Nigeria’s monetary and fiscal policymakers face enormous challenges as the country stares a looming technical recession in the face just three years after the last downturn in 2017.
The COVID-19 pandemic circumstances have combined with low Oil demand and prices to brew up a perfect storm. Buffeted by the strong headwinds, Nigeria’s second-quarter GDP shrank by 6.1 per cent, the biggest drop since 2004.
Government revenues which rely on Oil sales shrank along with the demand for crude Oil. Besides that, low Oil prices may pressure foreign exchange earnings and reserves, as 90 per cent of Nigeria’s currency earnings stem from sales of crude Oil.
Country remains exposed to external risks
The second-quarter contraction highlights Nigeria’s exposure to external risks around the Oil markets, redoubling the urgency behind the state’s diversification efforts.
The World Bank expects Nigeria to face the worst economic recession since the 1980s because of the collapse in Oil prices. It projects the economy to shrink by 3.2 per cent for the full-year 2020 on the condition that Nigeria contains COVID-19 by the third quarter. If not, the contraction will be worse, according to the World Bank.
The International Monetary Fund (IMF) is more pessimistic about Nigeria’s economic outlook. It sees GDP shrinking by 5.4 per cent this year, the biggest decrease in 40 years. Goldman Sachs puts the full-year GDP contraction at a five per cent GDP contraction, closer to the IMF’s than to the World Bank.
The coronavirus lockdown weighed on the economy, as domestic and international activity caved in at the same time.
Domestic risks must not be overlooked
The economic contraction presents significant risks around consumer spending and investor confidence. The pandemic also triggered a higher threat of poverty. The World Bank sees the poverty rate rising to 42.5 per cent from its previous estimate of 40 per cent in 2020.
Along with the human cost, a rise in the poverty rate can affect macroeconomic stability and pose setbacks to economic benchmarks like inflation, unemployment, consumer spending and fiscal spending.
These macroeconomic statistics are already highly sensitive to further risks, like a second wave of COVID-19 or another Oil price collapse.
Unemployment stood at 27.1 per cent in the second quarter. The inflation rate rose to 12.8 per cent in July, the highest since March 2018, meaning a reduction of purchasing power. These benchmarks are likely to remain sources of concern in the second half of the year.
US Dollar scarcity remains another threat to growth, with Naira weakness and ongoing foreign exchange restrictions likely punishing the non-Oil sector.
What role will OPEC play?
Adding to the macro-economic challenges around COVID-19, Nigeria will have to reduce Oil production in August and September to comply fully with OPEC’s supply cuts. Coming on top of lower Oil prices, reduced production means decreased government revenues and foreign exchange earnings. An accompanying knock-on effect on GDP is likely.
In conclusion, Nigeria is likely heading for a technical recession. If the country contains COVID-19 and pro-actively prepares for more localised outbreaks, the World Bank believes this may support GDP and limit the economic damages. Over the last three months, COVID-19 cases have risen to 52,227 cases with 38,945 recoveries. The number of deaths stands at 1002, at the time of writing. When compared to South Africa’s 607,045 cases, Nigeria is in a better public health position. If the authorities limit the spread of coronavirus and continue to manage the situation effectively, Nigeria’s economy has better chances of recovering in line with a global recovery in the medium term.
COVID-19: Nigeria’s ICPC Discovers School Feeding Funds In Private Accounts
An anticorruption agency in Nigeria has discovered over N5 billion in private hands. The head of Nigeria’s Independent Corrupt Practices and other Related Offences Commission (ICPC), Professor Bolaji Owasanoye, disclosed that the agency found N2.67bn meant for the school feeding programme in private accounts. An additional N2.5billion was found in the accounts of a deceased staff of the ministry of Agriculture.
Other things were discovered from the ministry such as 25 plots of land, 18 buildings and 12 business premises. All illegally diverted to private hands.
The professor of law made the announcement in Abuja. He was speaking second National Summit on Diminishing Corruption in the Public Sector, which was organised in collaboration with the Office of the Secretary of the Government of the Federation.
The summit had the theme, ‘Together against corruption’, also included the launch of the National Ethics and Integrity Policy.
He explained further that between January and August 2020, investigations revealed that Open Treasury Portal showed that of 268 ministries, departments and agencies (MDA) 72 had infraction totaling N90milillion.
Also, 33 MDAs gave full explanation for N4.1billion transferred to sub-Treasury Single Account while N4.2 billion that had been paid to individuals could not be satisfactorily explained.
The professor added, “We observed that transfers to sub-TSA were to prevent disbursement from being monitored. Nevertheless, we discovered payments to some federal colleges for school feeding in the sum of N2.67bn during lockdown when the children are not in school, and some of the money ended up in personal accounts.”
In continuation of the agencies investigation called Constituency Tracking Initiative from last year, the ICPC also reviewed constituency and executive project. In all, 722 projects with a threshold of N100m (490 ZIP and 232 executive) were tracked across 16 states. He said the commission had special attention to track projects in agriculture, water resources, power, education and health.
The Constituency Tracking Initiative is meant to investigate fraudulent procedure and practices in the award of contracts for constituency and executive projects. And to make recoveries on projects or contracts confirmed to have been inflated or in which contractors under-performed or did not perform at all. The professor explained that projects tracked at phase one were selected by the steering committee comprising Budget Office, Office of Accountant-General of the Federation, Bureau of Public Procurement, Media, CSOs and the Nigerian Institute of Quantity Surveyors.
The ICPC helmsman said the 2020 exercise showed some improvement in project delivery, but the commission was faced with many challenges.
In details, Owasanoye said, “We discovered that a number of projects described in the budget as ongoing were new projects.”
“We discovered that projects are recommended for communities that do not need them. Such projects are abandoned, in spite of the huge sums appropriated for them.”
“We discovered that projects were sited in private houses on private land thus appropriating common assets to personal use and totally denying communities expected to benefit,” he adds.
The chairman said that the commission’s effort had forced 59 contractors handling projects worth N2.25 billion, back to sites, while it recovered and returned to beneficiaries assets worth about N700 million and cash of almost N200 million.
Owasanoye, said that the commission would, in future, prosecute false description of projects as ongoing, in accordance with extant rules. All affected projects have been listed in the ICPC’s Interim Report for 2020.
Dutch’s FrieslandCampina WAMCO Acquires Dairy Business In Nigeria
Dutch owned multinational dairy products company, FrieslandCampina WAMCO, says it has completed the purchase of Nutricima’s dairy business in Nigeria.
Mrs Ore Famurewa, Executive Director, Corporate Affairs, FrieslandCampina WAMCO Nigeria, disclosed this in a statement on Tuesday in Lagos.
Famurewa said that FrieslandCampina and PZ Cussons signed an agreement regarding the acquisition in March, noting that Nutricima’s dairy business would be integrated into FrieslandCampina WAMCO Nigeria PLC.
“FrieslandCampina WAMCO has acquired the company’s production facility in Ikorodu, Lagos State, as well as the brand’s Olympic, Coast and Nunu milk products; a range of powdered, evaporated and ready to drink milk products.
“These brands have a good presence across the Nigerian dairy market,” Famurewa said.
Famurewa said that the acquisition underlines FrieslandCampina WAMCO’s continued commitment to contribute to the development of the Nigerian dairy sector.
She added that the acquisition satisfies the need for additional production capacity for FrieslandCampina WAMCO to meet the growing demand for locally produced evaporated and powdered milk by Nigerian consumers.
“Having fulfilled all requirements including requisite shareholders and regulatory approvals, FrieslandCampina WAMCO has commenced operations at the newly acquired plant,” she said.
Famurewa in the statement quoted Roel van Neerbos, President, FrieslandCampina Consumer Dairy, as saying, “FrieslandCampina WAMCO has been a key player in Nigeria since 1954. With this acquisition, we demonstrate our strong commitment to Nigeria and its dairy market.”
Ben Langat, Managing Director, FrieslandCampina WAMCO Nigeria, added: “It is our mission to bring affordable and attainable quality dairy products to all Nigerians and meet the growing demand. That’s why we are pleased with this acquisition.”
FrieslandCampina WAMCO Nigeria is an affiliate of Royal FrieslandCampina of The Netherlands, one of the largest dairy cooperatives in the world.
It is the maker of Peak and Three Crowns brands of milk in Nigeria.
Nigeria’s Central Bank Admits Financial Inclusion Failure.
Financial inclusion in Nigeria has missed its target. This has been confirmed in a report from the Central Bank of Nigeria (CBN) and the Enhancing Financial Innovation & Access (EFinA) titled ‘Assessment of women’s financial inclusion in Nigeria’ for December 2019. According to the report, Nigeria’s financial exclusion stands at 36% for women and 24% for men. The report adds that, ‘The relative gender gap related to financial inclusion is 20-30%, placing Nigeria below its peers.’
It further states that, ‘Since 2012, although women’s exclusion has dropped, the gender gap has grown, revealing that men’s inclusion has improved more rapidly than women’s.’ The CBN launched the National Financial Inclusion Strategy (NFIS) in 2012 to reduce financial exclusion to 20% of the adult population. This has not been achieved.
It has been an uphill task for years. The main reason has been linked to literacy rates and information. Literacy on the part of the people and information or lack of it on the part of the financial institutions tasked with informing people about the services they offer. And the recently, unforeseen socioeconomic factors such as recession (in 2016 and is hovering around the nation again due to the economic impact of COVID-19), the precarious security situation in parts of northern Nigeria, and other factors such as slow uptake of digital financial services.
What is financial inclusion?
Financial Inclusion according to the Central Bank of Nigeria is a state where financial services are delivered by a range of providers, mostly the private sector, to reach everyone who could use them. Specifically, it means a financial system that serves as many people as possible in a country.
EfinA has already proved that many Nigerians do not have bank accounts or access to formal financial services. EFinA stated in its 2012 survey of Nigeria that 34.9 million adults representing 39.7% of the adult population were financially excluded. Only 28.6 million adults were banked, representing 32.5% of the adult population.
High levels of financial exclusion pose two major threats to economies:
Losing opportunities for business growth. In the absence of finance, people who are not connected with the formal financial system lack opportunities to maximise their income and expand their businesses.
The country’s economic growth could be stifled. Vast unutilized resources, in the form of money in the hands of people who are in the informal sector could limit a country’s economic growth potential.
What is Nigeria losing? Billions of Naira notes have and still are being circulated through the informal sector and this harms the country’s economic growth and development. The unbanked sector could considerably increase the Gross Domestic Product (GDP) of Nigeria.
The EFInA survey in Nigeria 2012 revealed that 23.0 million adults save money at home. The report explained that, if 50.0% of people saved N1,000 every month with a bank, then up to N138 billion could be incorporated into the formal financial sector every year.
The opportunity for the private sector.
Providing financial products and services to the low-income population represents a large business opportunity for the private sector. Providers of financial products and services should develop innovative products and services that better suit the needs of the low-income unbanked and under-banked population.
Accessibility to more fintech services was heightened by the economic squeeze, inactivity, the lockdown imposed to curb the pandemic itself. Also, the CBN granting more licenses to Telco’s could insure the previously unbanked become truly financially inclusive.
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