time in more than two decades as it “adjusts to foreign-currency shortages as a result of lower oil receipts, lower power generation and weaker investor confidence,” the IMF said.

Gross domestic product shrank by 0.4 percent in the three months through March as oil output and prices slumped and the approval of spending plans for 2016 were delayed. A currency peg and foreign-exchange trading restrictions, which were removed last month after more than a year, led to shortages of goods from gasoline to milk and contributed to the contraction in the first quarter.

“Very Little Done”

President Muhammadu Buhari signed a record budget of 6.1 trillion naira ($21.35 billion) in May, more than four months into the fiscal year. “It’s half way through 2016 and very little has been done in terms of spending,” Pabina Yinkere, head of research at Lagos-based Vetiva Capital Management Ltd., said by phone. “The revenue challenge facing the government will continue to constrain its ability to reflate the economy this year.”

While the economy should look better in the second half of the year, growth will probably not be sufficient to negate the outcome of the first and second quarters, Gene Leon, the fund’s resident representative in Nigeria, said in an interview two weeks ago.

“The forecast of 1.8 percent probably assumes a downturn in the second half” Nema Ramkhelawan-Bhana Johannesburg-based Africa Analyst at Rand Merchant Bank, said by phone on Tuesday. “I think there will be sustained pressure from the oil economy, and its ripple effects to other sectors of the economy.”

Inflation in Nigeria accelerated to 16.5 percent in June, the highest in almost 11 years. The Central Bank of Nigeria, which kept its benchmark rate at 12 percent in May, will announce its next policy decision on July 26. Six of nine analysts in a Bloomberg survey forecast borrowing costs will stay unchanged.

Africa Slowing

The IMF almost halved its 2016 growth forecast for sub-Saharan Africa to 1.6 percent and cut its 2017 projection to 3.3 percent from 4 percent.

The “substantial” downgrade of the region’s forecast reflects “challenging macroeconomic conditions in its largest economies, which are adjusting to lower commodity revenues,” according to the lender.

Africa’s second largest economy, South Africa, will expand 0.1 percent this year and 1 percent next year, the lender said.

 

 

Credit: AFP

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About Dr. Ken

Medical Doctor, Publisher, Editor, Novelist, Playwright, Visionary Poet, Activist, Blogger
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