GDP down $170 billion in 4-Year as FG struggle to save Nigeria’s economy

• Experts sound alarm on fiscal vulnerability, weak macroeconomic indicators • Leopard not expected to change its spots. Buhari administration tends to over-centralize decision-making, has a policy stance that is caricatured as “pro-poor” - FBNQuest • Strategic reforms needed in seven key areas – Afrinvest • Role of the private sector may be limited –United Capital

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How Nigeria's economy stands

Julius Alagbe

The battle to save the soul of the Nigeria’s economy went off track as gross domestic products sliced $170 billion in four years, MarketForces Africa economic review has revealed.

The nation’s key risk, generally speaking is government’s failure to undertake structural reforms. The government redistributionist policies are not working as informed third party see colour social interventionist moves.

With national debt ramping up, cutting budget deficit is not a priority, and experts wonder how the burgeoning exposure is expected to be settled. Is Mr. Buhari planning to pay off the money he is borrowing in his second term?

For President Muhammadu Buhari, the honeymoon is over. To be reckoned with in the coming election, the progressives have to spend their political capital wisely.

Like in the capitalist cycle, competition would be heavy, and other than any form of revolution, there would likely be economic trigger one. Increased unemployment is a threat to combat.

At the moment, the Nigeria’s economy is undergoing severe growth drought. In 1999 when the country returned to democracy, economy expanded 0.5% to $57.4 billion.

Stakeholders’ expectations for economic resurgence heightened, then by fiscal year 2000 the nation experienced 5.5% growth trajectory.

The political economic characteristic of the day was pro-market in nature, and by 2001 the economy was on the way up.

Then, the GDP increased 6.7% but growth was significantly doubled up 14.6% in 2012 as balance sheet size of the nation clicked $93.98 billion.

On a stable growth trend, by 2007, Nigeria was already blessed with GDP size of $262.215 billion. Then, there was change in government.

However, from 2007 to 2014, GDP expanded to $568.5 billion, which means an absolute increase of $300 billion, was added as growth rate range between 4.3 to11.3 percent.

In-between, Nigeria has two Presidents – Umar Yar’adua and Goodluck Jonathan. The economic thrive strongly on steep Brent price in the global market.

Failure to save enough, diversified revenues sources and lack of sustainable economic policies by institutional control reeled big blow on government finance when oil price receded.

Since 2015, data shows GDP, growth rate is reversing

Nigeria’s economy in number has remained unattractive, due to the fact that both local and foreign investors are incapable to put price on the level of uncertainty in policies directions.

Uncertain policy direction, plus indecisive economic projections forced investors to stay away from making significant investments, thus unemployment level continues soaring unabated.

From $568.5 billion in 2014, the GDP settled at about $397.27 billion in 2018 which means that the economy has gone down by more than $170 billion in less the last five years.

Experts said that the medium to long term outlook for the Nigerian economy depends on the position of government on the implementation of far-reaching economic reforms to fix the structural challenges in the economy.

But government has been unable to come up with reasonable policy strategies to make the economic works.

In an insight released by FBNQuest, the firm reckoned that investors hopeful that growth rates will return to those of the early 2010s will have to be patient.

It said, “Indeed, we wonder sometimes how they were achieved. In this context, we should watch carefully for signs that the new administration is able to translate its healthy majorities in both houses of the National Assembly into a positive working relationship with the legislature”.

On investment, there is decline in number for the past 6-month in the stock market which further confirms that the economic pulse of the nation is relatively weak.

There have been lower private investments, scarce foreign direct investment just as government spending receded with cutback in Federal Government budget for 2019.

Aggregate disposable incomes remained weak, and purchasing power of average Nigerians relatively low compare to period of boom.

Analysis of the macroeconomic indices provides that the nation’s population has crossed 200 million marks, inflation rate settled at 11.22% in July and unemployment rate berthed at 23.1%.

The middle class economy is pressed, moving toward extinction and Nigerians are taking their lives for the first time in history. It has been stories of depression, drug abuse and suicide, all anchored on failed social economic performance.

The nation’s $376 billion GDP gives lower per capital income, and monetary policy rate at 13.5% forcing banks’ lending rate at 30% on the average.

Data shows that the stock market capitalisation – hovering at N13.5 trillion despite the fact that two telecommunication giants joined the bourse.

The nation’s debt to GDP ratio kissed 20% in 2019 and external reserves hang around $45 billion. Pension assets N9.3 trillion and controlled multi-tiered foreign exchange rate at N306 official, and while autonomous fixing rate is trading above N360 and about 90 million Nigerians are poorer now.

In 2014, Nigeria’s GDP was about $569 billion. GDP size doubled up between 2007 and 2014.

Down through the fiscal year 2019, macroeconomic indicators are in red. Some millions of Nigerians have slipped further behind the poverty benchmark and fiscal vulnerability remain largely a key issue government has failed to tackle frontally.

The economic system is largely powered by performance of the oil price in the global market. There have been no serious efforts to diversify national income, efforts in the agriculture and non-oil sector yet to resonate.

Output standard and export channels are yet to align with best practices, thereby non-oil revenue remain low. In term of science and technological development, there are very little efforts with “Almajiris” economic stance of the government.

An Economist told MarketForces Africa that, “Take stable global price of oil out of the equation, Federal Government would have been pressed, economic woes would have been more than bearable as this government lack policy footprint or strategy to reflate the economy and managing home fronts”.

Public debts now more than double the level it was in 2015 as it hit N24.9 trillion in the first half of 2019. FG hide behind initial low price of oil, which resulted to weak revenues in relations to its capital expenditure programs as key driver for ballooned debt stock.

Experts however feel that lack of implementation of government economic policies –Economic Recovery and Growth Plan- key to driving performance.

Indices are getting weaker, businesses are under-performing and poverty is taking space just because of lack of strategic focus, as analysts discussed.

In their notes, many investment bankers position on the issue are not different.

The investment experts and economists tipped FG on fiscal vulnerabilities; as they called for adjustment to the economic structure in such a way to ensure that the next four years of Buhari led administration yield all-inclusive growth for the populace.

According to the experts’ notes on the economy, deviation from key economic policies that would achieve success in various macroeconomic indicators would plunge more Nigerians into poverty.

Afrinvest, one of the leading investment banking firms, advised FG about possible outcome of maintaining status quo via the nation’s economic policy direction.

In its analysts note, Afrinvest is of the  view that President Buhari’s victory presents him a new opportunity to choose between setting the country on the path to prosperity and sustaining poor policy choices with economic consequences of a bleaker growth prospects.

The firm specifically pointed at the Nigeria’s fiscal vulnerabilities as well as her economic structural faults that worsen poverty levels, estimated at 91.3 million people with reference to Brookings Institution.

Unemployment and economic growth require the government to take very decisively tough policy decisions. But, given the socialist leaning of the current government, the question is would Nigerians have to wait till 2023, Afrinvest asked.

The investment banking firm stated that post-presidential elections, it is still unshaken in its conviction that for economic growth to return to the pre-2014 …strategic reforms must take place in seven key areas over the next four years.

The investment banking stated that reforms are needed in Oil & Gas, Power, boosting Competitiveness in Trade and Investment, Transportation & Infrastructure Development, Human Capital Development, Security and boosting Agriculture Productivity.

It would be noted that all the sectors mentioned are facing buckets of challenges that existing policy strategies have failed to resolve.

Afrinvest advises that considering an aging agriculture and mostly rural labour force, high rural to urban migration and the predisposition of youths to modern services, commercial agriculture offers the best chance at restoring food security.

“The cost of inaction cannot be overstated as we herald the start of new administration. The risk factors remain on the horizon and remain poised to break the bonds of this tenuous seal. The country remains vulnerable to oil price shocks as buffers remain weak.

“Crude oil receipts pressure would most definitely filter into FX liquidity risk, which would exert immense pressure on the economy. The issues are rife and seemingly insurmountable, if political expediency remains the first criteria for decision making”, it stated.

In similar dimension, analysts at FBNQuest are of the opinion that it very unlikely that FG will change policy direction significantly. They observe that social intervention programs of the government bought the present administration a second tenure ticket.

In an insight on the economy, FBNQuest reckoned that leopard is not expected to change its spots.

The firm is of the view that unlike in 2015, President Muhammadu Buhari should be able to move fairly quickly to forming a new government since most likely candidates for posts have been vetted.

“The leopard is not expected to change its spots. A Buhari administration tends to over-centralize decision-making and has a policy stance that is caricatured as “pro-poor”. It is not anti-business, rather at times wary of it. We expect therefore more of the same, although hopefully at a faster pace of implementation”, FBNQuest said

It added that; “Being his second and final term in office, Buhari has an opportunity to create a bit of legacy.

“This suggests a further acceleration of the FGN’s capital releases for the infrastructure and of its social interventions such as Trader Moni, the N-power programme, the conditional cash transfers and the school feeding project”.

According to the firm, these steps are designed to soak up new entrants to the labour market, rebuild household budgets and support the diversification of the economy.

The scale of the acceleration depends upon the FGN’s ability to reinforce the modest gains it has achieved in revenue collection.

FBNQuest reckoned that Investors hopeful that growth rates will return to those of the early 2010s will have to be patient. Indeed, we wonder sometimes how they were achieved.

In this context, we should watch carefully for signs that the new administration is able to translate its healthy majorities in both houses of the National Assembly into a positive working relationship with the legislature.

“If it is, we can look forward to smoother passage of the annual budgets and perhaps some progress on the petroleum industry bill. If it is not, we return to the institutional logjam of the first term”, the firm added.

Meanwhile, Financial Derivative Company, FDC noted in its burning economic issue document that Buhari’s election victory signals policy stability.

For the current year, population has been estimated to increase at about 2.6% which is above projected economic growth rate.

Key macroeconomic indices like inflation 11.22%, monetary pricing rate 13.5% and unemployment 23.1% are heavily under watch by the policies makers.

The country’s real GDP growth which closed fiscal year 2018 at 1.93% is considered a bit slower and real GDP per capita at US$2,422 was higher than average in 2018, according to data obtained from Statista. Fitch rates the overall operational risk of Nigeria with 36.0 in 2018, meaning the risk increased compared to the previous year.

Consultants at LSintelligence Associates said that the thing is, Presidential election has been concluded.

“Political risk has been subdued to a greater extent, but degree of confidence to that can be argued. For the economy to gain traction, medium term economic program as contains in the nation’s economic recovery and growth plan (ERGP) must be fully implemented”

In its report, United Capital sees the outlook for the economy over the next 4 years as positive but modest as President Buhari’s victory signals policy stability.

According to the firm, it said clearly, the administration will continue to invest in infrastructure, sustain its welfare scheme, reinforce the drive to substitute imports for local production, and retain its intervention programs across the Agriculture, Power and the SMEs space, by building on its Economic Recovery and Growth Plan (ERGP).

“As such, we expect the budget to remain large, broadly financed by borrowings. However, the role of the private sector may be limited by the absence of far-reaching liberal policies. This may keep investment low, and output growth soft”, United Capital said.

United Capital expects gross domestic product (GDP) growth to sustain a gradual uptick over the next four years, rising from 2.0% to 3.5% or more over the period. Inflation rate is likely to ease 10%/9%, though minimum wage implementation and power tariff adjustment may weigh on prices. Thus, interest rate may revert to its long term 12% over the period.

The firm however remarked that beyond elections, the medium to long term outlook for the Nigerian economy depends on the position of government on the implementation of far-reaching economic reforms to fix the structural challenges in the economy.

“If not urgently addressed, structural constraints such as; the enormous infrastructural deficit, poor electricity supply, sharp rising population growth, dependence on oil export and oil revenue for budget funding, and the problem of the viability of sub-national governments, are bound to mar economic progress”, the firm stated.

It said, notably, system inefficiencies continue to undermine the ability of the FG to diversify its revenue base, enhance social justice, allocate resources efficiently and drive economic diversification.

If the stance of the current administration over the last four years is anything to go by, we do not envisage a significant drive for bold reforms.

“However, we expect investment in infrastructures such as rail project, road, and similar social amenities to continue in a bid to bridge the infrastructural gap.

“Again, the drive to diversify government revenue via improving the efficiency of tax authorities such as the Federal Inland Revenue Services (FIRS), Customs and Ports Authorities, and support the SMEs boost job creation through intervention in the Agricultural sector will continue”, United Capital projected.

The firm however advised that the efforts to ease doing business in Nigeria, via the initiatives of the Presidential Enabling Business Environment Council (PEBEC), by reviewing the bureaucracies and red tapes within the civil service and other government agencies, should be more obvious going forward.