As much as one would like to look at the bright side of things with a strong hope of a renaissance, Nigeria’s current macroeconomic data is not cheering as it presents the picture of a limping economy without clutches. From the economic output data to investment flows, consumption levels and fiscal position, there is so much to worry about over the state of the economy.
A disaggregation of the five components of the country’s output of goods and services otherwise known as the Gross Domestic Product (GDP) shows a growth laced with a cacophony of variables. From household consumption, business investment to government spending, as well as exports and imports, the statistics are staggering.
For an oil-producing country to be struggling with stagflation concerns at a time when the oil price is at new historic high levels is concerning. It is strange to see persistent depreciation of the naira at both the official and parallel markets at a time of rising oil price when currencies of other oil-producing nations are rallying against the greenback and other developed market currencies. Household income is weak, and so is consumption, as many Nigerians have to cut down on their normal standards of living to adjust to the realities of soaring prices of goods and services amid a waning income level.
Business investment is shrinking, with most businesses cutting down on production as against expanding capacity, a reaction to the stark reality of weakening aggregate demand. On the government front, lower revenue is undermining fiscal expenditure on infrastructure, even as efforts are being made to ramp up fiscal consumption in the form of full implementation of recurrent expenditures, which has very limited near-term positive externality on macro variables. Incidentally, imports keep rising, partly by the luxury of the political elite and the huge production gap created by the lack of business investments. Growing the non-oil exports remains a grandiose plan. Sadly, the import bills continue to outstrip export revenue, a phenomenon that explains the balance of trade deficit of N1.87tn and negative current accounts.
Thinking about the 5.01 per cent GDP growth recorded at the end of the second quarter of the year on the surface, it seems impressive, but did the economy actually grow when its size in the second quarter actually lowered the level it was in the first quarter of the year, and indeed far smaller than it was in the last quarter of the 2020 pandemic year? To put this in perspective, the economy was N19.6tn and N16.8tn in Q4 2020 and Q1 2021 respectively, well ahead of the N16.7tn economic output in the second quarter of the year. So, it is crucial we look beyond the growth, which was purely a statistical effect, and face squarely the reality of the consistently shrinking economic output and base.
The rise in the second-quarter numbers came from the rebound in consumption after the COVID-19 lockdown, some analysts say. But is this supposed rebound being felt by Nigerians? The lockdown and restrictions had constrained both consumption and investments, which are major components of the national income equation. With the lifting of the restrictions, consumption revived because people have to restock depleted inventories. Perhaps, a few of the idle industrial capacities started to kick back into life.
But then, in the real sense, investment has not quite recovered. Nigeria has had a persistent investment problem that pre-dates the pandemic, says Dr Bongo Adi, a senior lecturer at the Lagos Business School. Foreign Direct Investment (FDI), which is directly linked to the real sector, is not coming into the Nigerian economy.
“If you look at the data on capital importation, you will see that FDI is not coming,” Dr Adi said.
In the second quarter, only just about $0.8bn (0.18 per cent of GDP) trickled into the country.
For the economy to experience a meaningful turnaround there should be a significant rise in the quantum of investments going into the real sector. Investment is a critical component of the national income equation, being second most important. This is because of its multiplier effect. It is an investment that builds factories and opens large hectares of farms, thus creating jobs for people to work there. When people find jobs, they earn incomes, and with their disposable incomes, they can lay hands on goods and services thereby raising the level of consumption.
The next item in the equation is government spending. Dr Adi said government expenditure had also been ramped up through borrowing, and that the size of the economy, the GDP and the population justified the borrowing.
“We need to invest in human capital; we need to pay good salaries to attract the right skills and competent people in the education sector so that we can recoup the stock of human capital, that is the sine qua non for a modern economy to grow,” he said.
But Dr Adi has a case against the way the government is spending. The government is borrowing money he acknowledged, but asserted that the spending was not being properly channelled or targeted.
Which sectors of the economy are receiving the funds? Which segments of the population are receiving the funds? He queried, and added that if it was to use it as a political compensation system and cronyism, then “it’s nothing.”
Dr Adi cites some of the interventions by the Central Bank of Nigeria (CBN), including the Anchor Borrower Programme (ABP), and called for monitoring and evaluation of the programmes to determine what they had achieved “and you will see that in fact it is a humongous loss.”
Dr Adi spoke with Daily Trust before Vice President Yemi Osinbajo took a swipe at some of the interventions by the CBN, saying they belonged more to the fiscal side of the government.
“Sometimes it appears that there is competition…If you look at some of the interventions, you will find that those interventions are interventions that should be managed by ministries. The Ministry of Industry, Trade and Investment should handle MSMEs interventions, and we should know what the CBN is doing. In other words, if the CBN is intervening in the MSME sector, it should be with the full cooperation and consent of the Ministry of Industry.
“Sometimes you will get people who are benefiting more than once because we simply have no line of sight on what is going on on one side,” he noted.
Dr Adi, a Japan-trained economist, believes that because of the way the government spending is being targeted, it is not contributing to building the nation’s capital stock; foundation on which the modern economy rests, and that while the spending may be contributing “a little to building roads and a bit of infrastructure, power remains a problem and is even worse now.”
He is also worried over Nigeria’s weak economic competitiveness and says this is so because the country lacks the critical mass of high level human capital accumulation.
“Without growing the stock of human capital, we cannot compete. It’s ridiculous when we talk about competitiveness in relation to Nigeria’s economy,” he noted.
He cited two examples to illustrate Nigeria’s weak competitiveness: one is the Economic Complexity Index (ECI) which measures the number of points on a nation’s production value chain and how much of the output is exported.
“We are the lowest in Africa when it comes to the question of comparative advantage. We are lower than Chad Republic, lower than Niger,” he said.
The second is the Total Factor Productivity (TFP) which looks at the contributions of labour and capital to output. Again, according to him, ours is the lowest in Africa and, that the implication is obvious.
“So we can have capital stock, but our labour does not add much. Therefore, the economy cannot be competitive because competitiveness is not part of the system,” he concluded.
