As is well known, available figures, statistics and
ratings show that the Nigerian economy has
consistently maintained an unprecedented growth
rate of 6-7 per cent under the Jonathan
administration. They also show that the Nigerian
economy is now the leading economy in Africa
and the 26th largest in the world, with a gross
domestic product of over $500 billion per
annum.
Pres. Jonathan at the World Economic
Forum held May 2014, Abuja
Statistical indicators are like a woman’s bikini,
they hide or mask the most important details,
while revealing what, to a casual observer, seem
like a whole lot. Take for example real economic
growth rate: a measure of how much the
economy grew, in real terms. Real growth rate is
essentially a quantitativemeasure. While it
measures the total goods and services produced
in a given year, it does not say anything about
how the quality of life has changed, and whether
or not available resources were used
transparently and beneficially.
As a result, economists have come to the
conclusion that the growth rate of an economy
at any point in time is meaningless unless there
is a context to the discussion. Some ways of
introducing context is to compare performance
to another recent period or to the performance of
peer countries with similar economic
fundamentals. These two exercises should show
whether or not in a particular epoch, a country’s
performance is “unprecedented” or spectacular.
Minister of Finance, Ngozi Okonjo-Iweala,
has, until recently, claimed the Nigerian
economy is in perfect shape
In addition, several countries have introduced
alternative measures of economic wellbeing that
captures more holistically, all aspects of
economic performance. Bhutan, for example
introduced the concept of Gross National
Happiness (GNH) in the 1970s. GNH measures
economic performance in relation to four pillars:
good governance, sustainable socio-economic
development, cultural preservation, and
environmental conservation. In the reckoning of
Bhutanese authorities, if all the four pillars were
performing, the sum total would be higher gross
national happiness.
Several factors affect real economic
performance. The quantity and quality of a
country’s labour force and its natural resource
endowment all affect investment, production and
consumption decisions of economic agents. In
order to steer the economy in a direction that is
over and above what is warranted by labour
force and endowment, governments would
normally introduce fiscal, financial and monetary
policies that support the achievement of both a
higher level of growth and qualitative
improvements in livelihood.
More importantly, because in today’s global
environment, countries do not operate as islands
unto themselves, developments in the global
economy, especially those of major trading
partners, international prices of imported and
exported commodities, and the general flow of
financial resources, all shape a country’s
economic outcomes. While the latter are not
within the control of a country, sound domestic
socio-economic policies on health, education,
environment security and infrastructure will
improve the overall quality of life and the
business environment so as to make the private
sector flourish.
Nigeria’s recent economic performance
Nigeria’s recent growth performance has mostly
been shaped by improvement in global trends
rather than sound economic policy management,
which has actually taken a turn for the worse
when compared to the first few years of civilian
rule. Recent global developments, such as
increase in oil prices (until the recent dip in
prices); the shift in foreign investor’s interest to
developing economies as growth in advanced
economies reached saturation points, have
helped Nigeria to attract foreign investments,
especially in the non-oil sector. As a result, and
notwithstanding poor policy choices,
unprecedented corruption and theft of public
resources, infrastructure deficiency and security
challenge, economic growth during the first six
years of this administration has been relatively
good. However, the performance, as impressive
as it may look, is poor when compared to growth
during the first six years of civilian rule. In
addition, real economic growth does not match
the achievement of other oil producing countries
with similar endowments as Nigeria.
The facts speak for themselves
During 2009-2013, the first five years of
President Jonathan’s administration, real GDP
growth averaged 6-7 per cent, a fact often
touted by the government. But this record is
much lower than that of the first five years of
civilian rule (1999 – 2005), when growth
averaged 11.1 percent. (Figure 1) This is despite
the fact that oil prices were much lower at that
time than now, and foreign investors’ appetite for
Nigeria was not as strong as now. The
difference, it seems, is in the leadership and
policy choices of the different periods. Therefore,
President Jonathan’s achievement can hardly be
said to be “unprecedented”. It’s actually poorer
than his predecessor’s achievements in less
benign circumstances.
FIGURE 1: Real GDP Growth Rate
2000-2013
Lying with data? Some glaring inconsistencies
Many Nigerians have wondered how the high
growth rates being reported are possible given
the “facts on the ground” – to use a well-worn
Nigerian phrase. As explained above, decent
rates of growth is possible in a chaotic domestic
environment so long as external conditions are
largely favourable. Notwithstanding, from a
strictly conceptual point of view, there are
serious reasons to question recent growth data
and the integrity of data more generally, as
would be clear in the following exposition.
Inconsistencies in regional contributions to
growth
To accept current measures of economic
performance and the high growth rates, one
would have to agree that the disturbances in the
North East region, which has brought the
regional economy to a halt in the past two years
with spillovers to neighboring regions, has not
made a dent on growth. Furthermore, one would
have to accept that the oil theft in the Niger
Delta, which the London think tank, Chatham
House, described as “industrial scale” and
estimated at $3bn-$8bn a year, did not impact
on GDP growth. By any calculation, oil theft at
the upper end of this range is enough to lower
the growth rate directly by 1-2 percentage
points, and much more indirectly through the
impact on other sectors of the economy.
Inconsistencies in key macroeconomic indicators
Nigeria’s main macroeconomic indicators have
weakened considerably recently, raising questions
about why the weakness has not impacted on
growth. A few examples will suffice:
Fiscal balances: Nigeria’s fiscal balances are
much weaker than at any time since the
beginning of civilian regime. In the first five years
of President Jonathan, the fiscal account was in
deficit, on average by 4 per cent of GDP. During
the first five years of civilian rule in contrast, the
fiscal balance was in surplus, on average, by
close to 2 percent of GDP. (Figure 2) Again, this
is despite much lower oil revenue earnings during
the earlier period. Even though the Jonathan
fiscal deficit remains small by international
standards, it is still higher than that of many oil
exporting countries which are all accumulating
surpluses rather than deficit and using the
opportunity of high oil prices to invest in long
term infrastructure. What is becoming clear to
critical observers is that the budget deficit is
more or less contrived through an unrealistic oil
benchmark price. With lower revenue and higher
expenditure projections, the result is a deficit
balance. DMO is then required to “borrow” at
excessive cost “to finance the deficit”. But with
the usual less than 70 percent implementation
rate of the budget, nobody has bothered to find
out why there is still a deficit if the budgeted
amount was not spent and why the need to
accumulate new debt!
Public debt: Public debt stock is much higher
than at any time since the Paris Club debt exit of
2006. In 2007, total public debt fell to N2.678
trillion ($3.56billion external debt from $36b, and
N2.2trillion domestic debt). But as of end 2013,
public debt has increased by more than 300
percent to N8.423trillion ($8.2b external, and
N7.1 trillion domestic). (Figure 3).
If AMCON debt and other agencies are included,
the total debt burden is now over N10 trillion. By
end of 2014, Nigeria’s total debt should easily
approach over $100b, most of which were
accumulated in the past 6 years. Given the well-
established negative correlation of debt and
economic growth, how has growth been so
strong?
Debt service: According to 2013 federal budget
data, close to 20 percent of recurrent expenditure
is devoted to servicing debt alone, a contrast to
2007, when only around 10 percent of recurrent
expenditure was spent on debt service. The
major conundrum is the lack of clarity on why
debt accumulation should be so high in the
presence of historically high oil prices, and what
exactly the debt is financing. Furthermore,
government’s policy of accumulating debt at
average interest rates of 13-15 percent when the
same government is receiving less than 3 per
cent on its savings (foreign reserves) beats
economic logic. Why not use some of the
savings to finance the needs and save 10
percent? It will also be interesting to find out
why debt accumulation is bad in 1999-2007, but
is now a good thing.
Foreign reserves: Nigeria’s foreign reserves have
followed a pattern similar to the other indicators
since the beginning of civilian rule. In the
Obasanjo and Yar’Adua periods, reserves high
enough to finance, on average over 7 and 10
months of imports respectively. However, in the
six years of President Jonathan, it has declined
to about 6.3 months of imports. (Figure 4).
When compared with other oil exporting African
countries, in the first two periods, Nigeria’s
foreign reserve accumulation was stronger than
those of other countries. However, in the recent
period, Nigeria is just about catching up with
others. Although stabilization funds exist, the
federal government has struggled to replenish
them, despite high oil prices.
FIGURE 2: Fiscal Balances 2000-2013
The quality of growth
Apart from the growth rates that do not match
economic realities, there are serious questions
about the quality of Nigeria’s growth. Sustained
growth over the years has not made a dent on
poverty, or led to broad-based improvements in
living standards. While some indicators improved
in the early post military era, many have now
nose-dived, as no conscious effort has been
made to skew policies in favour of socio
economic wellbeing. Some examples:
Life expectancy is just 54 years, eight years
lower than in Ghana and 20 years lower than in
Brazil.
The rate of childhood malnutrition is 24 percent,
more than eight times the rate in Mexico.
Basic literacy among 15- to 24-year-olds is just
66 per cent, compared with 99 per cent in South
Africa.
Official estimates of poverty rate vary from 41
per cent to 56 per cent, depending on whether
the poverty line is drawn at 2,500 calories per
day or at US$1.25 per day. However, according
to a recent study, 74 per cent of the population
lives below the economic empowerment line.
This is a more stringent definition than “poverty
line”. As a result, there are still 32 per cent of
the population that are above the official calorie-
based poverty line but are not “economically
empowered."
Infrastructure continues to be a major challenge:
electric power, transportation infrastructure,
telecommunications infrastructure and Internet
and broadband access is limited. Water and
wastewater systems are nonexistent outside a
few cities.
Reputation for widespread corruption remains
high, ranking at 139th out of the 176 countries
on Transparency International’s 2014 Corruption
Perception Index.
World Bank governance and business
environment indicators are much weaker than for
oil exporting or African peers. Nigeria ranks
158th out of 189 economies for trading across
borders. Global Competitiveness Report of the
World Economic Forum for 2013-2014, ranked
Nigeria 120th out of 148 countries in the Global
Competitiveness Index.
Nigeria’s budgetary process is now adjudged one
of the weakest in the world. In the annual “Open
Budget” Survey, Nigeria’s ranking has declined
progressively since 2006, and in the latest
ranking for 2012, Nigeria scored 16 per cent.
This does not compare favorably with the
performance of South Africa (90%), Uganda
(65%), Ghana (50%) and Angola (28%).
FIGURE 3: Government Debt 2000-2013
The size of the economy
Many Nigerians are somewhat puzzled about the
new size of the Nigerian economy relative to
their quality of life. Yes indeed, the Nigerian
economy is now the largest in Africa, but size
does not correlate with quality of life. Apart from
a higher per capita income due to the larger size
of the economy, many of the other indicators
merely confirm that the economy has been
underperforming all along, as several indexes
now put Nigeria at a much lower ranking than
other African countries. Sadly, the government is
focusing on trumpeting the good ratios, rather
than focusing policies on how to improve some
of the poor ratios below:
Though Nigeria’s per capita income rises in line
with nominal GDP but it remains well below peer
group medians as well as those of oil-producing
Angola and Gabon.
FDI now falls to less than 1% of GDP, which
shows that Nigeria has one of the lowest levels
of FDI inflow in the Africa region.
With non-oil fiscal revenue now falling to around
4% of GDP, the overdependence of the economy
on oil is even more stark than in the past, and
compared to other countries, Nigeria now has
one of the weakest revenue mobilization ratios of
Sub-Saharan Africa peers.
Financial market development which is usually
measured by money supply in percent of GDP is
now just around 19% of GDP. Compared to
Mauritius (99 %), South Africa (74 %), Kenya (42
%), and Angola (37 %). These show that Nigeria
has one of the least developed financial markets
in Africa.
FIGURE 4: Foreign Reserve Accumulation in
Months of Imports – Nigeria and Other
African Oil Exporters
All things considered, the 6-7% of GDP growth
rate is neither unprecedented, nor a superior
achievement, relative to past governments. The
performance is not the result of policy choices,
but favourable external environment. While the
revision to GDP is a credible exercise that
confirms the size of Nigeria’s economy, it also
shows how poor performance has been all along.
It’s time to focus on better economic outcomes.
Note: PREMIUM TIMES relied on Federal
Government of Nigeria publications, International
Monetary Funds and World Bank web sites for
this report.