Budget, Falling Oil Prices, Elections Are Key Issues
Apart from the general elections slated for next month, 2015 promises to be a year full of activities as the new administration takes steps to complete some of the economic policies brought forward from last year as well as meet its electoral promises, wr
From whatever angle one looks at it, Nigerians already have a fair idea of some of the events that will shape the business and economic landscape of the country in 2015. It was therefore not a coincidence that, apart from the February general elections which is dominating major discussions these days, another important issue that has continued to send shivers down the spine of the enlightened members of the public is how the incoming administration will navigate through a harvest of economic and social challenges confronting the global community and by extension, Nigeria.
In the first instance, economic watchers said apart from some fundamental issues which are bound to receive urgent attention in January, the implementation of other economic policies are most likely to be stalled by the preparation for the February elections as political office seekers heighten their campaigns from tomorrow. Campaign Train
As President Goodluck Jonathan’s campaign train moves to the 36 states of the federation, one cannot rule out the presence of his economic managers in all the campaign rallies as he flaunts his economic transformation before the electorate. Consequently, policy files will have to wait till after the election when a new federal executive council is constituted by any of the candidates that wins the February 14 Presidential election.
However, analysts believe that though the entire cabinet will be busy canvassing for votes on the run up to the February election, one cabinet member who cannot go to bed without monitoring the movement of crude oil prices in the international market is the Coordinating Minister for the Economy and Finance Minister, Dr. Ngozi Okonjo-Iweala. Falling Oil Prices
The fall in oil price and the attendant pressure on the Nigerian economy was a major episode in the nation’s economic history last year, with observers saying Nigeria’s overdependence on oil commodity, coupled with the population’s appetite for imported goods will weigh in more on the nation’s economy in 2015. A barrel of oil which sold for $112 per barrel early last
year is now trending below $60.
Oil prices got a temporary boost last week from fresh concerns over Libya’s ability to bring oil to market, but prices reversed and US crude futures hit a new five-year low.
The Libyan crisis escalated as the conflict among militias roiled the OPEC-member nation. The strife could create a turning point in the months-long rout of the oil market that has seen prices plunge as much as 50 per cent, Francisco Blanch, head of commodities at Bank of America, told CNBC last week.
But the glut of oil in world markets has been weighing on markets, and OPEC has vowed not to cut production as prices fall. “The market continues to react to the oversupply in crude oil and the reiteration by Saudi Arabia that it is not cutting production.
Economic watchers said the handling of the emergency situation brought about by the oil price shock will shape Nigeria’s economy in 2015.
Reports have it that the oil’s 42 per cent slide since its peak in June has led to a brutal sell – off in Nigerian assets, as investor’s flee what they perceive to be weak responses to an emerging crisis made worse by alleged economic mismanagement and corruption. 2015 Budget The 2015 Budget currently with the National Assembly is a document that will receive attention through the year. If the submission of political economists that the National Assembly is not likely to approve the budget until after the election is right, then it means the adoption and implementation of the financial documents will largely be determined by the February polls.
As Nigerians await the implementation of the austerity measures announced by the Federal Government, observers said anti-labour issues like rationalisation of the civil servants, removal of fuel subsidy among others may be part of issues to deal with in 2015.
Already, some of the austerity measures announced by the Federal Government have been criticised by those who felt the negative consequences of the measures outweigh the purpose for which they were considered in the first place.
“Reducing government spending after all segments of the economy have suffered income losses is hardly positive for the outlook. Hiking the policy rate in that situation could only be a grave policy error on the part of the CBN,” Managing Director, Economic Associates, Dr. Ayodele Teriba, said.
Perhaps, what will attract the attention of economy watchers who had picked holes in the rather over-ambitious postures of the federal government in key areas of the 2015 budget is how policy makers will adjust in case the assumptions turn out to be different from the reality.
For instance, government had been taken to task for adopting an oil benchmark of $65 per barrel whereas oil is being sold for about $59.
In terms of the exchange rate, N168 was the benchmark in the budget whereas a dollar attracts N192 at the parallel market. Analysts said pressure will be brought to bear on the government should the oil price fall below the current level.
As the drop in oil price and depreciating currency put pressure on the economy, the International Monetary Fund (IMF) said Nigeria’s growth rate will slow to about 5 per cent in 2015, from 6.9 percent in 2014.
According to the IMF, slow progress by the executive and legislators in executing structural reforms to diminish an acute fiscal vulnerability to adverse oil price shocks will be the major reason for this slowdown in growth. Monetary Policy At the last Monetary Policy Committee meeting, the Central Bank of Nigeria further tightened its grip on virtually all the rates, a development blamed on the erosion of foreign reserves, pressure on the naira and the glut in the liquidity system.
Part of the critical decisions taken by the MPC are the increase by 100 basis points from 12 per cent to 13 per cent; increase of the Cash Reserve Ratio (CRR) on private sector deposits by 500 basis points, from 15 percent to 20 per cent with immediate effect and retention of public sector CRR at its current level of 75 per cent.
The MPC also moved the Retail Dutch Auction System (RDAS) mid-rate to N168 from N155, and the band around it widened to +/-5 per cent.
It is expected that the fate of the naira will be determined when the official exchange market resume after its closure last month. Observers say Nigeria may be heading towards another round of devaluation given the parity between the rate at the official market and parallel exchange markets.
The effect of the restriction placed on banks on foreign exchange account is also expected to take effect with the attendant dip in deposit money banks’ income.
The apex bank had in December last year restricted banks from holding any part of their shareholders’ funds in dollar. It insisted all unutilised dollars should be returned to the CBN within 48 hours. Commentators said this cocktail of measures would depress banks’ earnings. Cost of Transaction To add to banks’ woes, the gradual phase out of the Cost of Transaction in banks will reach the final stage this year. According to the resolution by the Bankers Committee and the apex bank, banks were to charge no more than “N3 per mille” as COT in 2013; N2 in 2014; and N1 in 2015; before
Expectations are also
high that the rescue package championed by the Central Bank of Nigeria into the
power sector will bring about a positive change in the areas of power generation and distribution this year
moving to zero COT from 2016. Foreign Reserves
As the falling oil price pushes down the nation’s external reserves, attention will be focused on the activities of the central bank in its effort to build buffers for the economy. As at December 29, 2014, foreign exchange account stood at $34.5billion and analysts feared that with continued intervention of the CBN at the Retail Dutch Auction, the reserve level might drop further, especially in the first quarter of 2015.
The issue will also centre on the Sovereign Wealth Fund (SWF), pushed by the Ministry of Finance (MOF) but which is opposed to by the nation’s 36 state governors, as the depletion of the Excess Crude Account (ECA), set up to cushion the nation from adverse fall in oil prices, continues apace.
The country’s fiscal and external “buffers” are low and need to be rebuilt, with ECA depleted to $3 billion from $21 billion in 2008, the IMF said.
But IMF insists that despite the outlook, Nigeria could surmount its challenges, especially if a national spirit of burden sharing and rebuilding together is actively embraced. Capital Market
Two issues that will dominate discussions in the capital market this year include the extension of the deadline on the recapitalisation of stockbroking firms and extension of the tenure of the Director-general of the Securities and Exchange Commission (SEC), Aruma Oteh.
The five year-tenure of Arunma Oteh as the director general of SEC will end in January 2015, and requires the approval of the National Assembly to secure another term of five years. Giving her sour relationship with the House of Representatives, the question being asked by stakeholders is whether she can retain her position.
Arunma Oteh was appointed as director general of SEC in January 2010. For Oteh to be reappointed, the ISA 2007 section 5(2) provides that the Director General of the SEC shall hold office for a period of five years in the first instance and may be reappointed for a further period of five years and no more.
But with the way things are going now, Oteh may not be sure of her fate as the same lawmakers that suspended the commission’s budget in the last two years are still the ones to approve her stay in office.
Some stockbrokers in Nigeria’s capital market may have saved their businesses from going under and kept their employees off the unemployment queues, ahead of the nine months extension given by the SEC for them and other market operators to recapitalise.
Already some stockbrokers who could not get suitors ahead of the earlier deadline (December 31, 2014) when the regulator approved Mergers & Acquisitions (M&A) window opened, resorted to restructuring their businesses, using available capital.
Top on the decisions were the options to change their business models and type of transaction they could execute.
Stockbrokers who act as brokers/dealers have had their new capital requirements increased in excess of 300 per cent as indicated by the SEC board guidelines. Privatisation
Following the successful privatisation of two of the three rescued banks, namely, Enterprise Bank Limited and Mainstreet Bank Limited last year, expectations are high that the new owners of the banks will begin the merger of new institutions.
Last year, Heritage Bank Limited emerged the successful bidder for Enterprise Bank while Mainstreet Bank went the way of Skye Bank Plc.
However, Asset Management Corporation of Nigeria (AMCON) is expected to announce the timetable for the sale of Keystone Bank Limited, which is the last of the three bridged banks slated for privatisation this year. NITEL
The sale of the moribund Nigerian Telecommunications Limited (NITEL) to a telecommunications consortium NATCOM last year is expected to be concluded this year. NATCOM, which emerged the preferred bidder for NITEL and its mobile arm, the Mobile Telecommunications (M-Tel), offered to pay $252,251,000 under a guided liquidation process for both firms.
Nigerians will expect the new management of the firm to unveil its plan to take its share of the telecoms market in Nigeria. Power Sector
Expectations are also high that the rescue package championed by the Central Bank of Nigeria into the power sector will bring about a positive change in the areas of power generation and distribution this year.
The CBN and the deposit money banks had signed two memoranda of understanding (MoU) on implementation of the N213 billion power sector intervention fund.
The two agreements are terms and conditions that set up the guidelines for the fund and participation agreement that sets out the roles of the banks in the transaction.
The intervention is to take care of issues including the payment of legacy debts. The power sector intervention fund is therefore expected to be a catalyst to ease the burden of power sector investors. New Electricity Tariff
After its recent review of the Multi Year Tariff Order (MYTO-2) framework, the Nigerian Electricity Regulatory Commission (NERC) last year approved new electricity rates that are expected to start running from January 1, 2015 for Nigeria’s Electricity Supply Industry (NESI).
NERC however said the new electricity tariff which follows adjustments in some key factors that statutorily influence its review of the MYTO framework will not be applied to domestic consumers in the country for the next six months.
These consumers are categorised under Residential (R) 1 and 2 in the MYTO framework and form majority of consumers in the country’s electricity market. Auto Policy
The implementation of an auto policy announced by the Federal Government last year is expected to begin this month with the introduction of a 70 per cent tariff on imported vehicles.
The policy which has been giving importers some sleepless night is expected to, among others, generate employment to Nigerians and encourage indigenous efforts.