An independence anniversary address by President Goodluck Jonathan on October 1 highlighted some of the encouraging trends in Nigeria’s recent economic performance, although there are still a number of fiscal and structural issues that will continue to constrain growth in the years to come.
In an address to the nation to mark the 52nd anniversary of independence, President Jonathan said that Nigeria had done well in weathering the global economic crisis, posting an average 7.1% increase in GDP over the past five years, with much of this expansion coming from the non-oil sectors.
This is most obvious in terms of the country’s capital inflows. “Nigeria has become the preferred destination for investment in Africa. It is ranked first in the top five host economies for foreign direct investment (FDI) in Africa, accounting for over 20% of total FDI flows into the continent,” he said.
Certainly, in light of Nigeria’s encouraging long-term competitive advantages – including a large population, vast natural resources and accessible industrial feedstock – the country’s performance is not particularly surprising. Indeed, if anything, there is scope for it to grow even faster if some of the operational bottlenecks that Jonathan addressed in his speech can be removed. The president noted that increases in accountability and transparency in the hydrocarbons sector, along with an improved investment climate could all pay further dividends.
However, while FDI inflows are on the rise – with almost $9bn entering the country in the first eight months of the year – so too is national debt. The issue of Nigeria’s borrowing was also raised during the week in which it marked its anniversary. The debt management office (DMO) has warned that national debt levels could climb steadily in the coming years, and that care needed to be taken to rein in borrowing.
According to DMO data provided to the House of Representatives’ joint committee on finance/legislative budget and research/national planning and aid, loans and debt management on October 2, Nigeria’s current debt levels stood at $15.48bn, of which $9bn was external borrowing and the remainder was local debt. Taking into account present and projected borrowing trends, the DMO has estimated that Nigeria’s debt profile will rise to $25bn by 2015, with foreign loans representing $16.7bn and a further $8.4bn in domestic debt.
While this high level of borrowing could prove a problem if Nigeria’s economy does not continue to post strong growth and state revenues fall, at present at least it is more than manageable, with the debt/GDP ratio running at less than 19%, well below the global average of 40%.
Though the expected debt levels may be manageable, the state’s borrowing does pose a problem to the economy, according to Opeyemi Bamidele, the chairman of the House Committee on legislative budget and research, who says the government is draining off much of the liquidity in the market.
“We are aggressively borrowing in such a manner that the private sector is being stifled as the government is now the only big spender in the economy,” Bamidele said on October 2. “The private sector cannot access funds domestically, they cannot create jobs.”
This highlights one of Nigeria’s more stubborn structural challenges. The struggle to create jobs is becoming a matter of concern for the government, as it is linked to other ills besetting the economy and the society. While the economy has been growing strongly, this growth has not been translated into jobs, with data from the National Bureau of Statistics (NBS) putting the unemployment rate at around 24% of the workforce, with more than 18m people seeking work, double the figure in 2007.
Broader concerns over internal security and stability, in addition to ongoing sectarian unrest in the north of the country, also threaten development and have the potential to undermine investor confidence. In early October, the Risk and Insurance Managers’ Society of Nigeria warned that investors and the business community were losing confidence in the economy as a result of the security challenges, with this weakening of sentiment already taking a toll.
That toll is not yet posing such a heavy burden, at least among foreign investors, as can be seen from the strong FDI figures. However, stubbornly high inflation – currently running at just under 12% – rising unemployment and easing consumer confidence, are all eating into the economic gains that have been made, while failings in infrastructure and security problems threaten to undermine future progress.
Though the economy is expanding, and investments continue to flow in, the government will need to do more to ensure the benefits of these factors are spread more broadly across society if it is to build a more solid platform for growth.
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