Nigeria 2018 | ECONOMY | B2B

To ensure healthy but sustainable growth, liquidity must be forthcoming but also controlled.

Ayo Teriba
Economic Associates
Bismarck Rewane
Managing Director
Financial Derivatives Company

What kind of services do you provide?

AYO TERIBA I am an economist and have done nothing but economics in my professional practice. We provide ongoing assessments of the outlook of the Nigerian economy. For business, we advise on what companies can do to make the best out of the situation while for government clients we suggest what they can do to improve the outlook. We have done this since 2004. Apart from providing our services to the public and private sectors, we also have reports on the 36 states and the Federal Capital Territory (FCT). We pioneered the detailed state-level analysis. That has helped us not just to engage at the federal level, but also at the level of states. Development partners value the information about states while banks and other companies are keen on knowing how the opportunities in the Nigerian economy are distributed across the states. Apart from consulting practices, I have also had the opportunity to sit on the National Economic Intelligence Committee, where we also helped to provide reality checks of government policies.

BISMARCK REWANE Financial Derivatives Company is a macroeconomic research, business analysis, fund manager, financial advisory, and asset management firm. It has been around for over 20 years and we are primarily known for being a solid economic research company; still, we have also had major successes in advising the government, firms, and multinationals. Our vision is to be the trusted advisor of choice, as well as the most reliable source of economic and business information in West Africa. Because of our multi-faceted service option, we have competitors in different services. We compete with most investment banks when it comes to advisory work and debt and capital-raising activities. We work closely with Bain, our partner, and go up against the biggest consulting players, when it comes to strategy and providing intelligence on specific sectors and the economy. For asset management, we compete against many of the portfolio managers here such as Afrinvest. When it comes to economic research, we come almost headlong against RenCap and Stanbic IBTC.

How would you describe the macroeconomic situation in Nigeria today?

AT There are three main stories about the Nigerian economy right now. First, there are global shocks, the nature of which is undergoing fundamental changes. Second are the domestic economic responses, which raise serious concerns. Third are government policy responses, as the government needs to step in to fill the gaps created by the global economic shifts and domestic economic concerns. The shifts in the global economy are characterized by twin shocks: depressed commodity prices and the large liquidity injections by leading central banks. While the collapse of commodity prices is bad news for a commodity exporter like Nigeria, cheap liquidity on the global scene is good news. Nigeria has lost more than half of its annual export income, as we received an annual average of about USD100 billion in exports between 2005 and 2014. However, we have struggled to get USD50 billion annually since 2015. As the world is shifting away from oil as a source of energy, we are unlikely to recover lost export revenue. The recession, devaluation, and inflation are not problems but merely symptoms of the problem. The problem is foreign exchange liquidity shortages resulting from the USD50 billion we have lost. To solve the problem, we have to look for an alternative source of liquidity, which brings us to the urgent need for foreign investment inflows.

BR Mopping up excess liquidity is one of the central bank's strategies to combat inflation; if there is excess liquidity in the system then it is right to mop it up. However, if not, removing liquidity will only strangle the economy. The inflation we see today is a result of low output, not excess liquidity or demand. Therefore, it follows that if output increases then prices will come down. Recently, headline inflation fell, as food inflation dipped marginally to 20.31%. The food index has a large weight in the inflation basket. Thus, if we can bring food inflation down to 15%, by boosting domestic agricultural output, then the impact on headline inflation would be significant. Nigeria's inflation is not a monetary phenomenon, though that is part of it. Instead, it is the result of supply shocks and output constraints.