Chief Economist of Efficient Group Dawie Roodt
James Emejo in Abuja
The recommendations by the US Investment Bank, JPMorgan, for Nigeria to among other things, devalue its currency as a way out of the Foreign Exchange (FX) crisis may not be the magic wand needed to restore sanity to the economy, experts have argued.
This came with the revelation that top world economies including Brazil, South Africa and Russia which are currently on the JPMorgan index already face recession despite having a larger share of the Index than Nigeria as well as keeping to the recommendations of the US Investment Bank including devaluation.
It was further learnt that the top 10 countries on the index are either already experiencing full blown recession or heading fast into it.
Brazil whose weight on the index is 10 percent is already in recession having seen its economy contract by 1.9 per cent between April and June compared with the previous three consecutive months according to recent media reports. Many Brazilians are in debt over their heads and are severely cutting spending.
According to a September 2015 BBC Report, Brazil’s household spending has reportedly fallen by 2.1 per cent in the second quarter of 2015 compared to the previous quarter, resulting in rising inflation, unemployment and tightening of personal credit.
Like most Latin American nations, Brazil had been badly hurt by the plunge in commodity prices and the slowdown in China while its listing on the JP Morgan
Index had not stop its descent into recession.
Recent rating by Standards & Poor’s rated its debt at BB+ with a negative outlook. This has effectively put its debt profile in junk territory.
Although the economy of South Africa – with the maximum JP Morgan index weighting of 10 per cent - has not yet met the textbook definition of recession, defined as two consecutive quarters of negative growth, recent data had raised concerns that the economy might well be going through a terrible and worrisome downturn.
The statistics showed that the economy experienced negative growth in the second quarter as the economy contracted by 1.3 per cent as key sectors from manufacturing to mining and agriculture took a hit.
The Chief Economist of Efficient Group Dawie Roodt, had said: “Nothing but a miracle will pull this economy (South African) out of recession in the next 12 months, I can’t think of anything feasible that will.”
Again like Brazil, one of the world’s top credit rating agencies, Fitch had withdrawn from rating South Africa which means that it will no longer issue credit ratings for the country.
Russia, another country on the JP Morgan Index with over 4.5 per cent weighting fell into recession earlier this year. Moody’s Investors Service had forecasted that the deep recession would extend into 2016 as a result of the big drop in commodity prices and currencies caused by China’s economic slowdown.
Also Malaysia with about 10 per cent of the index has also seen its growth rate fall to 1.1 per cent against Nigeria’s 2.5 per cent.
Experts further argued that experiences of the aforementioned countries negated the position of some critics that the Federal Government and the Central Bank (CBN) were wrong to reject the recommendations of JPMorgan.
Critics had severally called on the CBN to devalue the currency and allow it to float freely in order to find its true value but its Governor, Mr. Godwin Emefiele had insisted that the Naira remained adequately priced.
Instead, the apex bank has had to close the official Forex window to 41 item considered as helping to exert undue pressure on the local currency. It was argued that the country had the capacity to produce these items domestically.
At the last meeting of the Monetary Policy Committee (MPC), Emefiele had said limiting Forex to items had yielded positive results in exchange rate stability as well as general economic stimulation including job creation.
It further proved to the contrary, suggestions that the CBN’s management of the foreign exchange regime was the primary cause of the challenges facing the Nigerian economy.
Rather than heap the blame on the CBN, experts agree that the sharp fall in international oil prices which started in June last year and the resulting over 50 per cent contraction in oil revenues to government coupled with low savings/foreign reserves position had been the direct cause of current challenges.
Reports from reputable international financial institutions had also stated that among the countries on the index, along with similar oil dependent economies like Angola - whose economy has been on a consistent downward spiral - the Nigerian economy though seriously challenged, appeared to be doing a lot better because of the series of interventionist action taken by government and the CBN.
The Director General, Debt Management Office (DMO), Dr. Abraham Nwankwo had also contended that the recent announcement by JP Morgan to delist the country from the index would barely impact negatively on the economy as it continued to be a ‘superstar’ among its peers.
He had argued that given that JPMorgan on its volition decided to list the country on the index because of the impressive success indicators of the economy, delisting it from the index was unlikely to dent the virility of the economy, adding that its fundamentals remained strong and able to forestall external shocks.
