Nigeria’s economy will worsen as long as its GDP is accelerating at a level lower than its population growth

By Anayo Ezugwu

THE federal government must grow the Gross Domestic Product, GDP, beyond the population growth rate in order to eradicate poverty in Nigeria. Johnson Chukwu, chief executive officer, Cowry Asset Management Limited, said poverty will worsen as long as Nigeria’s GDP is accelerating at a level lower than its population growth.

He said that GDP measures economic activity, adding that while Nigeria’s GDP is growing at 1.9 percent, its population is rising at 3.2 percent.

At the Bloomberg Media Initiative Africa, BMIA, Cohort 4 roundtable held in Lagos, last week, Chukwu said Nigeria’s economy is like an athlete running on a treadmill.

Quoting Aurelien Mali, senior analytical advisor for Africa at Moody’s Investors Services Limited, he said: “Alleviating poverty in Nigeria would be very difficult as long as the country’s Gross Domestic Product, GDP, remains below its demographic trend.”

Chukwu said even the inflation rate that appears to be declining was largely influenced by low consumer spending which is as a result of weak purchasing power. “Declining inflation in Nigeria could be as a result of low consumer spending occasioned by weak disposable income. An average salary earner in Nigeria has suffered a loss of 43.46 percent in the purchasing power of his/her income in the past three years,” he said.

On the federal government’s plan to dole out N5,000 ($14 USD) each to poor Nigerians from the recovered Abacha loot of $322 million, Chukwu said handout does not end hunger. He said what the federal government needed to do was to invest the money in ventures that could create jobs in the economy.

The BMIA roundtable is a quarterly programme of the Bloomberg alumni. This second edition examined the Nigerian economy in the half year of 2018 and the outlook for the remaining part of the year.

Chukwu said some of the factors that influenced the economy in the first half of the year include the delay in passage/signing of the federal government budget, declaration of the incumbent president to re-contest the election, crisis in the ruling All Progressives Congress, APC, worsening homeland security situation (Herdsmen, Kidnapping, Boko Haram, etc.) and gradual resumption of pipeline attacks.

The other factors include: federal government’s borrowing Eurobond of $3 billion in February 2018, gradual substitution of local currency loans with proceeds of Eurobond (Retirement of N 279.67 billion T/Bills in three months), increase in the amount/frequency of dollar sales to the BDCs, disbursement of N380 billion of 2017 Capital Expenditure budget in H1 2018, sustained contraction of monetary policies and low consumer disposable income/weak demand.

Chukwu said in the second half of the year, the decline in inflation rate is likely to reverse due to budget disbursement of capital votes and election spending. He explained that for Nigeria’s economy to achieve sustainable growth and development, it must be driven by productivity, which is in turn underpinned on consumption both for local market and export.

“If an economy lacks the capacity to export and local consumers lack the capacity to consume, such economy will at best enjoy flash economic growths,” he said.

According to Chukwu, the poor performance of the Nigerian equities market was a reflection of the state of the economy. While making projections for the second half of 2018, he said the stock market would likely remain bearish for the rest of the year due to capital flight, which would mount more pressure on the country’s foreign exchange market and cause the spread between the official window and the black market to widen.

He projected that economic growth will be stalled in the second half of the year due to increasing farmers/herders crashes across the country. “The fact that countries are improving the education sector, we are not doing so, is the tragedy of life,” Chukwu said.

– Jul. 13, 2018 @ 12:49 GMT |