Unrests worsen Nigeria’s macroeconomic outlook
By Taofik Salako, Deputy Group Business Editor
Unrests and violence that have disrupted activities in major economic centres have worsened the macroeconomic outlook of Nigeria, which is still struggling from the adverse effect of the coronavirus.
Experts at the weekend said the Naira might further depreciate, rising inflation and declining consumer purchasing power might compound unemployment and the tenuous global crude oil market hold less prospects for the oil-dependent economy.
They called for fiscal and monetary policies to support the economy and re-energise the economy. The Lagos Chamber of Commerce and Industry (LCCI) had estimated that Nigeria has lost about N700 billion to protests and recent violence across many states of the federation.
Senior Research Analyst, FXTM, Lukman Otunuga, said the unfavourable development would most likely compound Nigeria’s woes as the country tussles with rising inflationary pressures, dollar restrictions and depressed oil prices.
“Inflation is projected to accelerate in the coming months due to removal of fuel subsidies, lower interest rates and recent value added tax (VAT) hike. Such a scenario may enforce downside pressures on the Naira while hitting consumers due to a drop in purchasing power,” Otunuga said.
According to him, in a more developed economy, the government could pursue deflationary fiscal policy in the form of higher taxes and lower spending to tame inflation, but such a move could end up worsening matters for Nigeria, Africa’s largest economy, which already needs fiscal and monetary support to address the negative impact of the COVID-19 pandemic.
He, however, noted that with rising inflationary pressures hitting fixed-income securities with continual low-yields in the debt market, investors may see opportunities in the Nigerian equities market, which closed weekend with average year to date return of more than six per cent.
He pointed out that uncertainty remains the main theme of the global markets.
In its latest macroeconomic update, FSDH Group, a leading finance and investment banking group, stated that Nigeria faces severe stagflation with declining Gross Domestic Products (GDP), unemployment and rising inflation.
According to analysts, GDP decline of 6.1 per cent in the second quarter of the year is the first negative growth since the first quarter of 2017. In the first half of the year, GDP growth averaged -2.12 per cent.
FSDH expected the sluggish economic performance to continue in the second half especially given the lockdown of key sectors, the tough business climate and persistent challenges in the fiscal space.
“Drawing from experience during the last recession, limited availability of foreign exchange (forex) as well as forex rationing could have unintended consequences on broad economic aggregates such as GDP, Inflation, external reserves and foreign investments. Growth of key sectors such as trade, manufacturing and agriculture could also be constrained by limited availability of forex to secure inputs,” FSDH stated.
President, Chartered Institute of Stockbrokers (CIS), Mr Olatunde Amolegbe, described the unrests and violence as tragic crisis, noting that with the country still grappling with the challenges of COVID-19, the crisis could worsen the economic situation.
“Our economy cannot afford this unrest without suffering major downturn. We should ensure that peace return to the society,” Amolegbe said.
He added that the crisis would further accentuate the uncertainty in the capital market, which has just started to recover.
Amolegbe, who noted that the stock market has continued trading in spite of the disruptions, advised other sectors of the economy to embrace technology and digitisation and build risk-resistant systems that enable them start up quickly in case of crisis like this.
United Capital, a publicly quoted finance and investment banking group, at the weekend noted that protests and other form of social unrests pose threat to the recovery of the Nigerian and other African economies
“With the devastating impact of COVID-19 on the region, now amplified by social unrest, economic outcomes in the region may actually weaken beyond initial projections. Going forward, Africa may need additional SDR from the IMF and the World Bank to supplement foreign exchange reserves, better manage forex liquidity and restore output growth,” United Capital stated.
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