External, domestic risks threaten Nigeria’s economic growth –World Bank
Budget size not at par with population growth –LCCI
Nigeria does not have the right environment to stimulate investment –Expert
Few days ago, the World Bank released a damning report on the Nigerian economy. According to the report; economic growth has remained muted since 2015 while growth is projected to be too low to lift the bottom half of the population out of poverty. In this report, BABAJIDE OKEOWO spoke to some experts, who pinpointed reasons the economy is faltering and what can be done to stimulate the required growth in the economy.
The economy is in this state because we do not have the right environment to stimulate the required industrialisation and investment. An economy is largely about investment. It is from investments that you can create jobs. When you create jobs, more people will be employed, and purchasing power will increase. It is also from investments that the government can generate revenues when a lot of people are working because there is employment, people will voluntarily pay taxes and government will be able to do a lot. It is also from investments that you can stabilise the environment, if you have more people, who are busy because they are gainfully employed, there will be less temptation to go into crime and creating problems.”
The above was the verdict of Muda Yusuf, Director-General of Lagos Chamber of Commerce and Industry (LCCI), in an exclusive interview with The Nigerian Xpress when he was asked to comment on the state of the Nigerian economy.
On his part, Johnson Chukwu, Chief Executive Officer, CEO Cowry Assets Management, said the current growth rate of the economy is unviable and there is an urgent need to restructure the economy in such a way that it is capable of taking Nigerians out of poverty. He also hopes that the latest report from The World Bank will serve as a wakeup call to government to take the needed urgent action to set the economy on the path to revival and start coming to terms with the fact that the talk about the economy being in a bad shape is not simply a ploy by detractors.
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“At times, it is always a good thing for a third party to give you an unbiased assessment of yourself. We know what the problems of the economy are, but when it is coming from a third party, it nudges you into action. For me, it is a confirmation of the various issues we have been talking about, but now that it is coming from a detached, non-sentimental third party, so it is a call to action to wake government up from their slumber.
“The current growth rate of the economy is unsustainable, unviable. Our Gross Domestic Product, GDP is growing at best over two per cent while the population is growing at above three per cent, that is clearly pointing us towards the fact that our poverty level will continue to increase. The World Bank report said the country lost 750, 000 jobs in 2017 while creating 450,000 jobs. In 2018 alone, five million new people entered the labour market, we should be expecting the same number for 2019 because our population keeps increasing and is largely youth-based and a lot are maturing for the labour market. Can you just imagine the deficit, the unemployment rate is at about 23 per cent and increasing. More worrisome, when there is youth unemployment, you are creating other major social problems. Armed robbery, violent crimes, and insurgency will be on the rise. The likelihood of seeing a 60-year-old man involved in armed robbery is quite low, but when you expose a vibrant young man to a difficult economic situation, you could be pushing the young man into unintended vices. We need to restructure the economy. We need some structural re-adjustments, this is what government should be concerned about. We need to identify what those structural adjustments are, we need to improve the growth rate of the economy and take more people out of poverty,” he said.
These assertions are coming on the heels of the latest World Bank Report on the state of the Nigerian economy. According to the report, Nigeria, despite her huge potential has continued to be bedeviled with myriads of challenges, which has stifled her economic development.
“Given that the economy is expected to grow more slowly than the population, living standards are expected to worsen. Growth is constrained by a weak macroeconomic framework with high persistent inflation, multiple exchange rate windows and foreign exchange restrictions, distortion activities by the Central Bank, and a lack of revenue-driven fiscal consolidation results. Rising public debt and increasingly complex policy interventions by the Central Bank constrain private sector credit growth. External balances are fragile to hot money movements, and fiscal buffers are exhausted, making Nigeria’s economy vulnerable to external risks.
“Growth is too low to lift the bottom half of the population out of poverty. The weakness of the agriculture sector weakens prospects for the rural poor, while high food inflation adversely impacts the livelihoods of the urban poor. Despite expansion in some sectors, employment creation remains weak and insufficient to absorb the fast-growing labour force, resulting in a high rate of unemployment (23% in 2018), with another 20% of the labour force underemployed. Furthermore, the instability in the North and the resulting displacement of people contribute to the high incidence of poverty in the North East” the report stated.
The report further said that Nigeria’s human capital development remained weak due to under-investment and that the country ranked 152 out of 157 countries on the World Bank’s Human Capital Index.
“Human capital development remains weak due to under-investment and the country ranked 152 of 157 countries in the World Bank’s 2018 Human Capital Index. Furthermore, the country continues to face massive developmental challenges, which include the need to reduce the dependence on oil and diversify the economy, address insufficient infrastructure, and build strong and effective institutions, as well as governance issues and public financial management systems.
“Inequality in terms of income and opportunities has been growing rapidly and has adversely affected poverty reduction. The North-South divide has widened in recent years due to the Boko Haram insurgency and a lack of economic development in the northern part of the country. Large pockets of Nigeria’s population still live in poverty, without adequate access to basic services, and could benefit from more inclusive development policies. The lack of job opportunities is at the core of the high poverty levels, of regional inequality, and of social and political unrest in the country’ part of the World Bank report stated.
Budget size not commensurate with population size
Another reason the economy is tottering according to Yusuf is the small size of the budget which is not at par with the population size of the country. He wondered how the economy can grow when the country’s budget is not at par with the population size.
“If you look at the budget size and population, then it is very small. The size of our budget does not correspond with the size of our population. Countries our size are budgeting twice or even thrice what our present budget is. If we have a budget that small, then, you need to ask how much impact it can have. It definitely cannot make much impact, by the time you have taken out the recurrent expenditure, how much do you have left for capital projects that are capable of stimulating growth in the economy? So, to do any capital project, you have to resort to borrowing. This is becoming a problem because we have not created an environment for us to make more revenue and thereby the budget size can be increased which will, in turn, be capable of stimulating the needed growth in the economy,” he said.
For economy to grow, government must encourage investment-Experts
Speaking on the way forward, Yusuf posited that government needs to stimulate investment through clear cut policies that boost investors’ confidence in the country.“The starting point will definitely be on how to stimulate investment and you can only stimulate investment by the type of policies you put in place, your monetary policies, your agricultural policies and how well our regulatory agencies are supporting and encouraging investment. We must look at our institutions, our bureaucracies and how well they are supporting investment. In our kind of environment. It is only when you pave the way for investment that the economy can perform.
“The economy also needs a lot of capital injection, private sector capital. If you take a look at our budget size and the deficit that we have in many areas especially infrastructure, you will know that the budget cannot fix this problem. So, we need more resources from the private sector, both domestic and foreign.
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“Then, we also need to take a look at our budget, if we are spending up to 75 per cent on recurrent expenditure and about 25 per cent on capital, even the 25 per cent is not implemented fully, maybe 50 per cent performance, how can an economy grow like that?
“Even the oil and gas sector especially the downstream sector that is supposed to be a cash cow and support the economy is even creating a hole as the government is losing a lot of revenue from this sector. The refineries are not working. All these are related and are some of the factors that are responsible for how poorly our economy is doing and affecting the capacity to generate revenue, to inspire the confidence of investors,” he said.
Yusuf also canvassed that the newly constituted Economic Advisory Council should be allowed to operate under favourable condition while reforming critical sector of the economy.
“The government has set up an Economic Advisory Council which is made up of seasoned economists, they should be able to come up with sound economic advice. If they are given the right latitude to operate and the advice they give are taken, then I am sure we will get somewhere on how to turn things around, it will take time. It is one thing to give advice, it is another for the advice to be taken.
We need to reconfigure our policy statements, our regulatory environment, to take a critical look at our institutions and to properly engage the stakeholders who are capable of creating the wealth, if you engage them, they will tell you where the shoe pinches and if their concerns are addressed, then the economy can move forward and do much better than it is currently doing” he added.
On his part, Chukwu wants government to provide a clear policy direction that can instill confidence in investors, this, he said would be able to stimulate growth in the economy.
“There should be policy predictability. For business people and investors, policy predictability is very important. What we do is to measure risks, when you measure risks, you should be able to predict the possible outcomes, but in instances when you cannot predict what government policies could be like, the best bet is to hold back and sit on the fence” he said.
The World Bank also called for bold reforms that are capable of stimulating the required growth in the sector.
“Government has the opportunity to accelerate the pace of structural reforms to build an institutional and policy framework capable of managing the volatility of the oil sector and supporting the sustained growth of the non-oil economy. Bold reforms that could have a significant impact on the economy’s trajectory are the removal of subsidies, elimination of foreign exchange and trade restrictions, greater transparency and predictability of monetary policy and increased domestic revenue mobilization. Such reforms would help raise the living standards of low-income groups while increasing spending on much needed public services. The signing of the Africa Continental Trade Agreement, after extended deliberations, may also provide some positive momentum over the medium-term’.
It is hoped that government will do the needful and not allow the prediction of The World Bank that if nothing is done, Nigeria will account for 25 per cent of the world population of poor people by 2030 come to pass.
