Nigeria: The Economy and 21 Years of Democracy
By Timi Olubiyi, Ph.D
The fact that there has been political stability and democratic governance since 1999 is a laudable development for the country and it makes Nigeria a desired investment destination. A stable democracy for 21 years gives a good perception of the country despite the many challenges.
Although, where there is economic growth, there should be increases in outputs of some variables, such as the national product, human capital, national income, improved level of technology, health, education, urbanization and infrastructures among others.
Consequently, the federal government and regulators need to wake up and continue to improve on these aforementioned variables and also strive to provide an enabling environment for sustainable economic development.
Nigeria, Africa’s most populous country, is still heavily reliant on oil. Crude oil represents more than 80 percent of total export revenue, according to the Organization of the Petroleum Exporting Countries (OPEC).
The price of Brent, the benchmark for Nigeria’s crude oil fell below $25 a barrel for the first time since 1999, reaching a two-decade low in April 2020 mainly due to demand fall on fuel and energy globally.
Although oil prices have doubled to $40 per barrel in the last one month, the Naira can be under continuous pressure with reduced foreign exchange from crude oil earnings.
The decline in foreign earnings with global shock in crude oil demand or price has been detrimental to economic development over the years and for the year 2020 budget considerably. Because it could threaten the implementation of the federal fiscal budget and the financial stability of the State governments with heavy reliance on federal allocations for salary payments, project implementations, and bills payments, all due to reduced export crude oil revenue expectations.
Consequently, it is pertinent to note as a country, we must explore other avenues to make our economy viable rather than depend solely on crude oil for foreign earnings
The option is to focus on the non-oil sectors and give it optimal attention such as the manufacturing, agriculture, information technology, and most importantly the SME sector which can drive job creation, improve industrialization, increase GDP performance, and play a crucial role in the process of economic growth.
It is important to state that broadening revenue base with the non-oil sector looks opaque if there is no guarantee of at least a steady power supply, as this is the sustaining force of any productivity in an economy.
A steady power supply in Nigeria will affect the economic activities in the country and the cost of doing business. The country’s economy can only attain and maximize its potential if there is a consistent power supply. The government needs to do more in ensuring the availability of this very important infrastructure in the country.
The drive for foreign direct investment also needs to be intensified. Agreeably, to attract more investors and deepening the country’s economy, corruption, insecurity, rule of law, inadequate infrastructure, feeble economic policies, and the current macroeconomic uncertainty challenges need to improve to attract foreign investors and in the improvement of our environment.
Formulating appropriate policies to attract FDI is crucial at this time especially Post-COVID because it will greatly improve foreign capital inflows.
Significantly, much attention needs to be given to the issue of persistent insecurity in the country and the anti-corruption drive of the government needs to be stiffened to attract applaudable foreign portfolio investments into the country, which in turn will boost employment.
Furthermore, the policy of ease of doing business in Nigeria can be upgraded to include foreign portfolio investment policy options needs to reflect in the policy. Furthermore, FDI-incentives (tax-related) needs to considerably increase to attract foreign participation in our economic landscape, this is important because it will assist with economic recovery Post COVID.
That said, the way it is right now, the Nigerian crude oil revenue expectation has declined by more than 60 percent due to the current realities especially the dwindling crude oil prices.
The initially assumed benchmark according to the Ministry of Finance was oil price at $57 a barrel, reduced to $30 a barrel, and now further revised to a worst-case scenario of $20 a barrel. In the same vein, the benchmark production was also cut to 1.7 million barrels per day (bpd), from the 2.1 million bpd initially proposed in the year 2020 budget.
These are part of measures to meet the fiscal year budget expectations. However, cut in excessive and heavy recurrent expenditures is suggested for significant and positive impact. The country may need to observe austerity measures in all arms of government.
Significant cuts need to be made to our national overheads and non-essential statutory spending. Our economy will strive more on infrastructure development spending, not on recurrent expenditures.
Consequently, the investment could be concentrated more on health, education, and infrastructure development. To avoid being a debtor nation, debt financing is bad at this time if it is secured only to finance consumption.
If we improve on infrastructure the economy of Nigeria will bloom because it will impact the non-oil sector and create job opportunities.
Because of the impact of the COVID-19, the Central Bank of Nigeria (CBN) on behalf of the federal government can include further economic stimuli to non-oil sectors to boost production, reduce job loss, and enhance economic activities in Nigeria especially the agriculture sector and the SME sector.
As it stands, our country has a readily available market because of the huge consumer population but there is a need for government to remove factors that have continued to constrain the SME sector such as erratic power supply, decrepit infrastructure, and excessive tax burden among others.
SMEs and the agriculture sector can create employment opportunities, boost exportation activities, improve the Nigerian economy, and boost foreign exchange earnings if the sector improves.
Besides, government and stakeholder palliatives, policy reforms, sound initiatives, and social intervention programs targeted at reducing the effect of COVID-19 pandemic, and unemployment are important at this time to reduce the negative economic impact of the pandemic.
The economic impact of the deadly virus is very high and perhaps the government might need to consider more pragmatic palliatives such as social and fiscal policy palliatives, concessions on import trades because Nigeria is import-dependent, duties and port charges waiver to reduce the value chain disruptions and improve service deliveries, more low-interest credit facilities and tax breaks- particularly cutting taxes to increase and improve disposable income needs to be considered at this time.
Most SMEs run their businesses on loan facilities and the current situation has impeded their capacity to service these loans effectively, so government intervention is required to forestall massive business shut down.
As a nation high importation, capital flight, and weak capital importation are some of the challenges that the government should face with policy responses to reduce the negative impact on the country’s economy.
It is advised that the pandemic requires priority attention and a collaborative mechanism to flatten the COVID-19 curve of incidence progression and also yield measurable results.
For the sustainability of our democracy, I encourage the government to consider citizen engagement more and also strengthen the harmonization of national citizen database (BVN, driver’s license, national passport, NIN among others).
Citizen data management, in my opinion, is a developmental infrastructure that can provide critical insights into the trend of human actions, practices, behaviours, and social impacts. It can help in a variety of other ways, such as public service improvement, designing of policies, public health development, public safety, national security, national development, and poverty reduction. It can also help in developing empirically-proven techniques for fostering human and capital development.
In conclusion, citizen participatory approach to governance and for public agenda-setting is strongly recommended. Happy democracy Nigeria!
How may you obtain advice or further information on the article?
Dr Timi Olubiyi is an Entrepreneurship and Small Business Management expert. He is a prolific investment coach, Chartered Member of the Chartered Institute for Securities & Investment (CISI) and a financial literacy specialist. He can be reached on the twitter handle @drtimiolubiyi and via email: [email protected], for any questions, reactions, and comments.