We are adopting a new format for the LBS this month. It’s in two parts: A) Policy flashpoints & resolution options and B) Economic scorecard & outlook for July/August.
Here goes our summary:
When abnormal becomes the NEW Normal
Policymakers in Nigeria have been navigating a treacherous path. This is as they align strategic reforms beneficial to the economy with reducing the short term pain of citizens. In economics, the definition of an outside lag is the time between policy decisions and their impact. At times, these lags may fly in the face of people bearing the brunt of the sacrifice.
For example, the PIB passed last week contains clauses that make subsidy payments illegal. But at a time of high unemployment and poverty levels, this comes with a great strain on the average man. At $4.89bn, the subsidy will reduce aggregate private consumption to $288.71bn because it is a mere 1.67%, but when compared to the budget ($35.88bn) it becomes stark (13.63%).
Hanging by a thread
In urban terms, the economy is hanging by a thread…No Cap! Inflation at (17.93%), even though down, is still stratospheric. Growth prospects are dim as the real sector struggles with the scarcity of raw materials and weak consumer demand. Oh! We cannot leave out INSECURITY!
The good news, however, is that oil prices are near a 3-year high ($75pb) and domestic production could climb back to 1.58mbpd in July. The result is an increase in government revenue. But the downside is that refined petroleum imports would be more expensive. Currently, Nigeria’s petrol consumption is growing 16 times faster than GDP growth.
Falling naira bites the wealthy – As they say “the rich also cry”
One indicator that affects everybody but impacts more on the elites than the bottom of the pyramid is the value of the naira. Corporates in particular are saddled with the burden of exchange rate misalignment and its attendant volatility.
The naira remains flat at N503/$ at the parallel market and N411/$ at the I & E window but is likely to appreciate marginally in the near term. This depends on an increase in forex supply by the CBN. Average forex intervention in the market rose by 2.39% to $143.34mn in June from $139.99mn in May, just as the EIU revised its year-end projection of the naira to strengthen to N419/$ from N422/$.
In this edition of the LBS Breakfast Session, Bismarck Rewane and the FDC Think Tank discuss relevant policy flashpoints, their implications on your business operations and strategy for Q3’21.
Download the reports here
- The LBS Executive Breakfast Session – July 2021 -Part A
- The LBS Executive Breakfast Session – July 2021 -Part B