BY EMEKA EJERE
With unfolding events signaling no end in sight to the fragility of the growth of the Nigerian economy, concerns are mounting that until more pragmatic and realistic steps are taken, the much desired level of growth may remain a dream.
According to Nigerian Gross Domestic Product (GDP) report recently released by the National Bureau of Statistics (NBS), Nigerias GDP grew by 0.51% (year-on-year) in real terms in the first quarter of 2021.
While this is slower than the 1.87% growth recorded in the corresponding quarter of 2020 but higher than 0.11% recorded in the previous quarter (Q4 2020), it makes the 3 percent federal governments growth projection for the year even more unrealistic.
Africa’s largest economy exited its second recession since 2016 in the fourth quarter, despite a full-year contraction in 2020. Nigeria had been grappling with low growth before the coronavirus pandemic triggered a recession and created large financing gaps, including dollar shortages and inflation.
“The Q1 2021 growth rate was slower than the 1.87% growth rate recorded in Q1 2020 but higher than 0.11% recorded in Q4 2020, indicative of a slow but continuous recovery,” NBS said.
The NBS said the non-oil sector, which the government is trying to make the main growth sector, rose 0.79% in the first quarter. Telecoms, crop production, real estate, food manufacturing and construction lifted growth in the quarter.
Crude prices rose above $70/barrel on Thursday (May 27) but fell on Wednesday on renewed demand concerns as COVID-19 cases in Asia rose and fears that rising inflation might lead the U.S. Federal Reserve to raise rates, which could limit growth.
Oil, which accounts for around two-thirds of federal government revenue and 90% of foreign exchange, contracted 2.21% in the first quarter as crude production rose to 1.72 million barrels per day from the fourth quarter.
With weak growth, many were able to predict correctly that the Monetary Policy Committee of the Central Bank of Nigeria (CBN) would not alter interest rates during its (then) forthcoming 279th meeting.
As expected, while announcing the committees decision after the two-day meeting, CBN governor, Godwin Emefiele said, The MPC made the decision to hold all parameters constant. The committee unanimously voted to retain the Monetary Policy Rate at 11.5 percent.
In summary, MPC voted as follows: one, retain MPR at 11.5 percent; retain the asymmetric corridor of +100/-700 basis points around the MPR; retain the CRR at 27.5 percent; and retain the Liquidity Ratio at 30 percent.
He said, in the view of the MPC, although the economy has succeeded in exiting the recession, the recovery was very fragile, given that the GDP of 0.51 percent was still far below population growth rate. The committee, he noted, was of the strong view to consolidate on all administrative measures currently being taken to spur output growth.
The apex bank has been pursuing an accommodative stance by leaving interest rates on hold. However, dollar shortages have stoked inflation to a more than 4-year high, while a shrinking labour market and mounting insecurity have continued to pressure households.
On Monday, the CBN confirmed on its website that it has officially devalued the naira, with NAFEX Investor and Exporter forex window rate of N410.25 as its official exchange rate to the dollar, after it had removed N379/$ earlier in May.
Emefiele had said that the drop in crude oil earnings and the associated reduction in foreign portfolio inflows significantly affected the supply of foreign exchange into Nigeria.
In order to adjust for the decrease in supply of foreign exchange, the naira depreciated at the official window from N305/$ to N360/$ and now hovers around N410/$, Emefiele explained.
The CBN boss had while speaking at the 55th Annual Bankers Dinner in Lagos, explained that the need to adjust for the decrease in supply of foreign exchange led to the depreciation of the naira.
With the decline in our foreign exchange earnings and successive exchange rate adjustments, the CBN has continued to implement a demand management framework, which is designed to bolster the production of items that can be produced in Nigeria, and aid conservation of our external reserves, he said.
Meanwhile, the Lagos Chamber of Commerce and Industry (LCCI) has stated that the recently released Q1 GDP data, which revealed that the manufacturing sector grew by 3.4%, indicating the first expansion in the past three quarters, was a pleasant surprise for most manufacturers, though foreign exchange dependent manufacturing sectors have not had a good experience over the past year.
Responding to Nigerias Q1 GDP data produced by the NBS, the Director General of LCCI, Dr. Muda Yusuf, stated that the manufacturing sectors recovery was unexpected, due to FX liquidity issues faced by most manufacturers over the past 12 months.
Evidently, the economy is still struggling to recover from the shocks of the pandemic, and related slip into recession, Yusuf said.
However, the first-quarter GDP data contained a few pleasant surprises. The agricultural sector expanded by 2.28% despite the ravaging effects of insecurity, farmers/herders clashes, and the displacement of many farming communities.
Most foreign exchange dependent manufacturing sectors have not had a good experience over the past one year. Admittedly, segments of manufacturing with high levels of backward integration had lesser degrees of shocks from the forex illiquidity and exchange rate depreciation in the economy.
Experts point ways forward.
The consensus view of economy experts who spoke with Business Hallmark in separate telephone interviews is that stimulating a bumper growth in the Nigerian economy requires more appropriate policy steps that will reduce unemployment, foreign exchange consumption, inflation, insecurity among other socio-economic challenges.
According to Bar Fred Nzeako, a development economist, there is very high unemployment and underemployment in the country. Government should create an enabling environment for businesses to thrive so that people will be more gainfully employed and their productivity enhanced. There are a lot of people who are able and willing to work but they dont have work to do.
The terrible thing about the things on ground is that most of the policies of government are only announced agro policies, youth empowerment and the rest of them. But they are not on ground. That is why Nigerians have developed the concept of audio policies.
These are audio policies because even the ones they say youre going to access funds – CBN interventions and the rest of them- theyre not there. They are pronounced but they are not on ground. Theyre not real; theyre not practicable.
So when such policies are announced, there has to be a feedback mechanism that will be put in place to collate the statistics of those who have accessed the funds. This will enable the government know whether or not the policies are working. So, if the policies are not working, they will be able to tweak and rejig the policies and make them work.
But when such mechanisms are not available, all government will do is to continue to use that as propaganda instead of looking deep and find out whether the policies are working or not.
Now when you talk about the rising price of oil at the international market that ordinarily should reflect in better living condition through improved foreign exchange earnings and be reintegrated towards ensuring that people are given jobs, but youre not going to see that because of our lack of refining capacity.
The refining capacity of Nigeria used to be 40 percent but today it is less than 20 percent. Over 80 percent of our total petroleum product consumption is imported. The way to go is to improve our refining capacity.
This will not only create jobs, it will also reduce our foreign exchange consumption. And when foreign exchange consumption is reduced, the value of naira will shore up. And then it will all translate to improved productivity. And you will now see that in the standard of living of the people.
Prof. Uche Uwaleke, Professor of Capital Market, Nasarawa State University, believes that in the 2021 budget, the GDP growth rate for the fiscal year is 3 percent. Government actually projects that the economy will grow by 3 percent.
“But until the growth rate exceeds the population rate, the impact is not likely to be felt. It is because the growth rate has been weak that people have refused to agree that the economy is actually growing.
Since 2015, this economy has not witnessed any growth that is up to 3 percent. The highest weve had was in 2015 itself when the economy grew by 2.7 percent. The next was in 2019 when the economy grew by 2.2 percent.
So, in all of that you discover that the growth rate since 2015 has been tepid. And that is largely on account of oil price performance. And in that kind of scenario, you wont expect to see the real impact on the economy, on jobs in particular.
Thats why I said that the attention now should be on the growth that will also create jobs because thats what is important. But growth itself is also important because we have increase in GDP.
Because, as we say, GDP growth is a necessary condition for economic development, though its not a sufficient condition, but its necessary. We need to have that growth. Otherwise, we wont be talking about reduction in poverty and increase in jobs.
So how do we sustain it? It is by targeting the employment elastic sectors of the economy and paying more attention to these areas. For instance, agriculture accounts for about 60 percent of employment that we have in the country.
CBN interventions in the agricultural sector are yielding fruit. There is need for more interventions in the agric value chain. So the focus should be on the real sector, the productive sectors of the economy.
If the economic sustainability plan can be pursued aggressively, particularly the real sector component of that plan. If you look at the planning it has for agriculture, for putting in place the enabling environment, especially power. It talks about provision of solar energy; it talks about provision mass housing. These are critical areas that will jumpstart this economy.
Like I said what is important is ensuring that implementation is carried out so as to ensure that the results at the end of the day will manifest in the GDP figures. I think its something that can be sustained. But I also think the target of 3 percent might be ambitious. The 2 percent growth projected by the CBN is more realistic, he said.
Okechukwu Unegbu former president, Chartered Institute of Bankers of Nigeria (CIBN, sad that the Nigeria GDP growth figures are terribly low, and unless government economic policies are rejigged, the figures will continue to be low and even go to negative.
To stimulate growth, government should encourage job creation, reduce tax rates and increase tax base (so that more people will pay tax as they engage in economic activities), support the growth of Small and Medium Enterprises, and keep inflation under control.
There is also need to recognize the views of economic experts in policymaking. A situation where the vice-president a brilliant lawyer who may not be good with figures is heading an economic team is wrong.
There should also be more investment in education and research. There is also need to address the infrastructural deficit in the country. There can be no meaningful growth in a state of infrastructural decay.
The herdsmen are not contributing anything to the GDP, yet they are causing the nation a lot of economic loss. Government should put an end to their menace.