The fragility of Nigeria’s economic recovery

Nigeria’s overdependence on oil has grossly affected its growth and development.
The present government’s economic agenda has dangled what seem like hope for the country.

When Nigeria came out of the worst recession to hit it in two decades in the second quarter of 2017, it was easy to link this to the Economic Recovery and Growth Plan (ERGP), especially since the Plan was inaugurated by President Buhari at the beginning of the 2nd quarter in 2017.
The ERGP, which is a medium term plan for 2017–2020, is being implemented with the intention of laying the foundation for economic diversification as well as inclusive and sustainable growth.
So far, Nigeria has been unable to attain inclusive growth, evidenced by the fact that it recently surpassed India as the country with the world’s poorest people.
This result isn’t due to its high population alone, but rather to the fact that Nigeria’s economy doesn’t grow as fast as its population.
It is also due to the widening income inequality, which has resulted in rising, rather than declining extreme poverty levels in the country.
With a population of about 195 million people, the country now has about 87 million people living below the poverty line, meaning that almost one in every two Nigerians is poor.
According to the World Poverty Clock, 6 Nigerians fall below the poverty line every minute.
However, India with a population of about 1.3 billion people, has about 73 million people below the poverty line.
A rich country with very poor masses depicts a fragile economy.
There is thus an urgent need for more growth drivers to make Nigeria’s growth more inclusive and resilient.
Evidence of Nigeria’s continued dependence on oil The call for diversification dates back several years, as past and present administrations have acknowledged the country’s overdependence on oil to provide revenue, export earnings and foreign reserves since the 1960s.
The recession that hit Nigeria in 2016, though painful, was an opportunity for the country to look inwards and try to restructure its economy.
However, it may be erroneous to attribute the recent slight improvements and growth in GDP solely to the ERGP’s implementation.
This is because the main drivers of Nigeria’s recovery have been a boost in global oil prices and increased stability of oil production in the Niger Delta region.
The Nigerian Investment Promotion Council (NIPC)’s Report on Investment Announcements in 2017 shows that 38% of investments went to the oil and gas sector.
This is more than the total investments that went to the Manufacturing sector(18%), Transportation sector (6%), and Agriculture sector (5%).
Also, according to the Center for the Study of Economies of Africa (CSEA), even though GDP growth rate increased from 0.72% to 1.4% in the 3rd quarter of 2017, oil GDP growth rate increased from 3.52% to 25.89% while that of non-oil fell from 0.45% to -0.76%.
Therefore, not only is the economy still very dependent on oil, the situation seems to be getting worse.
Nigeria’s growth is still being driven by high oil prices and high aggregate consumption, thus, reinforcing the country’s vulnerability to the same factors that caused it to go into recession in the first place.
At the end of its recent economic review of Nigeria in its 2018 Article IV Consultation, the IMF rightfully described Nigeria’s recovery as a fragile one.
It highlighted high interest rates and the possibility of lower global oil prices as the main downside risks.
The IMF affirmed that although reforms under the ERGP have helped improve the business environment (as evidenced by Nigeria’s movement from 169th to 145th position on the World Bank’s 2018 Ease of Doing Nigeria’s overdependence on oil has grossly affected its growth and development.
The present government’s economic agenda has dangled what seem like hope for the country.
Udoma Business Ranking), its attempts to achieve any meaningful diversification of its productive and export base have failed as the non-oil and non-agricultural sectors are yet to pick up.
The ERGP and its implications for sustainable growth of the Nigerian economy The goals and deliverables of the ERGP are laudable given that they highlight the Nigerian government’s plan to focus on other growth-generating and foreign exchangeearning sectors like manufacturing and agriculture, and also on sectors that improve the business environment like energy and transportation (infrastructure).
In addition, the plan to focus on investing in the Nigerian people is commendable because, as Bill Gates said during his visit to Nigeria earlier this year, the most important choice Nigeria can make is to maximize her greatest resource (the Nigerian people) as investment in health, education, and opportunities – the human capital – lays the foundation for sustained prosperity.
However, even though the ERGP identifies investment in the Nigerian people as one of its broad objectives, human capital development, specifically education and health, is not listed among the Plan’s execution priorities.
The graph below shows that attention to these sectors has not improved; as execution priorities have been in favour of physical over human capital.
Nigeria’s health system was ranked 136th of 137 countries according to the Global Competitiveness index for 2017-2018, and only the University of Ibadan made it to the top 1000 in the global university ranking of 2018.
These are just a few of the consequences of not prioritizing education and health in Nigeria.
Until the country begins to focus on human capital development, growth will remain limited, and it will be difficult to sustain for the long term whatever growth it may achieve.
Current Policies: Strengths, shortcomings and recommendations It is imperative that Nigeria corrects the existing structural distortions in order to address the vulnerabilities in the economy.
There is need for a thorough reappraisal of the contents of the country’s development policies, as well as a renewed commitment to their implementation, in order to realize the potentials of the non-oil sector and attain sustainable growth of the economy.
Some areas to focus on include: Addressing the unemployment problem.
Nigeria’s human resource endowments provides it with huge potentials to become a major player in the global economy.
However, the nation’s high unemployment figure reduces its capacity to build both its oil and non-oil GDP.
It is therefore critical that the government provides an enabling environment for businesses who are the major employers of labour and who have the potential to contribute to non-oil GDP growth.
In addressing this problem, it is critical that the government develops a longterm and sustainable plan, one that provides a lasting solution.
For example, if the current N-power programme is properly deepened and implemented, it can serve as a tool to not only alleviate the unemployment problem, but also aid diversification and human capital development.
However, so far it has done little to solve the unemployment problem in Nigeria.
This is evident in the fact that the unemployment rate has almost doubled from 9.9 percent in 2015, to 18.1 percent in 2017.
A solution that involves providing youth with adequate training which would equip them with the skills that employers seek and which allows them to fit into the workplace should be pursued if we are to achieve the target unemployment rate of 11.23% by 2020.
In addition, a more lasting solution to the problem would involve increasing the share of education in the total budget, rather than decreasing it as has been the case in recent years.
Proposed partnership for job creation between the federal government, private sector and state governments should focus on policies that will support growth and diversification of the economy.
Emphasis should be placed on public procurement which considers local content and labour intensive production processes.
Nigeria’s exchange rate can be stabilized and improved by addressing the country’s dependency on imports.
There is thus need for the implementation of more initiatives and projects that are geared towards domestic production, especially in Agriculture and Manufacturing.
This will ensure that the country produces enough to satisfy domestic demand, with the excess exported to boost foreign exchange earnings.
The New Basket of Incentives Scheme (NBIS) should therefore be fully and speedily implemented by building industrial estates and other necessary incentives that would not only encourage prospective investors but also build competitiveness in the non-oil sector.
The ERGP plans to develop the agriculture value chain with the aim of achieving selfsufficiency in tomato paste by 2017, rice by 2018, and wheat by 2020.
The goal is for Nigeria to become a net exporter of key agricultural products like rice, cashew nuts, groundnuts, cassava and vegetable oil.
The government hopes to achieve this through the Anchor Borrowers Programme (ABP), the Green Alternative Agriculture Promotion Policy and the Presidential Initiative on Fertilizer.
Source: Preston Consult

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