Sometimes, seemingly small events shed a lot of light on the road not taken. It’s like yesterday’s unheeded advice that has popped up to haunt tomorrow. Only if we had used it as a guide for tomorrow. You see, Nigeria’s history is littered with painful incidents that perhaps would not have happened if successive administrations had hearkened to the warnings foretold. As evidence, consider the following: Nowhere has the present administration of President Muhammadu Buhari compiled a more dismal record than in its handling of the economy and security challenges. These two issues certainly are not the only problems of immediate sort, but they stand out. The performance of this government in the handling of these issues, bad at the start four years ago, has grown progressively worse.
Where our wobbling economy is today is a warning of yesterday that should have guided government’s policies to avoid the current mistakes and missteps . Early this year, the National Bureau of Statistics(NBS) released the Gross Domestic Product(GDP) report for the fourth quarter of 2018. It showed that the economy recorded a growth rate of 2.38 percent year -on year. The 2.38 percent growth rate in the GDP represented an increase of 0.27 percentage points when compared to the fourth quarter figure of 2.11 percent. What does that tell us? Simple: the economy can’t record 2.4 percent without jobs and fiscal balance. When an economy grows below a country’s yearly population growth of about 4 percent, there is a cause for concern. But this government was warned about the gathering storms and advised to tighten both monetary and fiscal policies, and to be extremely careful with further borrowing. And if it must borrow , it should be for investment, not consumption. It was also repeatedly advised years ago to broaden its revenue base. Little of that advice, it appears, was taken. And the realities of unheeded advice are now staring government in the face. Desperation on how to raise revenue has set in.
It’s unfortunate that despite experts’ advice that borrowing will endanger 2019 budget implementation, this government continues to insist that the nation only has revenue challenge and not debt problem. That’s the argument of the Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed, and that is complete demagoguery – a plain misstatement of facts. To argue that Nigeria’s problem is not debt but only revenue, is like to saying that violin can play beautiful music without a string. It’s turning logic on its head. It doesn’t add up. Fact is : revenue generation is as good as accumulation of debt is bad to a nation’s economy. Also, to add to the bad state of the economy, for the first time in six months, our external reserves have dipped to its lowest level at $42.84bn.
Recently, the NBS report yet again showed that our GDP is not in fine fettle, as the GDP slowed to an abysmal 1.94 percent(year-on-year) in real terms in the second quarter(Q2) of 2019, compared to the 2.1 percent recorded in the first quarter. This means a decline of 0.16 percent. The NBS report implies that the economy is still vulnerable, despite overcoming the effects of the 2016 recession . It also means that the economy is yet to receive the required boost in government’s diversification effort in spite of the much-talked about investment in the non-oil sectors of the economy.
Now, consider the expenditure on importation of essential food items. In 2016, Nigeria spent a whooping $965 million on the importation of wheat, $39.7m on rice, and $100.2m on sugar import, $655m on fish. The World Bank Senior Agriculture economist, Dr. Adetunji Oredipe, has described this humongous amount on imports as “financially irresponsible, and politically unsustainable”. Ironically, Nigeria used to account for 42 percent of the world’s exports of shelled groundnuts and 27 percent of global export volume for palm oil. If Nigeria had held to its market share in palm oil, cocoa, groundnut and cotton, experts say we would have been earning about $10bn annually from these commodities. Which is why the CBN is investing much in this sector, but the results are not showing as they should. If in doubt, ask the market women, not the CBN the prices of essential food items.The market women have the final verdict on how the economy is going, not what the government is telling you.
Even as many Nigerians want this government to succeed, this is the hometruth: Never in this present democratic dispensation have we seen an administration lie brazenly with figures or give with one hand, and take away with two hands. Just last week, President Buhari told members of the Trade Union Congress(TUC), that his government would not inflict further pains and hardships on the citizens. Rather, he said the administration “will seek ways to ameliorate their suffering and create more enabling environment for everyone to thrive.
But, the President’s assurance is the opposite of the reality on ground . It’s been a long time since majority of Nigerians had gone through the kind of pains and hardships as they are going through right now . While the President is promising not to inflict more pains on the people, his government has gone ahead to raise Value Added Tax(VAT) to 7.2 percent. If this is not an additional suffering on the citizens, may be, we need to redefine what ill-treatment and evil mean . Government says it intends to generate N2trn from the VAT, at the expense of consumers. The immediate implication of this is higher prices for consumer goods in the country. All of this confirms the NBS report that the below par economic performance in the first half of the year might put much pressure on the government to meet its growth target of three percent in 2019.
In effect, the disappointing Q2 means the economy must grow at not less than 7 percent in the third and fourth quarter to achieve full-year set target by the Federal Government in the Economic Recovery and Growth Plan(ERGP), a situation that experts say may be difficult to actualise. The greater risk perhaps, is that if the economy continues to experience contraction in GDP growth in the Q3 and Q4, 2019, another recession might be in the offing, and that may be more devastating to the economy than the last one.
With unemployment rate very high and the ease of doing business low , investment confidence in Nigeria is slipping away. Foreign portfolio investors are reported to be exiting the country in large numbers. Market indices are already slumping at great speed. Last week, it slumped by 1.4 percent amid loss of investors confidence. This is no good news for the economy.
What all of this foretell is that government should double its effort to break away from the overdependence on oil as our main source of revenue. According to the NBS report, in Q2 2019, Nigeria recorded average daily oil production of 1.98 million barrels per day or 7.6 percent higher than the daily average production of 1.84mbpd recorded in the same quarter of 2018, but slightly less than output recorded in Q1 2019. This means that the oil sector posted a real growth rate of 5.15 percent(year-on-year) in Q2 2019, representing a 9.10 percent points increase relative to the rate recorded in the corresponding quarter of 2018. It also indicates an increase of 6.61 percent points when compared to Q1 2019.
Similarly, non-oil sector grew by 1.64 percent which in real terms means the sector contributed 91.18 percent to the nation’s GDP. But this is slightly lower than the share recorded in the second quarter of 2018 (or 91.45 percent), but higher than the first quarter of 2019(90.78%). The agricultural sector grew by 1.79 percent in the second quarter of 2019 or 22.82 percent to total GDP in real terms. However, an analysis of the NBS report proves one critical lesson for government’s diversification effort. A situation where the non-oil sector accounts for 90 percent of the GDP and only 20 percent of foreign exchange earnings and about 50 percent of revenue is certainly not good for the sustainability and stability of the economy.
President Buhari recently solicited the cooperation of the Manufacturers Association of Nigeria(MAN) to strive towards repositioning th economy in order to achieve industrial growth. But the government needs to do much more than it has done to diversify the economy and broaden the revenue base. As long as significant progress is not recorded in the non-oil sector that will boost exports, so long will the economy will remain sluggish.To reinvigorate the ailing economy,it needs massive rescue efforts to avoid relapsing into another recession. In that regard, the Federal government and the monetary authority, the CBN, should retool some of the economic policies that might have contributed to the slow GDP growth.
Economic policies should be growth-friendly. With a debt profile of about N25trn and about 50 percent of revenue going to debt servicing, it gives the economy little room to recover. Further borrowing will hurt the economy. Rather, government should borrow for investment, not consumption. In recent times, the International Monetary Fund(IMF), the World Bank Group and African Development Bank(AfDB), have warned Nigeria to check its rising debt and need to broaden the revenue base and diversify the non-oil sector of the economy. The financial institutions had also stated that Nigeria’s economy is still vulnerable to both internal and external shocks. Obviously, some of the challenges that NBS identified in its latest report were almost the same problems that the agency alerted in 2015 before the economy went into recession.
The Federal Government should critically examine all key areas of the economy that have continued to slow the nation’s economy and initiate practical strategies that will stimulate sustainable growth. We agree that debt crisis, acute revenue shortfall, insecurity, unstable power supply are stunting growth in key sectors of the economy. We need to get the fundamentals of the economy right.