What happened? The Nigerian economy which averaged a growth rate of about 7.5 percent for a ten year period ending in 2014 has dropped 0.36 percent in the first quarter of 2016. The serious structural and other issues that started to weigh heavily on the economy since the run-up to the 2015 general elections apparently became too much to bear, causing real output to slide. What is worrisome but not surprising is that literally every sector of the economy suffered in the first quarter, with the industrial sector intensifying its steady decline that started in the first quarter of last year. Even agriculture managed to grow barely over 3 percent, as services could hardly climb 1 percent. People wonder whether all this is a good sign. This is no sign. This is all a confirmation that things are rough. What happened? Here is what happened. The economy got exhausted from the impunity that continued into the 2015 general elections, and the slow pace of fiscal policy action that prevailed until recently. Thankfully, the Central Bank came to the rescue when nothing was coming from the fiscal side. Things would have been worse otherwise and the decline could have been steeper. A 0.4 percent economic decline is bad but not that bad. It is a pit, but a rather shallow pit. I think we can climb out of this one if all hands are on deck. Sadly, this Nigerian affliction can be contagious to its neighbors. After a very extended period of strong economic growth, many sub-Saharan African countries have been hit by a multiple of shocks, including the sharp decline in commodity prices, tighter financing conditions, and a severe drought in southern and eastern Africa. Growth fell in 2015 to under 4 percent and may not rebound much until about 2019, when many countries will have solved some of their structural problems. Nigeria is an important export market only for some of its neighbors, but financial linkages with countries further afield are growing with the regional expansion of Nigerian banks. I have said that the CBN should not devalue until some structural problems were solved and round tripping controlled. It appears the recently announced measures are aimed at strongly curbing round tripping. Kudos to the CBN on this. So now, exchange rate flexibility can take place as part of a wider policy package. Hopefully appropriate, efficient and stimulative fiscal policy steps will follow and complement these CBN steps. I think the time has come for Nigeria to start from the bottom. Strengthen its communities, diversify more aggressively from crude oil and increase export sophistication in order to be well integrated into global market place. I am Magnus Kpakol, and thatâ€™s my view.
Posted: May 31st, 2016 @ 05:53:31 AM