• Nigeria @ 58: Poor Management Puts Economy at Risk

It is trite to say that Nigeria has the potential to become a major player in the global economy by virtue of its human and natural resource endowments.

However, this potential, at best, has remained untapped. At worse, the hope has been dashed by successive governments with the promise of better days for the citizenry receding like a mirage shortly after a new government takes over power.

After a shift from agriculture to crude oil and gas in the late 1960s, Nigeria’s growth has continued to be driven by consumption and high oil prices.

Previous economic policies had left the country ill-prepared for the recent collapse in crude oil prices and production. The structure of the economy remains highly import-dependent, consumption-driven and undiversified.

Figures from the National Bureau of Statistics, for instance, show that oil accounts for more than 95 per cent of exports and foreign exchange earnings while the manufacturing sector accounts for less than one per cent of total exports.

Economic experts are of the view that the high growth recorded between 2011 and 2015, which averaged 4.8 per cent per annum and mainly driven by higher oil prices, was largely non-inclusive.

This is because majority of Nigerians have remained under the burden of poverty, inequality and unemployment.

In the same vein, general economic performance has been seriously undermined by deplorable infrastructure, corruption and mismanagement of public funds.

According to experts, decades of consumption and high oil price-driven growth have led to an economy with a positive but jobless growth trajectory.

After more than a decade of economic growth, the sharp and continuous decline in crude oil production volume and oil prices since mid-2014, along with a failure to diversify the sources of revenue and foreign exchange in the economy, led to a recession in the second quarter of 2016.

When President Muhammadu Buhari took over the mantle of leadership of Nigeria on May 29, 2015, there were high expectations from Nigerians that the long awaited messiah had come.

Buhari’s administration came with three major promises to Nigerians – fighting insecurity, tackling corruption and reviving the economy.

To revive the economy, the administration promised to pursue an economic diversification programme that would make Nigeria to produce what it needs and consume what it produces.

This is expected to be achieved through targeted spending in key areas such as infrastructure, agriculture and solid minerals as encapsulated in the Economic Recovery and Growth Plan.

In the face of dwindling resources, experts said they expected the government to come up with fresh ideas that could turn the situation around rather than borrowing.

And many are afraid that Nigeria is relapsing into unsustainable debt situation. For instance, in the last three years, both external and domestic loans have been growing at both the federal and state levels.

The Federal Government and the 36 states as well as the Federal Capital Territory grew the country’s external loan commitment from $10.32bn in June 2015 to $22.07bn in March 2018.

This reflects an increase of $11.76bn or 113.94 per cent growth in the country’s external debt within a period of 33 months. The period is within the presidency of Muhammadu Buhari as he took over the reins of government on May 29, 2015.

In naira terms, statistics obtained from the Debt Management Office in Abuja showed that the country’s external loans rose from N2.03tn as of June 31, 2015 to N6.75tn in March 31, 2018. This reflects an increase of 232.51 per cent.

The difference when the external debt is denominated in naira reflects the beating which the local currency has taken since 2014 following the dwindling of the nation’s capacity to accumulate foreign currency as a result of changing fortunes of crude oil, the main foreign exchange earner of the country.

The domestic debt of the country rose from N10.09tn as of June 2015 to N15.96tn as of March 2018. This reflects an increase of N5.87tn or an increase of 58.23 per cent within the timeframe of analysis.

Taken together, the country’s public debt rose from N12.12tn as of June 31, 2015 to N22.71tn as of March 31, 2018. This reflects a difference of N10.59tn or a percentage increase of 87.37 per cent within a period of 33 months.

Broken down, the Federal Government’s component of the domestic loans stood at N12.58tn while states’ component stood at N3.38tn as of March 2018.

Some finance and economic experts in their assessment of the economy warned that weak economic fundamentals currently being shown by the Nigerian economy was putting the country’s exit from recession under threat.

Nigeria’s economy exited recession in 2017 after suffering contraction for five consecutive quarters.

They expressed concern that Nigeria’s exit from recession might be under threat as the economy recorded growth rate of 1.95 per cent and 1.5 per cent during the first and the second quarter of this year, respectively.

This slowdown, according to them, emanated from the oil sector with strong linkages to employment and growth.

The late implementation of the 2018 budget, weakening demand and consumer spending, rising contractor debt, and low minimum wage are some of the risks to output growth.

Others are the impact of flooding on agricultural output, continued security challenges in the North-East and North-Central zones and growing level of sovereign debt.

The Governor of the Central Bank of Nigeria, Mr Godwin Emefiele, who spoke after a recent Monetary Policy Committee meeting, warned about the precarious danger of the nation’s economy.

He said, “The MPC observed that despite the underperformance of key monetary aggregates, headline inflation inched up to 11.23 per cent in 2018 from 11.14 per cent in July 2018.

“The near time upside risks to inflation remain the dissipation of the base effect expected from 2019 election-related spending, continued herdsmen attacks on farmers and episode of flooding, which destroyed farmlands and affected food supply ultimately.

“Relative stability has returned to the foreign exchange market buoyed by the robust external reserves with inflation trending downward for the 18th consecutive month.”

Emefiele also said, “The gains so far achieved appeared to be under threat following the new data, which provides evidence of weakening fundamentals.

“The committee identified rise in inflation, pressure on the external reserves created by the capital flow reversals as the current challenges to growth. It noted that the underlying pressures had started rebuilding and capital flows reversals had intensified as shown by the bearish trend in the equities market even though the exchange rate remained very stable.

“The committee was concerned that the exit from the recession might be under threat as the economy slid to 1.95 per cent and 1.5 per cent during the first and the second quarter 2018, respectively.”

In his assessment of the economy, a former Acting Managing Director, Unity Bank Plc, Mr Rislanudeen Mohammed, said Nigeria’s exit from recession was due largely to recovery of the oil sector as well as relative peace in the Niger Delta.

He said, “At the peak of the activities of so called Niger Delta Avengers, oil output went below one million barrels a day as against current level of 1.8 to two million barrels a day and the economy sank into recession, the worst since 1987.

“Being still dependent on oil for over 70 per cent of our foreign exchange earnings, disruptions in oil production will distort our recovery efforts and threaten the relative successes of the economic recovery and growth plan.

“It may also create crisis in the foreign exchange market with potential for imported, cost push inflation.”

On what could be done to stimulate the economy, Mohammed said, “We need to be careful with foreign loans unless they are transaction-tied and with capacity to repay themselves given our present elevated foreign and local borrowings.

“We need to be careful in always looking at our debt to revenue ratio and not only debt to GDP ratio while accessing new loans. We should also be careful not to get over leveraged with Chinese debt with its attendant concentration risk.

“We should ensure that projects are productive with potential multiplier effect on the real sector of the economy to support growth and employment generation rather than white elephant, vanity projects that will only satisfy ego and sentiments.”

He added, “Going forward, Nigeria must insist China invests directly in Nigeria through special arrangements like Public-Private Partnership and some special concessions to support our growth and technology transfer.

“We should discourage the $5bn import financing line offered by China as that will only help in worsening the terms of trade that have for years favoured the Chinese. The relationship should be mutually beneficial.”

In his assessment of the economy, a former Director-General, Abuja Chamber of Commerce and Industry, Chijioke Ekechukwu, said the country’s over-reliance on oil portended danger for the economy.

This, according to him, is because the oil sector is not only volatile but outside the control of the Nigerian government.

He said, “The score card of the economy in the last one year can be measured by how well the macro economy has fared. The GDP has grown marginally, contributed by the oil sector, service and agricultural sectors.

“The government has also had various programmes and incentives to encourage the Micro, Small and Medium Enterprises.

“However, unemployment rate still remains high. Inflation rate though came low consistently in the last nine months until recently, it has not reflected in the real prices of goods and services.

“The growth in the economy is expected to be stalled from now until a new political government takes over next year but the increased price of oil currently will reduce the adverse effect of election.”

Beyond the economic indicators, an expert in telecommunications and information telecommunications, Dr. Silvanus Ehikioya, said it was important for the government to begin to put square pegs in square holes.

Ehikioya, a former director at the Nigerian Communications Commission, said it was necessary for government to recruit good managers of the economy no matter where they came from.

He added that provincial approach to governance could not revive an economy in a shambles.