Economy: Growth Only in Theory

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Okonjo-Iweala

By Maureen Chigbo  |

NGOZI Okonjo-Iweala, minister of finance and the coordinating minister of the economy, is fond of reeling out quick facts about the economy. She is also fond of saying that she is not marshalling all the facts to convince doubting Thomases that the economy is on the right track but to arm them with the facts to help them understand the very dynamics of the economy. She did it in 2011, at the town hall debate on the petroleum subsidy. The audience then was captivated by her performance and at the end of her factual presentation, most, if not all present, were convinced that the federal government has a case for the removal of fuel subsidy.

Jonathan
Jonathan

But when the federal government misread the public disposition and ignominiously removed the fuel subsidy, the economy recorded a colossal shock occasioned by the fuel subsidy protest early 2012. Needless to state, that the protest grievously upset economic calculations for the period and the country is still reeling from the federal government’s inability to muscle the political will to deal with the isssue, especially corruption that in inherent the subsidy regime once and for all. And so the evil day for the removal of fuel subsidy, albeit deregulation of the industry, is still lurking in dark corners of the country and sending jitters down the spine of everybody who dares to broach the issue, especially with the court banning government from removing it.

As the coordinating minister of the economy is accustomed to, very recently, Okonjo-Iweala presented her usual factual quick overview of the economy to Nigerians in South Africa, where President Goodluck Jonathan paid a state visit, the first by any Nigerian president since the fall of the aparthied regime there. Again, she did her engaging run of facts on the economy. And within five minutes, she talked about all the various economic indices ranging from inflation figures, national debt, external reserves to excess crude. Anybody, who listened to her would think that the rosy picture she painted is real and that the trickle-down effect of the economic growth she touted is already taking place in the country.  That could not be farther from the truth based on the fact that the economy has, over the years, not witnessed real growth. Whatever growth the economy has recorded is basically nominal with the real sector being left out of the equation.

But before getting down to the nitty-gritty of the economic decay in the last two years since Jonathan took office, it would be pertinent to look at the detailed statement of the coordinating minister on the state of the economy as she presented in February. In that statement, she was categorical that Nigeria’s economy is strong. She even clarified issues that have been raised in recent times about the health of the economy stressing: “Our economic performance is robust when viewed against a whole range of objective factors. Inflation is now down to single-digit at 9.0 percent in January 2013, compared with 12.6 in January 2012. The exchange rate has been relatively stable, and the fiscal deficit at just under two percent of the GDP is on a downward trajectory, and below our threshold of three percent of the GDP,” She continued: “Our national debt is at a sustainable level of about 19.4 percent of GDP. Overall, the GDP growth for 2012 was 6.5 percent and projected at 6.75 percent for 2013, compared with the projected global growth of 3.5 percent.” She also said that these facts have been independently noted and validated by international ratings agencies (such as Fitch, Standard & Poor’s and Moody’s) who have upgraded the country’s economic outlook, even as other countries are being downgraded.

Nebo
Nebo

In addition, Okonjo-Iweala said Nigeria’s bonds have recently been included in the Barclays and JP Morgan Emerging Market indices. “Of course, we recognise the socio-economic challenges which we face as a nation. We know we still have a long way to go but let us keep working to correct what is wrong and stop focusing on the denigration of what is being done right. In this regard, we need to create more jobs for our youths to curb unemployment. Poverty needs to decrease at a faster pace, as we do not want excessive inequality to be a feature of our economic growth. For example, the recent poverty statistics released by the National Bureau of Statistics show a slight decline in poverty levels of about two percent between 2003 and 2010.

“This needs to be further accelerated. The cost of governance also needs to be reduced, and the government is taking steps in this direction. We have reduced the share of recurrent expenditures in the budget from 74 percent in 2011 to 71 percent in 2012, and to 68 percent in 2013. We aim to push for a 60 percent recurrent and 40 percent capital budget ratio in the medium term.”

According to her, as part of the transformation agenda, Jonathan has emphasised the need for the diversification of the economy to promote inclusive growth and job creation. This is being achieved through investments in agriculture, housing and construction, manufacturing, aviation, power, roads, rail, solid minerals and the information and communication technology, ICT, sectors by both government and the private sector. These sectors are gradually transforming the economy, and creating jobs in the process. The economy is moving in the right direction, Okonjo-Iweala said.

From her point of view, Nigeria’s reported level of external reserves comprised three parts: the CBN’s external reserves, the Excess Crude Account, and the federal government’s funds belonging to agencies such as the Nigerian National Petroleum Corporation for joint venture cash calls and so on. This is simply a matter of definition, and follows international best practices and reporting guidelines. It is thus unnecessary to continue to dwell further on this issue. “There have also been claims of inconsistency of account balances provided by the ministry of finance and the CBN. It is worth noting that the ministry of finance typically reports its balances following Federal Accounts Allocation Committee, FAAC, meetings, which often take place at the middle of the month, whereas CBN data are reported at the end of each month. There is thus a time lag between the reports from the two institutions. As a result, there are usually some differences due to ‘transit items’ which are yet to be reconciled in both accounts. In addition, for quite a while, the CBN excess crude reports have included the $1 billion allocated to the Sovereign Wealth Fund as this is still domiciled with the CBN, whereas the ministry of finance does not regard it as part of the distributable Excess Crude Account.

“We provide the monthly balances of the Excess Crude account reported by the ministry of finance and the CBN for the period June 2012 to January 2013. As can be clearly seen, after accounting for the $1 billion allocated to the sovereign wealth fund, SWF, the differences are minor and are the result of time lags in the reporting mentioned earlier. Nigerians should closely judge for themselves the reasons for the discrepancy and whether the ministry of finance and the CBN are so muddled in their accounting as some would like to suggest,” she said

Oduah
Oduah

On issues raised regarding the rate of growth of the foreign reserves and the Excess Crude Account, Okonjo-Iweala recalled that the Excess Crude Account was established partly to provide a cushion for the Nigerian economy in times of a global downturn. “In this regard, all the three tiers of government relied on savings in the Excess Crude Account to plug the shortfall in their revenues following the collapse of oil prices in 2008. Moreover, there have been withdrawals from the ECA to pay for petroleum subsidy claims which increased sharply in recent years from N291 billion in 2007 to about N2188 billion in 2011. Finally, there has been the increased loss of oil revenues due to an upsurge in the incidence of illegal crude oil bunkering and oil theft.”

Okonjo-Iweala fervently believes that the outlook for the Nigerian economy remains good, despite the current global economic uncertainty. “We accept that government should be accountable to their citizens, and transparent to its people in terms of information, particularly regarding public finances. In this regard, we have made efforts to publish revenues allocated to all tiers of government: we have published the federal government’s budgets down to the last details, and we have published the subsidy reinvestments, SURE-P, payments to all tiers of government. We have also published subsidy payments to oil marketers and further published the names of companies that defrauded the government in the oil subsidy regime. We will continue to make every effort to respond to demands for greater transparency because we believe this lies at the heart of good governance.”

To lend credence to Okonjo-Iweala’s postulations on the economy, Chinedu Nebo, minister of power, said that power generation has moved from about 2000 megawatts which the Jonathan administration inherited, to more than 4000 megawatts. Power is especially important because many artisans have been thrown out of work while manufacturing and textiles companies closed shop due to epileptic power supply. It is also pertinent to note that the power reforms of the Jonathan administration which started in earnest with the launch of the roadmap for power in 2010 is on course. The power sector privatisation process is on and already, successful bidders have paid 25 percent of the bid offer. They are expected to pay the remaining 75 percent in less than 90 days after which they will take possession of the distribution companies. Also, Nebo had said that the handing over of the national integrated power projects, NIPP, will make power supply more stable soon. There has also been a lot of investment in the gas-to-power supply infrastructure, which is geared towards boosting power supply and gas utilisation for both the domestic and external market.

Another visible achievement of the Jonathan administration is the new look airports which have undergone extensive remodeling. The railways are also being refurbished to make them more efficient and effective. The agriculture sector is also being revamped especially with the proposed controversial buying of mobile phones for farmers in order to improve their access to farming inputs such as fertiliser.

Nevertheless, two key things that matter much in the economy, which are receiving cosmetic attention are the youth unemployment and the widening gap between the rich and the poor. This situation is made worse by the poor performance in the real sector where little or no growth has been recorded over the years. The ministers’ quick runs on facts on the economy did not say what kind of growth that is being recorded in the manufacturing sector where capacity utilisation hovers at below 40 percent with the attendant high cost of production mostly due to incessant power outages. This is a pity because this sector ought to help to mitigate the unemployment situation in the country especially when they are healthy enough to hire more hands. The result is that the growth in the economy is concentrated on only one sector – the oil and gas sector, where production of oil has increased to about 2.7 million barrels per day mainly because the Niger Delta restiveness has been checked with the amnesty deal.

This sector generates more than 80 percent of the country’s revenue. The worse thing about this huge revenue is that it has hardly trickled down to the man on the street over the years. Instead, it has exacerbated the poverty indices in the land as the wealth of the nation is in the hands of one percent of the population while the remaining 99 percent wallow in various levels of poverty. Oil production and exploration have equally devastated the environment in the Niger Delta wasting the flora and fauna. It has also destroyed fishing habitats thus rendering more people out of work. The worst of the oil spill happened last year in Okoloma and Bonga where about 40,000 barrels of oil were spilled to the detriment of the environment.

Umar
Umar

Another indicator that the economy is not doing well is the rising level of poverty in the country.  In Nigeria, almost 100 million people live on less than $1 a day despite the strong economic growth that has been touted. The percentage of Nigerians living in absolute poverty — those who can afford only the bare essentials of food, shelter and clothing — rose to 60.9 per cent in 2010, compared with 54.7 per cent in 2004, according to the National Bureau of Statistics. With all the nominal growth projections of the economy, poverty is likely to get worse as the gap between the rich and the poor continues to widen.

Perhaps, this prompted Yemi Kale, statistician-general of the federation, to state that: “It remains a paradox … that despite the fact that the Nigerian economy is growing, the proportion of Nigerians living in poverty is increasing every year.” Nigerian Bureau of Statistics, NBS, estimated that this trend might have increased further in 2011 if the potential positive impacts of several anti-poverty and employment generation intervention programmes were not taken into account,” Kale said. Most effected in the poverty belt are the North-East and North-West, where the Boko Haram sect has been wrecking havoc. The South-West, which includes Lagos, the thriving commercial hub, had the lowest level of poverty while Sokoto and Niger states topped the list of the poorest states in Nigeria as the poverty rate hit 71.5 per cent.

Closely allied to poverty is the high rate of unemployment and corruption which has markedly distorted development indicators in the country, Youth employment is estimated at about 56  percent, according to World Bank statistics released in 2012. Also in 2012, although the Nigerian economy measured by real GDP was projected to grow at 6.50 percent, it recorded a decline in the annual growth rate compared to 2011. In the same period, inflation was projected to rise to 13.57 percent due, to some extent, to the higher price levels in the economy following the partial removal of the PMS subsidy. The NBS projects inflation rates of 12.21 percent in 2013, 12.04 percent in 2014 and 11.91 percent in 2015 contrary to the figures presented by the minister even though it said it was important to note that these projected rates also depend on the responses of the Central Bank of Nigeria, CBN, through its monetary policy which has set its sights on single digit inflation. In fact, the moderation in price levels in 2011 could be partially attributed to the decisions by the CBN during the period.

The value of total trade for the country was expected to decline by 11.03 percent in 2012. This is expected to be partly due to the import ban on certain food products that took effect in 2011. The decline was attributed to a decline in crude oil exports possibly due to supply disruptions that occurred during 2011. Also crude oil exports have also declined because of crude oil theft which has also negatively affected the revenue accruing to the government. About $7 billion is lost to crude oil theft annually. Further out into the near term, the value of total trade was expected to rebound in 2013 to 11.25 percent, followed by 20.6 percent in 2014 and 16.44 percent in 2015.

There may be silver lining in the horizon as the economy in 2013 is projected to grow at a faster pace as the effects due to the partial repeal of the fuel subsidy are expected to dissipate. The NBS expects the economy to grow at a respectable rate of 7.43 percent in 2014 and 7.25 percent in 2015.  The projected growth rates may be further accelerated due to economic reforms expected to kick-in in the near future. As the current administration is looking to reform key sectors such as agriculture and power, coupled with increased public (capital) expenditure, these are likely to put the economy on a higher growth path.

— Jun. 3, 2013 @ 01:00 GMT

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