Although the debate on the state of the economy has been raging for some time, it is gaining momentum daily in view of the impending elections, which are less than two years away. While some Nigerian experts have rated the government’s performance as less than average, others in the international community think otherwise, saying the economy has fared well. SIMEON EBULU, NDUKA CHIEJINA and OKWY IROEGBU-CHIKEZIE report.
Next to politics, the economy is what is on every body’s lips. In fact, it has taken the centre stage.
Because the state of the economy defines the standard of living of the citizenry, everyone, not the least the government, is conscious of the need to manage the economy in such a way that it provides what is required to ensure provision of the basic necessities of life.
These include, but not limited to jobs, affordable healthcare, a functional transportation system, power and a gamut of other infrastructural facilities that make for good living.
Given the size of our population, the parlous state of infrastructure, coupled with the growing list of unemployed graduates and other artisans roaming the streets in search of jobs, the feeling is that the economy is not growing.
You might be wrong, but at the same time, you may as well be right, depending on who is doing the assessment.
The International Monetary Fund (IMF) and a section of the Organised Private Sector (OPS) believe that the economy is doing well. Not so others, among them NACCIMA, that are of the opinion that a lot more need to be done to improve installed capacity utilisation and in return, create more jobs.
The IMF said the nation’s economy has performed well in the course of 2013. The assessment and verdict, it said, was based on findings by its mission that visited Nigeria last month, during which it held consultation with the Minister of Finance and Coordinating Minister of the Economy, Dr. Ngozi Okonjo-Iweala, the Central Bank of Nigeria’s Governor, Sanusi Lamido Sanusi, senior government officials, members of the Legislature and representatives of the private sector.
The Fund’s Mission Chief and Senior Resident Representative in Nigeria, Mr. Gene Leon, said the economy has performed well, noting that the Real Gross Domestic Product (GDP), grew by 6.8 per cent in the third quarter of the year, compared to the third quarter of last year. He said the growth was supported by robust performances in agriculture, services and trade.
His view tallied with those of the immediate past President of the Lagos Chamber of Commerce and Industry (LCCI), Mr. Goodie Ibru and the Director-General, Mr. Muda Yussuf.
Ibru said ,when compared with the global output growth rate of 3.5 per cent, the country’s growth performance could be considered satisfactory. Quoting from data released by the National Bureau of Statistics (NBS), he put the GDP growth rate for the second quarter of the year at 6.18 per cent as against 6.56 per cent in the first quarter and 6. 39 per cent recorded in the second quarter of last year. When compared with global output, Ibru argued, the growth performance could be considered satisfactory, adding: “but from our perspective as private sector players, the economic conditions were difficult and the challenges of doing business remained formidable.”
He said the business environment was characterised by high cost of doing business, with constraints in poor infrastructure, cost and access to funds, depreciation of the naira, influx of substandard products and smuggling, adding that despite the problems however, the economy still offered tremendous opportunities for investors.
“Ours is the second largest economy in Africa with over $300billion GDP. What we lack is the capacity to harness these opportunities for our common good,” he said, adding however that some progress has been made in charting the right course.
On his part, Yusuf described the economic growth trend, measured by the performance of the Gross Domestic Product (GDP), as generally positive over the last two years at about 6.5 per cent. To him, this is good compared to the growth conditions in most economies around the world.
He, however, said the contributions of most of the sectors to GDP were not significant. Respective contributions as at the third quarter of 2013 were as follows: telecommunications, eight per cent; Solid Minerals, 0.5 per cent; Hotel and Tourism, 0.6 per cent; Building and Construction, two per cent; Real Estate, 1.9 per cent. The character of growth explains the limited impact of growth performance on welfare of citizens. Local value addition and indigenous participation in many of the sectors is still very low, he observed.
The LCCI chief criticised the deteriorating power situation and the refineries, saying they are underperforming, thereby compounding the unemployment situation. He was also critical of the high cost of funds for doing business.
Yusuf lamented that the business environment is not conducive for manufacturing enterprise, saying this is why the risk of industrial investment is high and continues to increase. He argued that the various policy interventions have not had the desired impact on the sector, warning that unless there is an effective and sustained protection and support for the sector, it would be only a matter of time for the sector to become extinct.
His words: “This scenario has played out in tyre manufacturing, the textile industry, the assembly plants, the battery industry, the steel plants and many more. Manufacturing business is perhaps the most challenging in the economy today. The trend has grave implications for the economy. An economy dominated by buying and selling cannot boast of a bright future. Production is critical to economic progress, value addition and job creation.
He added: “it is impossible to have a vibrant manufacturing sector in the face of rampant dumping of cheap imports in the country, noting that some of these imports are landing at 50 per cent of the cost of products produced locally.
Concern for the economy runs through the various specialised professional bodies, not the least, the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA). Its President, Alhaji Mohammed Badaru Abubakar, said the manufacturing sector contributes an abysmal four per cent to the GDP, urging that government should stimulate the sector with policies and infrastructural provision that will lift the manufacturing segment.
He said the declining external reserves which stands at $45.06 and the GDP growth rate figure which dropped from 6.56 per cent in the first quarter to 6.18 per cent, are all indicators that the government needs to move swiftly to address pertinent issues in the manufacturing sector.
He frowned at the fact that interest rates have remained at double digit, hovering around 17 per cent and 28 per cent, as against a single digit rate expected by business operators. He drew attention to the huge unutilised installed capacity in the manufacturing sector, saying that the sector is still faced with gross inadequate power and energy supply, including deplorable infrastructure, which he stressed are hampering operational efficiency and the ability of the sector to assume the role of engine of growth.
The NACCIMA chief urged that industries should be supported to remain competitive in such a way that the products will be able to compete with imported ones. He said the manufacturing sector is still faced with gross inadequacy of power and energy supply, including deplorable infrastructure hampering operational efficiency and its ability to assume it’s expected role as engine of economic growth, as earlier noted by Yusuf.
Another area in which manufacturers are seeking relief, is in port reforms. A Council member of NACCIMA, Mr. Adams Idifueko, said except government implements the promised Port Reforms Policy of 24hours cargo clearance, the manufacturing sector will still be hampered, stressing the need to urgently address the multiplicity of inspection and government agencies domiciled in the ports.
He said with over 70 per cent of the manufacturing companies in the sub region domiciled in the country, transforming the nation’s seaports into a regional hub will aid the growth of the sector, as prospective importers and exporters will be enabled to do their businesses seamlessly, stressing that government and its agencies should come up with pragmatic and efficient solutions to address the issues head-on.
Public-Private Partnership (PPP) arrangement is suggested for the development of new ports. If the real sector must move forward, we must have an efficient port system, Idifueko, argued.
The LCCI in its fourth quarter Business Confidence Index (BCI) report for the year, said the business outlook moderated to 17.6 per cent from 24 per cent that it posted in the third quarter which represents 6.4 per cent point drop of the index. BCI is a leading economic indicator designed to measure the degree of optimism on the state of the economy that business leaders are expressing through their activities of investing and spending. Decreasing business confidence is often a pointer to slowing economic activities, indicating that business owners are likely to decrease their investment appetite. The more confident entrepreneurs and managers feel about the business environment, the more likely they are to make new investments, create jobs and impact the economy.
Yusuf said the index had maintained a steady improvement over the first three quarters of the year in the region of 10.5per cent in the first quarter, 16.5 per cent in the second and 24 per cent in the third quarter, explaining that the moderation of the BCI score at this time suggests that business leaders are likely going to be softer towards expanding their investments in Nigeria in the months to come.
On the report regionally, he said: “The confidence level of businesses located in the Southwest, moderated from the 44 per cent and 38 per cent it reported in the third and second quarter respectively to 28 per cent in the fourth quarter. This is also the trend exhibited by companies operating in the South East and South South with BCI score of 19 per cent, 11 per cent and 21 per cent respectively in the fourth quarter. The confidence level of businesses located in the Northern remains flat at zero and at negative confidence levels, which he said, has grave implications.
The implication of this trend, is that Nigeria is now faced with a situation whereby a sizeable section of the country would end-up contributing next-to-nothing to the GDP, adding that “the initial gain that came from the Federal Government’s special security intervention which saw BCI score of the Northcentral region jump to 11 per cent in the third quarter seem to have faded away.”
On sectorial indicators, he maintained that all the sectors except manufacturing reported positive but weak business confidence levels. Expectedly, he said: “We are mostly worried by the negative (-two per cent) confidence level reported by operators in the manufacturing sector at this time. Over the last one year, the manufacturing sector has consistently remained at the bottom of the BCI league table by trending between negative and neutral confidence levels. The most disturbing factor for manufacturers includes the influx of imported and substandard products, poor access to credit, high cost of doing business and inhibitive activities of government regulatory/monitoring agencies,” Yusuf said.
About three years ago, 2011 to be precise, the administration of President Goodluck Jonathan initiated its transformation agenda with the promise to breath fresh air into the way things are done in Nigeria. However, two years into his first full-term, the country’s economy is said to be growing on paper whereas the teaming population cannot feel the impact of the much trumpeted growth.
For two fiscal years, the government has focused it’s budgetary preparation on job creation and the completion of old and abandoned capital projects as a means of minimising government’s spending.
Social welfare indicators have been growing much slower than expected against the much held country’s celebrated economic growth. This year, a World Bank report said that, “Poverty reduction and job creation have not kept pace with population growth, implying social distress for an increasing number of Nigerians.”
With more than two-thirds of population living on less than $1.25 per day, Nigeria ranks 153 out of 186 countries in the 2013 United Nations Human Development Index. The creation of more jobs that give employees a sense of security and self-worth, the International bank for Reconstruction and Development, said, is a critical task in addressing Nigeria’s human development record and needful in helping to diversify the economy. It said the government’s move in availing some sectors, such as agriculture, Micro-Small and Medium Enterprises (MSMEs) and the entertainment industries, funds to help finance economic growth is commendable, but the effects of these interventions are yet to manifest.
Of particular concern is the $300 million intervention for the entertainment industry. It is said that only Nollywood the movie segment of the entertainment sector appears to be mentioned to benefit from the fund and even at that, accessing the fund has been very difficult or impossible.
Multi-lateral agencies such as the World Bank have urged businesses to learn to unlock their employees’ potential as a primary source of competitive advantage in an environment where “human capital” tends to be vastly undervalued.
But the employers are handicapped by time-consuming and costly regulatory procedures and an increase in the minimum wage which has reduced their hiring flexibility, while job seekers jostle for very limited space in the public and energy sectors which employ much of the formal labour force. There is also the challenge of accessing cheap funds either from the interventions of government, which are supposed to be easy to access or from the banks. Throughout 2013, the Central Bank of Nigeria (CBN) has retained interest rate at 12 per cent but this has not translated to cheap funds for entrepreneurs.
Recently, President Goodluck Jonathan said 27,000 jobs had been created by his administration under the YouWin job creation strategy of the government in its third phase. This is a very tiny drop in the sea of unemployed Nigerians looking for jobs and the promise of the government to create millions of jobs per year for about five years to effectively reduce unemployment in the country.
According to reports NBS, “Nigeria’s economic growth quickened in the third quarter as the oil industry’s contraction eased and agricultural output increased. Gross Domestic Product (GDP) rose 6.81 percent on an annual basis, the fastest pace this year, compared with 6.18 percent in the second quarter.”
The NBS report stated that “while disruptions to Nigerian oil exports continued, daily average crude oil production rose to 2.26 million barrels from 2.11 million barrels in the previous quarter. Crude output declined from 2.52 million barrels a day in the third quarter of 2012. Supply disruptions continue to hamper output in the oil sector.”
Nigeria, it said depends on crude exports for about 80 per cent of government revenue and the industry accounts for about 12.5 per cent of gross domestic product, but criminal gangs tapping oil from pipelines for illegal sale have posed the biggest threat to output since a government amnesty in 2009 reduced armed attacks led by rebels fighting for greater control of the Niger Delta oil rich region’s resources.
Again the NBS said: “The oil and natural gas industry shrank 0.53 per cent in the third quarter, compared with a 1.15 per cent slump in the second quarter, while agricultural output rose 5.08 per cent from 4.52 per cent.”
Also Standard and Poors has given the economy thumbs-up on the economy in their recent rating released in October.
Mrs Okonjo-Iweala explained: The basis of this rating is to assess the strength and stability of our economies and whether we are moving in the right direction or not. And we’ve now got the outcome of the 2013 rating which is a very positive one. The rating confirms our on- going rating stance which is BB- with a stable outlook. They have confirmed that the rating we had last year stands, which means that very positive things are going on in this economy.
They’ve also acknowledged the challenges we have and they’ve looked at those, but the summary of it all is that in-spite of these challenges, they think the economy is robust, the micro-economic indicators are strong, the on-going monetary policy and the fiscal stance are strong enough for us to maintain the very good rating we had. Even the on-going debate about the strength of the Nigerian economy, this is yet another external validation and confirmation that this economy, in spite of the challenges which we all know, and which we’ve not shied from putting on the table, that this economy is doing well.
Overall they are looking at strong GDP growth, in 2013-2016, primarily due to non-oil growth, they are targeting both the external and fiscal debt burdens the debt stock in their opinion is relatively low and foreign exchange reserves remain strong. They are also viewing positively the fact that AMCON will be redeeming some of its debts, about N1.7trillion, and also looking at some of the development in our non- oil sector, especially power, the fact that our growth is from the non-oil sector, such as agriculture, retails, telecoms, and the reforms in power, are things they see as positive development.
They commented on the need for us to maintain a strong fiscal stance and not run down our Excess Crude Account (ECA) too rapidly, and they’ve taken note of our challenges and for to ensure that the benefits of growth reflect on the living standard of the people, especially those at the bottom.
But is the economy by any means tumbling, or on course.
Indications that the economy is somewhat under strain can be gleaned from the constant borrowings of the federal and state governments from almost every credit window, institutions and foreign governments.
Mid way into the year, the Debt Management Office (DMO) put the total debt profile of the country at N7. 93 trillion, inclusive of local and foreign debts. But as at September 30, 2013, the nation’s total debt had grown to N8.32 trillion ($53.42 billion), comprising of the Federal Government’s external debts and that of the state governments as well as the domestic debt component of the former.
Curiously, a few weeks after the DMO’s announcement, the Federal Government said it would secure another $3 billion loan from China as part of the $7.9 billion its one approved by the National Assembly, last year, saying the loan would go into building infrastructure.
According to Mrs. Okonjo-Iweala, the agreed loans, would be sourced by instalment, based on an interest rate of less than three per cent over a 15to 20-year-period.
She said the loans included a $500 million tranche to build airport terminals in Lagos, Abuja, Port Harcourt and Kano; over $700 million to build a hydro-electric power plant in Niger State, and $600 million to build a light rail in Abuja.
Before embarking on these spate of borrowings, the government had argued that the sourced funds are soft loans with very flexible repayment terms and that such funds would be devoted to economic ventures that would yield returns for the country and from which repayments will be effected as they attain maturity.
Despite the sweet talk about the necessity to borrow and the deployment of these funds in addressing so many infrastructural deficits, the gap is still widening of inadequate infrastructure, such as roads, electricity and the pitiable state of the educational ststem, just to mention, but a few.
Again, the DMO has notified of the likelihood of nation’s outstanding debt rising to N8.809 trillion, or $55.4 billion by 2015 as contained in the country’s debt strategy for the next three years, but at this pace of borrowing it is most likely the figure will exceed projections given the fact that there would be massive spending from next year to 2015 due to election related matters.
Other pointers to the poor state of the Nigerian economy are the controversies surrounding the monthly disbursements from Federation Account Allocation Committee (FAAC) which has always pitched the state governments against the federal government and its agencies like the Nigerian National Petroleum Corporation (NNPC). Most times we hear that the NNPC is withholding funds that ought to accrue into the federation account.
The FAAC controversies have exposed the threat to the economy so much so that the accruals into the Excess Crude Account (ECA) designed to be savings for the rainy day when the price of crude oil falls in the international market has been eroded significantly so much so that all tiers of government agreed that from August, this year there would not be any more augmentation to FACC disbursements, but contrary to that agreement, $1billion was withdrawn from the ECA to augment October allocations. This withdrawals from the ECA has seriously depleted the ECA and there are hot exchanges of words and allegations of missing $5 billion from the ECA between the Rivers state governor and the federal ministry of finance which oversees FAAC.
Also of interest is the management of the Sovereign Wealth Fund (SWF), which ordinarily was supposed to bring the ECA to an end. Already a portion of the fund has been shelled out to three foreign investment banks to manage under an arrangements that make it look like they are doing Nigeria a favour by managing the fund. Next year promises to be one that SWF might unravel when politicians would have realigned their interest most likely away from the interest of the government at the centre.
