Face Of The Nigerian Economy

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At the time of her Independence from Britain on
October1, 1960, Nigeria was largely an agrarian economy. The then population comprised nearly 70 per cent farmers who practiced their occupation at subsistence levels, producing such food crops as cassava, yam, corn, cocoyam, plantain, rice, beans, millet, vegetables and fruits.
The major cash crops cultivated at the time included cocoa, groundnuts, palm oil, cotton, rubber, cashew nuts and copra which the regional governments encouraged as these formed their major export commodities alongside solid minerals.
Cattle rearing, fishing, hunting and other forms of livestock keeping also fetched incomes.
Crude oil had just been discovered in commercial quantity and was yet to become a major revenue source for the government.
This was indeed the scenario until the early 1970s when the Arab-Israeli war in the Middle East forced an escalation of the international price of petroleum, creating the oil revenue windfall that enabled the then Federal Military Government under General Yakubu Gowon to undertake massive reconstruction and rehabilitation programmes at the end of the 30-month Nigerian Civil War.
Up till this time, the nation’s economy could still be described as upbeat with well implemented 5-year National Development Plans that saw an average Gross Domestic Product (GDP) growth rate of 9.4 per cent and poverty rate of about 48 per cent.
While the oil boom lasted, successive military and civilian administrations were said to have squandered the trillions of naira that accrued to the national treasury without any form of savings. Instead, the government went borrowing whenever there was a slight fall in oil price or any downward adjustment in production quota by the Organisation of Petroleum Exporting Countries (OPEC).
With oil revenue accounting for about 80 per cent of the nation’s budget revenues and over 90 per cent of its foreign exchange earnings, Nigerians felt it was time to abandon the rural farms and seek better paying city jobs. Consumption patterns suddenly changed as the people began to show preference for foreign manufactured food items, drinks and fashion products.
Official corruption became evident as the political leaders and their business cronies abandoned projects at will after sharing the full contract sums. These leaders also abandoned all the development programmes that were aimed at diversifying the country’s economy away from oil.
Rampant stealing, wasteful spending, inadequate investment and excessive consumption in the face of dwindling oil returns did finally bring Nigeria on its knees in the mid 1980s. And even though the initial plan to obtain credit from the International Monetary Fund (IMF) for setting off her huge balance of payments deficit was later dropped, the adoption of some of the Fund’s conditionalities (including fuel subsidy withdrawal) led to the introduction of the infamous Structural Adjustment Programme (SAP) by the General Ibrahim Babangida government.
Whether the austerity measures that came under SAP served the interest of the nation is difficult to say at this point but it will be safe to point out that the poverty rate continued to rise, reaching 70 per cent by the time the military handed over power to civilians in 1999.
One of the earliest major achievements of President Olusegun Obasanjo’s first tenure was the invitation of private competition in the telecommunications sector which had hitherto been the exclusive playground of the now moribund Nigerian Telecommunications Limited (NITEL). Not only has the sector witnessed a near revolution in terms of service delivery, it has also helped to create alternative sources of livelihood for many Nigerians. In fact, it is currently regarded as one of the non-oil sector units that are strongly driving the nation’s economy.
Still under Obasanjo, Nigeria succeeded in obtaining debt write-off from her foreign creditors in the Paris Club. For agreeing to pay $12 billion within one year, Nigeria’s entire debt of $30 billion which was to be paid back in 33 years along with compound interest charges was written off. She therefore enjoyed a forgiveness of $18 billion, the implication of which was that her annual GDP grew at a faster rate while her debt to GDP ratio became one of the lowest in Africa.
This feat was said to have been made possible due largely to the clout and negotiating skills of Dr Ngozi Okonjo-Iweala, the then finance minister and former vice president of the World Bank who incidentally is still Nigeria’s Finance Minister and Co-ordinating Minister of the Economy.
The areas that are likely to attract significant benefits to the economy are the ongoing infrastructural development where the power sector reforms have led to the unbundling of the monopolistic Power Holding Company of Nigeria (PHCN) and privatisation of its subsidiaries for better generation, transmission and distribution of electricity in the country. Nigeria now has over 10 power generating companies (Gencos) and more than 15 distribution companies (Discos) while there are plans to concession the transmission company (TCN) and construct a new transmission network using the public private partnership framework.
The Central Bank of Nigeria (CBN) had introduced some banking sector reforms that served to sanitise and buoy up the nation’s banking system which laid virtually prostrate in the aftermath of the global economic crisis of 2008. Its proactive intervention led to the recapitalisation of about 25 banks to the tune of N25 billion each. Added to this, was the recent nationalisation of three highly insolvent banks for which acquisition bids from interested local and foreign banks are now being considered. The newly established Asset Management Company of Nigeria (AMCON) did play a significant role in this regard.
Outside the banking industry, the CBN introduced monetary policy measures that helped to stabilise inflation at 8 per cent, down from 12 per cent in 2011. This includes maintaining the monetary policy rate (MPR) at 12 per cent for a long period. The apex bank is also pursuing an aggressive liquidity squeeze by increasing the cash reserve requirement (CRR) of public sector bank lodgments from 25 per cent to 50 per cent and now, 75 percent. This is in addition to its cashless policy.
The CBN had in the past few years also released funds for special intervention in manufacturing, textiles, infrastructure, aviation, movie industry and small and medium enterprises (SMEs).
President Goodluck Jonathan’s transformation agenda is widely reported to be slowly but steadily turning the economy round. The Agricultural Transformation Agenda (ATA), National Industrial Revolution Plan (NIRP), National Automotive Policy (NAP), Gas Master Plan, YouWin Entrepreneurial Scheme, Multinodal road and rail transport system, Inland Waterways and Ports Development are some of the components of the administration’s programmes.
But even as the government is being applauded for toeing a promising path, there is no doubt that its progress has been hampered by declining state revenues occasioned by incessant labour strikes, oil theft and pipeline vandalisation in the Niger Delta and high level of insecurity as exemplified by the ongoing Boko Haram insurgency in parts of the North East.
Growth of GDP vis-à-vis increasing poverty
For nearly 24 years since 1990, Nigerians had lived with faulty representations of their country’s annual Gross Domestic Product (GDP).
The National Bureau of Statistics (NBS) had, during this period, relied on 1990 price schedules to calculate the total value of goods and services produced in the country, leading to the release of figures that consistently depicted the Nigerian economy as being among the poorest in Africa even though the annual average growth rate was reported to have risen above 5 per cent for much of the period.
This low economic classification of the most populous African country did change early this year when the statistics office recalculated the nation’s GDP for the past four years using 2010 as a new base year. The result of the exercise, as announced by the Statistician General and Chief Executive of the bureau, Dr Yemi Kale, on April 6, 2014, showed that Nigeria’s nominal GDP for 2010 was N54.20 trillion, while those for 2011, 2012 and 2013 were N63.25 trillion, N71.18 trillion and N80.22 trillion, respectively.
“Analysing the 1990 nominal series, agriculture contributed 30.3 per cent to the GDP, while industry contributed 46.1 per cent and services contributed 23.6 per cent.
According to the rebased 2010 series, in nominal terms, the share of agriculture has declined to 24 per cent. The share of industry to the country’s GDP has also declined to 25.8 per cent, while the share of services to the country’s GDP has increased to 50.2 per cent,” Kale said.
Presentation of the revised figures was said to have been witnessed by representatives of the public and private sectors of the Nigerian economy as well as those of the World Bank, International Monetary Fund (IMF) and the African Development Bank (AfDB) who readily endorsed the rebasing outcome.
The dollar equivalent of the 2013 GDP figure which is $510 billion was also found to be higher than South Africa’s $384.3 billion for the same year, hence the claim that Nigeria has now overtaken late Nelson Mandela’s country as the largest economy in Africa, ranking 26th in the world and only a few spots to realising her vision of being counted among the world’s 20 most prosperous nations by the year 2020.
But even with all this, there still exists a puzzling contrast between the rising GDP growth rate and increasing poverty level in Nigeria.
The country’s over 7 per cent average annual growth rate for the past five years was touted to be among the highest in the world, almost equal to those of the so-called Asian Tigers. And considering that this growth was most evident in agricultural and trading activities where the bulk of Nigeria’s rural poor are engaged, it still beats the mind as to why there is hardly any visible improvement in their incomes and welfare.
In its Nigeria Economic Report of May 2013, the World Bank said, “Poverty rate remains high in Nigeria, particularly in rural areas. These rates declined between 2003-2004 and 2009-2010, although not nearly as fast as would be expected from the pace of economic growth in the country.
“While the officially reported growth rates of GDP well exceed population growth in the country, the pace of poverty reduction does not, this implies that the number of poor Nigerians living below the poverty line has grown measurable.”
The erstwhile CBN Governor and now Emir of Kano, Sanusi Lamido Sanusi, had while attempting to explain this unfortunate circumstance in Nigeria blamed it on the government’s economic policy that needs to change.
According to him, “…The economy since SAP is one that supports imported consumption and not local production, perpetuating dependency, non inclusive growth and insecurity. Why is it that the economy is growing at 7 per cent annually but the people are getting poorer? The answer is simply because growth gains are not evenly distributed. Personal income is skewed towards people in the oil industry, telecoms, high finance, stock market, real estate and yes civil servants and politicians who feed on corruption. We produce crude oil but import petroleum products.
“We have a large cotton belt but import textiles from China. We are the world’s number one producer of cassava but import cassava starch from Europe. We have a huge tomato belt in Kadawa, Jigawa and Chad Basin but are the world’s largest importer of tomato paste – from China and Italy. We can produce rice but we import rice from Thailand and India – most of it from grain reserves that have been in stock for over five years.”
The Minister of Finance and Coordinating Minister of the Economy, Dr Ngozi Okonjo-Iweala, had while commending the GDP rebasing effort cautioned against Nigerians expecting an immediate reflection of the new figures on the prevailing poverty and unemployment situations in the country. She, however, assured that the outcome will serve as additional tool for the government to tackle poverty and improve the people’s standard of living.
According to her, “Not all our ratios look good. Our revenue to GDP ratio doesn’t look that good. We have a tax to GDP ratio of about 20 per cent, which is in the range of emerging market economies, but our non-oil tax to GDP ratio is quite low at seven per cent.
“With these new GDP numbers, we are not going to look so good. Our tax revenue to GDP ratio will fall to about 12 per cent and four per cent for non-oil tax…”
It has been said that the bulk of Nigeria’s income ends up in the hands of a privileged few. Some analysts have even suggested that 90 per cent of these incomes are in the hands of less than three per cent of the entire 160 million population.
What’s more, taxation which is a veritable weapon of income redistribution has hardly been administered effectively. Tax dodging and evasion, particularly by the elite, have continued to expand the income gap in Nigeria.
Again, the clumsy implementation of the N18,000 national minimum wage by governments at all tiers has also served to ensure that earnings between the rich and the poor tend even wider apart.
The 2013 World Economic Forum in Davos, Switzerland, had attempted to draw global attention to the growing income inequality in the world, especially in the emerging market economies. But rather than draw from the message of that summit, the Nigerian delegation came back looking like people who obviously missed the point.

 

Ibelema Jumbo

Trading floor of Nigerian Stock Exchange (NSE)
Trading floor of Nigerian Stock Exchange (NSE)