FDC ECONOMIC MONTHLY PUBLICATION – MARCH 19, 2020

Dear Subscriber,

‘It’s better late than never’ – Nigeria finally responds to oil price crash

The sharp fall in oil prices to an 18-year low of $22pb has precipitated an involuntary change in attitude, perception and economic orientation within the Nigerian policy making and leadership team.

What was more surprising and impressive was the ability of the fiscal authorities to bite the bullet by slashing the benchmark price by 47.37% to $30pb. This was a necessary but not sufficient condition to contain the fiscal imbalances necessitated by the potential sharp decline in revenues.

The 14.16% cut in expenditure shows a countercyclical move, a typical Keynesian antidote in times of recession tending towards a slump. The monetary authorities are more in a bind, this is because inflation is rising towards 13% at a time when GDP growth is expected to fall to 1.2% in Q1. Will this be a transit at the stagflation bus stop before a recession or can Nigeria turn it around and make what is a pressure point into a leverage point?

The audacity to take a tepid step towards price deregulation of refined PMS (daily PMS consumption is up to 54 – 60mn litres/day) and reduce the multiple exchange rate practices. This is by allowing a convergence of rates in which 90% of all transactions will be traded at the I&E window shows that there is light at the end of the tunnel. This is not yet a time to celebrate the success of economic reform. However, it shows that Nigeria has a fighting chance to unshackle itself from the unrelenting forces of crony capitalism.

Will there be a recession? – likely but mild

In the event of a fall in GDP growth to 1.5% in Q1 and a negative GDP growth in Q2, there is a 45% probability that there could be a mild recession in Q3 with a quick bounce back. This is because of rising external imbalances, negative terms of trade likely to fall from 30 to 19 and a very low level of gross capital formation. The negative multiplier effect of a sharp contraction in aggregate demand (currently estimated at $345bn) due to Covid-19 preventive measures on public gatherings and market places  could trigger job layoffs and higher unemployment.

Corporate focus: Presco PLC

Presco Plc recorded an increase of 13.5% in its cost of sales despite a decline in global price of CPO and this dampened gross profit. A 6.85% decline in its revenue to N19.88bn relative to N21.34bn 2018 could be partly attributed to the almost 11% decline in global crude palm oil prices.

In this edition of the FDC monthly publication, the FDC Think-Tank analyzes these issues and their implications on businesses and the economy at large.

Enjoy your read.