As much as one would like to see the bright side of things with a strong hope of rebirth, as the current macroeconomic data of Nigeria is not encouraging because it presents the image of a lame economy without clutches. From economic production data to investment flows, consumption levels and the fiscal position, there is so much to fear about the state of the economy.
A disaggregation of the five components of the country’s production of goods and services, otherwise known as gross domestic product (GDP), shows growth associated with a cacophony of variables. From household consumption, business investment to government spending, exports and imports, the statistics are staggering.
That an oil-producing country is grappling with stagflation fears at a time when the price of oil is reaching new all-time highs is worrying. It is strange to see a persistent depreciation of the naira in official and parallel markets in an era of rising oil prices as the currencies of other oil-producing countries rally against the greenback and other developed market currencies. Household income is low, as is consumption, as many Nigerians have to reduce their normal standard of living to adjust to the realities of soaring prices for goods and services amid falling income levels.
Business investment is declining, with most firms reducing production relative to increasing capacity, a reaction to the harsh reality of weakening aggregate demand. On the government side, declining revenues are undermining budget infrastructure spending, even as efforts are made to increase budget consumption in the form of full implementation of recurrent spending, which has a positive externality to very limited short term on macroeconomic variables. Incidentally, imports continue to rise, in part due to the luxury of the political elite and the huge output gap created by the lack of trade investment. The growth of non-oil exports remains a grand plan. Unfortunately, import bills continue to exceed export earnings, a phenomenon behind the N 1.87 billion trade balance deficit and negative current accounts.
If you think about the 5.01% GDP growth recorded at the end of the second quarter of the year, that sounds impressive, but has the economy really grown as its size in the second quarter has grown? in fact lowered from the level it was in the first quarter of the year, and in fact much smaller than it was in the last quarter of pandemic year 2020? To put this into perspective, the economy was respectively N19.6 billion and N16.8 billion in the fourth quarter of 2020 and the first quarter of 2021, well ahead of economic output of N16.7 billion in the second quarter of the year. ‘year. So it’s crucial that we look beyond growth, which was purely a statistical effect, and face the reality of the ever-declining economic output and base squarely.
The rise in second-quarter numbers is due to the rebound in consumption after the COVID-19 lockdown, some analysts say. But is this supposed rebound being felt by Nigerians? The containment and restrictions had constrained both consumption and investment, which are major components of the national income equation. With the lifting of restrictions, consumption has resumed as people have to replenish depleted stocks. Perhaps some of the unused industrial capacity has started to come to life.
But then, in the real sense, the investment didn’t quite pick up. Nigeria has had a persistent investment problem that predates the pandemic, says Dr Bongo Adi, senior lecturer at Lagos Business School. Foreign direct investment (FDI), which is directly linked to the real sector, does not enter the Nigerian economy.
“If you look at the data on capital imports, you will see that FDI is not coming,” Dr Adi said.
In the second quarter, only around $ 0.8 billion (0.18% of GDP) entered the country.
For the economy to experience a significant recovery, there should be a significant increase in the amount of investment directed to the real sector. Investment is a critical part of the national income equation, being the second most important. This is due to its multiplier effect. It’s an investment that builds factories and opens up huge acres of farms, creating jobs for people to work on. When people find a job, they earn income, and with their disposable income, they can get their hands on goods and services thus increasing the level of consumption.
The next part of the equation is public spending. Dr Adi said government spending was also increased through borrowing, and the size of the economy, GDP and population warranted borrowing.
“We need to invest in human capital; we have to pay good wages to attract the right skills and competent people in the education sector so that we can recover the stock of human capital, this is the sine qua non for a modern economy to develop, ” he said.
But Dr Adi has a record against the way the government spends. The government borrows money, he admitted, but said spending was not properly channeled or targeted.
Which sectors of the economy receive the funds? Which segments of the population receive the funds? He questioned himself and added that if he were to use it as a system of political compensation and cronyism, then “it’s nothing”.
Dr Adi cited some of the interventions of the Central Bank of Nigeria (CBN), including the Anchor Borrower (ABP) program, and called for monitoring and evaluating programs to determine what they have achieved “and you will see that in fact it is a huge loss. “
Dr Adi spoke to the Daily Trust before Vice President Yemi Osinbajo tackled some of the CBN’s interventions, saying they were more on the fiscal side of the government.
“Sometimes it seems like there is competition … If you look at some of the interventions, you will find that these interventions are interventions that should be managed by the ministries. The Ministry of Industry, Trade and Investment should manage MSME interventions, and we need to know what the CBN is doing. In other words, if CBN is intervening in the MSME sector, it should do so with the full cooperation and agreement of Ministry of Industry.
“Sometimes you’ll get people who benefit from it more than once because we just don’t have any line of sight on what’s going on on one side,” he noted.
Dr Adi, an economist trained in Japan, believes that because of the way public spending is targeted, it does not contribute to building up the national capital stock; on which the modern economy is based, and that even though the spending does help “a little bit to build roads and a little bit of infrastructure, electricity is still a problem and is even worse now”.
He is also concerned about Nigeria’s low economic competitiveness and says it is because the country lacks the critical mass for high-level human capital accumulation.
“Without increasing the stock of human capital, we cannot compete. It is ridiculous when we talk about competitiveness vis-à-vis the Nigerian economy,” he noted.
He cited two examples to illustrate Nigeria’s low competitiveness: one is the Economic Complexity Index (ECI) which measures the number of points on a country’s production value chain and the share of production exported.
“We are the lowest in Africa when it comes to the issue of comparative advantage. We are inferior to the Republic of Chad, inferior to Niger,” he said.
The second is total factor productivity (TFP) which examines the contributions of labor and capital to production. Once again, according to him, ours is the lowest in Africa and the implication is obvious.
“So we can have a stock of capital, but our work does not add much. Therefore, the economy cannot be competitive because competitiveness is not part of the system,” he concluded.