Propelling Economic Growth

While the recently released positive first quarter 2021 Gross Domestic Product figures have been welcomed, there is need for policymakers to ensure that the momentum is sustained, writes Obinna Chima

Nigeria recorded a Gross Domestic Product (GDP) growth rate of 0.51 per cent (year-on-year) in the first quarter of 2021, (Q1 2021), compared with the 0.11 per cent recorded in the fourth quarter (Q4) 2020, according to latest figures released by the National Bureau of Statistics (NBS).

The data indicated two consecutive quarters of growth, and represented a slow, but continuous recovery of the economy.

Nevertheless, the GDP growth rate was still below the country’s population growth rate of about three per cent.

According to the Nigerian Gross Domestic Product Report (Q1 2021) released by the statistical agency, quarter-on-quarter, real GDP grew at -13.93 per cent in Q1 compared to Q4, reflecting a generally slower pace of economic activities at the start of the year.

In the quarter under review, aggregate GDP stood at N40.01 trillion in nominal terms.
However, real GDP in Q1 stood at N16.83 trillion.

According to the NBS, the nominal GDP growth rate in Q1 2021 was higher relative to 12.01 per cent growth recorded in Q1 2020 as well as the 10.07 per cent growth recorded in the preceding quarter.

The positive output was mainly driven by the non-oil sector (+0.8%), while OPEC’s production cut commitments led to a contraction in the oil sector (-2.2%).

Unfortunately, notwithstanding the positive GDP numbers reported, majority of Nigerians would not be able to feel its benefits of the growth rate because of the excruciating level of poverty in the country.

Indeed, Nigeria now has over 91 million of its population living in extreme poverty (less than $2 a day). This was up 29 per cent from 70 million in 2016, and had been projected to reach 106.6 million by 2030. The country is now regarded as the world’s poverty capital as the twin shocks of the coronavirus pandemic and the oil price collapse in 2020, had triggered another economic crisis.

Like most oil shocks in the past, it was followed by worsening external imbalances and a devaluation of the naira.

Also, Nigeria’s high unemployment at 33 per cent as well as its falling standard of living mean that the country is effectively sitting on a massive keg of gun powder, according to the Financial Derivatives Company Limited (FDC).

“The poor got poorer while inequality widened. The poverty of today is as a result of low investment in the education sector of 10 years ago. This is evident in the number of out-of-schoolchildren (41 million according to the UNICEF),” it added.

These, coupled with the worsening state of insecurity in the country has seen life expectancy in the country continue to deteriorate.

Need for Pro-poor Policies

Beyond the GDP numbers, analysts have stressed that pro-poor growth strategies and social welfare are crucial to alleviating poverty, even as the government also needs to strongly expand its anti-terror capabilities and create a strong disincentive to the perpetrators.

According to the FDC, poverty has both been a cause and consequence of insecurity in the country, noting that in times of heightened insecurity and instability, the danger to lives and property means increased uncertainty as businesses stay closed or offer skeletal services, consumer and investor confidence fall and business expansion is almost non-existent.

Furthermore, it stated that insecurity also delays the construction of critical transport infrastructure, which should, ordinarily, improve logistics and bolster economic growth.
It noted that the resolution of multidimensional poverty remains one of the biggest challenges facing Nigerian policymakers today.

“It is one that an entrenched system that promotes sharing rather than production has so far failed to tackle. Nigeria’s weak economy is a consequence of its over-reliance on oil and gas and its failure to strengthen its institutions and invest in infrastructure.

“Empirical evidence from countries with success stories in pulling millions of people out of poverty, like China, points to sustained economic growth over extended periods as the barest minimum required.

“China achieved double-digit GDP growth rate over two decades through economic reform and policies that created jobs and alleviated poverty in rural China, and the provision of social welfare.

Additionally, the CEO of FDC, Bismarck Rewane, stressed the need for policies to continue to encourage investments in the country.

“There are a couple of things that are happening that are positive. There is exchange rate convergence happening; interest rates are beginning to climb back up and there are certain amounts of clarity and inflation came down marginally.

“But we still have the challenge of fuel subsidy and whether we like it or not, we have to do it. But the good news is that oil prices are high and our production is increasing and growth is beginning to creep back up,” he stated.

An economist, Dr. Muhammad Rislanuddeen, stated that although Nigerian economy had for the last few years been having sub-optimal growth below population growth rate, the latest GDP figures indicated that the economy was picking up, albeit in a crawling, epileptic manner, from the challenges of COVID-19 pandemic.

However, he added that more targeted interventions should be done, especially in growth enhancing policies and programme to consolidate on the recovery.

He said this would help to reverse the current economic stagflation – high inflation of 18 per cent and unemployment rate of 33.3 per cent.

He said: “In addition, policies on fuel subsidy and foreign exchange market need to be much clearer and predictable to the private sector to support more investment, more jobs and sustainable growth.”

On his part, the Managing Director, Karios Capital, Mr. Sam Chidoka, said: “As a nation, we need to be growing at around four to five per cent consistently. So, in my opinion, compared to where we are coming from in terms of going into a recession, it is good, but compared to where we
should be as a nation, we are doing well and there is still a lot of room for improvement.”
But the Director-General, Manufacturers Association of Nigeria, Mr. Segun Ajayi-Kadir, noted that the reported 3.40 per cent growth rate of the manufacturing sector in Q1 2021 came as a surprise, giving the numerous challenges facing the sector.

He said: “We are currently experiencing the rising cost of manufacturing inputs, so it is surprising to see a rate higher than the rate of 0.81per cent in Q1 2019 and 0.43 per cent of Q1 2020, which were relatively stable periods.”

He, however, appealed to the “government to intensify its intervention initiatives and follow through on the cost reduction aspect of ease of doing business. There is urgent need to create a friendlier operating environment and deliberately support the productive sector in a strategic manner.”

LCCI Director-General, Dr. Muda Yusuf, also stated that the recovery of the manufacturing sector to a positive growth was a surprise.

Yusuf said: “The sector has been grappling with an unprecedented foreign exchange illiquidity crisis over the past few months. This is coupled with the structural, policy, institutional and macroeconomic challenges that have bedeviled the sector. The data does not reflect the reality of the experiences of most manufacturers.”

To the Chairman of President Muhammadu Buhari’s Economic Advisory Council, Dr. Doyin Salami, pointed out recently that embracing mechanised form of agriculture would enhance job creation, improve the security situation in the country as well as ensure human capital development. In order to achieve sustainable economic growth in the country, Salami also called for an improvement in the state of healthcare in the country, just as he lamented that 60 per cent of agricultural output is lost due to poor storage facilities in the country.

“Nigeria’s infrastructure master plan requires us to spend $3 trillion over 30 years and that is about $100 billion a year. Our total foreign direct investment and foreign portfolio monies would not be more than $20 billion.

“The biggest challenge and which I think we must overcome is that challenge of predictability. Investors are afraid of Nigeria and very few can predict can predict what we would do next and they are unwilling to take the risks.

“For as long as we are perceived as a risky alternative, for so long are we not going to make the progress that we desire to make,” he added.

He pointed out that between 2000 and 2012, per capita income in dollar terms in Nigeria was about 10 per cent. The challenge that such growth, even though rapid, was not inclusive and didn’t create jobs, and simply widened the inequality and income disparity gaps.

Salami, revealed that in 30 years, China went from approximately $360 in 1990, such that by 2020, the country was about $10, 700, which was a 30 fold increase.

“Nigeria requires investment, more investment and even more investment. On the fiscal side, a couple of things are required. If you ask in Nigeria how is the budget doing, you are told how much has been spent.

“But they seek to forget that the spending was supposed to achieve certain outcomes; we seldom discuss what those outcomes are,” Salami said.

The economist stressed the need for government spending to be effective and more efficient, saying it was imperative to redefine the focus of government spending.

Furthermore, Salami said there was need for government to facilitate a regulatory environment that promotes capital mobilisation.

Security, ensuring an environment that is able to mobilise capital and concentrating on human capital development are the three key imperatives that the fiscal side must focus on, he said.
For the World Bank, Nigeria can pull out millions of its citizens out of poverty over the next decade through enacting bold reforms designed to boost economic productivity, according to the latest economic analysis.

The bank noted that the country’s productivity–how successfully the economy transforms land, labor, capital and other inputs into goods and services–is presently low compared to peer countries, hindering economic growth, job creation, and living standards.

Without robust productivity growth, it warned that living standards would continue to deteriorate, and the number of people living in poverty will continue to rise, increasing by more than 30 million by 2030.

“Nigeria’s population is expected to grow by as much as 35 million in the next decade, and unless the pace of growth and job creation accelerates, the country will account for a quarter of all people living in extreme poverty worldwide.

“Creating new opportunities for this rapidly increasing labor force will require a new economic model based on productivity growth.”

In addition, the federal government needs to ensure policy transparency and predictability, which would be critical to reduce investment risk and promote inclusive growth.