The President Mohammadu Buhari-led administration will commence its second term on May 29, 2019 to terminate on the same day in 2023. CHIMA NWOKOJI, in this report, digs out from the perspective of economists, how the economy has performed in the last four years and possible areas that will need greater attention.
“Those who do not see any good in something not initiated by them toil endlessly to hoodwink Nigerians into believing that nothing good is happening on the economic front. But facts are stubborn things. The more they try to deny the facts, the more they rudely stare at them in the face.”
The above statement was credited to Mr Femi Adesina, Special Adviser on Media and Publicity to President Mohammadu Buhari, sometime in February 2019 in response to critics of the government in power, while highlighting great strides recorded by President Mohammadu Buhari towards improving Nigeria’s economy.
Adesina said the current All Progressives Congress (APC)-led administration had put the economy on “firm and solid footing.”
According to him, “The economy has recorded continued progress since it emerged from recession in 2017.
“For more than five decades, Nigeria had paid lip service to diversifying the economy, from sole dependence on oil. The latest result shows that economic growth has continued to be driven by the non-oil sector, which grew by 2.70 per cent in Q4 2018, up from 2.32 per cent in Q3 2018. It represents the strongest growth in the sector since Q4 2015,” he said.
Adesina also drew attention to the fact that the non-oil GDP growth was driven by quarrying and other minerals, followed by telecommunications, agriculture, manufacturing, and construction, stressing that this is diversification in progress, “real time, no matter what the naysayers may say.”
Also listed among the achievements was that inflation had been trending downwards from 18.55 per cent as at December 2016 to 15.37 per cent in December 2017 and further to 11.44 per cent in December 2018.
“Although the economy is now growing, more still must be done to deepen its diversification and make it less vulnerable to external shocks. That is an unflinching commitment of the Muhammadu Buhari administration,” Adesina added.
But just like the saying that a judge cannot preside over his own case, a herd of economists did not agree completely with Adesina on the “achievements” of the current administration.
Dr Andrew S. Nevin, Advisory Partner and Chief Economist at Price Water Coopers (PWC) Nigeria, expressed concern that for a number of years, Nigerians have been getting poorer and poorer per capita, as the growth of Gross Domestic Product (GDP) “is below our population growth of 2.7 per cent per annum.”
According to him, Nigeria grew 2.7 per cent in GDP in 2015, meaning no growth in GDP per capita. It shrank in 2016, and grew below population growth in 2017 and 2018. “Now we begin 2019 with our GDP growth below population growth again, and 1Q 2019 annual GDP growth of 2.0 per cent is a decline from our growth in Q4 2018.
“Nigeria cannot continue with GDP growth below population. The country urgently needs policies and approaches that allow it to grow GDP at 6-8 per cent per annum in a way that creation and standard of living is enhanced.
“Only at 6-8 per cent growth can the country reduce the number of poor Nigerians significantly and start to tackle the immense challenge of youth unemployment.”
Nevin, who is also a member of the Nigerian Economic Summit Group (NESG) Board Committee on Research observed that between 2010-2014, growth was consumption-based with little investment, and the benefits were concentrated in the hands of the wealthy.
“What we need now is sustainable growth based on investment in real estate, agriculture, power, manufacturing, IT, Nollywood, and healthcare. In each industry, we can create jobs that pay a reasonable wage in the Nigerian context and can reduce our depressing youth unemployment.
“PwC Nigeria has been clear that we believe that real estate is the most important sector to increase employment and reduce poverty, as we have a deficit of 17 million dwellings, and everyone needs a place to live,” Nevin said.
Also, the Executive Vice-Chairman, Alpha African Advisory, Mr. Mustafa Chike-Obi, believed that the Nigerian economy had performed poorly over the last four years.
Chike-Obi said: “My worry about Nigerian politics is very simple. By any standards, this government has not done well. Instead of telling us how bad we did and plans to get better, they are playing silly games. What they have offered us the last four years is not good enough. So, let them tell us their plan to make things better.”
According to the former Managing Director of the Assets Management Corporation of Nigeria, it is unhealthy and inconsistent that Nigeria imports so much of what the population consumes.
“The question is: how do we stop? How do we start making what we eat, what we drink, what we wear? We are the largest rice importers. Nigeria is import-dependent. Nigeria is the only country in the world with a population of about 50 million people that imports what it eats, drives and even imports education. We are a huge consumer of foreign goods relative to our size. Yes, we are import-dependent and the government has not done enough to reverse this trend.
In his assessment of the performance of Nigeria’s economy since 2015, an Economist and Research Analyst at Augusto & Co. Mr Olujimi Ogbobine said the country was currently in a dire fiscal problem. Despite the positive spin about Nigeria’s moderate debt to GDP currently around 20 per cent, interest payments as a percentage of revenue are over 60 per cent. At this level, several multi-latheral agencies, especially the World Bank have warned against the danger of such huge interest payments.
Other fiscal indicators also put Nigeria at the bottom of the rung even among sub-Saharan African peers. Indeed, Nigeria’s five-year average of capital expenditure as a percentage of nominal GDP is a meagre 2.1 per cent, which is insignificant in comparison to Angola at 7 per cent and Kenya at 7.6 per cent.
“However, with a projected budget deficit of N3.8 trillion in 2019, Capital Expenditure (CAPEX), as a percentage of nominal GDP, could decline further to 1.1 per cent this year. The implication of this increasing deficit is that in 2019, Nigeria will have to borrow to meet its obligatory spending such as interest payments, transfers and payroll, which are projected at about N5.4 trillion with a lower revenue of about N4 trillion, meaning that little or no money would be left to fund capital expenditures.
In his further assessment of the performance of the economy, Ogbobine said the 68 per cent rise in the pump price of petrol to N145 in May 2016, from N86.50 and the carefree response from the often anti-reformist labour unions had given a bit of hope to analysts that Buhari intends to expend some of his political capital to pursue unpopular reforms.
However, Buhari’s stand on exchange rate policies drove the Central Bank into adopting a demand management stance on the currency.
The effects of the currency crisis arising from this, according to the analyst, sent Nigeria into its first recession in 25 years.
Bold market reforms in the ERGP document such as the review of the pricing mechanisms for the key prices (exchange rates, electricity tariffs and petrol prices) to reflect fundamentals have been largely ignored. This has left the country with a huge fiscal deficit (currently only three basis points shy of the three per cent guidance in the Fiscal Responsibility Act). The second argument to demonstrate the stance of the administration would be the abortion of its own reform programmes. For instance, the planned concession of the major international airports in Lagos, Kano, Port Harcourt and Abuja by the administration and the cold trail of the process buttress this argument.
Road to stronger economy
To Mr Andrew Nevin, there is no easy solution to achieving economic growth. Nigeria needs all 36 states and every industry to do its part, which means “we need an enabling business environment and entrepreneurs’, who can achieve results across the country, and we need governors support for economic growth and investment.”
“Stakeholders believe that all options on the table for Buhari in his last term are hard choices with no easy way out. Buhari’s government will have to work to raise revenue, while also restructuring government spending. This will require politically unpopular but inevitable choices,” he said.
According to Nevin, the stable N360 parallel market rate and the increase in reserves at the CBN are due to very high Diaspora remittances Nigeria receives. This is about $25 billion through official channels.
He observed that a single exchange rate would be conducive to investment and economic growth. In addition, it would eliminate the potential for abuses of the current currency system, as well as put more Naira in the state coffers as they receive N360 for their federal allocation rather than N300.
“We would like to see the government continue with infrastructure development, but it needs to recognise that this is less than 10 per cent of the infrastructure investment we need.
“The only way to make real progress is with private investment for the other 90 plus, which again, means an enabling business environment, as well as creative ways to structure Public Private Partnerships (PPPs) that benefit both the people but are also delivering the infrastructure we need,” he said.
On his part, Ogbobine suggested that Nigeria’s current fuel subsidy regime indicates the country may have re-adopted unclear practices of the past that not only creates a huge fiscal hole but fuels corruption as well.
He, like Nevin, wants the fuel subsidy removed. With subsidy payments probably in the range of N1.2 – N1.3 trillion annually, the country is not fairing well. The Augusto analyst suggested that Buhari would not only have to stop this fiscal haemorrhage, but also muster the political will to deregulate the downstream petroleum industry once and for all times.
“Despite the current inertia amongst exchange rate activists, risks abound in that space. Nigeria still operates a multiple exchange rate regime. Agusto & Co is even more baffled by the inertia of state governors to push for reforms in the exchange rate policy by adopting the official rate of N306/$ as opposed to the autonomous rate of about N360/$. States lost more than N500 billion in 2018 from the Federation Account, due to this exchange rate regime,” he stated.
Both Nevin and Ogbobine suggested the exchange rate that will be adopted by the State governments be reviewed.
In what they entitled: Buhari’s to do list (2019-2023), the analysts at Augusto & Co Rating agency highlighted the some of the big issues that will make or mar Buhari’s economic records.
They noted that it would be the management of subsidies and other cost unreflective tariffs being stifled by price controls. These reforms, according to them, will require the removal of subsidies on the pump price of petrol; allow market forces to determine the domestic price of natural gas; allow electricity tariffs that enable operators earn margins on their costs and also ensure exchange rates reflect fundamentals. These reforms could help stimulate investments across board and unlock economic growth.
“The Buhari administration will also need to adopt a private sector growth approach. Nigeria’s poor non-oil tax takings (3 per cent of nominal GDP) implies that the aggressive adoption of a Keynesian model – which places more importance on government spending amidst poor tax credentials –could create a fiscal time bomb for the nation,” he said.
In a note to clients, the analysts stated: “Government will have to understand its limits in stimulating growth and creating jobs. The Buhari administration should seek to improve efficiencies in the economy by concessioning key infrastructure and eliminating monopolies of state-owned enterprises (SOEs) in key sectors such as aviation, airport ownership and management, railway and electricity transmission by opening up these sectors to private sector investments.
“Buhari’s reform agenda should also include germane fiscal reforms such as the reduction of interest payments as a percentage of revenues, reduction in the public sector payroll and other recurrent expenditure and boosting government revenues by improving non-oil tax compliance.
Stakeholders in the Nigerian maritime industry scored the sector low in the last four years. According to an economic and investment consultant, Dr. Vincent Nwani, “Unfortunately, the Nigerian maritime sector has not fared favourably in the last four years. It is very clear even from the World Bank Ease of Doing Business Indicator. (Fine), Nigeria made overall progress from 169 or 170 to 146, where we are now, but when you look at the indicator that actually measures how Nigeria’s maritime sector has fared, that is Ease of Trading Across Border Indicator, you would find out that Nigeria has gone worse to where we were four years ago. Four years ago, we were at number 151, but as we speak, we are now at number 183 out of 185 countries as regards the World Bank Ease of Doing Business Across Borders indicator. In that World Bank index, we have about 13 indicators, and one of them is the Ease of Doing Business Across Borders Indicator.”
Dr. Vincent Nwani who was the immediate past Director of Advocacy at the Lagos Chamber of Commerce and Industry (LCCI) added that, “It is no longer news that the ports in Accra and Benin Republic were recently ranked as the best ports in West Africa. These ports have taken the shine away from Nigerian ports. It is impossible for us to be the hub in West Africa, when the roads leading to our ports are very bad. Aside the bad roads, the traffic gridlock at our ports access roads makes it difficult for businesses to access our ports. This is one of the reasons the non-oil products like the agricultural products get spoilt or downgraded before getting to the ports. These cargoes spend weeks and months just to access our ports, thereby getting spoilt on the way.
“These are the major reasons why our throughputs have dropped. Even Customs revenue has gone down. Our indigenous ship-owners cry every day over lack of capacity. Many have gone bunkers. Our ports and channels are not safe, thereby making vessels visiting our ports to charge astronomical freights compared to what they charge when they visit other ports in other climes. These are indeed challenging times for us in Nigeria.
“If only Nigeria had that political will to connect our ports with good roads and rail; and most importantly adopt and connect the Single Window technology to our cargo clearance procedure, then we should have been home and dry as regards efficient port system.
“Human interface remain a concern in our ports. Bad roads and over reliance on the ports in Lagos are serious issues confronting us here in Nigeria.
“We keep talking about diversification from oil, but how do we diversify when the ports where these non-oil products will pass through are facing this enormous challenges? We have got to that point where we need to move away from mere words of mouth and political promises to real action.”
Also the national president of the National Council of Managing Directors of Licensed Customs Agents (NCMDLCA), Lucky Amiwero, explained that Nigeria’s maritime sector experienced the worst in its history in the past four years.
“When you look at procedures in the ports, there is nothing to write home about. When you look at our shipbuilding sector, there is nothing to write home about. Inside the ports, all the scanners are dead. None is functional.
“Outside the ports, the Tin-Can Port access road is in a shamble. Access to the ports is a nightmare. 70 percent of all the companies operating in Apapa have left. The maritime sector retrogressed in the last four years. Due to these anomalies, ports like Cotonou, Accra and Lome have taken over our ship traffic.
“When you go to Apapa, many corporate offices have closed down. As I am talking to you now, I am planning to move back to FESTAC. If you cannot access your office, if you have to take one-way every time you want to access Apapa from Tin-Can, in that kind of inconsistency, many had to relocate from Apapa. For those still there, it is a nightmare. A lot of people have lost their lives. There is no holding bay, no trailer park. The roads are terrible.
“The situation we have in our hands is that Nigeria relies on the ports in Lagos, because they are the active ones. Apapa, Tin-Can ports and PTML are Nigeria’s active ports. The other ports outside Lagos have issues of draft level and modern port equipment, which is why they are moribund.
“Even the ports in Lagos that are active are fast-losing traffic to ports in other countries in the West African sub-region. Why Togo, Lome and Accra ports are taking over our ship traffic is because the draft level in Lagos is between eight to 13.5 metres, while Togo, Lome and Accra are already getting to 18 metres, so bigger vessels call there instead of calling at our ports.
FG has performed woefully —Expert
The Federal Government has performed woefully in the oil and gas sector in the last four years, according to an oil and gas governance consultant, Henry Adigun. The Oil and Gas Governance Consultant, said nothing had changed in the last four years in the oil and gas sector. “The present government inherited 35 million litres daily consumption of premium motor spirit (PMS) otherwise called petrol, but later it increased to 55 million litres daily consumption without a corresponding growth in the economy. Yes, they have made petrol available but at what cost?
“The government inherited a more transparent subsidy regime, but now runs a less transparent subsidy regime under the guise of ‘under-recovery’. The fuel subsidy is a scam and it is time to remove it.
The government came to fight corruption, but the fight against corruption in every sector has been very poor. The government failed to sign the Petroleum Industry Governance Bill (PIGB) which would have helped in promoting governance structure in the sector.
The Nigerian National Petroleum Corporation (NNPC) governance structure is still as poor as before in terms of remittances and accruals in the oil and gas sector. Government has only been able to add about $20million to the sovereign wealth fund (SWF). Things are just the same but a bit worse in some areas.
“As far as I’m concerned, I will score them 4/10 which is just below average. Going forward, the President cannot be the Minister of Petroleum Resources, the honest truth is that he has neither the capacity nor intellect capacity to be. When the president takes up the responsibility he cannot deliver, he allows the people to do it. What we have had in the last four years is people running it on his behalf. These people might not have same interest as the President. So, he should have appointed a Special Advisser on a full-time basis or appoint someone else because someone has to be in charge.
The PIGB will be sent to the President in the next few days, he has to sign it. Signing the PIGB will give the oil industry hope that there will be governance structure in the NNPC and also remove fuel subsidy right now. It is a scam. It is not benefitting the masses but very few people. We need a fiscal regime to replace the old fiscal regime. It is obsolete and doesn’t promote investment in the oil and gas industry,” he alleged.
Turbulent years for Nigerians
Former Chairman, Chartered Institute of Bankers of Nigeria (CIBN), Lagos Chapter, described that last four years as a turbulent period for Nigerians. According to him, the nation’s economy lost the ‘goodwill’ it enjoyed at the pre-Buhari era, as the largest economy in Africa and went into recession, due to the failure of the incumbent government to leverage those positives, on assumption of office.
“We were supposed to be the leading economy in Africa, when President Goodluck Jonathan, was leaving office. But, we failed to capitalise on this, especially in the early life of this regime. Then, President Buhari was busy giving out negative vibes about the country, its economy and the people.
“Those things caused the economy a negative flow of capital, because a lot of withdrawals, from our economy took place, about $80 million or thereabout, at that time, and this affected the capital market and, of course, the foreign exchange market.
“Our exchange rate became very unstable, very volatile, from about N150 to $1 to about N500 to $1, till it finally settled at N350 or thereabout. It was a very serious economic problem, because foreign goods became very expensive, same with local goods; since there was a sudden rise in the demand for local goods and the supply could not meet up to the demands. The prices of local goods also jumped up, thereby adding to inflationary period for well over two years,” he stated.
He also identified the huge security challenge, the country is presently facing, as a major hindrance to her economic growth.
“Investors, especially foreign ones, are wary of Nigeria, and that increased the amount of funds going out of the country.
“Besides, the hike in the pump price of petrol, despite the fact that the price was falling on the global stage, was also one of those factors that induced inflation; since the prices of all other things including airline fares, went up as a result of poor management of the cost of crude oil and pms.
“It got to a stage that the income level reduced totally, as a result of inflation. In fact people became dissuaded in investing in thestock market. We saw the crash of the stock market, and even the money market too, suffer. People were no longer putting their money in the bank. They did not invest, they did not save. They were only taking advantage of the unstable foreign exchange market.
“So the last four years witnessed a very turbulent time for Nigerians. I think it’s in every sector of the economy, health, education and others. Not that the incumbent government did not do its best to run the economy, it’s just that the negative indices are just too much,” Adeyemi argued.
The former CIBN boss, however, advised the government to pay attention to price level, and if possible introduce price control.
“Many people just jerk up their prices, giving one excuse or the other, thereby making life unbearable for Nigerians. So there should be an ombudsman arrangement, where the government has an agency, looking after the prices of commodities.
“The government should also watch and manage the exchange market properly. Efforts should also be directed on employment, so as to get more Nigerians employed. That means we should open up our markets for international investors and let new capitals come in,” he stated.
The economy has underperformed –Adesuyi
In his own assessment of the state of the nation’s economy in the past four years, Chief Executive Officer, Wealthgate Advisor, Mr. Adebiyi Adesuyi, believed there was not much to cheer about the economy.
Adesuyi, a banker and financial consultant saw the economy as having underperformed during the said period.
“An objective assessment reveals that the economy underperformed. Unemployment rate is still above 30%. Similarly, about 70% of Nigerians are still within the poverty trap. The gap between the rich few and the poor became wider, indicating unacceptable inequality,” he stated.
Adesuyi argued that though the economy witnessed a growth of less than two per cent in the last two years, he however believed there was nothing much to cheer about such growth; since it was attributable to an increase in the global price of oil.
“Yes, the economy has witnessed a growth of less than 2% in the past two years, I can assure you that this was as a result of increase in the international price of Oil and not an outcome of sound economic management. If the Oil price slumps today, the economy will slip into recession,” he added.
The Wealthgate Advisor boss also noted that the manufacturing sector, which should have been a driver of economic growth, had failed to meet expectations.
“The following statistics will clarify my view: Manufacturing contributed 9.11% to GDP in 2014 as reported in 2015 (the economy that President Buhari inherited) and it contributed 9.20% to GDP in 2018. A growth of 0.09%.
“Some manufacturing companies shut down their factories as a result of bad economic climate. Between 2000 and 2008, 820 manufacturers closed their factories. In addition, 272 manufacturers shut down in 2016.
Some of the companies left Nigeria for Ghana, with Dunlop and Michellin, being major examples here.
“Textile manufacturing sub sector that used to employ over 700,000 workers now employs below 100,000 people. With these figures, it is apparent that the present administration has a poor score card in the area of economic management,” he stated.
He however believes the next four years present President Buhari the opportunity to rejig the economy by modernizing road infrastructure, increasing power generation and distribution.
“President Buhari can rejuvenate the economy in his second term by doing the following: Modernise road infrastructure, increase power generation and distribution to the level that businesses will no longer require generators, create efficient port services, eliminate multiple taxations, arrest the activities of Fulani herdsmen and other terrorists, aggressively work for foreign direct investment, and appoint a brilliant economic team.
“There must be growth that results in tremendous job creations and poverty reduction. Then, the President will be seen to have improved the economy in his second term,” Adesuyi submitted.