- Say ‘no use being a giant without economic power’
FESTUS OKOROMADU reports that after more than six decades of transition from a colony of the British Empire to a sovereign independent nation politically, Nigeria’s economic growth seems not to reflect its age.
A critical review of Nigeria’s economic journey over the years by experts from various sectors points to the fact that there is more to be done if Nigeria is to retain the toga of the giant of Africa. After all, of what value is a giant without economic power?
The founder/Chief Executive of Centre for the promotion of private enterprise, Muda Yusuf, said that the Nigerian economy had, over the last 63 years, transformed from a basically agrarian economy to one driven largely by services and oil and gas.
He added that while the agricultural sector contributed an estimated 60 per cent to the country’s Gross Domestic Product in the early years after independence, it had been abandoned and now contributes merely 26 per cent presently.
“The fiscal position of the Federal Government and the states are very weak, characterised by high fiscal deficit, high and increasing debt profile and the associated debt service burden is a cause for concern”
Conversely, the services sector has grown significantly since independence and now contributes over 57 percent of the country’s GDP.
Yusuf said these were indications of significant structural shifts in the Nigerian economy since independence.
“The service sector’s contribution to employment generation and revenue to the government has risen phenomenally over time. The over two decades of uninterrupted democracy since 1999 reflects relative political stability, which is good for the confidence of investors.
“The Nigerian economy had recorded an average growth performance over the past decades although with a few instances of sluggish growth,” he stated.
The CPPE founder noted that the challenge of creating an inclusive growth trajectory remained a major concern, stressing that while the economy had experienced some positive growth trend over the past six decades, especially in the oil boom era, the impact on poverty, inequality and job creation had been very minimal.
He said it was a case of growth with minimal development.
Sector transformation
Addressing the specifics, Yusuf hinted that some sectors witnessed more transformation than others.
According to him, one sector which has recorded significant transformation over the past six decades is the telecoms sector.
“The number of telephone lines in the country today is over 200 million as against what obtained just over two decades ago when the country had a mere 300,000 lines, with just a handful of mobile telephone,” he noted.
He added that the telecom sector did not only increase in volume of telephone lines but brought a reform to the economy via the Information and Communication Technology era.
“The economy has also witnessed considerable changes in the ICT sector and this has impacted many sectors through the digitalization of their processes and systems.
“We have seen increased traction in IT applications in many sectors of the economy. Electronic payment systems have brought remarkable transformation to the financial services sector. Transactions on electronic payment platforms and POS, mobile transactions are in excess of N100 trillion annually,” he stated.
Another sector that has made a tremendous impact on the economy is entertainment.
In the view of Yusuf, “the Nigerian entertainment sector has grown in leaps and bounds over the last decade. It has also grown in quality and in number. The sector has become a key sector to be reckoned with globally.”
He noted that the Nigerian music and films industry had gained an amazing traction worldwide, adding that the growth had come with massive job creation in the sector, especially for the youths.
On private sector performance, he said this had actually driven the growth in the nation’s economy in recent years.
“Unlike what obtained at independence, the economy has witnessed incredible private sector footprints in many sectors, especially in the following: telecommunications and ICT, aviation, transportation, education sector, health sector, print and electronic media and many more. Accordingly, the contribution of the Nigerian private sector to the Nigerian economy has grown in leaps and bounds over the years,” he said.
Concerns over current economic status
Speaking of the current economic quagmire, Yusuf said the country’s macroeconomic management framework continued to pose serious challenges to investors in the economy.
He blamed the complexity of the situation on exogenous factors such as the impact of COVID-19 pandemic and the lingering effect of the shocks and disruptions inflicted by the Russian invasion of Ukraine.
He noted that the fragile macroeconomic conditions remained a major cause for concern.
“The troubling macroeconomic situations have manifested in the following ways in recent years: weak and depreciating currency, high inflationary pressure, high and rising debt profile, exchange rate volatility, liquidity crisis in the foreign exchange market, increasing fiscal deficit, growing debt service burden, and the acceleration of money supply growth following the rising CBN financing of deficit,” he explained.
He also expressed concerns around investment climate issues, stressing that high infrastructure deficit, cargo clearing challenges had continued to worsen.
The result is high transaction cost at the ports, weak productivity in the real sector, owing largely to infrastructure conditions, regulatory challenges and policy inconsistency.
On the oil and gas industry, he said the persistent importation of petroleum products had continued to put pressure on foreign reserves and weakened the capacity of the CBN to support the forex market.
“Petroleum refineries have remained non-performing over the years. The fiscal position of the Federal Government and the states are very weak, characterised by high fiscal deficit, high and increasing debt profile and the associated debt service burden is a cause for concern.
“The state of insecurity continues to take its toll on the economy, especially on agricultural output and fueling food inflation. It is also impacting the confidence of investors. The spate of oil theft and the associated leakages of government revenue are very troubling. Billions of dollars have been lost to this apparent failure of security effectiveness in the oil producing areas,” he stressed.
Solution
Proffering solutions, Yusuf called for urgent steps to be taken to ensure a better macroeconomic management framework to stabilise the exchange rate, eradicate the crisis of illiquidity in the foreign exchange market and to stem the current depreciation of the Naira.
“It is imperative to have urgent reforms in the foreign exchange market with greater focus on supply side strategy. There is a need to review the current disproportionate emphasis on demand management of the foreign exchange market,” he said.
He noted that most sectors were experiencing serious disruptions and dislocations because of the current foreign exchange policy regime.
He emphasised the need to strengthen strategies to attract private sector capital to complement government financing of infrastructure and called for a reduction in the level of debt financing, especially the reliance on commercial debt to fund government operations.
“Public debt, currently at N87.4 trillion, is already at an unsustainable threshold,” he stated.
Other solutions he suggested include: taking steps to attract foreign exchange through a strategy of ensuring new investment opportunities to stimulate foreign capital inflows into the economy.
He said, “We should be seeking more equity capital than debt capital. Need to review the country’s trade policy to support investment growth and investment sustainability. Tax policy must support investment not become a disincentive to investment. The security situation which has continued to deteriorate needs to be urgently addressed in order to mitigate the effects on investor confidence. There should be greater emphasis on quality intelligence in the war against terrorism.
“The oil and gas sector reform which is now being anchored on the Petroleum Industry Act (PIA) should be accelerated in order to ensure the unlocking of the enormous value in the oil and gas sector, particularly the gas sector. There should be an immediate cessation of the impunity that has characterised the stealing of crude oil and the attacks on oil installations. Institutional reforms are necessary to ensure that the regulatory institutions have better disposition to support the growth of investment and focus less on the generation of revenue.
“The international trade process needs to be reformed to prioritise trade facilitation. The current obsession for revenue generation is hurting the international trade processes and impacting adversely on domestic and foreign investment. Therefore, the orientation of the Nigeria Custom Service, Nigerian Ports Authority, the shipping companies, the terminal operators and the security agencies at the ports need to change in favour of investment friendly international trade processes.”
Reviewing Nigeria’s performance in the agricultural sector, the National President, All Farmers Association, Kabir Kebram, expressed dismay that the government had failed to pay attention to the sector and focus on extraction of crude oil to the detriment of the citizens.
Going historical, he said, “In 1960, Nigeria had agriculture as the backbone of its economy and its population was about 45.1 million, but as it discovered oil in the 70s and its population rose astronomically, it somehow ignored agriculture and then it gradually began to have challenges in its food system such that today, with a population of about 200 million, it is becoming exceedingly difficult to have food sufficiency.”
He listed government initiatives aimed at sustainability of the sector in the past to include: Operation feed the nation, Green revolution, Agricultural transformation to Agricultural Promotion Policy, and now, National Agricultural Technology and Innovation Policy. But he noted that they all failed.
“All these policies were good but their implementations suffered due to lack of proper monitoring and evaluation,” he said.
He advised Tinubu’s administration of the need to ensure that the current policy is transparently implemented with solid feedback through monitoring and evaluation.
“The buy-in of the states is very crucial to the success of any policy on Agriculture because the farming activity takes place in the rural areas within the states and local government areas,” he stated.
He charged the government to create the enabling environment for the successful agricultural activities of the private sector rather than engaging in farming.
“It is safe to say that the economy is actually dominated to the extent of nearly 80 per cent by the private sector and only 20 per cent by the government.
“In conclusion, I would like to suggest that the government should subsidise Agriculture in consultation with the farmers and also facilitate easy access to agricultural credit, some mechanization, STI, Extension and adequate security in the short term and encourage large-scale commercial agricultural activities in the medium and long term, in order to attain sustainable food security,” he said.
Speaking of developments in the oil and gas industry, energy consultant and analyst, Henry Adegun, said the sector had its ups and downs during the period under review.
He said, “We can assess the developments or transactions in the Nigerian oil and gas industry since independence from two perspectives. The first perspective is the private sectors, which hasn’t done badly. When we started activities in the sector years back, we had mostly foreign dominated oil and gas companies, and from that, a lot of things were done. Some of these companies like Shell, Chevron, ExxonMobil, in some ways, developed infrastructure by ways of corporate social responsibilities. Nigerians were exposed and we developed skills and technology as well as brought a lot of other things that were useful.
“Over the years, we have moved away from depending solely on earnings from the oil and gas sector. At a point in time, the earnings from the sector were between 80 to 95 per cent of our revenue. Now, it has gone down to about 40 to 45 per cent of the revenue, not foreign exchange. There have been some divestments. Now, more Nigerian owned companies are operating in the sector and more contributions from indigenous companies. In that sense, it has not been a bad one.
“First, our refineries should work to get energy sufficiency, but it will have nothing to do with the price of the product in the market. I don’t understand why people think that because we produce crude in Nigeria, if we refine, it will be much cheaper than the imported, it doesn’t work that way”
“Now from the public sector, every government in the past said they wanted to diversify Nigeria’s economy from the oil and gas sector. They haven’t succeeded in doing that. Most of them come in with their own agenda which is to generate revenue from the sector. They come in with the mind set of this is our turn, so they make themselves or politicians ministers of petroleum even when they are told not to because such persons don’t understand the business of the sector. The private sector has capable leadership and know-how.
“For over 20 years, we didn’t pass the petroleum industry bill (PIB). By the time we passed it, many of the multinational oil and gas companies had taken the decision to divest, so in terms of management of the sector,it has been very poor and continues to be.
“Unfortunately, now that the Petroleum Industry Act (PIA) has come into operation, it hasn’t brought the much-needed change. The Buhari administration did sign the act into law but didn’t implement it to the fullest, the Tinubu government didn’t even realise the importance, the governance of the sector, the behaviour of NNPC and others does not imply the application of the Act.”
Way forward
“First, our refineries should work to get energy sufficiency, but it will have nothing to do with the price of the product in the market. I don’t understand why people think that because we produce crude in Nigeria, if we refine, it will be much cheaper than the imported, it doesn’t work that way. That is why you produce some goods locally here but you see that what China produces for you is cheaper.
“Many other factors, including economic scale go into the production of anything.
What we really need to do is get experts to run the sector. Why can’t the politicians leave the sector for experts to run it and set a target for them? Why should it be the government that is providing funds for the rehabilitation of the refineries?
“The fact remains that the refineries are viable and whatever business is viable the private sector will be prepared to fund it such that it doesn’t need government funding; not at a time when there are no funds for the government to execute other very important projects,” he concluded.
