By OKEY ONYENWEAKU
Not many Nigerians are optimistic that the economy of the country has much to offer them given the excruciating pains pervading the environment and the general state of affairs. While many believe that the politics of the country is incapable of creating the enabling atmosphere to nudge the economy forward, others have listed poor governance, insecurity, lack of productivity among others for their losing hope in the growth trajectory of the economy.
The challenges are indeed numerous, a former managing Director of one of the big banks who would not want to be mentioned in print told Business Hallmark.
Despite the negative impact of Covid-19 which plunged Nigeria into recession in the second quarter of 2020, the economy grew by 0.11 per cent at the end of the fourth quarter. Yet this does not change the pessimism of many who believe the economic managers and the government are not on the right path.
The Nigerian economy has not been strong and no immediate indication shows that. The economy only recorded a paltry growth of 0.11 per cent in 2020 after a recession of -3.2 per cent in the second quarter and slid further down by -6.10 per cent in third quarter 2020. Recent statistics revealed that the rate of unemployment, the second highest in the world is 33%; Underemployment rate stood at 22%; inflation which is hitting the roof top at 18.17 per cent is the highest in at least the last four years; and diaspora remittances inflow in the country fell 27 per cent year on year (YoY) to $17.2billion in 2020 from $23.55billion.
Many have also not forgotten the fact that the operating environment last year was choking for almost all the businesses including banks. In the midst of this though, the banks posted impressive results in an operating environment where the 2021 budget runs a deficit of N5.2trillion representing 3.6 per cent, while the country owes N33trillion ($82bn) debt. The fear here hinges on the fact that the federal government spends about 60 per cent of its revenue to service debts.
Added to this is the fact that the price of the major revenue earner for the country, crude oil, which has retreated from $70 pbd to $62.46 pbd as at March 25, 2020 still fluctuates.
At the same time, insecurity has not only hobbled agriculture, many parts of the Northern part of Nigeria have been taken over by bandits and insurgents such that not much business activities can subsist.
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.
What has mostly heightened fear amidst Nigerians is the rising debt of Nigeria which stood at $33trn in 2021 while it is expected to hit $38trn in December 2021. But what worries Nigerians most is that about 60 per cent of revenue is used to service debt. Despite these worries the Minister of Finance, budget and National planning, believes that the 23 per cent debt to Nigeria GDP is still sustainable.
Whereas the IMF forecasts economic growth of 3.4% in 2021 and 4% by 2022 for the continent, Nigeria is expected to grow by 2.5% in 2021 and 2.3% by 2022, while South Africa is projected to hit growths of 3.1% and 2.0% for the respective years in focus.
This forecast notwithstanding many analysts believe that even if such growth is recorded there remain fundamental problems with the Nigerian economy and how it is being managed.
Analysts have expressed their reservations and do not want to be carried away by what could be described as a flash in the pan. Many are seemingly certain that the economy which has just crawled out of recession to see a GDP growth of 0.11% at the end of year 2020 is still very feeble.
Fitch recently warned Nigeria to watch the rate at which it uses ways and means to inflate its economy.
Not even the crude which is the mainstay of the economy can pull the country out of the quagmire. Despite that crude price hovers between $60 and $70 per barrel, a member of the economic advisory council, Bismarck Rewane who spoke at a Webinar advised that more must be done in the right areas and sectors if the economy must grow. He went ahead the puncture the argument of dependence on oil by projecting that by 2024 that Nigerians might start buying more of electrical cars than engines with fossil oil.
Though he expressed optimism that the economy still had a chance to grow depending on what the country does from now, he said, ‘’We don’t have time. Population is a time bomb.Oil is going away. Nigeria has to re-invent itself very very quickly. Nobody is buying your fuel in the next ten years’’.
Rewane explained the economy could slip back if the growth drivers are not encouraged.
‘’Food inflation rose marginally by 1bp to 1.89% m/m (Cordros’ estimate: 1.92% m/m). Apart from the country’s persistent security challenges and the lingering impact of supply chain disruptions, we believe higher PMS prices also contributed to the pressures in the food index through the increase in transport costs. Accordingly, farm produce prices (+14bps) neutered the positive surprise from processed food (-2bps). Given the low base effect from the prior year, food inflation rose sharply by 116bps to 22.95% y/y (February: 21.79% y/y), driven by broad-based expansion across farm produce (+131bps to 23.00% y/y), processed foods (+112bps to 22.93% y/y) and imported foods (+8bps to 16.86% y/y)’’, said analysts at Cordros.
More worrisome is the revelation of Gov. Godwin Obaseki that Nigeria was in huge financial trouble and that the federal government, owing to non-availability of funds, was forced to print N60 billion as part of federal allocation for the month of March 2021.
“Nigeria has changed. The economy of Nigeria is not the same again whether we like it or not. Since the civil war, we have been managing, saying money is not our problem as long as we are pumping crude oil everyday.
“So we have run a very strange economy and strange presidential system where the local, state and federal government, at the end of the month, go and earn salary. We are the only country in the world that does that,” the governor with an investments background lamented.
Managing Director, Highcap Securities, Mr.David Adonri who shares in the fears of Bismarck Rewane and Gov. Godwin Obaseki 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 increase constitutes ‘motion without movement.” ‘’It is an inflationary growth’’, he explained.
Supporting the views of others on the weak economy,Group, Chief Executive Officer, Cowry Asset Management, Chief Johnson Chukwu told Business Hallmark that only drastic changes in the economic policies can make positive impact on the Nigerian economy which has remained weak due to the wrong ideas.
‘’Baring any global dislocation, the economy will continue to recover. We will continue to witness slow but positive growth. But the standard of living may continue to deteriorate because the growth will still remain below population growth,’’ said Chukwu who also explained any major global distortion can cause harm to even the slow growth scenario being recorded.
According to him, another challenge that could hurt the economy is that next year is close to elections season in the country so the government may no longer be interested in undertaking any major and drastic policies to benefit the economy.
Conversely, while Nigeria is still struggling to convert its economic potentials to growth, China’s GDP expanded by a dizzying 18.3% in the first three months of 2021 from a year earlier, sealing its status as COVID-19’s “first in, first out” economy.
Details show that China’s first-quarter GDP expanded by 4.28 trillion yuan ($655 billion) from January-March last year. That’s roughly the size of Poland’s economic output in 2020, or two times the value of all the shares of French luxury goods giant LVMH in the stock market.
The Nigerian economy had plunged in 2016 contracted for about 12 months, (that is four consecutive quarters) before the recession of 2020. This clearly shows that the country’s economic growth is still very fragile and has been for most of the time dependent on crude oil to survive.
‘’The GDP growth could slip back’’, said Chief Executive of Financial Derivatives Company Limited, Bismarck Rewane.
It would be recalled that the Nigerian economy had maintained a healthier growth trajectory before the election of President Muhammadu Buhari as President in 2015.