CBN: Economy in trouble - Experts lament continued slide

From Gbola Subair, Lanre Oyetade, Friday Ekeoba, Rasheed Komolafe, Dachi Maduako, Dele Ayeleso, Akin Adewakun and Sola Fadare - 23.06.2008

THE Nigerian economy is in a serious crisis, the Central Bank of Nigeria (CBN) has admitted.

In its 2008, first quarter report released at the weekend, the apex bank attributed the high rate of inflation in the quarter to the erratic power supply.

Also, experts and stakeholders lamented over the state of the economy and the tendency for its continued slide.

Accordingto the report, the end period inflation rate on a year-on year basis was 7.8 per cent compared to 6.6 per cent and 5.2 per cent recorded in the preceding quarter and the corresponding period of 2007.

According to the report, inflation rate on a 12 month roving average basis for the first quarter was 5.8 per cent compared with 5.4 per cent recorded in the preceding quarter.

Worried about this trend, the apex bank attributed the problem to the erratic power supply within the period and the end of the year festive spending.

Also in the first quarter of 2008, the CBN stated that the three tiers of government received N1.19 trillion from the Federation Account.

At N560.73 billion, the Federal Government retained revenue for the first quarter of 2008 was 13.5 and 20.0 per cent lower than the proportionate budget estimate and the receipts in the preceding quarter, respectively.

The decline in retained revenue was attributed largely to the fall in Federal Government independent revenue, resulting from the low level of activities during the period.

At N464.11 billion, total expenditure for the period fell by 50.7 and 32.4 per cent from the levels in the preceding quarter and the proportionate budget estimate, respectively.

The decline in total expenditure for the period relative to the preceding quarter and budget estimate was attributed largely to the non-release of capital budget during the quarter, following the delay in the passage of the 2008 budget.

For the states and local government councils total receipts, including 13 per cent Derivation Fund and share of Value Added Tax (VAT) from the Federation Account during the first quarter of 2008 stood at N412.50 billion, representing an increase of 10.8 and 14.8 per cent over the levels in the preceding quarter and corresponding period of2007, respectively.

At N47.82 billion, receipts from the VAT pool account rose by 12.4 and 49.3 per cent over the levels in the preceding quarter and the corresponding period of 2007, respectively. Similarly, at N364.68 billion, total receipts from the Federation Account rose by 10.6 and 11.4 per cent over the level in the preceding quarter and corresponding period of 2007.

On monthly basis, N115.18 billion, N104.81 billion and N192.50 billion were allocated to the 36 state governments in January, February and March 2008, respectively.

Meanwhile, there is a consensus of opinion among experts and stakeholders in the various sectors of the economy as to the attainability of Vision 2020, even as the experts have pointed to the deplorable state of the economy and the tendency for a continued slide.

Vision 2020 is a project of the Federal Government, which aims to make Nigeria one of the biggest 20 economies in the world by 2020.

Different stakeholders that spoke to the Nigerian Tribune on the performance of the real sector described the situation as unfortunate. The Chairman of the Nigerian Economic Summit Group (NESG), Chief Sam Ohuabunwa, said that the major problem of the sector remained dilapidated infrastructure, power crisis and multiplicity of taxes.

Ohuabunwa noted that no matter the policy the Federal Government puts in place, “if these issues are not addressed, the whole thing will be like pouring water into a basket,” adding that the private sector would keep on sensitising the government to the policy issues.

Also speaking on the state of the real sector, the President of Manufacturers’ Association of Nigeria (MAN), Alhaji Bashir Borodo, stressed that the escalating cost of doing business had impacted negatively on the economy.

“In spite of the initiatives of the manufacturers to move the economy forward in their own way, the amount expended on power alone is killing. What manufacturers spend here on business operations can be used to invent another initiative, which can move the country forward,” he said.

President of the Lagos Chamber of Commerce and Industry (LCCI), Chief Solomon Onafowokan, lamented the attitude of Nigerians to made-in-Nigeria goods, which, according to him, only compounded the economic woes of the country.

He said the attitude could be likened to what he described as the mortality rate of the manufacturing sector, adding, “the market share of Nigerian products in many sectors is low and continue to decline.”

The Nigeria Association of Chamber of Commerce, Industry, Mines and Agriculture (NACCIMA), in its recent report, had said that the state of infrastructure in the country had made some small and medium enterprises (SMEs) to close shop.

The association also advised the Federal Government to come to the aid of SMEs who, according to it, were actually the drivers of the economy, if it (the government) really wanted to make the country’s economy one of the 20 strongest by 2020.

Commenting on the development, Dr. Ayo Teriba of Economic Associates, based in Lagos, said “government has to make determined efforts to ensure that its policies, including its budgeting, make a positive difference to vital services such a power supply, rail services, health care delivery, education, and law enforcement.

“Government also has to define the relative roles of its own investments and private sector investments in each of these sectors, and show sufficient commitment to inspire the confidence of the private sector.”

An analyst in the oil and gas industry, Dr. Chudi Egbunike, while responding to questions from the Nigerian Tribune, said the energy sector in the last one year had impacted negatively on the economy and that if care was not taken, the country might not get out of it.

“In terms of impact, the whole scenario is very confusing. We have a mono economy, with every other sector lurking around it. We have a scenario in which we can say we are lucky and at the same time, we are foolish as well. I made a presentation at an oil and gas conference in Ghana on what I called the dynamism of oil,” Egbunike said.

Commenting on the banking sector, Dejo Abiodun, a university lecturer, explained that the crisis in the international market, for instance, had led to a shortfall of foreign exchange in the sector.

“Unlike at the beginning of the year when these banks had abundant forex to trade with, now they have to resort to the apex bank, the CBN, to meet the foreign exchange needs of their customers,” he stated.

But, a banker with one of the nation's frontline banks, who asked not to be identified, said the gains made in the sector in the last few years might be reversed if the situation was not addressed.

“The recent downturn of events in the nation’s capital market, if not checked, may have the banking sector as its greatest casualty,” he said.

Also, Yinka Adepoju, Chief Executive Officer of an outdoor advertising company in Lagos, believes outdoor advertising business is not spared. According to him, the rising cost of building materials would automatically result in a hike in outdoor charges.

He argued that since prices of most of the materials being used by outdoor advertisers such as iron rods and other building materials for installation are aiming for the sky, outdoor advertising practitioners would have no option but to review their prices upward.

However, Akin Ogunbiyi, Managing Director, Mutual Benefit Assurance Plc, who spoke with the Nigerian Tribune, said that he did not believe that the economy was in real danger, explaining that what was happening to the economy currently was the spillover from the global economy.

“The Nigerian economy is not in isolation of the world economy, there is no way that the American economy will not rub on all the developing economies of the world. And this may not have much impact as people projected,” he stated.

While several stakeholders in the capital market have recently been disturbed about events in the market, especially the bearish developments or downturn in general stock market prices, many of the market players spoken to were of the view that there was no cause for alarm, as the developments were “merely corrective trends.”

Matthew Ogaga, Senior Partner at Tower Assets Management Limited, stated that the economy was not heading for the woods.

According to him, “If the various initiatives of the government have begun to be useful, the impact will be seen in the capital market. To that extent, even the so-called recent down trend in the capital market is only reflective of share price figures, which will reverse themselves in the possible future.”