The economy: Break the vicious poverty circle in Nigeria, stakeholders tell Buhari

By Omoh Gabriel
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. The current Nigerian situation is aptly explained by Adam Smith.

Adam Smith in his inquiry into the wealth of nations said that “The annual labour of every nation is the fund which originally supplies it with all the necessaries and conveniences of life which it annually consumes, and which consist always either in the immediate produce of that labour, or in what is purchased with that produce from other nations. Accordingly therefore, as this produce, or what is purchased with it, bears a greater or smaller proportion to the number of those who are to consume it, the nation will be better or worse supplied with all the necessaries and conveniences for which it has occasion. From this Adam Smith’s perspective, Nigeria has not been able to get the basis of getting the economy to run on auto pilot. Nigerians are not productive enough to generate enough resources to maintain the population. For instance countries that were at the same level of economic development with Nigeria at independence have long left the nation far behind.An abode in Lagos

The World Bank in comparing 12 countries growth rate, discovered that during the two decades from 1965 to 1987 Korea, with a population of 42 million in 1987, joined the rank of middle income countries by increasing its per capita income from $650 to $2,400. During this same period Malaysia and Brazil accomplished the same while Nigeria’s per capita income declined from $440 in 1965 to a mere $375 with a high population of 120 million in 2004. Further Nigeria’s per capita was $420 in 2000 lower than what it was in 1965. In 2001 it rose to $432, $407 in 2002, $452 in 2003 and further to $510 in 2004. 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, 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 per cent 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 per cent to 10 per cent 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 terriary enrolment, Nigeria, during the same period (1965-1986) achieved 29 per cent. The implication is that while these countries have reached a self sustaining growth, Nigeria has been trapped in debt, $32 billion in 2004, deficit budgeting N315 billion in 2003 and population explosion 120 million 2004. The effect is that the living standard of the populace is on onward decline and this has dragged more Nigerians into the poverty line.

In fact, a recent study by the National Bureau of Statistics shows that more than 70 per cent of Nigerians live below $1.25 a day. The situation has not changed much. These are the realities starring the populace in the face as a new government takes office.

Kalu Ojah, Professor of Finance, Wits Business School at University of the Witwatersrand South Africa in a paper titled “Nigeria: economic priorities are clear – here is what Buhari needs to  do” said “In order to embed a new era of sustainable and inclusive growth, Nigeria must focus on political reform and deepen ongoing economic reforms. Buhari needs to set some early priorities, as well as setting out clearly whether the private or the public sectors should play a more prominent role in the economy”.

Professor Ojah said “Buhari is fabled to be incorruptible but the same may not be said for those around him. Indeed, a major worry is that government-led production could be a concealed platform for high-level corruption and wasteful spending. There is some argument that the drive for profit that usually governs private sector-led production would at least lead to more productivity”

According to Ojah, “Buhari’s victorious APC party is a political coalition bridging both the south-west and north of Nigeria. South-westerners (the Yoruba) have been among those most vociferous in calls to restructure Nigeria’s political re-organisation, particularly during a National Conference convened by Jonathan in 2013. Past national talk shops were evidently just that – talk shops. But this one was different because many Nigerians believed the conference was not convened to placate aggrieved ethnicities or for political foot dragging by someone leaving office. Instead, a reputed chairman oversaw the proceedings; people from all works of life and ethnicities were involved; there was no political interference from the presidency; no subject regarding restructuring of the polity was a taboo. Recommendations in a subsequent report were split into two: those implementable via executive powers and those that needed legislative ratification – both of which Jonathan promised to move towards after the elections.

“Buhari’s administration can get off the starting-blocks quickly by continuing this process, particularly the devolution of power and resources from the centre to states or regions. The north used to be a bastion of agricultural production, while the south had a cottage industry of manufacturing and a high work rate. However, with the fixation on oil, agricultural production has been effectively abandoned. This process needs to be reversed.

“One of the first specific priorities for Buhari should be to avoid the temptation of destructive policy U-turns that could set the country back. Jonathan’s administration made some footprints in the sand when it came to economic reforms that Buhari should follow and deepen. His economic team must build on the established efficient budgeting and fiscal management that befits a rich resource-based economy that is supported by a credible national bureau of statistics producing clear data. There should also be efforts to ease the burden of oil subsidies on the country’s recurrent budget expenditure – which has perennially been greater than 80% of total budget pushed slightly lower under Jonathan’s administration.

Buhari should insist the newly improved, but long overdue petroleum industry bill, which sets out a raft of reforms to the oil sector, gets quickly passed into law. The country also needs to push hard to strengthen the development and management of its capital markets, with a view to making Nigeria a regional hub of finance. This should include a beefed-up, independent Security Exchange Commission, upgrading the Nigeria Stock Exchange’s soft and hard infrastructures, and better linking with capital markets in the West African region and beyond” Ojah said.

The Association of Stockbroking Houses of Nigeria (ASHON) advised the President-elect, Muhammadu Buhari, to implement policies that would deepen the capital market. Mr Emeka Madubuike, the ASHON President, said that the incoming government should pursue friendly policies that would enhance market growth and development. Madubuike said that the new government should embrace the capital market instruments for long-term development projects instead of relying only on money market instruments.

“We will continue to run round the circle because our economy cannot grow on money market borrowings,” he said. According to Madubuike, the new government needs to take a paradigm shift and pursue policies that will transform the economy. He also advised that the incoming government should show more discipline in spending and ensure blockage leakages of resources.

OPS

Chief Bassey Edem, Acting National President NACCIMA, said There is need for the incoming administration to recognize the importance of power to the survival of the industries in this country and ensure that the reforms in the sector are improved upon so as to deliver to the generality of the Nigerian populace much desired stable power supply.

“We also want to counsel the incoming administration to demonstrate the political will needed for the development of  alternative sources of power such as solar, wind energy, coal etc  so as to significantly improve on the power supply in the country.”

According to him, another critical area where manufacturers are facing some challenges is in the area of interest rate, “Interest rate currently hovers between 18 – 28 percent depending on the profile of the firms, which is too high for any productive venture and has negative effect on the global competitiveness of Nigerian firms and their products with their foreign counterparts.

“It is important to acknowledge the effort of the Central Bank of Nigeria (CBN) in addressing the various fiscal challenges in our nation.  However, the continued retention of the MPR at 13 percent is worrisome and is affecting credit availability and liquidity creation from the Commercial Banks.  This continues to exact monetary shocks on the economy, thereby negatively influencing the level of investment in the country and endangering our industries.

“We therefore counsel that the CBN should make effort towards reducing the MPR to a single digit so as to have a reduced lending rate.  The apex Bank should also initiate policies that would create the enabling environment for investors to look inward for investment opportunities in the country.  There is also a need to pursue macro-economic policies, including fiscal prudence which is supported by good monetary policy to contain inflation at single digit,” he said.

In view of the foregoing, going Forward, operators would like the new government under President Muhammadu Buhari, to:

*Review the whole process of Power Sector Reform by conducting an assessment study in order to identify area of challenges; and there is need to overcome the power challenge until the target of 10,000MW is achieved

*They are also demanding that the new government should put in place a financial policy that would ensure a single digit interest rate to drive the manufacturing sector’s growth in line with global trend.

Land and Housing

Mr. S.P.O. Fortune-Ebie, pioneer Managing Director of the Federal Housing Authority (FHA) and former Managing Director of Nairobi-based Shelter Afrique, advised the incoming administration to make funds available in order to subsidise mortgages and as well make land available to the people.

“The most important thing to do to address this alarming housing deficit in Nigeria is that government must make funds available. Whoever is telling  government that housing is not subsidised is a liar. Even recently in  the United Kingdom, the Prime Minister has worked out a scheme for new  house owners with subsidies for students to make them become house owners.

But here, the President is told that housing is not subsidised. All over the world, housing is subsidised. Also, the question of title to land must be concluded and land  made available to people. Also, people who are experts in the built industry should be put in place in the housing sub-sector, and not  charlatans. Once Buhari does these things, the housing problem in Nigeria will be solved,” he stated.

President, Real Estate Developers Association of Nigeria (REDAN), Rev. Ugo Chime, on his part, urged the government to inject more funds into the Federal Mortgage Bank of Nigeria (FMBN) and even restructure it if need be to assist it make houses more affordable for Nigerians.

According to him, government has used privatisation to remove safety nets from the common man. “Government should take steps to beef up the capital base of FMBN. People are contributing 2.5 per cent to the National Housing Fund (NHF) and over 90 percent of these people cannot access the NHF loans due to poor funding by the government,” he said.

In his own submission, Mr Debo Adejana, Managing Director, Realty Point Limited, a real estate firm, declared that financing of housing projects remained one of the biggest problems in the sector. “The major issue is funding, getting appropriate funding. There is money flowing everywhere but the right type of money needed for long term project like housing is not available.

We have not been able to raise so much of insurance money in this country but we have at least tried to raise a reasonable amount of pension fund. These are monies that are put into these kinds of uses anywhere in the world. It’s not enough to just be putting these monies in paper transactions and stock markets. If we can also get some insurance money into real estate in the way that it can fund purchasers, mortgage and construction, it will be a good way of making things more affordable,” he said.

Categories: Analysis,Business,Economy

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