The results are now in. Nigeria has emerged as Africa’s biggest economy by size. With that development, the opposition and Nigeria’s main rival on the African continent (South Africa) have become distinctly unsettled. Whilst it can be said that nothing has really changed other than the perception has now caught up with the reality. Many keen watchers of Nigeria had long known that the Nigerian economy had for long been underestimated and undercounted. The rebasing was put off in the year 2000 in order to avoid scuttling Nigeria’s desire to achieve debt forgiveness from the Paris club. It seems like the political establishment had for long benefitted from the preferential rate loans and the debt right offs due to the fact that it was perceived to be a low income country when it was all along a middle income country.
With the rebasing, the true scale of the size of the Nigerian economy, its diversity and versatility is now apparent for all to see. But what does it mean?
International Relations
South Africa had long been bestriding the international arena as Africa’s major economy. It has assumed the role as the gateway into Africa of international investment. It was brought into the G20 as a member and was named a member of the prestigious BRICS club. It was assumed that in the event that an African country were to be selected to be a permanent member of the security council then South Africa would probably win it. The more subtle superiority complex of white South Africans was given expression in the dominance of the white controlled South African economy in and over Africa. The rebased GDP has up ended all these calculations.
Chances are that Nigeria in the medium term will eventually replace South Africa as the gateway into Africa of foreign investment and as the prime political and economic player of Africa on the world stage. This fact can be gleaned by the embittered response to the change in South Africa’s economic fortunes as reported in the South African business press.
No one can ignore that Nigeria has severe economic imbalances it must address and fast. But the trajectory cannot be denied. It is very much a positive one.
The Opposition
The main opposition party has found it hard to grapple with the new state of affairs in Nigeria. It has used descriptions like “fraud” or “scam” to describe the new statistics. It tends to remind me the issues the Kinnock led labour party had in adapting to the revolution of the Thatcher years in the UK. Thatcher had successfully reformed the UK economy in the late 70’s through the 80’s in a way that ensured that the UK’s descent to a third world economy (where electricity black outs, half week employment and incessant strikes were the norm) was halted.
The reforms re-launched the UK into the vibrant capitalist top tier economy it is today. The inability of the UK opposition party to adapt to the new reality ensured it was in opposition for many years. The Blair labour government came to power accepting the new reality of a capitalist society. The issues then became which party was best equipped to take Britain forward and manage its ascent.
The Nigerian opposition will do well to learn this lesson. Nigeria is half way through the process that transformed China from a very poor country (ridiculed by most of the world for its backwardness and poverty) to a rich country in the mid 2005 almost overnight.
In reality, that transformation did not actually occur overnight. It occurred over a thirty year period of constant and consistent GDP per year growth in the high single digits and the low double digits from 1977 through 2005. China is today still gripped with huge pockets of poverty and air pollution. It however currently accounts for over 30% of global trade.
Nigeria in the next 10-12 years (provided it retains the philosophy brought to Nigeria in 1999 by President Obasanjo and retained ,with changes of emphasis, by Presidents Yar Adua and Jonathan) will itself transform into an economic super power. The opposition will be well advised to accept, as a given, that the Nigeria success story is real. Its emphasis should now be in the arena of the battle of ideas in respect of the next steps.
Does it become a party of employment and small business or a party of social security in order to ensure that the poor are able to live respectable lives. Once it determines its underlying philosophy then it should devise a policy document that achieves those ends.
APC has within it some of the major architects of the foundation laying economic revolutionary government of the PDP led Nigerian government of 1999-2007. It can also lay claim to the technical know how needed to devise the way forward for Nigeria. It is best advised to start this process and fast.
Online Critics
Reading the reaction of the online critics of Nigeria, the usual refrain is that the figures are fake, it is divorced from reality and….. we should have a revolution now. There are many writers whose stock in trade is the endless criticism of everything Nigerian. Their writings are ever devoid of any constructive criticisms or alternative ideas.
The Nigerian online discourse cannot be called a battle of ideas. The online critics have none. Their negative thoughts have indeed become negative words and their negative words have become negative actions which in turn have evolved into negative habits only to blossom into a negative character thereby fulfilling for themselves (and the people that buy into their mind frame) a negative destiny!
This should not be our role. I definitely do not see it as mine. We should be forcing the issue of an alternative position or philosophy based of clearly defined suggested routes to help our country grow. Yes, we all know that endemic corruption is pervasive and should be stopped. Stopping corruption in and of itself will not bring employment to people. The government cannot provide enough jobs for the number of the unemployed and existing businesses only hires people if it is profitable to hire as opposed to hiring out of charity (see my article titled “The immigration tragedy and the way forward”). The discussions should therefore focus on policy positions that help or hinder mass employment in addition to discussions on drastically reducing corruption in the short to medium term.
The way forward
Despite the undoubtedly positive trajectory of the Nigerian nation, there are clear warning signs ahead for the economy. The fiscal management of the economy is being badly managed by the finance minister. The Vanguard of 11 April 2014 reported that the Federal government spent more than it earned by over 105 billion naira in January of this year alone. This has been a consistent feature of the reckless management of the fiscal side of the economy by the current finance minister. Within her control, are the fiscal instruments of control of the economy through the powers of spending and taxes.
A consistent budget deficit (when one spends more than one earns) places untold downward pressure on the Naira and places the economy in greater jeopardy by increasing money supply in the economy which in turn leads to rising inflationary pressure within the economy.
The federal government tax regime is very inefficient and lax. The federal government has been unable to finance its budget deficits through increased tax revenues. Increased taxes restrict inflationary pressures within the economy by reducing money supply circulating within the economy. Rather, Nigeria has decided to go a borrowing without fully considering that a higher GDP does not change the fact that debts are serviced from a mix of foreign exchange income (which is still derived mainly from oil exports) and tax receipts not GDP numbers.
This finance minister curiously appears to see borrowing as a badge of honour. As a matter of policy, Nigeria should not borrow to pay salaries or any part of its recurrent budget. Borrowings should only be embarked upon if the purpose for which the borrowing are to be used will yield income far in excess of the amount borrowed.
The CBN should be free to do its job without consistently firefighting the effects of the reckless fiscal management of the economy by the finance minister. CBN in a bid to reduce inflationary pressure caused by federal government over spending mops up excess money supple within the economy and hikes up interest rates. This in turn leads to a high cost of borrowing for local entrepreneurs. We all know that high costs of borrowing are a big impediment to the establishment of start up businesses or the expansion of existing businesses (which could have served as a source of employment opportunities for our young and gifted).
Secondly, the CBN has been using our built up reserves to fight to stabilize the value of the Naira put under pressure by the reckless fiscal policies of the federal government.
This cannot continue for very much longer. Nigeria has finite external reserves which will deplete within 3-4 years if the CBN continues to use our reserves to prevent the devaluation of the naira put under pressure by the reckless federal government spending.
It is no coincidence that Nigeria’s credit rating is currently placed on negative watch by Standard and Poor’s.
Additionally, the federal government must stop the incessant domestic borrowing. It is sapping almost all domestic sources of finance available to the local business community. One cannot claim to be fighting unemployment whilst sabotaging access to finance by the local business community within Nigeria that would be instrumental in reducing long term unemployment within Nigeria. If the government needs money to finance its recurrent centered budget, it should seriously reform its tax regime in order to achieve greater efficiency in tax collection. If the Nigerian people feel over taxed, then they should make a choice whether they would prefer higher taxes or a reduced federal government bureaucracy.
The current finance minister clearly has too many responsibilities. It is fast becoming apparent that she is failing to attend to her core function as the minister of finance by getting a grip on the spending and tax regime of the federal government. The CBN has carried and masked the incompetence of the finance minister and has got no credit for it. It is time for her to do her job.
Her import waiver policy (as employed in practice) is killing domestic producers which in turn exacerbates unemployment within the domestic economy. This in turn restricts the extent of GDP growth that could otherwise have been achieved.
The federal government should explore competing for a piece of the offshore labour market with India and China. Nigeria has so many unemployed university graduates. It is a potential cost saving heaven for various overseas industries world wide that are looking to significantly reduce its overhead costs. Labour costs in Nigeria are extremely cheap. It may be an idea to start pitching Nigeria as an alternative outsourcing labour market for the industrialized world. China and India has over the years become more expensive as wage pressures have grown. Nigeria does not currently face such pressure.
I am very enthusiastic about Nigeria’s future. However, it is at risk of serious social unrest due to poverty, unemployment and ethnic and sectional tensions. What people in government needs now are constructive critics. It is clear that the Nigerian government has very few thinkers within its midst. It seems to have a fair number of doers. The government should note that thinkers are not always the best implementers and doers are not always the best thinkers.
Every government needs a mixture of both. The fiscal policy of the federal government is inconsistent right across the board. The President needs to ensure that the best people are placed in the best functions.
The finance minister is more of a doer. She appears to be a processes person. She is definitely not a thinker. It is time for her to concentrate on the core duties of the finance ministry. It should get a thinker as the coordinating minister of the economy. That person’s sole job should be to think of innovative strategies or initiatives (like the telecoms, banking and Agricultural reforms of recent years that proved to be true game changers) to push Nigeria forward. Once determined, that person’s role should be to ensure, from a high level basis, that the doers are implementing the initiatives in a consistent manner right across the board.
Dele Awogbeoba
Dele writes from LagosNigeria.