Why most projections on the 2020 economic outlook are unrealistic
By UCHE CHRIS
That Nigeria is abundantly endowed with both human and material resources is obvious; everybody acknowledges this fact, which basically is its claim to a potentially great nation or the proverbial giant of Africa. However, its manifest failures are also legion and legendary, making it one of the most perplexing paradoxes of any nation.
Also Nigerians are overly optimistic which is ordinarily surprising; they believe the best even in worst situations. Late Kenyan political philosopher and scientist, Prof. Ali Mazrui, called Nigerians resilient, a derogatory for docility. Now optimism is a virtue that is essential to success in life; it reflects hope and is the most important attribute of a positive life. Without hope any life could easily fall into despondency, despair and depression.
But over-optimism is a vice and antithetical to facts and even reason, because it insulates and obfuscates the mind from reality. When people no longer appreciate and identify with their reality, they have unwittingly and invariably forsaken their success in life. Success begins with the initial identification and understanding of the situation, and the need to do something and indeed what to do about the situation or challenge.
Generally, most experts and analysts believe 2020 will perform better than the previous year. Obviously, it is good to be positive or optimistic about one’s situation, but such optimism should not contradict reality or facts; otherwise it would be self delusion. However, it is important to ask where the optimism is coming from and on what set of facts is it based other than the sentiment and desire for a change.
Most views on the economic outlook for this year are simply a matter of living in denial of extant reality, which is truly misguided and misleading. Economics, though a behavioural science does accommodate emotional preferences of people; it is based on facts and figures, which, as evidence is to law, should determine the conclusion.
In economics, you cannot peruse or study a set of facts selectively or reach a different conclusion outside all available facts. This unfortunately is what most analysts and experts have every year subjected us to in a bid to be politically correct, hopeful and optimistic.
There are visible indications that the GDP may experience some marginal increase this year given the improvement and stability in the oil market as the tension in the Middle East continues to persist; but this rise may not be intrinsically a productivity-driven growth that is capable of affecting the economy and lives positively and effectively.
Also government has embarked on some big ticket projects such as the railway, Second Niger Bridge, Mambila power plant, and the quick completion of the Lagos-Ibadan road. Furthermore, agriculture is receiving increasing attention and may add to the GDP growth. But all these are really tentative.
Without doubt, construction is an effective way of reflating the economy because of its potential to create massive jobs and incomes; but such jobs are blue collar in nature and do not touch on the time bomb of graduate or white collar unemployment. The new minimum wage of N30,000 is both a blessing and curse; it is a blessing to the workers who are taking more home but it has spiked inflation and escalated the recurrent expenditure and the cost of governance, which further undermines and reduces government’s capacity to provide services and deliver on its political mandate.
But that is as far as the positive signs go; however, as they say, every coin has two sides and the flip side should be considered to ensure objectivity before calling the result on the balance of proof and evidence. What many experts have ingenuously done, which is a disservice to their integrity and craft is to conclude on the basis of the foregoing facts without producing a proper balance sheet of the prevailing situation in the economy.
First, the Finance Act has already been signed by President Buhari and will kick in by February, 2020. The Act prescribes increased and more taxes for Nigerians, and there is no escape or evasion, especially with the accompanying Tax Identification Number, TIN, provision, requiring every bank account holder to provide one. What this means is, many Nigerians, especially businesses will pay more in tax which will affect prices and consequently produce inflation and more hardship, as the burden is passed on to the consumers.
In an inflationary situation, purchasing power falls as incomes lose value; therefore Nigerians may have to need more money to retain their present diminished economic status in the months ahead as inflation erodes their current income. Already acknowledged as the poverty capital of the world, the situation rather than abate in the coming months, is most likely to exacerbate.
Second, Nigeria is likely to borrow the controversial $30 billion infrastructure loan from China given the favourable disposition of the senate to the executive. The issue here is not the propriety or otherwise of the loan, but its’ likely effect on the economy and Nigerians. Already Nigeria owes about $84 billion or N26 trillion; by the end of 2020 the country may be owing almost $120 billion or N37 trillion, which is more than five times its revenue capacity.
Those prophets of good tidings should imagine the implications of this on the economy and people especially with the low revenue profile of the government. Nigeria is taking a big bet on its future with the loan because the leadership insists on doing things its own ways rather than the right and correct way. Why should Nigeria borrow when it is spending over a trillion naira on fuel subsidy annually and over $34 billion defending the naira? It doesn’t make logical and economic sense, yet it persists in its foolhardiness.
Argument against subsidy removal is the fear of inflation and hardship to people; yet increasing taxes, borrowing, and inevitably devaluation, will all produce inflation without providing the solution urgently and desperately needed. So the present course of action by government is a no-win situation because it prefers short term palliatives and placebos to long term strategic initiative and vision. And the reason is simple: politics. This government has been extremely political in all its policies, as it plays to its base and looks forward to 2023. Yet we have to be alive to get there.
Already Nigeria is spending 62 percent of its revenue on debt service, and projected N2.17 trillion deficit in the 2020 budget. These are two major loopholes and snags in the budget that would seriously constrain its performance. The huge debt service burden on revenue leaves the budget in tatters and the Finance Law is not likely to fill the N2.17 gaping deficit hole to fund infrastructure (capex).
Finally, there are also issues of poverty, unemployment and population growth, as well as insecurity, which are not even being considered or given a mention in the discussions. These are the things that affect the lives of Nigerians directly, not just the obsession with GDP. The problems are feeding into the rising wave of criminality and other social deviant behaviours now prevalent. Addressing these issues without recourse to the root is simply postponing the evil day.
For a nation facing such bleakly gloomy and grim fate, it is disheartening and sad for the experts to be exultant over a mere prospect of a 2.5 percent GDP growth in 2020, which is a reflection of how low we have sunk in the ambition and confidence of becoming great. It is simply ludicrous. There could be a marginal GDP growth but this would be insufficient to significantly improve the economy and lives of people. Nigeria needs a shock therapy and quantum leap to escape its economic appointment with Armageddon, because its problems are compounding by the day.
Jim O’Neal, a former Goldman Sachs guru, who coined the acronym BRICS and later BRITS – Brazil, Russia, Indonesia, Turkey and South Africa, which actually informed Nigeria’s unrealistic ambition of becoming one of the 20 top economies in the world by 2020 – in a recent lecture said Nigeria will have to grow at 18 percent for over 10 years to join the BRINTS economies. Where does that leave us when compared to 2.5 percent which our experts are gloating over?
Until this economy becomes productive all the optimism will come to naught as it has so far done. Productivity is putting Nigerians to work and for businesses to thrive; at present this is not happening and government policy and perception not only complicate but reinforce the situation. Productivity is having the critical infrastructure in place and efficient; it is ensuring that the best Nigerians get the tasks available to contribute to development.
Productivity is imparting the right skills on the bulging youth population to prepare them for the future which is already here to participate in economic activities. It is only productivity that can give us a fighting chance and hope of real development, not just token GDP growth. Unfortunately, we are still far from it.