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Economy Review

by Business News Report

By Omoh Gabriel, Business Editor
Six years into democracy Nigeria is still saddled with a myriad of economic problems ranging from poverty, debt overhang, dearth of basic social infrastructure and deteriorating living standard, rising unemployment, epileptic power supply, double digit inflation, low capacity utilisation in industries, corruption for which Nigeria was labeled as the third most corrupt country in the world by transparency international and industrial close up. When democracy was ushered in by the Obasanjo led federal government in 1999, there was much hope of the citizenry reaping the benefit of democracy by improved living conditions. The government had promised a better deal for the people and the president adopted the slogan I see hope. Six years after even the most adherent of the Obasanjo administration have cause to ask what can we point to as the major achievement of the government’ six year rule.
Professor Charles Soludo had said to who ever cared to listen to him that the Obasanjo administration was in a hurry to leave behind an economic legacy. The government has developed an economic agenda or a strategic plan called Nigeria Economic Empowerment Development Strategy, NEEDS which enjoyed a wide consultation. The document is being implemented. In the very first year of its implementation the government boost of having reduced poverty from 70 per cent in 2000 to 57 per cent in 2004. The inte3rnational community has come to accept the document as well intentioned. The policy according to Professor Charles Soludo CBN governor the policy in its first year delivered unprecedented results. He said that aggregate bank credit to the economy increased by 12.0 per cent arising from increase in credit to the private sector. Credit to the private sector grew by 26.6 per cent compared with NEEDS target of 30 per cent while credit to the federal government declined by 17.9 per cent as against 58.4 per cent increase in 2003. Professor Soludo said that the Gross Domestic product which was targeted in the NEEDS to grow by 5 per cent last year grew by 6.1 per cent The growth he said was non oil sector driven. Externa reserves rose from $7.47 billion in 2003 to $16.96billion in 2004 and $24.5billion in April 2005. The exchange rate has stabilize at N134 to the dollar. The rate of inflation has come down to 10 per cent as against 23.8 per cent in 2003. The government has put in place due process to fight against corruption in public office and has recently pass the power reform bill that will open up the power sector for private investors. The fiscal responsibility act when passed will enhance accountability in the three tiers of government. The government is waging a relentless war on corruption with the untouchable in the past fallen prey. The government is beating it chest for achieving some level of success in laying a foundation for economic growth.
Government effort at reforming the economy has received endorsement from the International Monetary Funds, IMF. The body in its report to for the 2005 article iv consultation said “In 2004, policy implementation under the NEEDS signaled a clear break from the imprudent macroeconomic policies of the past. over macroeconomic policy implementation in 2004, was commendable. The key objectives of the 2004 programme were achieved , namely to restore macroeconomic stability, enhance predictability and transparency of policies, and reduce the economy’s vulnerability to oil price shocks. Prudent management of the significant oil revenue windfall, along with tight monetary policy, contributed to lower inflation, a more stable exchange rate, and a significant build up of external reserves. Several important reforms have been initiated to enhance the transparency and accountability of public sector policies and institutions and to address Nigeria’s deep-rooted macroeconomic and structural challenges”.
It is the deep-rooted macoeconomic and structural challenges that Nigerians and other institution are concerned with more. The Nigerian economic situation can be aptly described as an interlocking set of vicious circles that perpetuate economic stagnation, and rural poverty. One of these circles involves the savings – investment gap in rural Nigeria. In Nigeria, productivity is low because investment is low. Investment is low because savings is low; savings is low because income is low; income is low because productivity is low. That is the situation bulk of the population is going through today except the few who have gotten hold of money one way or the other, fair or foul.

Available statistics show that Nigeria nominal Gross Domestic Products in dollar terms was $48.2 billion in 2000, $51.2billion in 2001, $49.163billion in 2002, $56.04billion in 2003, $64.73billion in2004 and estimated to record $73.148billion in 2005. The real GDP growth was 2.8 per cent in 2000, 4.4 per cent in 2001, 3.3 per cent in 2002, 5.5 per cent in 2003, 6.1 per cent in 2004 and estimated at 3.9 for 2005. The GDP per capita has a record of $420 in 2000, $435 in 2001, $407 in 2002, $452 in 2003, $510 in 2004 and estimated at $562 in 2005.
In the opinion of the World Bank between 1965 to 1987, Nigeria’s Gross Domestic Savings decreased from 17 percent to 10 percent and lower in 2000. In comparing 12 countries growth rate, it was discovered that during the two decades from 1965 to 1987 the World Bank found that Korea, with a population of 42 million in 1987, joined the rank of middle income countries by increasing its per capita income from US$650 to US$2,400. During this same period Malaysia and Brazil accomplished the same while Nigeria’s per capita income managed to record $510 in 2004 from the $440 in 1965 with a high population of 127 million in 2004. What this means is that Nigeria’s per capita rose by $60 in 40 years. In 2001 it rose to $432, $407 in 2002, $452 in 2003 and is estimated to rise further to $510 this year. This implies that in 2004 Nigerians welfare is not anywhere near what Indonesia, Malaysia and Brazil attained in 1987.
In the same period the World Bank observed that Korea’s industrial share in GNP increased from 25 to 42 per cent; in Indonesia from 13 to 32 per cent and in Argentina about 42 pe rcent of GNP. By World Bank calculation, the most potent factor in economic growth is gross domestic savings. From 1965 to 1986 Korea’s savings rate increased from eight to 35 per cent; for Indonesia from eight per cent to 24 per cent; for India from 16 per cent to 21 per cent. For Nigeria, it decreased from 17 percent to 10 percent and for Japan it was maintained at 32 per cent. The situation in Nigeria remains largely the same as savings has not improved beyond what it was in the 1980s if not worse off.
Going by World Bank reckoning, while Korea achieved about 94 per cent level of secondary school and tertiary enrolment, Nigeria, during the same period (1965-1986) achieved 29 per cent and ha now declined to 24 per cent. The implication is that while these other countries have reached a self sustaining growth, Nigeria has been trapped in debt, $35 billion in 2004 for which its official are jumping from one country to another begging for debt forgiveness, and population explosion 127 million in 2004. The effect is that the living standard of the populace has declined and dragged more Nigerians into the poverty line. In fact a recent study show that more than 70 per cent of Nigerians live below one dollar a day though government figure has contradicted this. The situation has not changed much by the reckoning of the average citizen.
Access the economy recently the Lagos Chamber of Coomerce and Industry said “Our concern is that delays in the budgetary process have become a recurring phenomenon since the beginning of the democratic administration in 1999. This situation has adverse implications for the Private sector and the Nigeria Economy as a whole. Strategic decisions in the private sector are most often anchored on the fiscal operations and the policies of government. The budget provides significant signals on he general economic direction in the fiscal year.
All these have become all the more important because the Nigerian economy is still largely driven by the public sector. The proportion of resources in the Public sector of the economy is still disproportionately high. We appeal again to both the Executive and the Legislative arms of government to expedite action on the 2005 budget”.
The Private sector operator agreed with government that there is some measure of improvement as it said “key rnacro-economic indicators showed a good performance trend in the first quarter. The exchange rate was relatively stable. The rate was N132.5 in January, and N 132.9 as at the end of March. Also inflation rate, which stood at 9.5% in December 2004, was 10 per cent as at February 2005.
However, the interest rate situation has not improved :significantly. We note however that in the period under review, the Minimum Rediscount rate (MRR) was reduced from 15 per cent to 13 per cent . But the feedback from our members indicates that this has not translated into any significant reduction in interest rate. Interest rate still currently range from 22% to 28%. Evidently, both the fiscal and monetary authorities still have a lot to do to bring down interest rate in order to reduce the cost of fund in the economy.
Our external reserve reached a record level of $21 .5 billion in the first quarter of the year, as against $l7hillion in December 2004. This of course was as a result of t-ie high crude oil prices in the international market.
The significance o: this level of reserves is that it inspires conl:ideflce in the Nigerian Economy, at the levels of both local and foreign investors.
From all indications, government fiscal operations this year will be expansionary in character for a number of reasons. First, he exc::ess crude revenue of 2004 would be expended in the current year. Secondly, a higher crude oil pÃì ice benchmark of $30 per barrel was used for the 2005 budget as against $25 per barrel tor 2004 budge. This naturally will boost the spending latitude of governments at all levels,
This scenario will pose a challenge of macro-economic stability in 2005, with implications for the Noira exchange rate, inflation, interest rote and the real income cf citizens. The: Central Bank has acknowledged this reality and has given assurance of appropriate policy response.
The pace of our economic development would be faster if we take advantage of our :)resenf natural resource endowment to empower the private sector in order to drive the development process as envisioned in the NEEDS document. As you all know, the e-ivironrnent for business operation in Nige-ia is, to say the least, excruciating. Therefore, if government cannot significantly mitigate the various problems militating against business performance, it should not compound the predicament of the private sector through additional tax burden. Accordingly we advise strongly against proposal to review the rate of VAT from 5% to 10%.
When President Olusegun Obasanjo mounts the dais to take the salute on behalf of the rest of Nigerians, the questions that would haunt him are what are Nigerians celebrating? 44 years of nationhood? What has Nigeria achieved to be proud of? The President no doubt would turned in his mind the huge debt, the Paris Club and London Club are hunting Nigeria, he would have starring at him faces of desperate graduates in their thousands looking for jobs. He must equally have thought of the mounting industrial close downs, inadequate foreign exchange, lack of drugs in hospitals, the large army of able bodied but retired generals, mounting inflation, high government borrowing and an army of able-bodied men turned beggars as a result of lack of jobs.
The president will probably go home with a smile, may be.
File, Economy at 44 29/09/04
For purpose of unity, ethnic arithmetic has been accepted as a way of life. As an entity, job rationing is done on state basis in order to reflect the federal character and to satisfy the multi-ethnic groups that make up the country, Nigeria.
Nigeria’s socio-economic problems over these years comprise a complex set of both internal and external factors. The internal factors being most disturbing.
Painfully basic social overhead capital are still very lacking in Nigeria. Services such as power supply, transportation, storage, communication etc that are indispensable to modern industry and agriculture are grossly inadequate and not available on regular basis. What is more, power supply is erratic, transportation chaotic. The lack of this capital is a bottleneck to Nigeria’s economic development. Yet, the problems are not being adequately tackled by subsequent government.
Inadequate transportation and communication block the exploitation of rural resources in Nigeria. As a result poverty has taken over the land. The rich resources of the country are inaccessible and most part of the country that could have been the food basket of the country. A lot of food produced rots and wastes away in the villages and yet in the 21st century one of Nigeria’s problems is how to feed her over 120 million people that had led to mass importation of various product that she is now paying through the nose for.
The unfortunate thing is that Nigerian leaders seem not to understand the very important nature and role of transportation and power supply in economic development. Nigeria according to available statistics loses one third of its agricultural output because of its lack of storage facilities to protect against spoilage, rodents and other wastages. Infrequent power supply from NEPA and the very lack of it in some parts of the country thwart the growth of industries dependent on it.
Educational facilities are a vital elements of social overhead capital. The majority of the Nigeria population are illiterate, lacking the basic skills and training necessary for industrial production or modern agriculture. As at today, the few trained graduates, school leavers are wasting away and basking in unemployment heart-wave. Education of course has become expensive and only few, the rich, can afford it over the last few years.
44 years after independence, Nigeria’s most disturbing problem is the lack of dedicated business managers and government administrators. In the early stage of economic development of Western Europe and North America the efforts of countless, mostly private entrepreneurs gave them the momentum to move into and beyond the take-off stage of economic growth. Those Western Europe and North America entrepreneurs eagerly searching for new profit opportunities combined factors of production in broader state than ever before in history to produce new products for emerging markets. Later a large class of business managers arose to promote and administer the expanding private enterprise.
It is a matter for concern that 44 years of corporate existence, Nigeria lacks a business class that is willing to invest in new industrial enterprises and has the know-how to manage them. The Nigeria business community are mere traders, contractors and merchants engaging in forwarding and clearing and contracts rather than in manufacturing.
The few who venture into manufacturing do so with little interest. In all, they are speculative, looking for where to make quick
profits in real estate demanding five years house rent in advance before allowing any one into their estate, banking where speculation in forex and and financing of commerce hold sway.
The Nigeria upper-class until very recently disapproves of serious business and prefers to invest in land and rearing their children to be land owning aristocrats, soldiers trained to seize government at the slightest opportunity, lawyers and diplomats, instead of business executives.
As a result, the Nigeria economy had had to be dominated by foreigners in commercial activity and manufacturing – Indians, Lebanese, Britons and French.
Lacking private entreprenueurs, the governments of Nigeria had to take the lead in formulating and implementing national development plans just as it has done in the case of Nigeria Economic Empowerment Development Strategy(NEEDS),. Unfortunately, another problem arises – the shortage of dedicated government administrators. The result is often incompetence, worsened by endemic bribery, corruption and favouritism. Moreso, the ineffective systems of taxation over these years fail to mobilize financial resources for capital formation. Bad as this situation is, it is worsened by investment allocation. Nigeria in her bid to foster unity in diversity set up and allocated investment in ways that do not promote economic growth. What is more, these public enterprises are operated at a loss, draining off scarce capital rather than creating it. The government realising that it can not do well in business has made attempt to privatise these enterprises that has been a source of economic rent to bureaucrats
If Nigeria’s economy is to achieve a self sustaining growth, her work force must develop the motivation and discipline essential to industrial production. Nigerian farmers must become commercial farmers open to technological innovation in agriculture as against the subsistence farming and the use of old implements that is of today.
The past and present poor motivation, high industrial employee turnover, absenteeism and a general sloppy performance that characterised the Nigeria workers would have to stop and give way to new and result-oriented industrial attitude.

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