THE Renaissance Capital (RenCap) and the Nigerian Stock Exchange (NSE) recently joined forces for a one-day 'Investor Clinic' to engage the Nigerian institutional investors ' pension fund administrators, asset managers and insurance firms ' on key technical elements of asset and portfolio management.Against the backdrop of her analyses of the economy, The Guardian had a quick chat with RenCap's Sub Sahara Africa (SSA) Economist and Vice President, Ms. Yvonne Mhango on the sidelines of the Lagos event; where she spoke on the role of healthy credit system, good governance and sound monetary policy management to economic growth in Nigeria.Looking at latest official figures, as they relate to economic growth, Mhango, had, in previous analyses, described the decision by the Monetary Policy Committee (MPC) of the CBN to retain the Monetary Policy Rate (MPR) at 12.0 percent as being neutral for the Naira, a position she restated at the Lagos event.Lending rates, in the last one year, climbed to alarming proportion ' hitting 25 percent ' in most cases, as the CBN, five times, increased MPR (the rate at which funds, from the CBN, are available to banks for on-lending to customers).Mhango, said the small probability of a rate cut had increased, following the slowdown of inflation in August and the recent fall in yields on Treasury securities; yet, the MPC refrained from loosening monetary policy, partly because it is concerned that core inflation ' at 14.7 percent Year-on-year (YoY) in August ' remains high.According to the MPC, there is upside risk to inflation from an increase in government spending in 4Q12 and capital inflows, on the back of the QE3 policy. So, RenCap, according to Mhango, does not expect a rate cut before the end of the year (YE12), given the inflationary risks highlighted by the MPC for 4Q12. She, however, projected 'some easing of monetary policy' next year.The RenCap Vice President observed that core inflation remained high, as the slowdown in Nigeria's YoY inflation to 11.7 percent in August, from 12.8 percent in July, was largely due to a fall in food inflation, which slowed to 9.9 percent YoY in August, from 12.1 percent YoY in July.According to Mhango, inflation is expected to peak in 3Q12, just before the main harvest begins in October, 'and it appears as though inflation may have peaked in July, at a lower level than the upper band of the CBN's projected range for 2012 of 11.0-14.5percent, as CBN Governor Sanusi Lamido Sanusi guided a few weeks ago.'Inflation, she said, had peaked at a lower level than projected because of the significant tightening of liquidity in July, and a strong Naira that had helped soften import prices.'We think there is limited downside to inflation partly because core inflation remains high, which implies that when farm produce (food) is stripped out, inflation remains strong. This reflects high YoY inflation for the housing and utilities, clothing and footwear, and transport sub-indices at 18.7 percent, 14.2percent and 12.1percent, respectively.'The firming oil price in the latter part of 3Q12, which the MPC expects to be sustained, is negative for utilities and transport costs; however, we expect this to be partially countered by the stronger Naira. While we believe inflation peaked in July, we think it has limited downside. We forecast YE12 headline and core inflation of c. 10.5 percent and c. 13 percent, respectively.'The economist also noted that 'a potential petrol price hike in early 2013, in accordance with the administration's plan to remove the petrol subsidy,' offers significant upside risk to inflation.In a chat she had with The Guardian, shortly after she re-stated the above position at the media briefing, Mhango, among other things, shed more light on why banks do not appear to be lending more on the retail side, high cost of funds and low impact of GDP growth to quality of life for citizens.Are banks really lending to the real sector as they should'I think it is institutional factor. I think banks don't have enough information about their customers. That is because we don't have credit bureaus that are national, that have information on everyone. If you walk into them, you are not able to go into database that gives adequate credit history of how you perform.Lack of information makes it a bit difficult for them (banks). That is one of the reasons you see that the cost of credit is very high.Structural issue plays a big role in the cost of credit. Some cost is generated through the operation of ATM; all those cost add to the cost of credit. That is the biggest reason we have not seen rollout of credit on the retail-lending side, as we have seen in the case of Kenya.In Kenya, retail lending is more significant than we have seen in the case of Nigeria. That means you are not going to see much growth on the retail side.What are your thoughts about CBN's decision top retain the MPR at 12.0 percent; most analysts had thought the apex bank should have reduced interest rates, following the MPC's September 18 meeting'Headline inflation may be low (inflation that has to do with areas like food and housing); but Core inflation is high. And because core inflation is high, it means that utilities ' transport cost, electricity and even clothing and footwear ' are relatively high. As an investor, you want your returns to be positive. Yet, if inflation is too high and the real income is not growing, there is problem. My advice is to keep inflation low.At what point would uncontrolled credit to the economy become counter-productive, as suggested at the media briefing'I think what was said was that when credit is growing too fast it becomes unsustainable. There is credit moderation. Credit can be stronger but it also needs to be controlled. It needs to be managed. If you get credit to buy cars, get mortgage and credit continues to go up, it could cause inflation with Naira loosing value. I think that credit growth needs to be managed so that it will not become too strong and unsustainable.What factors are really driving growth in Nigeria'Agriculture is one of them. I don't think it (Agriculture) is growing so fast but it forms a major chunk of the country's GDP. I think agriculture contributes 40 per cent to the GDP but it has not grown past five percent. It is a fixed growth. It does not grow as fast as telecom, which contributes very small portion to the GDP (around four to five per cent); but it is growing very fast.Another biggest growing area is wholesale and retail trade. That is a very vibrant sector, growing at about 10 per cent. What that suggests is that there is high demand from consumers, which is quite strong. There is inflation, which is affecting the cost of distributing those goods, as well as the consumers' purchasing power.Those are the sectors that are driving the economy, apart from oil. Oil production output per day is over two million barrels. I learnt from the media that it was 2.1 million recently.Oil is outgrowing its potential, which is undermining the growth of the sector.The politicians and economic managers (RenCap, as well) say the figures are good; that the economy is growing. Why is the growth not been able to positively impact quality of lives'Nigeria's is big population compared to the developed world. While the economy is growing, infrastructure is struggling to grow at the same rate. If inflation is growing, it will be difficult to feel the growth in real income. The real thing to do is to bring down the inflation rate so that we can see real growth. That is what impacts your daily life. I think that cannot be underestimated. The challenges are in the economy.Could you explain more of that'If Nigeria can sort out its power issue, I think it will make a difference. If power supply improves, it will reduce the demand for diesel for generators. I think there is improvement in the power reform. If the private sector could invest in the power programmes, that will boost the economy.If we can sort out the issue of power you can see that the economy will grow fast, as I said in one of my books ' The fastest Billion ' which is Africa.What we expect is that Nigeria needs to grow at double digit, going forward. What we are getting now is structure conflict.As the country marks its 52nd Independence Anniversary, what is the role of good governance in economic development'At least, Nigeria has moved from military leadership to civilian rule. That is a positive one, keeping in mind that the savings we have is low, we need foreign investments to come in to help drive the growth. I think that is an issue that can be addressed and government has improved on its institutional reforms.The reform will make management of funds in the country more transparent, going forward. What we experienced in 2009 really has impact on credibility. The reserve is positive; there are important factors. We need physical infrastructure to add to the improvement, and power is number one.
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