As the country celebrates its 62nd independent anniversary, CHIMA NWOKOJI takes a look at the state of the economy.
GIVING his independence anniversary speech last Saturday, President Muhammadu Buhari recalled how he pledged to improve the economy, tackle corruption and fight insecurity when he assumed office in 2015.
This was further strengthened according to him, by his commitment to lift 100 million Nigerians out of poverty in 10 years as the central plank of his second term in 2019.
He further reminded Nigerians that “We have made appreciable progress in these areas but not yet at our destination.
“Our administration has given the desired priority to the agricultural sector through a series of incentives to Micro, Small and Medium Scale Enterprises that resulted in creating millions of jobs.
“Leading this initiative, the Central Bank of Nigeria’s intervention in a number of areas as well as the Anchor Borrowers Programme had created the required leverages for Nigerians towards self-sufficiency in food and the necessary attraction for farming as a business.”
However, close to eight years of leading Africa’s biggest economy, the lofty promises are practically reducing to a mirage.
Analysts agree that Nigeria’s aspiration to lift 100 million people out of poverty by 2030 was a laudable one, but evidence on ground shows that this administration has not laid any foundation for such achievement.
Prior to the COVID-19 crisis, about four in 10 Nigerians were living in extreme poverty, based purely on monetary measures. Till today, the figures are getting worse. It is under this administration that the country overtook India to become the world’s poverty capital.
According to a World Bank report, the number of poor persons in Nigeria will rise to 95.1 million in 2022. The number of poor people was 89 million in 2020 and would be 95.1 million in 2022.
This means that 6.1 million more persons would have fallen beneath the poverty line between 2020 and 2022, a 6.7 per cent increase.
With the projected 2022 figures, the number of poor persons in Nigeria has had a four-year increase of 14.7 percent from the 2018/19 figure of 82.1 million to the projected 95.1 million in 2022.
State of the economy
When Nigeria clocks 63 next year, the country would be under a new president. The new president will be faced with not too impressive economic data, worse than the 1999 figures, given the rot Nigeria finds herself in today.
For instance, the excess crude account, where surplus cash from oil exports is tucked away, had a $2.1 billion balance in 2015. As at the end of June 2022, the balance had reduced to $376,655. That is well below a peak of $20 billion in May 2007 and way less than one percent of the $2.1 billion balance in 2015.
A public policy analyst, Mr Kalu Aja captured the pulse of the economy when he took to his Twitter handle to say, “There is not one macroeconomic variable that has improved since 2015. Not one.
“FY 2022, looking at the economy alone, is the worst year on record for Nigeria since independence in 1960. Show me where I am wrong.”
On the other hand, he still believes that things can change quickly.
According to him, Nigeria went from “our problem is how to spend money” to austerity
“Similarly, Nigeria went from ‘NITEL’ to ‘MTN,’ etc and from Government ownership to a private sector-led economy. 2023 is a choice. Tax & spend or grow wealth and spend?”
Indeed, the Nigerian stock exchange is taking a huge hit this year as Investors are running away from the equity market in droves.
Inflation in October 2015 was 9.3 per cent. During its last meeting in November 2015, the Monetary Policy Committee (MPC) of the CBN had decided to cut Monetary Policy Rate (MPR) from 13 per cent to 11 per cent, while Cash Reserve Requirement (CRR), was reduced from 25 per cent to 20 per cent.
Today, the economic indicators are scary. Inflation stands at 20.52 per cent, there is depleted foreign reserve, baseline lending rate at 15.5 per cent, unemployment rate at 33 per cent, sovereign debt of N42.84 trillion, debt servicing has surpassed revenue, amid battle for revenue boost.
This time, was for an unexpected 150 basis point (bps) hike in interest rates to 15.50percent from 14 per cent in a bid to quell
accelerating inflation which has found comfort in Nigeria’s economy and is now at a 17-year high of 20.52 per cent since October 2005.
According to the CBN Governor Mr Godwin Emefiele, while announcing the committee’s decision on Tuesday last week, the MPC deliberated on the impact of the widening margin between the current policy rate of 14 per cent and the inflation rate of 20.52 per cent which led to its stance that loosening would be gravely detrimental to reining-in inflation.
And as such, the cash reserve ratio (CRR) was raised by 500 basis points to 32.5 per cent from 27.5 per cent while all other parameters stayed constant.
Most analysts frown at the rapid decline of Nigeria’s fortunes since 2015, when the economy first expanded below the rate of population growth.
Nigeria, through the eyes of an 18-year-old, is one whose economy went from an average growth rate of seven per cent between 2004 and 2012 to an average of two per cent growth between 2013 and 2021, according to World Bank data.
President Buhari, as usual spoke about these indices like one
We are confronting current economic challenges such as debt burden, growing inflation, living standards and increasing unemployment accentuated by our growing youthful population. These problems are globally induced and we would continue to ensure that their negative effects are addressed in our policies
The Fiscal Policy Partner and Africa Tax Leader at PriceWaterHouseCoopers (PwC), Mr Taiwo Oyedele, in assessing the state of the economy regretted that while most oil producing nations are smiling to the bank given high oil prices, Nigeria is virtually broke resorting to heavy borrowing to fund the budget.
According to the Chief Executive Officer of NNPC Ltd, Mr Mele Kyari, the oil thieves include senior government officials, security forces & religious leaders.
According to Oyedele, “with an oil price of $112 in the first half of 2022, the financial loss translates to about $10 billion for six months or $20 billion for the year.
“This is over 50 per cent of our external reserve or over N8 trillion which exceeds the total tax revenue collected by FIRS + 36 states + FCT in 2021.”
The PWC’s Africa Tax Leader further said the unfortunate impact of this development include: Loss of foreign exchange receipt leading to scarcity, Naira devaluation and imported inflation; revenue shortfall to all levels of government and impact on social services; Increase in crimes as a result of huge cash in the hands of oil thieves; rising public debt due to consistent borrowing to fund budget deficits; under investment in the oil and gas sector and capacity underutilisation due to short-ins.
He listed other aftereffects ravaging the Nigerian economy to include: Higher production cost of crude oil due to pipeline vandalism, production losses & associated overheads; Increase in unemployment due to under-investment and capacity underutilisation and environmental degradation due to pollution associated with the oil theft activities
“This must now be treated with utmost sense of urgency. The private sector should resist any new or further tax increases until the government can demonstrate that it has done everything within its powers to stop the siphoning of our commonwealth,” he advised.
In the same way, Dr Muda Yusuf, the Chief Executive Officer, Centre for the Promotion of Private Enterprise [CPPE] said that over the past six decades the Nigerian economy has transformed from a basically agrarian economy to an economy driven largely by services and oil and gas.
According to him, the Nigerian economy had recorded an average growth performance over the past decades although with a few instances of sluggish growth. However, the challenge of creating an inclusive growth trajectory remains a major concern.
“While the economy has experienced some positive growth trend over the past six decades, especially in the oil boom era, the impact on poverty, inequality and job creation has been very minimal. It is a case of growth with minimal development.”
Further concerns in the economy
The country’s macroeconomic management framework continues to pose serious challenges to investors in the economy according to Yusuf. This situation has been further compounded by the shocks and disruptions inflicted by the Russian invasion of Ukraine and the lingering effects of the COVID-19 pandemic.
He believes that the fragile macroeconomic conditions remain a major cause for concern.
“The troubling macroeconomic situation have manifested in the following ways in recent years: weak and depreciating currency, high inflationary pressure, high and rising debt profile, exchange rate volatility, liquidity crisis in the foreign exchange market, increasing fiscal deficit, growing debt service burden, and the acceleration of money supply growth following the rising CBN financing of deficit.
“There are profound concerns around investment climate issues. High infrastructure deficit, cargo clearing challenges which has continued to worsen, high transaction costs at the ports, weak productivity in the real sector largely as a result of infrastructure conditions, regulatory challenges and policy inconsistency. “
The CPPE also frowns at persistent importation of petroleum products which has continued to put pressure on foreign reserves and weakens the capacity of the CBN to support the forex market. Petroleum refineries have remained non-performing over the years.
The fiscal position of the Federal Government and the states are very weak, characterised by high fiscal deficit, high and increasing debt profile and the associated debt service burden is a cause for concern.
“The state of insecurity continues to take its toll on the economy, especially on agricultural output and fueling food inflation. It is also impacting the confidence of investors. The spate oil theft and the associate leakages of government revenue is very troubling. Billions of dollars have been lost to this apparent failure of security effectiveness in the oil producing areas,” he stated.
However, it has not been negative all through. There are some pockets of improvements. Some sectors have been significantly transformed over the past six decades Yusuf observed. One of such success stories is the telecoms sector. The number of telephone lines in the country today is over 200 million as against what obtained just over two decades ago when the country had a mere three hundred thousand lines, with just a handful of mobile telephone.
In a position paper on Nigeria’s 62nd independence anniversary, the CPPE observed that the economy has also witnessed considerable changes in the ICT sector and this has impacted many sectors through the digitalisation of their processes and systems. We have seen increased traction in IT applications in many sectors of the economy.
Electronic payment systems have brought remarkable transformation to the financial services sector. Transactions on electronic payment platforms and POS and mobile transactions are in excess of N100 trillion annually.
The entertainment sector has grown in leaps and bounds over the last decade. It has also grown in quality and in number. The sector has become a key sector to be reckoned with globally. Nigerian music and films have gained amazing traction worldwide. This growth has come with massive job creation in the sector, especially for the youths
Unlike what obtained at independence, the economy has witnessed impactful private sector footprints in many sectors, especially in the following: telecommunications and ICT, aviation, transportation, education sector, health sector, print and electronic media and many more.
Accordingly, the contribution of the Nigerian private sector to the Nigerian economy has grown in leaps and bounds over the years.
On the way forward, Yusuf believes among others that there is a need for urgent steps to be taken to ensure a better macroeconomic management framework to stabilise the exchange rate, eradicate the challenge of illiquidity in the foreign exchange market and to stem the current depreciation of the Naira.
Strengthen strategies to attract private sector capital to compliment government financing of infrastructure.
According to him, there is a need to reduce the level of debt financing, especially the reliance on commercial debt to fund government operations. Public debt, currently at N42.8 trillion is already at an unsustainable threshold.
“The security situation which has continued to deteriorate needs to be urgently addressed in order to mitigate the effects on investors’ confidence. There should be greater emphasis on quality intelligence in the war against terrorism,” the CPPE founder observed.
In a country of over 200 million people with 40 per cent of the population classified as youths below the age of 35 years, agriculture and SMEs can create meaningful employment opportunities that will stall the alarming talent drain across the country.
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