The Federal Government’s recent admission that Africa’s largest economy (going by the 2014 rebasing) is now in recession has turned out to be one rude shock many are finding difficult to accept.
Only two years ago, Nigeria with a Gross Domestic Product of $578 billion a population estimated at 170 million, the largest market in sub-Saharan Africa and largest hydrocarbon producer in the continent was the toast of several investors.
However, all that is now history as investors are now leaving the country in droves. The glory has departed and Nigerians and even the government are eating again from the dustbin. Poverty and misery have increased in the land and it’s lamentations all the way.
Consider inflation at almost 17 per cent, exchange rate at N410 to one dollar, external reserves down to $25 billion, power generation below 4000MW, and corporate Nigeria facing acute scarcity of foreign exchange, no one needs to be told again that the economy is in dire straits. But while many believe these developments are not unusual economic occurrences, what is scaring is government inability to unfold policies to redeem the situation.
Just last week, two former Central Bank of Nigeria (CBN) governors told President Muhammadu Buhari to wake from his slumber and implement policies that can restore the glory of the land.
Immediate past governor of the bank and now Emir of Kano, Alhaji Muhammadu Sanusi, in his interjection told Buhari that his policies were simply not working as he called for a review. Only last Thursday his predecessor, Professor Chukwuma Soludo, lamentation the parlous state of the Nigerian economy. He was miffed that the nation’s GDP has halfed to $290 billion from $578 billion two years ago while per capita income slumped $1500 from $3100. The naira exchange rate is also down to over N410 as the country is enmeshed in runnaway inflation. What a tragedy. They also described as an economic tragedy that over 52 companies have down shop in Nigeria over the last one year, the latest being a South Africa firm that left about a fortnight ago.
Even President Muhammadu Buhari, himself while receiving the United Nations Population Fund (UNPF)’s Executive Director and Under Secretary General of the United Nations, Prof. Babatunde Osotimehin, at the Presidential Villa, in Abuja, recently, admitted that Nigeria had suddenly become a poor country as a result of the sharp drop in the price of oil.
Recent data from the International Monetary Fund (IMF) show the economy has contracted to $296 billion in Gross Domestic Product (GDP) pushing it to the position of Africa’s third largest economy behind South Africa and Egypt.
The IMF had slashed its growth forecast for the Nigerian economy for this year, saying a combination of plunging oil revenues and weakened investor confidence will push it into recession.
The Fund said it expects Africa’s largest economy to contract by 1.8 per cent this year, after having forecast in April a 2.3 per cent expansion. “In 2016, regional output growth will fall short of population growth, implying declining per capita incomes,” it said.
Experts also estimated an increase in the inflation rate to 17.4 per cent in the month of July from 16.48 per cent in June what is considered to be the highest rate in 11 years.
More significantly, Nigeria’s per capita income has dropped from $3100 to $1500, while it lost the position of top oil producer in Africa to Angola. Also from 7-8 per cent GDP growth in 2013/2014, the country is in recession at negative -0.4 per cent in the first two quarters of 2016.
When Nigeria rebased its economy in 2014, the exercise showed it topped Africa’s GDP table and its economy was the largest on the continent, followed by South Africa. It was also the largest oil producer in Africa. Oil constitutes 75 per cent of government revenue but the rapid economic growth of over 7 per cent per year since 2009 is found mostly in the non-oil sector.
In 2014, Nigeria’s GDP rose from about $270 billion to $578 billion. The increase of about 90 per cent was attributed to new sectors of the economy such as telecommunications, movies, and retail, which were previously not captured or underreported. As a result of the rebasing, Nigeria then, until recently, was the largest country in Africa and 26th largest in the world, though successive administrations in Nigeria have declared their intention to pursue the vision of placing the country among the 20 largest economies in the world by 2020.
Official explanations and other representations by the Nigerian government, as well as comments by some members of the international community, tend to conceal the disagreements and controversies about the process and outcomes of the rebasing exercise.
Speaking on the gains of the rebasing while it lasted, the Director General of the Lagos Chamber of Commerce and Industry (LCCI), Muda Yusuf, said the exercise was needful as it gives the country a clearer picture of the size of the economy as well as the structure, which is vital for investment and planning.
He said he could not think of any negative impact, except that it created some illusion that the economy was doing well. However, there are questions about the real impact of the statistical exercise in terms of the gains and opportunities for better life for ordinary Nigerians.
Despite Nigeria’s vast natural resources, the World Bank report revealed that about half of the country’s population live in poverty. Within the rebased period, the increase in growth rates recorded has no corresponding reduction in the level of poverty. Nigeria is ranked 41st of 52 poorest countries.
Many equally pondered why the prosperity of Nigeria did not reflect on the daily life of the majority of its population, as majority of Nigeria’s over 170 million people live below $1 compared to the 2014 less than $1.25 a day. This is in view of the exchange of naira to a dollar, which now hovers around N400.
With the minimum wage equally less than $50, Nigeria is listed among the five countries where “two-thirds of the world’s extreme poor are concentrated.” These are India, China, Nigeria, Bangladesh and the Democratic Republic of Congo.
High cost of living
Despite the fact that workers’ income has not increased in the country, the past nine months have seen the prices of essential food items rising significantly in line with rising level of inflation in the country, which hit an 11-year high of 16.5 per cent in June.
The NBS in its recent Consumer Price Index (CPI) stated that the country’s inflation rate represents one of the highest to be recorded in over a decade.
Stakeholders in the food supply chain attributed the hike in food prices to the poor state of the economy occasioned by the declining supply of commodities, rise in fuel price and the devaluation of the naira.
Daily Sun surveys across some markets in Lagos revealed that the prices of staple foods and commodities like semovita, vegetable oil, palm oil, fish, spaghetti, macaroni, rice, beans and garri, among others, had skyrocketed by almost 100 per cent.
With a GDP size that indicates growing economy and also supports the basis of Nigeria’s claim as an emerging economy, the current poverty and unemployment levels within Nigeria, the President General of the Trade Union Congress (TUC), Bobboi Bala Kaigama, said is inexplicable and may be a source of embarrassment to a country that claims to be a key player in regional and global politics.
He stated: “A big economy in recession is not what we can begin to celebrate. You can have a big economy and the wealth is not evenly distributed. There is no inclusive growth, unlike when oil dominated the economy. How many people are employed? In actual fact, the developmental size of the economy is better than the growth. Although it can translate to development if the wealth is evenly distributed, there is problem of unemployment and development in the real sector of the economy.”
The Director General of Nigeria Employers Consultative Association (NECA), Segun Oshinowo, however, stated that the devaluation of naira must have been responsible for the slide.
“The devaluation must have wreaked the havoc for us, since the valuation is done in dollar. Our currency has lost significantly and for the past two years, our economy has not grown,” he said.
He noted that for Nigeria to regain its position, it would need to diversify the economy, look at the basic fundamental as well as give serious thought to developing the social and physical structure in the country.
He wondered what the rebasing has added to the country, saying “what is really the main significance to us other than ego as the biggest on the continent. We need to look at World Bank variables. The issue of biggest shouldn’t be but what has happened to our unemployment level, our standard of living. Countries like Norway, Nertherland and Switzerland are not the biggest in Europe but their standard of living rank among the biggest in the world. That is what we should be looking at.”
Way out
President Muhammadu Buhari’s vision so far to diversify the economy, which relies on oil for more than 70 per cent of its revenue has not translated into big investments, more so as infrastructure to support local manufacturing does not exist yet, and the 2016 budget is yet to commence full implementation.
No doubt, Nigeria is facing a revenue squeeze as earnings from oil fall due to lower prices and taxes cramped by unimpressive corporate performance.
The President has said it has been a very difficult year as petroleum, which sold for about $100 per barrel before he came on board crashed to $37, and now hovers between $40 and $45 per barrel.
However, despite all these significant stress further compounded by the militant resurgence in the Niger Delta and foreign portfolio investors retreating, the Vice President, Yemi Osinbajo, expressed optimism at a programme recently in Lagos that reforms embarked on by the government including deregulation of fuel prices and the new foreign exchange policy that allows banks to quote and trade forex freely, should re-assure investors, boost growth and rebound the economy.
He said, “the flexible forex regime will encourage foreign investors and ensure that Foreign Direct Investments (FDI), come in. We are seeing signs of investments coming into Nigeria. General Electric (GE) is about to announce a significant investment in the country.”
Osinbajo added that Nigeria will spend N100 billion ($312.50 million) on capital projects in the coming days as part of the 2016 budget in a bid to revive growth.
He explained that government capital spending so far has reached N332 billion.
