The new report by the NESG says that the poverty situation in the country has worsened as growth remained non-inclusive and that more than 100 million people live in poverty and that the weak linkage between economic growth and socio-economic impact persists as poverty becomes endemic
By Goddy Ikeh
AS Nigerians are pondering how best to cope with the harsh economic realities in the country in the midst of challenging security situation, the Nigerian Economic Summit Group, NESG, has published its Outlook for the Nigerian economy in the new decade. In the report, it posed the question “Can Nigeria Fix its Poverty Challenge in the New Decade?
In the foreword, Laoye Jaiyeola, CEO, NESG, noted that the Nigerian economy is still on the path of recovery at a slow momentum and high level of fragility. Real GDP expanded by 2.28% in the third quarter of 2019, averaging 2.17% in the first three quarters of the year, while inflation rate averaged 11.4%, but closed the year at 12% following the effects of the land border closure.
He said that the exchange rate stability was sustained on the back of continued Central Bank of Nigeria’s interventions, while the foreign exchange reserves depleted significantly due to dwindling inflows from foreign portfolio investors and moderating oil prices.
On the social aspect, he noted, that the poverty situation worsened as growth remained non-inclusive – over 100 million people live in poverty and the weak linkage between economic growth and socio-economic impact persists as poverty becomes endemic.
The report, however, stated that high economic growth, job creation, and poverty reduction should be the major national economic agenda for Nigeria, noting that Nigeria has been on a weak economic growth trajectory since the recession in 2016. Economic recovery is slow; many of the major sectors that have a huge weight on employment are underperforming, therefore limiting the number of jobs that are being created to cater for the increasing labour market entrants.
“Given this, accelerating growth should be a fundamental objective of the current administration. However, the Nigerian experience in the early 2000s has shown that achieving a high growth does not guarantee a significant reduction in unemployment and poverty. Therefore, the emphasis should be on achieving high growth that is inclusive, sustainable and one that addresses the problems of unemployment and poverty.
“Poverty remains a major challenge for Nigeria. Data from the National Bureau of Statistics show that 54% of Nigeria’s population in 2016 (104 million) were considered poor. The latest National General Household Survey released in December 2019 also showed that 32% of Nigerian Households faced food shortages within the last 12 months of the survey, while 44% of Households reported being unable to eat a healthy and nutritious/preferred food due to lack of money.
“The poverty situation is dire and more prominent in the Northern part of the country, particularly the North East and was made worse with the insecurity challenges in the region,” the report said.
It recalled that the Nigerian government has set the agenda to lift 100 million Nigerians out of poverty in the next 10 years and that this would mean lifting 10 million Nigerians each year over the next 10 years. “The realisation of this ambitious goal would mean the attainment of high and sustained economic growth that delivers a significant number of jobs per annum as well as the swift implementation of massive social protection and conditional programmes that target the poor and the near-poor,” the report noted.
The report also noted that while this goal appears to be overly ambitious, it wondered how many jobs need to be created to lift millions out of poverty and at what growth rate should the economy expand to achieve this significant feat?
In addition, the report posed the following questions: which sectors will drive this growth? What are the priority areas that can be unlocked and what must we do differently to achieve these goals?”
According to the report, Nigeria’s slow growth has been associated with two main features which include the heavy concentration of growth in very few sectors and lower investment inflows into major sectors of the economy, exemplified by the poor performance of both local investments and Foreign Direct Investment (FDI).
On the first feature, data from the National Bureau of Statistics, NBS, show that there are 46 activity sectors that capture all aspects of the economy. Out of the 46 activity sectors, only three significantly contributed to economic growth in the last three years. These are Telecommunication and Information Services (42%); Crop Production (41%) and Crude Petroleum and Natural Gas (19%).
The remaining 43 sectors performed poorly below 10% pointing that economic growth remained largely skewed towards only a few sectors while the remaining have been underperforming.
Such a skewed growth pattern implies that many sectors that have significant growth potential are not contributing their potential quota to growth. For instance, 33 out of the 46 sectors contributed from 0% to 1% to overall growth in the last three years. Major economic sectors such as Trade and Real Estate have continued to weigh down economic growth in the period, despite their significant share in GDP.
“This, therefore, presents opportunities for government policy to target and revive the performance of these sectors as they could immensely drive GDP growth in the medium term. Government efforts must be centred on providing adequate incentives for producers and addressing specific sector bottlenecks to support local production. Driving growth of these sectors would mean accelerating overall growth, which has a significant impact on job creation and poverty reduction. The expansion of these sectors is expected to alter the composition of the economy. Within the last three years, there has been no change in the structure of the
Nigerian economy. The Services sector continues to dominate led by Trade while Agriculture, driven by Crop production continues to account for a quarter of the economy. As Nigeria moves into a new decade, progress on the economic front should be reflected in the structure of the economy, which should tilt towards the industrial sector given Nigeria’s fundamental role as Africa’s largest economy as well as the need to pursue export-led growth,” the report said.
The report explained that one major reason for the slow growth in FDI is uncertainty in the policy space at both federal and state levels and because FDI is capital intensive and requires real investments in physical assets and are in most cases long term in nature, policy clarity and consistency are fundamental in attracting and retaining both local and foreign investments of large magnitudes.
It noted that in the last few years, there has been the introduction of several ad-hoc policies such as the closure of land borders or policy/project reversals such as the Nigerian Air, the Vision Scape project by the Lagos State government, among others.
“On a bright note, the economy has huge growth potential – abundant natural resources, arable land, large and cheap labour force, and a large market. What therefore is missing is the political capital to drive reforms that will open-up major sectors for large investments.
Efforts to support growth have majorly emerged from the monetary authorities particularly the Central Bank of Nigeria through several measures and interventions. Some of these include the increase in the loan-to-deposit ratio, direct intervention in the form of lending to the real sector- textiles, dairy, etc.
It, however, suggested that going forward, the fiscal authorities – Presidency and government MDAs- will need to step up in steering the direction of industries, addressing pressing constraints facing the business environment and providing incentives to support business growth, while favourable FDI policies, fiscal incentives, and removal of undue bureaucracy are necessary for achieving high economic growth and FDI inflows into strategic sectors.
It advised that the government should complete the power and energy sector deregulation process by opening up the transmission segment of the power value-chain to private participation and investments.
The policymaking approach must be properly coordinated and consistent with existing plans. Engagement with relevant stakeholders before critical decisions are made should be practiced across the board and relevant government MDA must conduct detailed cost-benefit analysis in the process.
The drawback to infrastructural development is the inadequacy of government resources to cover the country’s infrastructure deficit. Hence, the Public-Private Partnership model is one of the ‘golden bullets’ which countries use to tackle their infrastructural financing problem but Nigeria has not been doing well in this regard.
“Going further, the government needs to strengthen all laws governing PPP agreements and must demonstrate sincere commitments to uphold agreements and protect investors.
Paramount to economic growth and development is the quality of human resources in terms of their skill and knowledge. Expanding the skill sets of the population increases labour productivity and adds value to the economy. Thus, the government should conduct a nation-wide skill gap (Gown & Town Skills Mismatch) and identify a mode of learning/instruction to fill the gaps – use and upgrade of more non-formal education institutions to meet the future skills need of the country.
The report said the signing of the 2020 Appropriation Bill into law in December 2019 was a positive move, which would make certain a level of positive investors’ sentiments towards the economy. Additionally, urgent reforms of the procurement process to allow for timely execution of capital projects, efficiency, judicious use of public resources should be urgently implemented.
It canvassed the review all current subsidy or market-intervention programmes such as the fuel subsidy, electricity, and foreign exchange market interventions by the CBN, which create distortions across markets. According to the report, the continuation of these subsidy programmes usually discourages investments and inflows of needed capital in operating sectors.
“Hence, gradually ending these programmes and repositioning government as a regulator will help to free some funds for infrastructure development,” it said.
On the new Finance Act, the report noted that the introduction of these taxes and charges will improve non-oil revenue; however, the challenge for fiscal authorities is levying several taxes and charges on an economy that is recovering with economic growth still low at 2.3%. This could, therefore, have unintended negative effects on growth either through reduced consumer spending or reduced margins for businesses. Revenue drive should, therefore, be implemented with caution going into 2020.
“Inflationary pressure will remain high in 2020 on the basis of the continued closure of land borders, the introduction of taxes and other charges directed at consumers and businesses as well as sustained pressure on businesses arising from an infrastructure deficit, poor power supply, high cost of credit, etc.
Early passage of the budget is expected to result in improved capital spending, which is much-needed to stimulate economic growth and facilitate the delivery of infrastructure across the country. With oil prices expected to stay above the budget benchmark of US$57 per barrel in 2020, Nigeria has an opportunity to grow the excess crude oil account, improve external reserves and meet its oil revenue target to fund the 2020 budget.
It, however, concluded that the new decade will come with complex challenges emanating from rising population, rapid urbanization, the advancement of technology which will influence the future of work and skills, changing ecological situation and the adverse impact of climate change among other factors. These factors will create significant pressure on food, jobs, infrastructure, social amenities, and human capital.
“The onus, therefore, is on policymakers to be spontaneous and proactive in dealing with these challenges, adopting innovative and home-grown strategies to deliver accelerated growth and enable the creation of sustainable jobs and reduction in poverty across the country.
“Incentivizing private sector investments into strategic sectors as well as repositioning government towards becoming efficient and effective are crucial interventions that need to be implemented in the new decade to ensure that Nigeria is not left behind in the league of fast-developing nations,” it added.
– Feb. 10, 2020 @ 18:49 GMT |