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Economic growth to slow on Buhari’s cabinet delay

By on August 12, 2015

Renowned economist and Chief Executive Officer, Financial Derivatives Company Limited, a research and investment advisory firm, Mr. Bismarck Rewane, says economic activities will remain slow in the second half of the year until the Muhammadu Buhari-led administration unveils its economic policy direction.

He also predicted that the naira would tumble to 250 against the dollar during the second half of the year.

The naira, which currently goes for between 220 and 222 at the black market, had hit 245 against the United States currency some weeks ago.

It, however, appreciated to 210 about two weeks ago.

Rewane, in a presentation at the Lagos Business School Executive Breakfast Session, noted that local and foreign investors had deferred major business decisions until the Federal Government unveiled its economic blueprint.

He said, “The Central Bank of Nigeria has come out with a rash of new regulations to defend the naira, the latest being the suspension of dollar cash deposits into domiciliary accounts in Nigeria. The naira has swung like a pendulum in the parallel market between 208 and 245.

“Most investors are deferring any decisions until there is some clarity, as to the Buhari economic direction. Federal and state government officials have cut back on international travels and reckless expenditure, which has resulted in airline summer load factors dropping to 65 per cent.”

He added, “In the meantime there has been a sharp lull in economic activity with retail sales of garments and electronics down to 30 per cent. There is also the problem of 55 per cent of flats in Lekki being vacant and rents likely to fall.”

According to the economist, the commencement of the harvest season will provide a boost for the economy and improved power supply occasioned by the reduction in gas pipeline vandalism will boost manufacturing activities.

A supplementary budget, he said, was likely in September and this would lead to increased but targeted spending as well as payment to government workers and contractors’ arrears.

Forecasting the economic outlook for the second quarter, Rewane said, “Growth in money supply will be driven by increased government spending, passage of a supplementary budget in the third quarter and the possibility of another bailout fund.

“Inflation increase will be at a slower pace but could move towards 11-12 per cent due to the impact of five to 10 per cent currency adjustment. There is a likely removal of fuel subsidy with oil price at $55 per barrel.”

He further said, “Money market rates will trend lower in the second half of the year and this will be driven by anticipated increase in liquidity; and the CBN is likely to reduce interest rates by 100bps to signal the start of an accommodative monetary policy cycle.

“The central bank will encourage lending and boost spending while reinforcing the fiscal stimulus; and borrowing costs will decline while pressure on margins will reduce.”

The FDC boss added that “the forex market is now segmented into four layers and the differential between the segments will widen as the ability to move between segments becomes more difficult and risky.

“The sharp drop in oil price will lead to deterioration in the terms of trade. The desperation for electronic dollars will push that market to N250; cash dollars will be at N240. The magnitude of the currency value adjustment will be dependent on when the subsidy is removed.”

 

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