Contrary to expectations, the gradual but steady rise in economic activities across the sectors in the first quarter of 2021 has proved bookmakers wrong that the economy will experience slow growth rate,
Worried about the parlous state of the economy as a result of the technical recession imposed by the COVID-19 pandemic, many had predicted gloom and doom for Nigeria for much of the year. Leading these naysayers of course was the World Bank, which said among other things, Nigeria’s per capita income could fall to its lowest level in 40 years this year.
The Country Director for Nigeria, Mr. Shubham Chaudhuri, said at the NESG conference that the decline in crude oil prices had impacted government finances, the balance of payments and remittances from Nigerians living abroad.
Per capita income is a measure of the amount of money earned per person in a nation or geographic region. It is calculated by dividing the country’s national income by its population.
Chaudhuri, who spoke during a panel session, noted that the country was still recovering from the last oil price shock of 2014-2016 before the COVID-19 crisis hit the economy. “The fact of the matter is that recovery was there but it was slow; it was only gathering pace,” he said.
World Bank data showed that Nigeria’s per capita income, which stood at $2,229.9 in 2019, was around $847.40 in 1980.
Can the economy recover?
That is the question of the hour as analysts who have been watching the trend in the nation’s ecosystem are upbeat that the worst may be over after all.
Speaking with a cross-section of financial and economic pundits, they expressed satisfaction that so far the policies initiative of the federal government is capable of returning the country on a steady growth trajectory.
Minister Zainab Ahmed’s optimism played out…
While delivering the keynote address on the economy and government’s policies towards the recovery, Minister of Finance, Budget & National Planning, Mrs. Zainab Shamsuna Ahmed, emphasised the administration is committed to enabling economic recovery and stimulating inclusive growth through policies and interventions designed to foster economic resilience and business sustainability. Thus, the Finance Act 2020 is aimed at supporting vulnerable households and businesses while improving fiscal discipline and procurement efficiency, enhancing economic competitiveness, encouraging domestic investors and enhancing macroeconomic stability amid the challenges posed by the COVID19 pandemic.
Enter the dollar incentives policy
Described as a masterstrokes policy, the Godwin Emefiele-led Central Bank of Nigeria (CBN) announced the introduction of an incentive of N5 for every $1 of remittances on 6 March, to increase incoming flows of foreign currency, and in the process support exchange-rate stability.
The ‘Naira-4-Dollar’ promo, which takes effect from March 8, 2021 and ends on May 8, 2021, offers recipients of Diaspora remittances N5 for every $1 received as remittance inflow through licensed International Money Transfer Operators (IMTOs).
According to analysts, this initiative is expected to increase Diaspora remittances flow into the country, boosting forex supply. This will also stem the depletion in the gross external reserves level (currently at $34.88bn as at March 4).
Nigeria was the 7th largest recipient of remittances in 2018 behind India, China, Mexico, Philippines, France and Egypt. However, the World Bank projected a $2bn drop in Diaspora remittances into Nigeria to $21.7bn in 2020 from $23.8bn in 2019, due to the impact of the COVID-19 pandemic and the attendant economic crisis.
With the increase in forex supply, the demand pressures to ease with a possible naira appreciation especially at the parallel market. Year-to-date, the naira has lost 2.55% at the parallel market (currently trading at N482/$). More importantly, experts believe that the new policy is likely to reduce the premium between the parallel market and the IEFX rates (currently at N71). It will also reduce the cost burden of remitting funds to Nigeria by Nigerians in the Diaspora.
PWC positive outlook
According to PWC, the bulk of Nigeria’s remittances flow came from the US, UK, Cameroon, Italy, Ghana, Spain, Germany, Benin Republic, Ireland and Canada in 2017. The good news is that all these countries are expected to recover from the COVID-induced recession in 2021 with an average growth rate of 4.3%.
The scheme amounts of an incentive of about 1% in naira to send dollars home. In itself, that’s “unlikely to contribute to currency stability”, says Anaïs Auvray, West Africa consultant at the Africa Matters advisory firm in London. “It enhances the probability that more naira will need to be printed, increasing the risk of further devaluation against the dollar.”
Finance Bill 2020
Taiwo Oyedele, Fiscal Policy Partner and West Africa Tax Leader PwC Nigeria, who shared insights on how the Finance Act 2020, and other significant changes that have been made to existing laws, will shape Nigeria’s tax environment in 2021 noted that there were no easy choices or a silver bullet given the limited fiscal space for incentives and to deliver on counter-cyclical measures. He commended the policy direction of the government not to introduce new taxes or increase the rate of existing taxes. While commending the government for the reduction in minimum tax rate, he advocated for a permanent removal of the tax which often tax companies that are vulnerable especially when they are loss making.
While addressing a public forum recently, Dr. Muda Yusuf, Director General of the Lagos Chamber of Commerce and Industry (LCCI), noted that Nigeria was able to exit recession in Q4 against all prediction, shows that things may be gradually looking up for the country and it was the duty of accountants to ensure they continue to advice on best strategy and good governance whether in the public or organised private sectors.
To maintain the growth trajectory in 2021, Yusuf said key policy decisions like the easing of the forex with the Diaspora remittances, reduction of the interest rate among other measures, should be encouraged.
In the view of the Director General, Odu’a Chambers of Commerce, Industry, Mines and Agriculture, David Awotipe expectations are high that the Organised Private Sector (OPS) known to be ever ready in pushing economic policies and commercial activities, hold the view and very strongly too that the federal government will make the difference as already seen major commanding heights of the economy.
Senior Economist/Head, Research & Strategy, Greenwich Merchant Bank, Mr. Ayodeji Ebo, predicted that the GDP will return to a growth path by Q1.
Ebo said: “It would be a major miracle to escape a negative growth rate in Q4 and we are already in November with no major policy that would take us out to that positive region within one month.
“The trade policy, FX liquidity is still a major challenge for most people to import, in the manufacturing space there is really no major policy that is helping
bring down the cost of doing business. I feel that it sounds optimistic, but we expect Nigeria to move to positive growth rate by Q1.
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