Published On: Mon, Mar 19th, 2018

Economy: CBN policies will double growth in 2018 –Dr Boniface Chizea

With the Nigerian economy beating analysts’ 2017 projections for growth by about 20 basis points or 2% over the 1.7 % consensus forecast earlier in the year, private sector economists are growing in confidence that the 2018 growth rate would settle somewhere between 2.6 and 2.9 %.  This would mean that gross domestic product (GDP) growth for the year would match the 2.6 per cent population growth rate.

Dr Boniface Chizea

In the last two years economists have expressed deep concern about the country’s GDP growth rate which was well behind the natural growth of the population, resulting a major fall in per capita income; reconfirming a recent World Bank observation that Nigerians were becoming poorer on an annual basis. Indeed domestic jobless rate has been estimated to be between 35 and 40 per cent with no clear indications that things will turn for the better in 2018. Nevertheless, Dr Boniface Chizea, Managing Director/CEO Bic Consultancy Services, is of the opinion that the year 2018 should see lower unemployment figures, falling inflation rates and a faster –paced growth in GDP, ‘as the Central Bank gradually eases money supply, reduces domestic interest rates and improves access to credit by private sector operators’.  

Chizea argues that stability in the foreign exchange market and sustained decline in domestic inflation will combine to improve Nigeria’s economic fortunes as lower production cost would increase competitive opportunities and expand domestic production. According to Chizea, ‘the CBN has passed through one of the hottest economic crucibles you could think of having to deal with what economist call ‘stagflation’ or being between the devil and hell where inflation combines with negative growth.  So far the bright chaps at the CBN have done an admirable job. But we all know that they still have ways to go as inflation at slightly less than 15 per cent per annum in February 2018 was a test of resilience’.  

But the Nigerian economic landscape does looks better than some doomsday messages suggest.  Capital importation increased by 138.7 per cent in 2017 while portfolio investment funds flew by 32.9 per cent. Also on the bright side Nigeria’s budget gap is likely to be a lot less severe than was earlier forecast based on steady international oil prices at an average of $65 per barrel and a reduction in the government’s recourse to the local bond market. Total government debt in 2017 had risen to a staggering 20 trillion most of which was spent on wages, salaries, allowances and other recurrent costs leading to a massive fiscal imbalance. The CBN realizing the trouble has had to ease access to the money market through the support of serial bond issues while also holding a tight rein on money supply to keep inflation in check. Inflation has since the beginning of 2017 dropped from 17.78 per cent in February to 15.13 per cent in January 2018. Recently released figures by the National Bureau of Statistics (NBS) indicate that inflation figure for February 2018 dropped to 14.75 per cent.

According to Chizea the CBN’s policy orientation in the last year has ensured that, ‘there is stability at the foreign exchange market albeit at a depreciated rate. Some of the measures the Central Bank introduced such as the Investor/Importer window have accounted for massive inflow of dollar liquidity for particularly portfolio investment and Reserves stand at a level which they had not attained from the inception of this government. And the awards are tumbling in. Just this past weekend the Governor received two awards from Silver Bird Television and Sun newspapers in addition to many other awards he has received since the exit from recession. They say that nothing succeeds like success and that success has many fathers.’

This may be true but CBN’s policies have had some blowback on the domestic job market as the size of the jobless population has spiralled to what Financial Derivatives Company (FDC) , a local financial research and investment company, estimates to be in the neighbourhood of 40 per cent. Chizea concedes the problem and notes that, ‘Unemployment is a big albatross around the neck of this country. The rate at which able bodied young men are joining the unemployment market is worrisome and a veritable keg of gun powder waiting to explode in our face if we are not proactive about it. The government is sure mindful of this observation and has embarked on all manner of palliatives to create emergency employment opportunities; the latest is the N-Power project through which graduates register and are paid a token of thirty thousand naira a month as stipend.’

He goes on to observe that projections of GDP growth of three per cent while a neighbouring country like  Ghana has managed growth of nine per cent is inadequate particularly considering the fact that the rate of population growth in the economy is about three per cent and therefore under the present growth scenario there is certainly no development. Chizea insists that, ‘we must deliberately grow this economy massively by attempting concerted efforts at implementing policies. When, for instance, is Budget 2018 going to be approved and ready for implementation? And when would capital projects included in the budget be implemented to facilitate badly needed growth? That is the trillion naira question,” he observes.

Other analysts have, however, expressed the opinion that the CBN’s tight monetary policy while appropriate for bringing down inflation is damaging to growth and employment. They insist that a slight rise in inflation could be tolerated if it leads to economic growth and employment which, over time, would result in a fall in aggregate prices as productivity gains reduce manufacturing and distribution costs while they increase domestic consumption spending. Professor Leo Ukpong, Dean of the Faculty of Business Administration University of Uyo observes that, ‘Monetary and Fiscal policy require better alignment. Tight monetary policy accompanied by tight fiscal policy could push a fragile economy back into recession’. He points out that higher fiscal charges and taxes at both federal and state government levels will take a huge bite out of consumer incomes, thereby leading to a fall in domestic consumption and slower GDP growth. He further notes that, even though increased fiscal spending could reduce the severity of this outcome, late budget passage by the National Assembly (NASS) and the strong likelihood that the CBN would try to stem inflationary pressure of pre-election spending by politicians, guarantees that interest rates will remain high, to chagrin of local business persons.

While Bic’s Chizea may be right to call a strong GDP growth for the year, how much growth will actually take place will be a close function of how well the CBN will prevent its morbid fear of inflation take precedence over its concern over growth. Early consensus of economists puts 2018 average growth of GDP at about 2.3 per cent, though this is a lot better than 2017’s 1.92 per cent it is a far cry from neighbouring Ghana’s 9 per cent and not particularly cheery with the nations population racing at what analysts consider a worrisome 2.6 per cent per annum or what amounts a doubling of the population size in 27 years to about 350 million.

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