Daily Trust: Out of Recession but not yet out of the woods – MAN President interview

NBS reported that Nigeria has exit recession in Q2 of 2017, that economy grew 0.6%. NBS also attributes the exit to growth in agriculture and manufacturing.  

No doubt, the economic growth rate of 0.55% is very good. The question is, is this growth real, is it sustainable and can it engender inclusiveness? Technically, inclusivity is not something one can assume. The impact of a positive improvement like this should ideally be felt by all classes of citizens in our country before one can boldly assert that a growth experience is inclusive. 

This notwithstanding, based on the content of the report of the National Bureau of Statistics (NBS), I would say yes the growth rate is a positive development and that the Nigerian economy has summarily exited recession in the second quarter of 2017 after five consecutive quarters of contraction since 2016. 

According to NBS, (GDP) growth rate stood at 0.55 per cent in the second quarter (Q2) of 2017 which was 2.04 per cent higher than the rate recorded in the corresponding quarter of 2016 (-1.49%) and higher by 1.46 per cent points recorded in the preceding quarter, which was revised to -0.91% from -0.52% along the line of improvement in price and output of crude oil for March 2017.  

According to the report, the economic recovery was driven principally by the performance of four vital sectors one of which is the manufacturing sector. Even though the sector sustained positive growth for the second consecutive quarter in Q2 2017, like the other three recording 0.64%; a cursory look revealed that the growth was slowed downed when compared with the 1.36% result posted in the first quarter. 

To MAN, this growth rate is a welcome development and a pointer to the fact that with appropriate mix of policies and concerted efforts of all stakeholder, the growth rate would eventually become inclusive and impact the lives of over 180 million Nigerians. In broad terms, this growth rate is not only good, it is a sure compass to better days ahead and could eventually be sustained. This position rest principally on the fact that data showcased by NBS laid credence to the fact that the real sector contributed significantly to the transmission mechanism of the recovery process. 

A critical examination of other vital indices like manufacturing output, price of crude, output of crude oil, the PMI, CPI and other economic indicators give one stronger re-assurance that the current performance is real and can be effectively sustained. From the foregoing, it would therefore, not be out of place to say that  0.55% growth rate is encouraging, could be sustained, is very close to the real growth and is not just a mere data flashing or a growth that is heavily dependent only on the volatility of crude oil prices.

What are the contributory factors that enabled the manufacturing sector to contribute to the recorded positive economic growth?

Various credible policy adjustments and implementations between mid-first quarter 2017 and early second half of 2016 were largely responsible for the pace of economic recovery.  Notably are the relative monetary and fiscal policy syntheses, evidenced by strategic adjustments in Foreign Exchange (FX) management policy and complementary fiscal policies that were implemented in the period.  This accounted for the positive swings in vital industrial performance indicators in the second quarter of 2017. Other factors that have position the sector as one of the catalysts responsible for the return of the economy on the path of economic recovery include the economic diversification and backward integration efforts of some manufacturing concerns coupled with priority attention that Government is giving to manufacturing and agriculture. 

In specific terms, government introduced some credible policies that mitigated the impact of the FX challenge on the manufacturing sector. These policies that are driving that enhanced economic performance include the New Central Bank of Nigeria (CBN) FX Policy which saw CBN strong intervention in the FX market; the Economic Recovery and Growth Plan (ERGP) which has as priority infrastructure development; the Presidential Enabling Business Environment Council (PEBEC); the adoption of the Nigeria Industrial Revolution Plan, Industrial Advisory Council, the removal of vital items of raw materials from the CBN list of 41 items not valid for forex as well as the lifting the ban on Export Expansion Grant (EEG).

What are the Likely implications of this development on the manufacturing sector, Nigerian market, demand and prices?

The implications of this development is predictably going to be positive for the manufacturing sector and Nigerian market as a whole giving the vigorous actions that have been taken by the government in recent time to promote local content and creation of an enabling business environment through the Executive Order. This will no doubt reduce operating cost, spring gradual lowering of prices, increase demand for Nigerian made goods and serve as vital incentive that would encourage investors to increase their stake in the Nigerian economy. This ultimately would further increase output and spur the recorded growth to remain on the sustainable path.

What will be your advice to the government?

In as much as the positive growth rate is blowing favourable air, government needs not rest on its oars by further deploying strategic synthesis of fiscal and monetary policies, further make the operating environment friendlier, enhance the purchasing power of average Nigerians, further support the manufacturing, agriculture, telecom and oil with comprehensive and integrated support system that would guarantee meaningful growth. The manufacturing sector at the moment still requires stable and adequate enabling environment, a reliable policy support systems that would effectively address existing familiar challenges like inadequate power and dearth of basic infrastructure prevalent in the sector. The provision of infrastructure and implementation of the following recommendations would sufficiently guarantee sustainability and inclusiveness of the current recovery tempo in the best interest of the sector and the economy as a whole.

What are your other suggestions?

Government should try and sustain the commitment to backward integration agenda especially in agriculture, solid mineral and petro-chemical sectors by creating enabling environment such as incentives, concessions for investors in the sectors; enforce and monitor the implementation of the recent Executive Order  by the Federal  Government  on patronage of made in Nigerian goods Ministries, Department and Agencies (MDAs) of the Government; set machinery in motion to ensure that MDAs apply the recently approved 40percent Margin Of Preference by MDAs in their procurement decisions which include encouraging the State and Local Governments  to embrace patronage of made in Nigerian products by following the footsteps of the Federal Government; sustain, monitor and enforce that the Executive order on Micro, Small and Medium Enterprises’ consideration in procurement decisions by MDAs. 

Create a sustainable platform through which  Nigeria’s general public will be continuously educated  on the need to jettison the current penchant for foreign goods and patronize locally manufactured products; monitor closely smuggling, adulteration and counterfeiting activities in the country with stricter penalty on those found culpable of the offences. Implement the ERGP in such a way that the huge fund budgeted are utilized in a manner that it will have trickledown effect on employment, skill development and wealth creation; take advantage of the quarterly meetings with MAN and the OPS to present feedbacks on the performance of the its policies and by extension the economy. Government should evolve a Skill Development Policy that will encourage companies that are being awarded huge construction contracts to establish  technical and vocational training schools for locals, fast-track the recapitalization of the Bank of Industry (BOI) to enable it meet up with the huge credit demand of the industrial sector; up scale access to the various  development funds created by the CBN such as the N220 billion Micro, Small and Medium Enterprises Development Fund (MSMEDF) and the N330 billion Real Sector Support Facility (RSSF) by relaxing stringent conditions that denies manufacturers access to these funding windows. 

Intensify effort at implementing the Moveable Collateral Registry and Credit Reporting  system which were recently passed into law; continue to support the resource-based industrialization and backward integration in the country through appropriate incentives and funding support to investors; sustain priority FX allocation for raw-materials, spare parts and machinery to the industrial sector so as to maintain  production; rehabilitate or privatize the four existing refineries and made them functional; re-classify the Manufacturing sector into strategic gas users from  the current commercial  classification; encourage stronger Public Private Partnership (PPP) in road and rail constructions in the country through Concessionary Agreements such as Build-Operate-Transfer (BOT) or Build-Own-Operate-Transfer (BOOT).  

This will help free up government funds for other projects. encourage infrastructure development  especially electricity and  road (rail); `consider and reinstate the remaining vital raw materials items on the CBN list into the forex market.

Article found at: https://www.dailytrust.com.ng/recession-nigeria-s-economy-is-not-yet-out-of-the-wood--man-president.html

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