Inside Business Africa INSIDE BUSINESS AFRICA APRIL 2019 - Page 8

Business & Economy I N S I D E B U S I N E S S A F R I C A Make some changes IMF Express Renewed Confidence in Nigerian Economy I MF Express Renewed Confidence in Nigerian Economy – The International Monetary Fund (IMF) has expressed a renewed confidence in the Nigerian economy. Its Executive Directors also hailed the economy’s recovery signs, such as reduced inflation and strengthened reserve buffers. According to its Media Chief for Africa, Lucie Mboto Fouda, in a statement yesterday, IMF noted that Nigeria’s real Gross Domestic Product (GDP) increased by 1.9 per cent in 2018, up from 0.8 per cent in 2017. ”This is on the back of improvements in manufacturing and ser vices, supported by spillovers from higher oil prices, ongoing convergence in exchange rates and strides to improve the business environment,” the IMF said. It said the headline inflation fell to 11.4 per cent at end of 2018, reflecting declining food price inflation and weak consumer demand. The Fund also reflects a relatively stable exchange rate and tight monetary policy during most of 2018, but remains outside of the central bank’s target range of 6-9 per cent. IMF also noted that record holdings of mostly short-term local debt and equity and a current account surplus lifted gross international reserves to a peak in April 2018. The Fund pointed out that persisting structural and policy challenges continue to constrain growth to levels below those needed to reduce vulnerabilities, lessen poverty and improve weak human development outcomes, such as in health and education. It said: “A large infrastructure gap, low revenue mobilisation, governance and institutional weaknesses, continued foreign exchange restrictions, and banking sector vulnerabilities are dampening long-term foreign and domestic investment and keeping the economy reliant on volatile oil prices and production. “Under the current policies, the outlook remains therefore muted. Over the medium term, absent strong reforms, growth would hover around 2½ per cent, implying no per capita growth as the economy faces limited increases in oil production and insufficient adjustment four years after the oil price shock. “Monetary policy focussed on exchange rate stability would help c o n t a i n i n f l a t i o n , b u t wo r s e n competitiveness if greater flexibility is not accommodated when needed. “High financing costs, on the back of little fiscal adjustment, would continue 8 u t APRIL1 4 - 28, 2019 to constrain private sector credit, and the interest-to-revenue ratio would remain high. “Risks are moderately tilted downwards. On the upside, oil prices could rise, prompted by global political disruptions or supply bottlenecks. “Bold reform efforts, following the election cycle, could boost confidence and investments, especially given relatively conser vative baseline projections.” Also, in the statement, the Executive Directors of the Fund welcomed Nigeria’s ongoing economic recovery, accompanied by reduced inflation and strengthened reserve buffers. They, however, noted that the medium-term outlook remains muted, with risks tilted to the downside. “In addition, long standing structural and policy challenges need to be tackled more decisively to reduce vulnerabilities, raise per capita growth, and bring down poverty,’’ the directors said. They urged the Federal Government to redouble its reform efforts and supported the country’s intention to accelerate implementation of the Economic Recovery and Growth Plan. The executive directors stressed the need for revenue-based consolidation to lower the ratio of interest payments to revenue and make room for priority expenditure. They welcomed the authorities’ tax reform plan to increase non-oil revenue, including through tax policy and administration measures. In statement, they stressed the importance of strengthening domestic revenue mobilisation, including through additional excises, a comprehensive VAT refor m, and elimination of tax incentives. They said that securing oil revenues through reforms of state owned enterprises and measures to improve the governance of the oil sector would also be crucial. The directors highlighted the importance of shifting the expenditure mix toward priority areas. In this context, they welcomed the significant increase in public investment, but underlined the need for greater investment efficiency. Strategy & Leadership THE MAGAZINE 0F THE CORPORATE WORLD It's the system, stupid China's plans for the electrified, autonomous and shared future of the car It does not need to have the best car companies to win the race T he vehicles on Beijing's boulevards offer little evidence that China has a car industry at all. Range Rovers seem to outnumber all the Havals, Changans and byds put together; you sometimes see nothing but a stream of Volkswagens and Toyotas. And when you notice how slowly those congested streams flow you would certainly be hard put to imagine the country's car industry expanding further. But the Chinese government has plans to prove you wrong on both points. China is set to whizz out of the automotive slow lane. Chinese carmakers already make more cars than those of any other country. They also make more electric cars than anyone else, laying a claim to the industry's future. Beyond that, China's rulers, carmakers and tech firms also want to take advantage of the upheavals in how people get around beyond driving their own car-ride-hailing apps, autonomous vehicles, bike- and scooter-sharing schemes, smart public transport and more. A mediocre track record as carmakers need not be an obstacle in this. Indeed, it may be an advantage. What is going on today is not modern China's first transport revolution. Crossing the road in a big Chinese city three decades ago the few cars you would have seen in the sea of bicycles would almost all have been either official limousines or beaten-up Japanese saloons touting as taxis. The government saw this carlessness as a flaw to be filled in by a new domestic industry: a clear path to industrial development and export earnings. Needing some yeast to get things growing, in the 1980s it allowed foreign companies to establish joint ventures with state-run firms such as faw and saic. This joint-venture strategy achieved many of its aims. The cars in Beijing may carry foreign badges, but they are Chinese made. The country produced 23m cars last year, outstripping Europe and putting America in the shade (see chart 1). In terms of quality, though, the results have been poorer. No Chinese carmaker is remotely as impressive in its sector as Huawei, say, is in telecoms. Chinese carmakers, feather-bedded by the cash the joint ventures generated and with a vast market for nobbut middlin cars beyond the biggest cities, proved slow to learn the fine arts of setting up and managing supply chains and assembling cars in volume to exacting tolerances. Recently, though, this has been changing. The Chinese consumer's desperate desire for four-wheeled transport has, to some extent, been sated. With some 325m cars now on its roads China endures eight of the top 20 most congested cities in the world, according to TomTom, a navigation firm. A survey by Bain & Co, a consulting firm, found that in 2017 the number of Chinese people who felt owning a car improved social status fell below 50%. After two decades of year-on-year growth, sales of new cars fell slightly in 2018. Some of China's 70-odd domestic carmakers have concluded that it is time to start making better cars. They have improved both their engineering and their design. Lin Huaibin of ihs Markit, a research firm, points out that some firms now splash out on Western designers- witness the sleek suvs which will grace the Shanghai motor show when it opens on April 16th. By some estimates domestic sales will surpass those of foreign brands by 2020. Some Chinese firms are now looking at exports to the West: Geely, gacand Great Wall are particularly ambitious in this respect. America's imposition of tariffs last year put a dent in some of these plans, and there have been other problems. For example, gac has found that American dealers are not keen to market its gs8 suv under the company's Trumpchi brand. But Europe, and eventually America, are seen both as plausible export destinations and, for some, as investment opportunities. In 2018 Geely, by far the most ambitious in the latter respect, revealed that it had amassed 9.7% of Germany's mighty Daimler to add to the controlling stake in Sweden's Volvo the company already owned. The government has plans to further the sector's progress. It has said it will allow foreign carmakers to take full control of their Chinese joint ventures, increasing competition and attracting investment. It is also fostering consolidation. It is drafting proposals to encourage successful independent firms such as Geely and Great Wall to invest in state-owned clunkers. Perennial whispers that the government is going to merge state-owned faw, Dongfeng and Changan are getting louder. But China's plans for making cars-one u 45 u t APRIL1 4 - 28, 2019