- Osinbajo: Foreign Portfolio Investment declines by 85.5%
In a veiled acceptance of the gloomy situation of the country, President Muhammadu Buhari speaking yesterday at the State House, Abuja, stated that Nigeria had suddenly become a poor country due to what he described as a significant drop in crude oil prices in the international market since his assumption of office.
He said this while receiving BabatundeOsotimehin, executive director of the United Nations Population Fund, UNFPA, and Under Secretary of the United Nations, noting that Nigerians are not feeling the extent of the “severe shortage” because of his administration’s commitment to transparency and accountability.
Presidential spokesman, Femi Adesina quoted the president as saying that “it has been a very difficult year for Nigeria. Before we came to office, petroleum sold for about $100 per barrel. Then it crashed to $37, and now oscillates between $40 and $45 per barrel.
“Suddenly, we’re a poor country, but commitment to transparency and accountability is not making people know that there is severe shortage.”
Asking UNFPA to bear with Nigeria in any area where the country is not living up to its responsibilities for now, Buhari said exploding population and different cultural practices in the country provided fertile ground for research to organisations like UNFPA.
FPI declines by 85.5% – Osinbajo
Speaking at a different occasion, Vice President Yemi Osinbajo also stated that Foreign Portfolio iInvestment, FPI, coming into the Nigeria’s economy through the capital market had declined by 85.5 percent since the first quarter of 2015.
He stated this at the presidential policy dialogue organised by the Lagos Chambers of Commerce and Industry, LCCI.
The vice president said that foreign direct investment also took a plunge of 56 percent from $395 million in Q1 2015 to $175million by Q1 of 2016, further revealing that FPI, which averaged $621 million in Q1 of 2015, had declined to $90.3 million by Q1 2016 also.
“Inflation is at 16.5 percernt. Depreciation of the naira, increase in importation costs due to scarcity of FX, GDP declined from 6.3 percent in 2014 to 2.15 percent in 2015 and -0.36 percent in Q1 2016,” he said.
“Earnings from oil declined in the past eight months due to vandalization of pipelines and export assets in the Niger Delta. Power output fell from 5kwt in February to about 2.5k recently on account of over 60 percent loss in gas production due to pipeline vandalisation,” Osibanjo added.
At a town hall meeting Tuesday, Finance Minister Kemi Adeosun threw up what was to pass for the first formal admittance of the country’s economic downturn, when she said that Nigeria now had no choice but to borrow to invest in the economy.
“We have a very conservative borrowing programme, and we must borrow; because to do rail — the rail that we have now was done in the colonial era — there has been really significant upgrade,” she said.
“We have urgently to do rail to enable agriculture and solid minerals to be competitive, so I really don’t see that there is any option than to borrow.We will borrow sustainably; we would borrow conservatively to make sure that we don’t burden future generation.
“The difference is, we’ve been borrowing in the past to pay salaries; now we borrow to invest,” she added, noting that “when you borrow to invest, there is an expectation that there will be additional revenue that will service those borrowings. I think that is the clear difference. I don’t think people should be unduly concerned about borrowing; we have to borrow, we have no choice but we will borrow as strictly as possible.
“This is why we have approached the World Bank and export credit organisations that provide concessional loans. We are taking concessional loans before going for commercial loans.”
She posited that the size of the public sector is an evidence of the failure to develop the private sector, adding that the latter should be the major employer in the country.
Adeosun said investments must be made in infrastructure to create an environment for the growth of the private sector.
South Africa now Africa’s largest economy
In the same vein, South Africa has reportedly kicked out Nigeria as the biggest economy in African and regained the title of Africa’s largest economy, two years after Nigeria rebased her economy to become the largest economy in Africa.
A re-energised rand against the dollar helped South Africa to reclaim her title.
According to gross domestic product at the end of 2015 published by the IMF on Wednesday, South Africa’s rand gained over 16 percent against the dollar since the beginning of 2016 while the naira lost more than a third of its value after the central bank removed a currency peg in June.
This boosted the size of South Africa’s economy to $301billion at the rand’s current exchange rate while Nigeria’s GDP is $296billion, a clear $5billion difference.
However, despite the rebound, the two countries face the risk of a recession after contracting in the first quarter of the year.
The Nigerian economy shrank by 0.4 percent in the three months through March from a year earlier, amid low oil prices and output and shortage of foreign currency.
That curbed imports, including fuel. In South Africa, GDP contracted by 0.2 percent from a year earlier as farming and mining output declined.
“More than the growth outlook, in the short term the ranking of these economies is likely to be determined by exchange rate movements,” Alan Cameron, an economist at Exotix Partners, said in emailed responses to questions on August 2.
Although Nigeria is unlikely to be unseated as Africa’s largest economy in the long run, “the momentum that took it there in the first place is now long gone.”
This recent report portends a gloomy economic outlook for Nigeria, which President Buhari and his cabinet have woken up to its realisation.