Emefiele, Dipeolu Insist Nigeria on Recovery Path as Economy Contracts by 0.5% in Q1

• MPC retains policy rate at 14%, gov says CBN won’t determine point of convergence of FX rates

Ndubuisi Francis, Omololu Ogunmade in Abuja and Obinna Chima in Lagos

The Governor of the Central Bank of Nigeria (CBN), Mr. Godwin Emefiele, and Special Adviser to the President, Economic Matters, Dr. Adeyemi Dipeolu, Tuesday assured Nigerians that the country would exit the biting economic recession sooner rather than later, stating that decelerating inflation and negative gross domestic product (GDP) growth, as well as increased capacity utilisation and agriculture output were all signs that the economy was on the path to recovery.

Their comments came on the back of the first quarter of the year (Q1 2017) GDP report released by the National Bureau of Statistics Tuesday, showing that Nigeria’s GDP contracted by 0.52 per cent (year-on-year) in real terms, indicating five consecutive quarters of contractions since the Q1 2016.

This was 0.15 per cent higher than the rate recorded in the corresponding quarter of 2016 (revised to –0.67 per cent from –0.36 per cent) and higher by 1.21 percentage points from the rate recorded in the preceding quarter (revised to –1.73 per cent from –1.30 per cent).
Emefiele, who spoke at the end of the Monetary Policy Committee (MPC) meeting of the central bank, reaffirmed his earlier projection that the nation’s economy would exit the recession in the third quarter of the year, predicating his optimism on emerging macroeconomic variables.

Emefiele said with negative growth decelerating, increased capacity utilisation, and consecutive decline in the inflation rate, among others, his earlier forecast that the nation would exit the recession was valid.
On the outcome of the meeting of the MPC, the CBN governor said the committee voted unanimously to retain the Monetary Policy Rate (MPR) at 14 per cent alongside all other policy parameters.
Accordingly, the MPC retained the cash reserve ratio (CRR) at 22.5 per cent, liquidity ratio at 30 per cent, and the asymmetric corridor at +200 and -500 basis points around the MPR.

“My view is that with all the positive signs we see: inflation tending downwards, GDP improving to the extent that negative movement has decelerated greatly and we have seen foreign exchange going to the real sector and industrial capacity is beginning to improve, we’ve seen positive signs in various economic sectors.

“So I am very confident that at the end of the third quarter, we will be out of the recession,” Emefiele declared.
He also stated that the central bank cannot determine what the convergence point of the various forex rates would be, adding, however, that based on the indicators, the rates were already converging.
Emefiele recalled that about three months ago, the local currency was trading at above N500 to the dollar on the parallel market, but has appreciated to between N370 and N375/$.

Describing this as a significant achievement vis-à-vis the convergence, Emefiele noted that the monetary authorities would however prefer a convergence that would head southwards rather than northwards.
“We would prefer a convergence that will significantly head southwards, than a convergence that will go northwards. The fact that we have seen a convergence in the southward direction gives us a lot of hope that things are working in the right direction,” he said.

On how far the CBN would go in sustaining its market interventions, he said: “I have said it and I will repeat myself that the interventions will be more vigorous than before to underscore the fact that we are determined to ensure that the Nigerian economy recovers, by making sure that foreign exchange is being made available to operators of the economy to conduct their businesses.”

On manufacturers’ call for reduced interest rates, he pointed out that it was not only manufacturers that had called for lower rates.
“Even I want a low interest rate but the economic aggregates that we see today, unfortunately, do not give room for us to begin to look at the direction of signalling a downward interest rate.
“Both the IMF and World Bank are advocating a tightened monetary policy. But rather than tightening, we have decided to hold and watch, given that we had embarked on a consistent policy tightening before we decided to adopt the hold policy.

“And it is because at that time we saw that inflation went as high as 18.6 per cent. And we have data to support the fact that once the inflation rate in Nigeria goes above 11.5 per cent, growth is retarded.
“So we decided to anchor inflation and I am very delighted that since around January, we have begun to see a downward movement in inflation,” he said.

He also ruled out the possibility of the central bank putting a cap on interest rates.
“The CBN cannot legislate on interest rate. What we will expect is that once CBN lends support to the real sector of the economy, for instance, making sure that foreign exchange allocation goes to the real sector of the economy for raw materials, the agriculture sector, and all that.
“It will serve as a signal that these are the priority sectors of the economy that we like to see attention directed,” he said.

Speaking on the forex window for investors, Emefiele said he was gratified that over $1.1 billion had been attracted to the forex market through that window.
“I must say that I am gratified that on the whole, we have seen more than $1.1 billion coming into the forex market and it gives credence to the fact that CBN is on the right path and the central bank’s intervention in that window is less than 30 per cent.

“If about 70 per cent is coming in from non-oil exporters and some foreign portfolio investors, it means that there is support for that segment of the market which is a willing buyer, willing seller market.
“It is also significant that even in this willing buyer-willing seller market, we have seen rates moving aggressively from over N400 to between N350 and N385 to the dollar. We have also seen the bullish trend in the capital market,” he added.

Giving the highlights of the decisions taken at the MPC meeting, he said the committee assessed the global and domestic economic and financial environments in the first five months of 2017 and the outlook for the rest of the year.
According to him, the global economy continued to gather momentum in Q1, 2017, aided by the gradual recovery in emerging markets on the back of a pick-up in global demand and higher commodity prices, coupled with fairly robust domestic demand in the advanced economies.

“Accordingly, global output growth in Q1 2017 is estimated to expand by 2.8 per cent annualised. In spite of the fairly optimistic global economic outlook, uncertainty surrounding the direction of macroeconomic policy in the advanced economies continues to cloud the prospects of sustained recovery.
“Global inflation appears to be trending upwards on the back of improved commodity prices and depreciated currencies in several emerging markets.

“Data from the National Bureau of Statistics (NBS) showed that the (Nigerian) economy contracted marginally by 0.52 per cent in Q1 2017, a much more positive development since Q1 2016.
“The data also showed that about 18 economic activities recorded positive growth in Q1 2017, indicating that the economy is firmly on the path to recovery.

“The key growth activities were led by quarrying (52.54%), metal ores (40.79%), road transportation (12.35%), water supply and sewage (12.63%), fishing (5.49%), crop production (3.5%), oil refining 93.01%), motion pictures (2.95%), telecommunications (2.89%), forestry (2.59%), amongst others.
“The committee noted the positive effects of improved foreign exchange management on the performance of the manufacturing sector and other economic activities.

“The non-oil sector grew by 0.72 per cent in Q1 2017, largely reflecting the growth recorded in agriculture and solid minerals, and recovery in manufacturing, construction and services sectors.
“The committee urged the fiscal authorities to expeditiously commence the implementation of the recently approved 2017 budget, especially the capital expenditure portion, in order to sustain the momentum of recovery, engender employment and restore confidence in the Nigerian economy.

“The committee noted that money supply (M2) contracted by 8.48 per cent in April 2017, annualised to a contraction of 25.44 per cent in contrast to the provisional growth benchmark of 10.29 per cent for 2017.
“Net Domestic Credit (NDC) grew by 1.40 per cent in April, 2017, annualised to 4.21 per cent, which is significantly below the 17.93 per cent provisional growth benchmark for 2017,” he said.

Emefiele, however, stated that the MPC pointed out that net credit to government grew by 24.08 per cent over end of December 2016, representing an annualised growth of 72.0 per cent.
“The committee was concerned that credit to government continued to outpace the programmed target of 33.12 per cent for fiscal 2017, while credit to the private sector declined considerably far below the programmed target of 14.88 per cent.

“Headline inflation (year-on-year) moderated for the third consecutive month, falling to 17.24 per cent in April, from 17.26 per cent in March, 17.78 per cent in February and 18.72 per cent in January 2017, effectively reversing the monthly upward momentum since January, 2016.

“The food index component, however, rose to 19.30 per cent in April, from 18.44 per cent in March and 18.53 per cent in February, 2017. The moderation in headline inflation in April 2017 thus reflected the decline in the core component to 14.80 per cent in April from 15.40, 16.01, and 17.87 per cent, respectively in March, February and January 2017.
“Similarly, month-on-month inflation moderated to 1.60 per cent in April from 1.72 per cent in March, 2017,” he said.

The committee, he added, attributed these developments in part to the effects of the recent gains in the naira exchange rate, brought about by the central bank’s interventions in the forex market and the resulting downward price adjustments on imported items and their derivatives.

“Against this background, the committee emphasised the need to sustain and deepen the central bank’s foreign exchange management policies and measures, in order to reap the benefits of the pass-through to consumer prices.

“The MPC recognised the continued influence of structural factors such as high energy and transportation costs, production bottlenecks on prices and hoped that the ongoing reforms by the government would address some of these constraints,” Emefiele stated.
Emefiele also disclosed that the MPC noted the bullish trading in the equities segment of the capital market, as well as the rise of the All-Share Index (ASI) by 10.20 per cent from 25,516.34 on March 31, 2017 to 28,113.38 on May 19, 2017.

“Similarly, market capitalisation increased by 10.10 per cent, from N8.83 to N9.72 trillion during the same period. Relative to end-December 2016, the capital market indices rose by 4.60 and 5.10 per cent, respectively, reflecting growing investors’ confidence following improvements in forex availability reflected in the over US$1 billion injected through the investors’ window and exchange rate management.

“Total forex inflows through the CBN increased by 69.77 per cent in April, 2017 compared with the previous month. Total outflows, however, rose, but less significantly, at 29.35 per cent during the same period.
“Consequently, the committee observed that the average naira exchange rate remained stable at the inter-bank segment of the forex market in the review period,” he said.

On the overall outlook and risk, the CBN governor stated that available data and various forecasts of key economic variables, as well as the assessment of government initiatives, including the recently released federal government Economic Recovery and Growth Plan (ERGP), all point to prospects of recovery in 2017.

“The committee expects that the timely implementation of this plan, judicious execution of the approved 2017 Budget and sustenance of the new forex implementation regime supported by the restoration of security in different parts of the country, especially, in the Niger Delta region, would help accelerate growth and restore confidence in the economy.

“The MPC, however, identified the downside risks to this outlook to include the possibility of low oil prices due to renewed investments in shale oil exploration and production, continuing monetary policy normalisation by the U.S. Fed which may result in strengthening of the U.S dollar, and consequent capital reversal from Nigeria and other emerging market economies.

“Also, the MPC believes that the inflation outlook does not appear benign as the limit of the base effect driving the current moderation in prices may have been reached,” he said.

According to him, in consideration of the challenges weighing down the domestic economy and the uncertainties in the global environment, the committee decided by a unanimous vote of the eight members in attendance to retain the MPR at 14 per cent alongside all other policy parameters.
The MPC also retained the cash reserve ratio at 22.5 per cent, liquidity ratio at 30 per cent, and the asymmetric corridor at +200 and -500 basis points around the MPR.

FG: Economy Exiting Recession

In support of Emefiele’s economic outlook, the federal government Tuesday night also said the current picture of the nation’s economy showed encouraging signs of steady and slow progressive growth, which it said implied that the economy was slowly emerging from the recession.

However, the government expressed concern that despite the fall in inflation rate to 17.24 per cent in April, food inflation continued to soar while growth in the oil sector remained negative.

Commenting on the NBS GDP report for the first quarter of the year, the president’s aide responsible for the economy, Dr. Adeyemi Dipeolu, said growth continued in agriculture during the quarter under review, while a notable positive turnaround was equally recorded in the manufacturing and non-oil sectors, adding that the contraction recorded in Q1 showed a deceleration in several sectors.

“This outlook is reinforced by positive trends in other indicators such as improved oil prices and increased production, rising foreign exchange reserves, increased capital spending by the federal government as well as improved perceptions reflected in various purchasing and sales managers indices.
“Barring major economic shocks, it should still be possible to restore growth this year as projected in the Economic Recovery and Growth Plan,” he said.

First Quarter GDP

The NBS, in its Q1 GDP report showed that the economy contracted by 0.52 per cent (year-on-year) in real terms. This was 0.15 per cent higher than the rate recorded in the corresponding quarter of 2016 (revised to –0.67 per cent from –0.36 per cent) and higher by 1.21 per cent points from the rate recorded in the preceding quarter (revised to –1.73 per cent from –1.30 per cent).

The agency’s report also showed that quarter-on-quarter, real GDP growth was –12.92 per cent.
During the quarter, aggregate GDP stood at N26,028,356.03 million in nominal terms, compared to N22,235,315.29 million in Q1 2016, resulting in a nominal GDP growth of 17.06 per cent, the report added.

According to the NBS, this growth was higher relative to the growth recorded in Q1 2016 (11.39 per cent).
When classified into oil and non-oil sectors, during the period under review, oil production averaged 1.83 million barrels per day (mbpd), 0.07million barrels higher than the daily average production recorded in the fourth quarter of 2016.

Oil production during the quarter was lower by 0.22 million barrels per day relative to the corresponding quarter in 2016, which recorded an output of 2.05mbpd.
The NBS, however, noted that oil output for March 2017 was estimated and therefore subject to revisions.
It also said that real growth of the oil sector slowed by –11.64 per cent (year-on-year) in Q1 2017.

This represented a decline of –4.81 per cent relative to the rate recorded in the corresponding quarter of 2016. Growth declined by 6.83 per cent and increased 6.06 per cent when compared to Q1 2016 and Q4 2016 respectively.
Quarter-on-quarter, the oil sector grew by 14.86 per cent in the first quarter of 2017, and as a share of the economy, the oil sector contributed 8.90 per cent of total real GDP in Q1 2017.

This represented a decline from figures recorded in the corresponding period of 2016 and up from the preceding quarter, where it contributed 10.02 per cent and 6.75 per cent respectively.
Growth in the non-oil sector was largely driven by activities in the agriculture sector (crop production), information & communications, manufacturing, transportation and other services.

The non-oil sector grew by 0.72% in real terms during the reference quarter. This was 1.05 per cent higher than the rate recorded in the fourth quarter of 2016, and 0.90 per cent higher than the corresponding quarter of 2016.
In real terms, the non-oil sector contributed 91.10 per cent to the nation’s GDP, higher than the share recorded in the first quarter of 2016 (89.98 per cent), but represented a decline when juxtaposed against the share recorded in the fourth quarter of 2016 (93.25 per cent).

Quarrying and other minerals, which also include the oil sector, grew by 140.67 per cent (year-on-year) in the first quarter of 2017, taking into account revised 2016 data.
This substantial growth rate, the NBS noted, partly arose as a result of the exchange rate depreciation, which increased the naira value of oil exports, as well as stronger oil prices.
Coal mining and metal ore activities in the sector continued to record strong year-on-year growth rates of 19.28% and 64.60%, respectively.

Quarrying and other metals also recorded a significant growth rate of 94.46% from 22.30% in the fourth quarter of 2016.
The mining & quarrying sector contributed 8.27% to overall GDP in the first quarter of 2017, higher than the contributions recorded in 2016 first quarter and fourth quarter at 4.02%, and 6.70%, respectively.
In real terms, the mining and quarrying sector contracted by –11.46% (year-on-year) in the first quarter of 2017, highlighting that the strong nominal growth was a result of the price effect, rather than an increase in the quantity of oil produced.

Oil production was yet to recover to its pre-2016 levels, the report noted.
Compared to the first quarter of 2016, it was lower by 5.62% points but higher than the fourth quarter of 2016 by 5.80% points. Quarter on quarter, growth rate recorded is 12.78%.

The contribution of mining and quarrying to real GDP in the first quarter of 2017 stood at 8.95%, lower than the 10.06% recorded in the corresponding quarter of 2016 but higher than the fourth quarter result of 2016, which was 6.91%.
Also, the four sub-activities, which make up the agricultural sector – crop production, livestock, forestry and fishing grew by 9.80 per cent year-on-year in nominal terms, showing a drop from the same quarter of 2016 by 4.35 per cent points.
However, a decline by 3.3 per cent points was recorded when compared to the preceding quarter’s growth rate of 6.45 per cent.
Crop production remained the major driver of this sector accounting for 92 per cent of overall nominal growth of the sector.

In Q1, Agriculture contributed 18 per cent to nominal GDP. This figure was lower than the rates recorded for the first and fourth quarters of 2016 at 19.19 per cent and 21.35 per cent, respectively.

The real growth rate of the agricultural sector in the first quarter of 2017 was 3.39 per cent (year-on-year), an increase of 0.30% points from the corresponding period of 2016 and a decline of 0.65% points from the preceding quarter. The sector in the current quarter contributed 21.35% to overall GDP in real terms.

The manufacturing sector also recorded a nominal GDP growth of 16.63% (year-on-year), 19.61% points higher than figures recorded in the corresponding period of 2016 (-2.98%) and 13.08% points higher than the preceding quarter figure of 3.56%.

Quarter-on-quarter growth of the sector stood at –0.79%. The contribution of manufacturing to nominal GDP was 9.31% in the first quarter of 2017, slightly lower than the figure recorded in the corresponding period of 2016 at 9.34%, but higher than 8.37% recorded in the fourth quarter of 2016.

Real GDP growth in the manufacturing sector in the first quarter of 2017 was 1.36% (year-on-year), higher than the same quarter of 2016 by 8.36% points.
This was the first positive growth recorded in the sector for over a year, and was 3.90% points higher than the rate recorded in the preceding quarter. The growth in manufacturing on a quarter-on-quarter basis stood at –6.21%.