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Is Nigeria Heading for a Technical Recession?

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By Lukman Otunuga, Senior Research Analyst at FXTM,

Nigeria’s monetary and fiscal policymakers face enormous challenges as the country confronts a looming technical recession 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.   

 


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Ugo Onwuaso is an ICT enthusiast. He believes technology should be used for general good. He holds a Master of Public Administration (MPA) degree from the Lagos state University.

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E-Financial

FG Sacked IST Members over Fraud- Ahmed

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Mrs Zainab Ahmed, minister of Finance Budget and National Planning, has said the Federal Government sacked some past members of the Investments and Securities Tribunal (IST) as they indulged in corruption.

FG Sacked IST Members over Fraud- Ahmed

Inaugurating the new members, the minister charged the new members to eschew corruption and be forthright.

Bar. Azi Amos Isaac was appointed as Chairman for a five year term and Bar. Nosa Smart Osemwengie, was re-appointed as member for a second term of four years.

“The problem with the tribunal has been infighting amongst members, lack of industrial harmony and series of complaints bordering on maladministration.

“This has been the bane of the tribunal and a source of embarrassment not only for the Ministry of Finance but for the government in general,” Ahmed said.

The new chairman, Azi, assured the finance minister that, “the teething issue of restiveness has been addressed since he assumed duty,” adding that, “The place is calm and the staff have become very supportive.”

Azi said since 2003, the tribunal has “given judgment in the value of assets worth over N844 billion and that from 2017 to date, they have given decisions in monetary value totalling over N28bn.

“It has not failed in its adjudicatory responsibility.

“It has carried out its assignment with candour and integrity and intends to improve on what has been on ground.”

 


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CBN Bans Customer-to-Customer Forex Transfer

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Central Bank of Nigeria (CBN) has banned transfer of foreign exchange (forex) from one customer to another.

CBN Bans Customer-to-Customer Forex Transfer

According to the apex bank, forex cash lodgements into domiciliary accounts can only be done by the account owners henceforth.

An internal memo available in the media space explains that the new guidelines are necessary to review the utilisation of inflows into customers domiciliary accounts.

The circular states: “Forex inflows cannot be credited to customers until the legitimacy of funds is established.

“They can have unfettered access by telegraphic transfers up to a limit of $40,000 monthly for payment of medical bills, school fees, subscription to professional bodies subject to existing CBN guidelines.

“Transfers from one customer to another is prohibited. Transfer within related companies is allowed subject to a limit of $50,000 per month.”

It recommended that proceeds from non-oil exports should be sold to banks, used for repayment of dollar term loans, and self-utilisation for trade transactions for LC, bills and Form A.

Also oil export proceeds from E&P companies are to be used to pay contractors and service providers employed by the oil companies in addition to the recommended uses for non-oil FX proceeds.

Offshore forex inflows from other Nigerian banks and internal account to forex transfers sourced from offshore inflows are to be used for trade transactions subject to eligibility for E-Form M.

“Upon confirmation of the legitimacy of the inflows, customers can have unfettered access, subject to a maximum of $50,000,” the document read.

“Utilisation for trade transactions subject to processing of eligible trade transactions using E-Form M. Payment for services must be backed with demand note from offshore beneficiary and other regulatory documents.

“Related party transfers are allowed to the maximum of the inflow received. The transfer request should be backed by a signed instruction from the account holder.” Payment of government fees and levies are also allowed to the maritime, oil and gas, aviation. government parastatals and export processing zones.

 


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Stanbic IBTC, Standard Bank, Listed Among Top African Corporate Brands

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Stanbic IBTC Holdings PLC and its parent company, Standard Bank, have emerged amongst the top winners of the 2020 Tech Times’ Africa LinkedIn Corporate Brand Awards.

The Stanbic IBTC Group emerged the second position in the category, with total votes of 3,515, out of 24 firms nominated for the award. Standard Bank placed the fourth 2,494 votes.

Nominations for this award opened to the public on July 1, 2020 and closed on July 14.

Shortlisted nominees were announced on August 24 while voting commenced immediately and voting ended on September 8, 2020.

The Corporate Brand Awards was instituted by Tech Times’ Africa, an online platform for leading technology, innovation, and startup stories.

Expressing his delight on the awards, Dr Demola Sogunle, Chief Executive, Stanbic IBTC Holdings PLC, said that both Stanbic IBTC Holdings PLC and Standard Bank had been deliberate and consistent in making a remarkable impact in Africa’s financial sector.

“Our sincere appreciation goes to the organisers of the Africa Corporate Brands Awards and to every member of the public who voted. This is a reflection of the high level of trust and confidence that the public has reposed on us,” he added.

Dr Sogunle further said that Stanbic IBTC Holdings PLC would remain relentless in portraying the organisation as one of the most influential corporate brands in Africa.

He stated: “Stanbic IBTC Holdings PLC and Standard Bank have relentlessly contributed to driving the growth and development of the African financial ecosystem. These awards affirm our efforts, and we are encouraged to raise the bar continually.”

The Africa Corporate Brand Award is designed to identify and recognise outstanding companies. It also projects their achievements and impacts on African society and the world at large.


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