On structural challenges in the economy
On structural challenges in the economyTo what extent have the recession and post-recession policies affected the Nigerian economy?
AKPAN HOGAN EKPO: The recession was driven by problems with both supply and demand in the local economy. The federal and state governments owed workers a lot of money, which significantly reduced spending power. Nonetheless, the economy was then, and remains today, dominated by the petroleum industry, and even with very high crude export figures, Nigeria remains a net importer of refined products. Exacerbating issues, integration between the oil and gas industry and other key sectors, such as manufacturing and agriculture, continues to lag.
The current administration’s Economic Recovery and Growth Plan (ERGP) was an important medium-term strategy to guide the economy through the recession, but a more comprehensive long-term plan to avoid future crises is needed. Nigeria has been able to climb out of the recession, but the main forces underlying growth remain exogenous for the most part. While a number of factors bode well for Nigeria – such as the Organisation of the Petroleum Exporting Countries lifting production limits, the conflict in the Niger Delta region lessening and global oil prices steadily increasing – the country continues to experience stagflation, and unemployment remains high, especially among the younger population. There have been improvements in the agricultural sector, but they have yet to translate into the high levels of labour absorption that would address these underlying problems. Most importantly, the role that the private sector was meant to play under the ERGP has not had a significant impact. In the end, for the economy to go beyond mere recovery, investment in human capital, including education and health, is essential.
What is the best way to further develop the manufacturing sector?
EKPO: Nigeria can and should use its agricultural commodities to industrialise manufacturing. Just as the country exports crude oil and imports refined products, Nigeria is a major exporter of cocoa, but an importer of chocolate; a large producer of cassava, but a net importer of starch; and a major cotton grower that imports clothing. These gaps could be addressed by boosting the number of packaging and assembling plants, and this starts by investing in the agricultural sector.
The UN Economic Commission for Africa in Ethiopia has demonstrated that African economies can grow much faster if their agricultural potential is sufficiently realised. However, previous export and commodities promotion programmes have yet to yield the desired results in Nigeria. So far, improvements have been marginal, with increases in output based more on the exploitation of natural resources and less on advances in science or technology. For instance, there has been a lot of talk about the boost in rice exports, but according to the data, agricultural outputs as a whole fell mostly due to the absence of mechanisation. A modernised agricultural sector with adequate incentives would be transformative for the country, with the potential to boost both GDP and employment.
How prepared is Nigeria to weather external economic shocks?
EKPO: Nigeria remains vulnerable to external shocks. The economy has yet to sufficiently diversify, making it susceptible to another drop in crude prices. Brexit could also have an adverse effect on the local economy, and we need to be prepared to set new terms of trade with the UK to regulate activity between the two countries. Similarly, trade tensions between the US and China are likely to see the latter exporting more goods to Nigeria, and policies should be implemented to prepare for this. Lastly, the country is currently relying too heavily on inflows of “hot money”, as foreign portfolio investments are leaving the country in the run-up to elections in 2019. The pervasiveness of policy reversals introduces uncertainty for investors and is one of the main issues currently affecting both the predominance of hot money and the lack of domestic investment. As such, it is essential to foster an environment more conducive to attracting stable investment flows to Nigeria.
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