Business
There’s no concerted effort to drive economic growth — Chukwu
Mr. Johnson Chukwu, Managing Director, Asset Management Company, an investment firm that manages several foreign and local portfolios. In this interview with FELIX OLOYEDE, he x-rays the performance of the economy under President Muhammedu Buhari. He also assesses the Economic Recovery and Growth Plan and why the Nigerian equity market has been struggling this year. Excerpts:
How will you access the first tenure of President Buhari’s administration?
My take is that if you look at all the indices, it was quite challenging. The country went into economic recession in 2016, the first full year of that government was in power. The economy contracted by -1.58 per cent. In the second year of the administration, the economy only grew by 0.28 per cent. In the third year, the economy managed to grow by 1.92 per cent. And in the fourth year, which is 2019, we are still dealing with the economy growing by 2.1 per cent in the first quarter of this year. We saw an exchange rate getting to more than N500 to a dollar in 2016. We saw an inflation rate that deteriorated to 18.72 per cent in January 2017. These are not good narratives for the government.
But the consolation is that we have seen reasonable level of improvement. We have seen the economy, like I said, growing by 2.1 per cent in the first quarter of this year, which is still materially lower than the population growth of 2.7 per cent. We have seen stability in exchange rate of about N360 to a dollar. We have seen inflation rate that has dropped from 18.72 per cent in January 2017 to 11.4 per cent in May 2019, though it is beginning to trend up again. My take is that economically we have not done well. And on a balance, we have seen deterioration of inflation rate from about 9.5 per cent in May 2015 to a much higher per cent. We have also seen the number of unemployed increase to about 23 million. So, if you use economic data to assess the government, it has not been a plausible performance. But in assessing the government you have look at so many factors.
You have to look at social factors. We have seen deterioration in the level of poverty. The country is now topping the world poverty index. If you look at the world poverty clock, Nigeria has about 94 million people who are living in abject poverty. These are people who earn less than $1.9 per day. About 44 per cent of the Nigerian population is living in abject poverty. Six persons are pushed into poverty every minute in the country. We have seen deterioration in the standard of living. But like I mentioned, you don’t just measure a government by only economic indices. You have to look at other associate issues.
The government had a three-point promise when it came to power, which are security, fight against corruption and economic growth and development. On economy, they have not done well. On security, the government believes there has been an improvement, particularly in the North-east, where it claims that Boko Haram was occupying 18 Local Government Areas when it came in. The government has cleared it and the Islamic sect is no longer occupying any Local Government Area. In terms of war against Boko Haram, you may say there has been some improvement.
Unfortunately, whatever progress we have made in the North-east has been upset by the level of criminality in the North-west, the level of conflicts in the North-central and the incursion of herdsmen in the North-west and other parts of the country.
So, on a balance, maybe the social scientists would be able to tell if there has been any improvement on security. But from what we read on the pages of newspapers; one is not very sure there has been an improvement. On anti-corruption, if we look at where we are coming from, I think the government has done relatively well or better than the previous government. In as much as one cannot say corruption has been eradicated, corruption was on your face during the era of the immediate past government. It was the height of impunity, when people could do anything, and nothing will happen. That does not mean we can beat our chest and say corruption has been fought to a standstill. There are still instances of abuses by public servants and those in authority. We have seen, in recent times, when the corruption fight seems to be biased. The opposition Party has been crying that the corruption fight is a persecution, not a prosecution. I think this assessment should be a clarion call to the government and not a criticism of the government policies. It is to look at where we have not done well and do something to improve in those areas.
What is your economic projection for the next four years?
For me to make my projection for the next four years, I want to wait to see the government’s economic direction. One of the blind spots of the last four years has been the economy. I need to see the economic policies of the new minister of finance to give us a clue of what to expect. I am also praying that the government appoints a coordinator for the economy that would harmonize policies of relevant ministries to enable us have a directional movement.
It may be difficult for anybody to have a guess of how the next four years would be if we don’t know the team that will drive the next four years. The president has said it is possible to lift 100 million people out of poverty in the next 10 years and I believe that is a possibility if we get the policies right. India in a period of seven years, between 2011 and 2018 lifted 230 million people out of poverty. India’s poverty population was 306 million in 2011 and dropped to only 70 million in 2018. That is 236 million people were lifted out of poverty. In china, they lifted more than 850 million people out of poverty in the period of 35 years. From 1985 to 2015, over 30 years, the country lifted 850 million people out of poverty. So, with appropriate policies the country can lift 100 million people out of poverty in the next 10 years. The key thing is ‘the devil is in the detail’. Let’s see the policies that would drive that strategic intent.
How would you say the Economic Recovery and Growth Plan has fared?
It seems the government has already abandoned the Economic Recovery and Growth Plan when you look at some of the major indicators. The government said it is going to increase power to10,000 megawatts by 2019, today we are still dealing with a capacity of 7,000 megawatts, with actual transmission and distribution of about 2,300 to 3,000 megawatts. We have actually seen deterioration in the power the government has generated and distributed. The power reform has not actually achieved economic sustainability. The government also promised to create 15 million jobs. But, we have seen deterioration in employment level and we have seen a surge in unemployment level to about 23 per cent. More than 20 million people are out of jobs. If you look at the growth projections of the Economic Recovery and Growth Plan, given that we see the most optimistic projection growth of 2.7 per cent for 2019. This is far below what was stated in the Economic Recovery and Growth Plan. There are no concerted effort to implement or achieve the projections made in the Economic Recovery and Growth Plan. I have said that these statements of intent were too optimistic and they were more of a wish list because I did not see the underlying strategy that would drive the wish list.
What are other factors responsible for the poor performance of the equity market beside the slow pace of economic growth?
The equity market mirrors the performance of the economy. We have seen a first quarter GDP growth of 2.01 per cent, down from 2.38 per cent in last quarter of December 2018. The deals of return will at best respond to the incentives or absence of incentives in the economy. We have seen in the past few years that there is no concerted effort to drive economic growth and that is impacting negatively on the equity market. Apart from some outliers among the quoted companies, you will realize that most of the quoted companies are at best operating on the same level they did in the previous year. In most instances, some of them are operating below the level they operated last year. If you disaggregate the performance of the equity market and look at the sectors that drive the market you will realize the challenges therein. The manufacturing sector grew in the first quarter of this year by only 0.81 per cent. While the oil and gas sector contracted by 2.4 per cent in the first quarter of this year. So, if you look at the performance of the economy, you can understand why there is no driving factor to a sustainable recovery in the market.
Foreign direct investments are driven by policies targeted at specific sectors of the economy. Foreign direct investment will not come to every sector of the economy. If you are promoting tourism, foreign direct investment will come to tourism sector of the economy, because they want to optimize returns. If you invest in an economy that is growing by 2.1 per cent that is the kind of returns you should expect. If the economy is growing at 8-9 per cent, that is the kind of returns you will get. If you can outperform the economy, you can do more. When the economy is sluggish in performance, it will not be the first point of call for investors.
Oil price has been above government projection for this year, but the Naira has not appreciated correspondingly. Why is it so?
As you will know, our exchange rate is not a free float exchange. It is a managed exchange rate and Central Bank is the market maker. CBN is the sole supplier in the market. If the Central Bank has the wherewithal to defend the currency, the Naira will be within the range the CBN wants it to stay. What matters to the business community is the level of stability which we have achieved in the last two years. We have seen exchange rate stabilize at N360 to a dollar for almost two years. The increment in crude oil price has impacted positively on the reserves.
We have seen a reserve that is about $45 billion, which can take about nine months of import. What the Central Bank has done is, instead of strengthening the Naira which will deplete the reserves it has maintained a war chest that there should be a compelling need to defend the Naira. There is no compelling need to revalue Naira as it stands today. Revaluation means we will encourage further importation and that would put pressure on the Central Bank to continue to defend the Naira and possibly erode the reserves.
In the absence of any compelling need to revalue your currency, which is basically to make import cheaper, I don’t see any need why the CBN should take that route. If it were a free floating exchange rate, then we can actually see supply outstrip demand and we would have seen appreciation in the currency.
