BY BAMIDELE FAMOOFO
Top analysts and Nigerians in general have raised the concern that the incoming administration will inherit weak economic growth, debt pressure and shrinking oil output, among others.
Stakeholders, in separate interviews with The Point, said the incoming President, Bola Tinubu, would need to contend with these huge economic problems as he takes over the leadership of the country today.
They, however, said that before the Tinubu administration could start fixing these pressing problems, the President would need to secure public support for painful decisions.
Chief Executive Officer, Centre for the Promotion of Private Enterprise, Muda Yusuf, said the government should be ready to tackle macroeconomic issues, establish adequate economic governance, and ensure fiscal consolidation.
Yusuf added that ensuring foreign exchange policy reforms, industrialisation, trade and tariff reforms, agricultural reforms, oil and gas sector reforms, financial sector reforms, and regulatory reforms should be sacrosanct.
He noted that adequate policy changes in the core sectors would bring the required economic prosperity to the country.
“The administration should establish quality economic governance consistent with tested economic principles, empirical evidence and contextualised within socio-economic peculiarities. From the outset of the administration, signaling and investors’ confidence is critical,” he said.
The Lagos Chamber of Commerce and Industry has also made recommendations to the incoming administration about its expectations.
The LCCI noted that the Federal Government must sustain its targeted interventions in selected critical sectors like agriculture, manufacturing, export infrastructure, and tackling insecurity.
Another key expectation of the chamber is for the government to keep track of plans to tackle oil theft, to boost oil exports, and earn more foreign exchange.
“The period when Nigeria recorded appreciable growth in GDP was between 2010 and 2014, when growth rose as much as 8.01 percent in 2010 and declined to 6.31 percent in 2014. Ever since then, growth has been less than 4.0 percent”
The Nigeria Employers’ Consultative Association also called on the incoming government to reduce the cost of governance, curb corruption and budget padding.
NECA lamented the rising public debt, with the government’s debt crossing the N41 trillion mark and an unregulated borrowing by state governments.
The Director-General of the association, Adewale-Smatt Oyerinde, noted that the government should stop making mockery of the country and its citizens.
“It is distressing to witness long queues for petrol when the government claimed to have paid trillions in petrol subsidy. Notwithstanding the subsidy payment, Nigerians are still compelled to endure the long queues to buy it at almost black market rate, fueling inflation and economic hardship. The government must unravel the scam surrounding the subsidy and make a decision on a definitive plan to remove it,” he said.
IMF, Moody’s, others predict higher economic growth for Nigeria as Dangote Refinery comes on stream
Meanwhile, there are indications that the economy of Nigeria, Africa’s largest economy, will witness a better growth going forward with the expected contribution to gross domestic product, beginning after the Dangote Refinery starts production in July.
The International Monetary Fund and Moody’s, one of the world’s leading rating agencies, are unanimous in their opinion that the single largest refinery in the world will improve Nigeria’s current account balance while Renaissance Capital projected that the refinery has the potential of adding $13 billion, or 2.3 per cent to the nation’s GDP.
Nigeria has recorded consistent economic growth in the last two and half years (10 quarters) but experts have said that the growth is not strong enough in the last 10 years to reflect a healthy economy.
The highest growth since 2015, when the Buhari administration came into power was 3.65 per cent, and that is not good enough to deliver the benefits of democracy to the ordinary Nigerians, many of whom are living below the poverty line.
Nigeria will continue to breed poverty inasmuch as economic growth barely exceeds population growth. The IMF has, however, projected that the economy will grow by an average of 2.9 per cent per year between 2023 and 2025, only slightly above the estimated population growth rate of 2.4 per cent.
The period when Nigeria recorded appreciable growth in GDP was between 2010 and 2014, when growth rose as much as 8.01 per cent in 2010 and declined to 6.31 per cent in 2014. Ever since then, growth has been less than 4.0 per cent.
The latest figure released by the National Bureau of Statistics in May showed that Nigeria’s economy grew positively by 2.31 per cent, year on year, in real terms during the first quarter of 2023. While the figure indicates another positive acceleration in real GDP, it was slower than the 3.11 per cent y/y real growth reported in Q1 2022, and 3.54 per cent y/y experienced in Q4 2022.
Analysts at Cowry Capital have attributed the deceleration in growth to the impact of the Naira scarcity on aggregate demand, uncertainties about the new administration and existing structural problems.
The lackluster performance in recent times notwithstanding, there are assurances that the economy of the most populous nation in Africa will soon experience a renewed growth as a result of the multiplier effects of the newly commissioned Dangote Refinery.
At least the IMF, a major financial agency of the United Nations, and an international financial institution, is projecting that the Dangote refinery would help Nigeria’s economic recovery drive when it starts production. Specifically, it said the refinery would help the country improve its current account balance.
IMF noted that the refinery could meet the full demand for domestic consumption of refined petroleum products—which are almost all imported at present—thereby improving the current account balance.
“With crude oil for local refining not subject to the OPEC quota, the refinery also has the potential to catalyse more domestic crude oil production and boost GDP growth,” IMF disclosed in a report.
The optimism by the global financial watchdog on the potential of Dangote Refinery is a victory to the resilience of Africa’s richest man’s contributions to the economic emancipation of Nigeria and the continent at large.
Meanwhile, Renaissance Capital, in a report in 2018 projected that Dangote Refinery has the potential to revolutionise Nigeria’s economy, with its operations adding $13 billion, or 2.3 per cent to the nation’s Gross Domestic Product.
A report by Moody’s, one of the leading global rating agencies, on the state of Nigeria’s fiscal and external positions, stated that when the refinery comes on stream, it would lead to a modest improvement in Nigeria’s current account.
Moody’s stressed that the position was reached with the projection that Nigeria would stop the importation of petrol; the report noted that the gain would mostly arise from savings on transportation costs.
It added that Nigeria spent over $14 billion on importing the product in 2021, adding that the Dangote Refinery’s operation would also mean that Nigeria’s crude export would reduce since part of it would be used domestically.
“Dangote Refinery will improve Nigeria’s current account modestly when fully operational. Substituting imported refined petroleum by domestic products will save current transport cost and other related costs on an import bill that reached $14 billion in 2021.
“Indeed, while Nigeria would no longer need to import refined petroleum, it would also lower the country’s export of crude oil since a part of the production would be used domestically,” Moody’s said.
The Lagos Chamber of Commerce and Industry, in a statement, said the refinery would save and generate foreign exchange, create jobs, positively affect the value of the naira, broaden prosperity for the downstream sector, provide growth opportunities for businesses and stimulate economic growth by impacting the country’s balance of payments.
In addition, the chamber expects the refinery to fuel further growth and development across its value chain, including cosmetics, plastics, and textiles.
Bismarck Rewane, Chief Executive Officer, Financial Derivatives Company Limited, also confirmed that the refinery would be a major game-changer for the country but cautioned that there were necessary conditions to be put in place to make that happen.
“There is no doubt that the Dangote refinery and petrochemicals will be a major game-changer, especially in Nigeria and other West African countries. However, it is a necessary but not sufficient condition for macroeconomic stability and growth. The expected reduction in downtime (fuel queues) due to the increased availability of petroleum products would boost productivity and bolster output growth,” Rewane said in a report.
The mega project, which can process 650,000 barrels of crude oil per day, is expected to create 9,500 direct jobs and about 25,000 indirect jobs due to inter-sector linkages.
FDC, in its economic report for May however warned, “To turn the tide, critical institutional and policy reforms are required. Policy reforms aimed at addressing the ballooning public debt, unrelenting inflationary pressure, dwindling revenue, and worsening currency crisis must be prioritised.”
Joseph Ekeng, a Lagos-based financial analyst, hinted that the refinery had the potential to boost productivity in the industrial sector of the economy, especially in the local cosmetic and detergent industry.
“Currently, Nigeria imports most of its detergent powder from India, Indonesia, and Turkey. Petrochemicals, derived from the oil and gas industry, play a crucial role in the production of beauty and personal care products. Substances like mineral oil, petrolatum, and sodium lauryl sulfate (SLS) are utilized as emollients, surfactants, emulsifiers, and thickeners. These ingredients contribute to the effectiveness of skincare products, offering properties such as skin smoothing, foaming, and thickening. For Nigerian companies in the beauty and home care industry, limited access to these vital raw materials has been a persistent challenge,” Ekeng noted.
“Market projections indicate a growth rate of 16.48 percent for beauty and personal care products from 2023 to 2027, with a market volume expected to reach $14.49 billion”
He claimed that manufacturers, both domestic and international, had suspended the production of detergents and cosmetics due to difficulties in sourcing these materials.
“Unilever, one of Nigeria’s oldest manufacturing companies, recently halted operations of its home and skincare brands in the country. The company faced challenges in scaling its operations due to heavy reliance on imports for essential raw materials. The establishment of an operational refinery within the country offers a potential solution by enabling local sourcing of these materials, reducing costly imports, and facilitating manufacturing processes,” he said.
But Ekeng cautioned that while the Dangote Refinery offers hope, relying solely on it may not be without complications.
“The refinery is already burdened with high expectations due to its potential impact on Nigeria’s economy,” he said.
Regardless of the refinery’s specific impact on the cosmetics and detergent industry, it is clear that Nigeria’s beauty industry is in need of a boost.
Market projections indicate a growth rate of 16.48 per cent for beauty and personal care products from 2023 to 2027, with a market volume expected to reach $14.49 billion.
This growth is driven by the increasing disposable incomes of the continent’s expanding middle class. Although challenges exist, harnessing available resources can foster growth and sustainability in the industry, ultimately contributing to Nigeria’s economic development.
