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What 2005 holds for the economy and Nigerians

by Business News Report

By Omoh Gabriel, Business Editor.
The year 2005 is a very crucial in the life of the Obasanjo led PDP federal government. It is the only year in the life of the administration that any meaniful economic work can be done if the president is to leave a legacy behind in his eight years of straight civil rule. As from 2006, electioneering campaigns and intense politicking will take over the airwaves with economic issues taking the back seat.
Aides to the president argues that the man is in a hurry to leave a lasting economic legacy behind. That apparently seem to a far fetched dream to many Nigerians who are yet to see any serious thing to hold on to as what has been achieved in the last six years of democratic rule.
It was the expectation of the government and the people that 2005 will open with serious business as the budget was billed for passage by December 2004. Bode Augusto, the director General in the budget office of the president had as way back as March 2004 started the process of budget articulation through consultation. He had expressed optimism that by December the budget would have been passed by the National Assembly. But alias the budget is yet to be adequately considered by the National Assembly. So in the early days of 2005, the federal budget will occupy the minds of the legislature and the executive arm of government. If the passage of the budget dragged as it was in some cases, the hope of a brighter prospect for the economy by 2005, will be dashed.
The 2005 budget has a wider implication for the economy, the prospect of higher oil prices has led the federal government to review the dollar bench mark of average crude prices from $27 per barrel to $30 per barrel. While this looks good on the surface the turn of events in the wee hours of 2004 may mean that part of the budget may not be realised except if financed by savings from past excess crude revenue savings. Prices of crude have taken the downward trend in recent weeks.

The Chinese and India economies that have been on the driving seat of crude oil price hike are being slowed down by deliberate policies of these government. Also the situation in Iraq is getting better and oil supply in that region may become stable in 2005 especially with the death of Yisah Arafat and the relative peace that it portend for the Middle East. Also the unprecedented damage that the tsunami has done to South East Asia on Christmas has further put hold on growth prospect of Asia economy. The Niger Delta crisis although far from being resolved has seen some level of improvement that may not pose any treat to world crude oil supply. All these put together may see prices fall below $30 per barrel in 2005.
Year 2005, is equally crucial for the finance sector. Banks are certainly going to find the year most challenging as the deadline for their recapitalisation draws to a close on 31st December. Many of the banks are now bent on going it alone as they plan to raise the necessary funds from the capital market. If there is any sector of the finance industry that will be put to test in 2005, it is the capital market. Several initial Public Offering, IPO will hit the market during the first quarter of 2005. Banks under going consolidation through merger and acquisition will be under pressure to conclude their arrangement. Several of the banks that are yet to find a marriageable partners may have to be acquired by the CBN by the end of the year. By the early part of the year activities in the money market may be low as many of the banks will focus on their recapitalisation bid. The banking public may have for the period focus on few banks that have meant the N25billion capitalisation.
As at the close of business in 2004, several banks seem ready to stand on their own or were making frantic efforts to do so. Such banks include First Bank with a shareholders fund of N36.2 billion, followed by Zenith with N36 billion shareholders fund from its IPO, Union Bank with a total shareholders fund of N34.5 billion, and Guaranty Trust Bank which has already acquired Inland Bank with shareholders fund of N34.5 billion. Other banks that are likely to retain their brand names are UBA with a shareholders fund of N18.1billion which will go to the capital market this year to raise additional funds, STB, Oceanic Bank which has successfully raised funds from the capital market, Access Bank which result is still being awaited. Afribank which is already in the market scanning for funds and Intercontinental bank with its consolidation plan with Gatewaybank, Equity Bank and Global bank. Indication are that the private placement of Diamond bank has been highly successful and is likely to make it all by itself. Fidelity Bank and Platinum have also successfully done their private placement. Fillers are that the two bank can successfully merge and surpass the N25billion mark. First City Monument Bank is also in the process of raising funds from the capital market come 2005. The bank having been active in the capital market is said to have perfected its strategy to raise funds from the capital market. Citizen International bank has also disclosed that it does not intend to lose its brand identity meaning that in 2005, it will raise the required minimum capital to stay afloat. Other banks are in one merger arrangement or another. No bank is prepared to go under. In 2005, there are likely to be surprises as to the number of banks that will come out on the final list of consolidated banks in the country.
In 2005, the reforms being carried out in the CBN will begin to show. The apex bank is to focus on its core mandate of money supply, banker and financial adviser to government, monetary policy formulation. The bank’s clean note policy in which it will on regular basis supply clean notes to the economy will take off in 2005, with the CBN take over of the management of the Nigeria Security Printing and Minting. The mint which has been moribund is billed to commence operation in 2005.
The real sector expect more proactive measure being taken by federal agencies to consolidate on the war against fake and adulterated products in the country. The sector in 2004 witnessed the impact of government regulatory agencies aimed at ensuring quality products of internationally acceptable standards. The activities of the National Agency for Foods and Drugs Administration and Control (NAFDAC) and the Standards Organisation of Nigeria (SON) had direct influence on quality of products available in the country. Adulterated products are gradually being eradicated out of the market and this is expected to continue in 2005.
One big challenge facing the economy which private sector operators expect solution from government in 2005 is that of power supply. For instance power supply to most industries in the country has been through generating plants, as NEPA remains unpredictable. When power is available from NEPA, the fluctuations have adverse effect on industrial machines, hence most industries run on generating plants. In 2004 survey results showed the energy situation as so deplorable that about 56 percent of energy requirement of industries in the country were privately generated.
According to the report, while industries’ dependence on NEPA fell significantly to 43.69 percent, usage of alternate energy (stand by electric generators and gas) grew to 56.37 per cent.
But the Power Sector Reform Bill has been sent to the National Assembly for passage almost a year now but the honourable members’ priority was the labour reform bill which was passed under one week. The expectation is that in 2005, both the executive arm of government and the legislature will work together to get the bill passed so that investor can have confidence to invest in the power sector. The issue as observed by the World Bank if Nigeria can get the its power sector right, about 30 per cent of what industries spend on power can be realised for investment in the real sector to grow the economy. If there is regular power supply the current 70 per cent level of poverty in the country will be reduced as most individuals will find gainful employment through either cottage industry or self employment
Other strains on the economy to which 2005 is expected to find answers include high interest rates hovering between 30 percent and 35 percent, infrastructural decay, such as bad roads some of which government promised rehabilitation, and pulling inflation to a single digit, ever recurring fuel price increase which NNPC Group Managing Director has promised there will be no increase in prices of petroleum product but rather that prices may come down, poor funding of development finance institutions like the Bank of Industry, and Nigerian Agricultural Cooperative and Rural Development Bank.
In their expectation in the coming year, Real Sector operators urge action especially on Power Reform and tax reliefs for manufacturers.
“We, therefore, counsel that Government should without further delay, ensure finalisation of Power Sector Reform Bill and conclude the privatisation process of NEPA, and ensure the new companies that will emerge from the unbundling of NEPA to become operational in 2005,” said NACCIMA’s President, Chief John Odeyemi. “We need to hasten the privatisation process especially in power sector to guarantee constant and quality supply of electricity,” stated MAN President, Engr. Charles Ugwuh
They also called on the federal government to grant tax reliefs and incentives for manufacturers, in order to reduce the cost of production, and ginger sustainable industrial development and economic growth. When these are put in place, local production of goods will be boosted and foreign direct investment stimulated, to enable the country move away from oil-dependency. Tax relief and incentives would help cushion the effect of escalating cost of doing business in the country, which according to stakeholders, has become a big burden on manufacturers.
High cost of doing business in Nigeria has put local manufacturers at competitive disadvantage and further reduced their capacity to produce for export adding that a generous tax incentive would help reverse the trend.
Similarly, Business Club Ikeja (BCI), noted that unless these actions are taken by the government, the Organised Private Sector will not survive under the current regime of multiplicity of taxes by the Federal, State and Local Governments. President of BCI, Mrs. Olusola Popoola, therefore, urged that “Government must widen its tax net and avoid enactment of arbitrary levies. Effective dialogue should be employed to achieve a remarkable revenue drive.”
In addition to granting tax incentives to local manufacturers, they also expect government to:
*Streamline the administration of tax system to eliminate multiplicity of taxes so as to bring down the cost of goods;
*Enhance its role on facilitating development of strategic economic infrastructures and strengthening the social, legal and regulatory regimes to engender security of lives and property, good governance, rule of law and elimination of red-tape;
*Diversify and promote Nigerian export through increased incentive to the non oil exporters;
*Review liquidity downward from the current 40 per cent to ensure that more funds are available to the real sector;
*Provide adequate funds for the Bank of Industry(BOI) and Nigeria Agricultural Cooperative and Rural Development Bank (NACRDB) to enable them to extend more facilities to the productive sector.
Nigerian- British Chamber of Commerce and Industry, adds a new dimension to stakeholders’ expectation. The problem with government’s reforms is that there are so many of them coming at the same time. “I’m hoping that by 2005 there is the need to put the human face to these reforms. By so doing, we’ll have a healthier climate in the economy,” said President of the Chamber, Chief Michael Olawale-Cole.

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