2015 Economic Outlook : Experts predict political crisis, social unrest, increased production cost

The Nigerian economy will be influenced in 2015 by post election crisis, social unrest, and increased cost of production courtesy of high interest rate and devaluation of the Naira.

These were the views of economic experts who spoke to Financial Vanguard on the direction of the economy in the New Year. Though they expressed optimism that the economy will further grow in 2015, they however opined that the rate of growth will be determined by a host of factors chiefly the 2015 general election.

“The biggest risk in the environment will be the coming elections”, said    Victor Ogiemwonyin, Managing Director/Chief Executive, Partnership Investment Company Plc.

“2015 is an election year, things might slow down a little because governments at all levels will have to find their feet after the election”, said Sunday Thomas, Director General of the Nigerian Insurers Association, NIA.

Reflecting the views of the international community, Razia Khan of Standard Chartered Bank based in London, said, “Politics and elections, due in February 2015, are the key risk events.”

Explaining further she said, “The powers of incumbency are likely to favour the ruling People’s Democratic Party (PDP). Unlike previous elections, however, it is not clear how much uncertainty will subside post-election. Evidence of a deeper north-south divide in the country, with little attempt to steer away from more divisive rhetoric, is likely to raise the political temperature. Independent studies suggest that only four of Nigeria’s 36 states may be spared some level of political violence. With little evidence that the authorities are able to curb the worsening Boko Haram insurgency, security fears in the north may discourage a high voter turnout.

On their part, analysts at Financial Derivatives Company predicted post election violence irrespective of the outcome. They said, “Nigerians are pensive and are entering the New Year in nervous anticipation of a soon to be keenly contested election and a misery index that is gradually climbing.

In addition to the global oil market dynamics, the prospects of the Nigerian economy in 2015 hinges on the electoral calendar. Consequently, the above outlooks on the macroeconomic indicators are likely to change significantly depending on the outcome of the general elections.

The elections are likely to be keenly contested but the combination of a close race, allegations of rigging and the use of the military in some voting areas will call the election results into question, regardless of who wins. Likely violent rioting mostly in the north or the south-south regions may be inevitable depending on the outcome of the elections. These challenges will likely affect the macro environment and policies options.”


Increased cost of production

Economic experts also predicted increase in cost of production for businesses in 2015 occasioned by high interest rate and devaluation of the naira.

“The combined austerity measures of the government and tighter monetary policy would put additional pressure on consumer prices. Therefore, we expect inflation rate to cross the double digit mark in the first half of 2015,” said Alhaji Remi Bello, President of Lagos Chambers of Commerce and Industry, LCCI

He noted that as a result of the import dependent character of the economy, the sharp increase    in exchange rate will naturally push up the operating cost of enterprises in the economy.  “Many firms are already feeling the heat across all sectors. In the few weeks, naira exchange rate has depreciated by about 11 per cent in the interbank market and over 12 per cent in the parallel market. The impact of the depreciation on operating costs will be very profound in 2015,”

Explaining how the high interest rate would impact businesses, Samuel Durojaiye, President, Finance Houses Association of Nigeria (FHAN), said, “You will find out that those who borrow money from banks will not be able to pass the increase in interest rate to buyers of their products; then if workers cannot get salary, those products will not sell, now if those products don’t sell, how will they cover those loan repayments. And the private sector will be crowded out because they would not be able to borrow at that high rate of interest. So you will find that some private businesses might collapse and that means more people out of employment.”


Declining Government revenue

Another factor predicted to influence the economy in 2015 is declining government revenue as a result of fall in crude oil crises.

This according to Remi Bello would negatively impact businesses that depend on the government sector. He said, “Businesses driven by government patronage are likely to experience a decline in 2015 given the current government revenue outlook.

“Capital projects of governments will reduce drastically and this would affect some segments of the private sector. The unfavourable revenue outlook may result in the suspension of some capital projects.  Generally, government contractors would experience a slowdown in tempo of activities in 2015. With declining revenue, the risk of default in payment for jobs executed for government agencies will be higher in the short term. This situation calls for cautious engagement with government contracts at all levels of government.”

The impact of the decline in government revenue according to Durojaiye and Kunle Ezun, and Economic analyst, could trigger strikes and social unrest, if not carefully managed.

According to  Kunle Ezun, “If this government continues and the outlook for the oil price works out, a lot of this state government will not be able to pay salaries, as a result we might see in our hands social unrest.”

Durujaiye on his part explained, “Some states have over bloated their workforce when revenue was very good. Now they would have problem paying these salaries. The labour is already saying it would not allow retrenchment. Some states now have not even paid November salary fully not to talk of December and the revenue coming in January would even be lower than what they distributed in November, except they want to clear the excess crude account.

So we should be expecting riot and strikes and an increase in social misdemeanour. If people cannot collect salary how would they pay their children’s school fees? So there would be a ripple effect, if care is not taken.

Growth prospects

In spite of the above scenario, experts were optimistic that the economy will experience growth in 2015. They pointed to the agriculture sector as a major source of economic growth for the economy.

“Agriculture will dominate the investment direction in the year 2015, with Nigeria’s over dependence on oil and the sharp drop of almost 50 per cent in the price of crude”, said Idowu Asenug, Managing Director,   Eriku Farm, Ijebu Igbo, Ogun State.

“Government and investors will have no alternative than to deepen their investment in agric business! This trend of super investment that started in the last three years will obviously continue as investors seek investment options for their capital. The year will witness continuous investment in rice, cassava, sorghum, maize and the livestock sector”, he added.

Aviation experts also expressed confidence about the growth prospects of the industry in 2015. They predicted that the industry will enjoy reduction in cost of operation due to the fall in aviation fuel (JET A1) courtesy of declining crude oil prices.

Insurance operators also said that they expect the sector to grow in the New Year. Chairman of Nigeria Insurance Association (NIA) and Managing Director of Linkage Assurance Plc, Mr. Godwin Wiggle, said that insurers are optimistic that 2015 will be better judging by the economic growth in recent times.

He said, “2015 is an election year, however; we are hopeful that things will be better. In terms of the ‘no premium, no cover,’ we will begin to benefit from the policy because now we are collecting premium on the go. So now, we are writing less business with more cash unlike in the past when we are writing more business with less cash.”

On their part, chieftains of the fledging electronic commerce business in Nigeria said that they expect more business patronage this year, notwithstanding the risks in the economy. Sim Shagaya, the Chief Executive Officer, Konga.com, enthused that the year 2015 would be a year of even more business growth.

“We have only seen the tip of the iceberg where e-commerce is concerned and we can look to the successes of global giants such as AliExpress, Amazon and the likes, for a rough preview of what the future holds.”
- Culled from: http://www.vanguardngr.com