Bleak economic outlook as Insecurity, Covid-19 Delta variant surge

By Okey Onyenweaku

An economy which has only crawled from recession of -3.6 percent in third quarter 2020 to 0.11per cent in 2020 year end and 0.51 in first quarter 2021 may seem to be growing on the surface of things. Yes, the statistics lay credence to the fact that the economy is after all no longer in the red zone.

There is even a projection by the International Monetary Fund, IMF that Nigeria’s GDP may scrape up 2.5 per cent growth at the end of business year 2021 and 2.6 per cent in 2022. In fact, these projections give hope.

Achieving this feat is not impossible after all if the right policies are pushed. But the oracular economist, Bismarck Rewane, Managing Director/Chief Executive Officer of Financial Derivatives Company Limited and a member of the Economic Advisory Council is not hiding his pessimism by retorting -’’We don’t have time. Nigeria has to re-invent itself very quickly. Nobody is buying your fuel in the next ten years’’.

Rewane explained that the economy could indeed slip back into negative bearings if the growth drivers are not encouraged.
‘’Is Nigeria pushing the growth drivers’’, that is the one million Naira question that many observers appear to be asking.

Already Covid-19 and insecurity are being blamed for the continued weakness of the economy. In fact, these two conspired to further weaken the economy before now and may continue to do so should the political, security and economic managers not apply far reaching creativity. Last year, pressures from the outbreak of Covid -19 hampered business activities and set back the economy quite negatively. Fast spreading insecurity is also impeding not only investments but also business activities. The fearful resultant effect of these are still awaited as the new Covid-19 Delta Variant resurges in Nigeria and other places.

Critically, recent statistics reveal that the rate of unemployment, the second highest in the world is 40%. At the same time, the underemployment rate stood at 22%; even as inflation, which was about hitting the roof tops has just eased from 18.17 to 17.33 per cent, the highest point yet in the last seven years. At the same time, Diaspora remittances inflow fell 27 per cent year on year (YoY) to $17.2billion in 2020 from $23.55billion.

Also remarkable is the country’s heavy debt burden at N33.11trillion ($82bn) and expected to hit N38 trillion at the end of 2021 and still growing; of the budget of N13.08trillionfor 2021, budget deficit stood at N5.6trillion as over 90 per cent of revenues is used to service debt. More worrisome is that the country has set a new borrowing limit, up from 25 per cent of GDP to 40 per cent of the GDP. This was contained in the Medium Term Debt Strategy. Recently too, the Senate gave new approvals to the Federal Government to borrow $8.33bn and €490m from external sources.

The major revenue earner for the country, crude oil, which has hit $70 pbd and above, presently still fluctuates.

Insecurity has not only hobbled agriculture, many parts of Northern Nigeria have been taken over by bandits such that not much business activities can subsist. The World Bank just noted that Nigeria’s revenue to GDP ratio hovered between five and six per cent last year and remains the lowest in the world.
These days almost everybody is aware that Nigeria is the poverty capital of the world, after overtaking India with over 100 million people. The Naira which sold at N220/$ in June 15, 2015 has depreciated by about 100 per cent to N503/$ as at July 26, 2021. It crossed the N520 mark thereafter.

With the fearful scenario above, the economic trajectory of the country is still uncertain. This is because even the apex bank has warned that care must be taken to galvanize and push the economy out of slumber.

FDI is expected to shrink to reflect the worsening operating environment and investment climate, analysts reckon.
It is also on record that government IGRs have been shrinking. Recently, it was observed aggregate internally generated revenue of the 36 states in the country and the Federal Capital Territory Administration fell by 37bn in two years, data obtained from the National Bureau of Statistics have shown.

Further details reveal that as of the end of 2018, states’ IGR stood at N1.68tn, while by the end of 2020, the total IGR fell to N1.31tn.
This means that the total IGR of states declined by 22.02 per cent within the review period.
Further explanations consider some of these risk components to include; the political risk components, government stability, socioeconomic conditions, investment profile, internal conflict, external conflict, corruption, religious tensions, democratic accountability, and ethnic tensions have a close association with FDI flows.

The above scenario, in fact, captures dramatically what Nigeria is
experiencing today. Analysts are in awe how such economy can give hope of pulling up surprises in the near future. They seem discomforted that the same vulnerabilities that impeded economic growth pre-Covid-19 are still visibly predominant in the system and are even worsening.

At a recent forum, Dr. Abiodun Adedipe , MD/CEO of B. Adedipe Associate Limited, told the audience that the pre-Covid-conditions which obstructed economic broadening were still there and have not changed.

According to him, these vulnerabilities included resource dependent/mono-product that accounted for almost 90 per cent of Nigeria’s foreign trade earnings in 2020 were from hydrocarbons; Portfolio investments evaporated plunged from 65.86 per cent in 2019 to 33.36 per cent in 2020; N99.94bn out
flows from the stock market January -April 2021; highly- indebted; large informal sector; weak MSME’s represented large proportions of GDP and manufacturing activities; large populations and high poverty incidence.

In its recent ranking index, the Chandler Institute of Governance, placed Nigeria as the third worst governed country in the world.
According to the report released in Singapore, Nigeria was ranked very low in governance, leadership and foresight, scoring the country 102 out of 104 countries with a score of 0.319 points, ahead of Zimbabwe and Venezuela.
It also ranked Nigeria low in other parameters, scoring the nation 98 in leadership and foresight; 85 in robust laws and policies; 101 in strong institutions; 88 in financial stewardship; 97 in attractive marketplace; 72 in global influence and reputation and helping people rise 98.

Unlike Nigeria, Finland ranked number one with 0.848 points followed by Switzerland; Singapore; Netherlands; Denmark; Norway; Sweden; Germany; New Zealand and Canada.
These limiting conditions will obviously rob Nigeria of sustainable growth as envisaged by the Chairman of Fidelity Bank Plc, Mr. Mustafa Chike-Obi who believes the country needs to grow by 10-15 per cent consistently for about 10 years to achieve meaningful milestones.
‘’The Nigerian economy must grow consistently by 10-15 per cent for 10 years to make meaning to Nigerians’’, said Chike-Obi.

This assertion was recently reiterated by the Country Director for Nigeria, World Bank, Dr Shubham Chaudhuri during a panel session at a virtual public sector seminar with the theme ‘Nigeria in challenging times: imperatives for a cohesive national development agenda’ organised by the Lagos Business School.

Chaudhuri said, “So, we see as priorities investments in human capital. But for that, one needs revenues. And there again, Nigeria unfortunately has the distinction of having about the lowest revenue-to-GDP ratio in the world.

“The standard rule of thumb is that for government to provide the basic services and law and order, it needs between 15 to 20 per cent of GDP as being revenue, and this will be both at the federal and state levels combined’’.
Unfortunately, the economy is weak and lacks the verve to grow normally as it should.

On her part, the Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, noted at the same Lagos Business School event:
“Right now, the economy is weak, growth is fragile, but we are hoping growth will improve as we begin to look at the policies that we have on ground and do policy reforms to attract both local and foreign investments.”

Managing Director, Highcap Securities Limited, Mr. David Adonri who shares in the fears of many told Business Hallmark that the economy has very little to offer the common man. ‘’You can see the reflection in the macro-economic indicators. Look at the unemployment rate at 33 per cent officially, but unofficially it might be up to about 60 per cent because those official figures are just to dress the window but in reality we know what is happening.

Look at inflation which is officially 17.33 per cent, but in reality it may be up to 50 per cent.”
Adonri who noted that the micro-indicators have affected the GDP and weak growth of the economy which is captured at 0.11 per cent and 0.51 per cent increase constitutes ‘motion without movement. ‘’It is an inflationary growth’’, he explained.

Similarly, analysts at the United Capital Research, have hinged Nigeria’s economic growth on how well she manages developments around Covid-19 infections and vaccination rates and FG’s external debt will determine the economic trajectory.

‘’Looking ahead, a myriad of factors will shape the trajectory of the Nigerian economy in H2-2021. First, developments around Covid-19 infections and vaccination rates will determine if economic growth garners pace. Also, the success of the FG’s external debt issuance plans be critical for the Fg’s ability to finance its budgetary obligations and for improved USD flows, stronger FX reserves and consequently, the exchange rate. The subsidy program, which is expected to last till Oct-2021 is also key to watch as the rising cost of subsidies (estimated at over N100.0bn/month) continue to weigh on FG’s finances. Furthermore, the Monetary Policy Committee (MPC) will be meeting three times before the end of H2-2021. The committee’s decision on the monetary policy rate at these meetings would be a key factor to watch in the second half of the year.’’

But many still wonder what magic will change the trend of things in the short to long term given the policies which analysts consider not good enough for a turn around. They think all the achievements of the government have been defeated by its policy contractions. Which indeed is a pity.