It is crunch time for the Nigerian consumer, who now has to pay an average of 10% more for petrol and 75% more for electricity. The hope is that the quality and stability of power will improve, whilst there will be no more petrol queues.
Technically the FGN has deregulated the pricing of these critical products and is playing a role of consumer protection and investment motivation. Subsidies are reverse taxes, whenever you reduce subsidies you are increasing taxes. The million-dollar question is what will the government do with these higher revenues. Will the quality of services in public health care, education and water improve or will the leakages just increase?
The investment multiplier required to boost output is a function of the level of gross capital formation which is currently at N37.02trn ($120.8bn). As long as savings and deposit interest rates remain 11% below the rate of inflation, mobilization of savings for investment purposes will remain a mirage.
The bold steps taken so far will encourage direct investment flows into the power, petroleum and manufacturing sector. This will be further enhanced if the exchange rate unification process is boldly tackled and forex rationing is discontinued. In spite of the current recession, the economy will begin healing in Q1 2021 in response to these policy moves. Just like in the words of John F. Kennedy “When the going gets tough, the tough get going”.
In the download below, Bismarck Rewane and the FDC Think Tank unpacks the flurry of policy changes and its impact on your business strategy (-6.1%) and the positioning of your company in these uncertain times.
Read full Report: LBS BREAKFAST PRESENTATION SEPTEMBER 2020
