Weaker euro, yuan seen as threats to Nigeria’s economic development

Current efforts by government at boosting revenue through more diversification of the economic base would be hampered by a weaker euro, which is down 10 percent over the past year, as well as the tumbling of the Chinese yuan, analysts have said. This is because attempts at boosting trade by increasing the competitiveness of exports would be dampened, as they predict that a further fall in the euro would mean cheaper exports from CFA Francophone African countries, thereby putting Nigeria’s export on the edge, with its attendant negative impact on the country’s terms of trade. The recent interest rate cut had pushed the Chinese yuan to a three- year low of 6.27/$, thereby threatening the country’s 7 percent external reserves investment and further plunging our external reserves currently at $30.3billion.

Some other analysts, however say the only antidote is in a deliberate strategy of more diversification of the revenue base and making the tax system more efficient, through widening its nest, which is capable of assuring the transition of the Federation Accounts and Allocation Committee (FAAC) from sharing resource export revenue to tax revenue sharing. ]

They say the sustainance of the economy on non-oil revenue, through effective implementation of the proposed cutting of benefits by 25percent by the Federal Government and the new 10 percent value added tax(VAT) could have a big impact on the size of the FAAC allocations which had shrunk by 33.8 percent of N756 billion paid in June 2014 to N500.1 billion ,at the January 2015 meeting, thereby putting the Federal Government and states under severe pressure to meet their financial obligations.

Bismarck Rewane, chief executive officer of Lagos based research firm, Financial Derivatives Company, who projected a further N100 billion revenue loss, expecting FAAC to disburse only N400 billion to the three tiers of government this month, further noted that government’s efforts at boosting trade through increasing competitiveness of her exports could be undermined by the weaker Euro, which is down 10 percent over the past year. “A further fall in the euro means cheaper exports from CFA Franc African countries competing with Nigerian exports, negatively impacting on Nigeria’s terms of trade.

Also, Chinese interest rate cut pushed the yuan to a three- year low of 6.27/$. With about 7% of Nigeria’s external reserves in Yuan, further compounding the problems,” Rewane added, during a breakfast presentation at the Lagos Business School on March 4, 2015. Despite the recent devaluation, which led to about 11 percent increase in nominal value of revenues to the nation’s coffers, they argue that the much needed respite is still far off, a development that is making government to consider increasing her borrowing from the international debt markets and debt service obligations this year. Razia Khan, managing director, Head, Africa Macro, Global Research, Standard Chartered Bank, London said, “The moves to increase non-oil revenue collection will help.

In particular a doubling of the rate of VAT to 10% would have a big impact on the size of FAAC allocations, and the revenue available for sharing.” Ayodeji Ebo, head, investment research, Afrinvest Securities Limited, said, “To generate tax revenue and move from a resource driven revenue base to a tax based revenue sharing, a deliberate strategy is required to broaden the economy’s tax base and widen the tax net, which is less of the FAAC’s responsibility but the Federal and state governments’.