Nigeria’s economy remains resilient
Nigeria has displayed some resilience against the ongoing recessionary headwinds in 2017, with domestic data currently suggesting early signs of a potential recovery in economic growth.
An appreciation in oil prices at the start of the year and increased oil production domestically have positively impacted the nation, while Central Bank intervention created some form of economic stability. With the solid Sales Manager Index for April suggesting that the Nigerian economy is slowly creeping out of recessionary territories, the overall outlook could start to look encouraging. Sentiment may be in the process of turning bullish and the IMF’s projections of growth hitting 0.8% should compound to the positivity over a recovery in economic momentum.
The naira clawed back some losses against the Dollar this year, with prices trading around N385 on the black market exchange as of writing. The sharp acceleration of external reserves allowed the Central Bank of Nigeria to increase the supply of foreign exchange in the interbank markets, which consequently narrowed the gap between the official and black market exchange. Although the naira has the ability to appreciate further if the CBN continues to supply foreign exchange, questions may be asked over the sustainability of this method and the impact it will have on the nation’s external reserves. A situation where oil prices start to depreciate sharply and Nigeria’s reserve diminishes could expose the Nigerian naira to downside risks.
As the largest economy in Africa embarks on a quest to regain economic stability, the Central Bank of Nigeria should strive to allow market forces to decide the true value of the Nigerian Nigeria. While a currency devaluation could weaken the naira considerably in the short to medium term, the longer term benefits which include a potential increase in foreign investor confidence may be advantageous for economic growth. With the multiple exchange rate system still a gray area that needs to be rectified, speculation could heighten further over the CBN taking some form of action in the future. On the foreign exchange front, repeated Dollar weakness from the receding US rate hike expectations may support the naira further on the black market exchange.
Taking a deeper look into Nigeria’s macro fundamentals, inflation in March displayed early signs of cooling with consumer prices reaching 17.26%. Expectations have heightened over the nation’s inflation trending downwards this year if the naira stabilizes and such may improve the purchasing power of Nigerians.
An increase in purchasing power may boost the demand for consumer and industrial goods ultimately feeding back to economic growth. Although the Central Bank of Nigeria continues to maintain a passive approach as the nation slowly recovers, a hawkish monetary stance could be adopted by year-end if the upside momentum gains further traction.
External risks such as oil market volatility and the actions of the Federal Reserve may impact Nigeria this year, with much attention directed towards the ongoing OPEC developments. Oil markets remain gripped by the oversupply concerns with the resurgence of US Shale obstructing OPEC’s efforts to stabilizing the oil markets. Although OPEC has shown optimism over a potential extension of the supply cut agreement reviving the oil markets, price action states otherwise. From a technical standpoint, WTI Crude has found itself pressured on the daily charts with repeated weakness below $50 opening a path towards $45 in the medium to longer term.
While diversification still remains a dominant theme when focusing on Nigeria, investors have started to direct some attention towards the nation’s inflation, foreign exchange market and other forms of hard economic data. With expectations mounting of lower inflation, and speculations heightened over the CNB stabilizing the foreign exchange market, sentiment towards the largest economy in Africa could receive a further boost. As the second quarter of 2017 gets underway, markets will continue to observe how the Central Bank of Nigeria deals with the multiple exchange situation and if the CBN officially allows the forces of supply and demand to determine the equilibrium value of the naira.
Views expressed by contributors are strictly personal and not of TheCable.
Nigeria can get out of recession only when the above analysis practicable not just in theory.Nigeria population now well close to 200 million,and people still continued to suffer epilepsy electricity supply .The country only operating less than 4,000mw electricity supply even in the raining season. Therefore Nigeria has every right to asking minister of power Fashola what a heck going on with power sector in the country .Buhari administration had put Nigeria in the right toward progress and growth. The country needs him now than ever because those things OBJ can never achieve in 8 year in office and Buhari already surpass them within 2 year in office.Therefore Buhari ordain to transform Nigeria to greatness. For the first time in the History of Nigeria looter Continually buried looted money in the grave yard, abandoned million foreign currency at the country Airport. Most looters are on the run. The newly introduced whistle blower working like a charm.Nigerian hope renewed under the Buhari administration. May God continue to give Buhari healthy condition. amen.
Nigeria can get out of recession only when the above analysis practice not just in theory.Nigeria population now well close to 200 million,and people still continued to suffer epilepsy electricity supply .The country only operating less than 4,000mw electricity supply even in the raining season. Therefore Nigeria has every right to asking minister of power Fashola what a heck going on with power sector in the country .Buhari administration had put Nigeria in the right toward progress and growth Those praying for Buhari demise will die instead.because the country needs him now than ever because those things OBJ can never achieve in 8 year in office and Buhari already surpass them within 2 year in office.Therefore Buhari ordain to transform Nigeria to greatness. For the first time in the History of Nigeria looter Continually burried looted money in the grave yard, abandoned million foreign currency at the country Airport. Most looters on the run. The newly introduced whistle blower working like a charm.Nigerian hope has renewed under the Buhari administration More investor confidence to come into the country growing. Corrupts Government official and politician has no place to hide any more May God continue to give Buhari healthy condition. amen.