ECONOMIC REVIEW: H1 2017
Global economic environment stable in H1 ’17
Political events strengthens economic realities
Global growth was stable in H1 ’17 despite some developments which had capacity to disrupt earlier projections at the beginning of the year. Fortunately, the concerns were allayed as political developments helped to curtail some self-seeking intrigues. Chief amongst these intrigues were; emergence of Donald Trump as the President elect of US and his much-dreaded protectionist agenda, the expectation of Brexit trigger of Article 50, rising political upheavals in Brazil and Persian Gulf. Fallout- the European Union for instance is enjoying political stability not seen in years and her economy is strengthening.
The Persian Gulf descended into the worst political crisis in foreseeable years after several countries, led by Saudi Arabia, decided to sever diplomatic ties with Qatar abruptly in early June. They also closed all borders with the country and imposed trade and travel bans. Saudi Arabia and its allies have issued 13 demands for Qatar to end the political and trade blockade, including the shutdown of broadcaster Al-Jazeera and to scale down its ties with Iran. The U.S. role in the crisis has been controversial as President Donald Trump endorsed the blockade, while some U.S. officials encouraged further dialog.
At this stage it is difficult to assess the impact of the crisis in the global economy, but it certainly represents an escalation between the region’s leading powers Iran and Saudi Arabia, with the support of the United States. Against this backdrop, the Iran nuclear deal has been placed in the line of fire, while the consequences of this clash could spill over into other regional conflicts.
Although growth in China has decelerated, it is expected to remain robust throughout this year, while authorities will continue with the implementation of economic reforms and initiatives to deleverage the financial sector. Moreover, monetary policies remain largely accommodative, with the exception of the U.S. On a negative note, uncertainty is high on Trump’s fiscal measures.
Nigerian Investment Environment
Policy and political landscape
In May, the All Progressive Congress (APC) led government clocked two years in the saddle and the question of how well has the government performed became prominent in the mouths of most Nigeria. Obviously, the government has encountered major challenges in managing the expectation of the ‘change mantra’ which swoop the Nigerian political landscape during her campaign in the 2015 elections. Notable among these challenges is the squabbles between the executives and the legislative arms. This resulted in hangover or delay in implementation of economic decisions. The government has equally been viewed from the angle of leading Nigeria into an economic recession for the very first time in over two decades regardless of the handwriting on the wall that pointed to this direction during the fading days of the previous government.
Quelling insecurity and ethno-religious tensions?
One area the government has fared well is curbing security challenges around the Country. From the very first day, the government made it a cardinal point to drive towards quelling elements of security challenges in the Country. To a large extent, so much has been achieved in this respect. We recognize that in the battle against Boko Haram, the Islamic sect that has terrorized North-East region for some time now, made appreciable progress in 2016 and 2017. Territories that were under the control of the sect have now been recovered by the military and neighboring countries military through collaborations. As such, the spate of their attacks reduced significantly. Nonetheless, it is important that the government consolidate on this stride to wipe out the sect completely.
The Buhari led administration will equally be given credit for the peaceful engagement of the Niger Delta elders and youth leaders which has yielded dividend in respect of recent peace witnessed in the area. This has helped to quelled activities of the Niger Delta Avengers (NDA) who attacks oil and gas facilities, disrupting production and output. At the height of this attacks, Nigeria oil output fell to a decade low of 1.2mbpd in March.
Drivers of economic environment
Fiscal policy towing towards recessionary recovery
As earlier indicated, the Nigerian economy fell into recession cycle in H1 ’16 and this coloured business activity the rest of H2 ’16 and H1 ’17. There were legacy issues around the economy as the Buhari government struggled to push the system to workable state. Policies were put out by the government to drive the Medium Term Expenditure Framework (MTEF) known as “Economic Recovery and Growth Plan” designed to restore and sustain growth throw achieving macroeconomics stability and economic diversification.
The productive base (GDP) shows marginal recovery:
The economy in H1 ’17 showed a marginal budding to recover from recessionary trend. GDP contracted marginally by 0.52% in Q1 2017 compared to 2.06% and 1.30% posted in Q3 and Q4 2016 respectively. This was a positive development and we may likely see a positive growth in Q2 2017 given that the fiscal authority has been assiduous on implementing the expenditure spending plan as outlined in budget 2017 in line with the ERGP. The recent strengthening of small-scale businesses and the promotion of industrialization are priorities to the recovery drive.
Our score card for H1 2017
At the beginning of the year 2017, we published our outlook report for 2017 which was captioned: Glass half full?. The report reviewed Global economies and the local economy and based on the happenings at the time, our research team came up with the following projections for Nigeria.
- We expect GDP to average between 1.0% and 1.5% in 2017. We also expect that the economy to exit its current recession by Q3 2017
- We expect interest rate to reduce to between 11%-12% from the current 14%