Prof. Adeola Adenikiju is a Petroleum Economist and the Head of Department, Economics, University of Ibadan, Oyo State. He told the Managing Editor, Sustainable Economy, Clara Nwachukwu that sustained positive gross domestic product (GDP) growth is possible if Nigeria’s security challenges are decisively tackled. Excerpts:
Looking at the Q2 2021 GDP growth rate, what do you think is responsible for this quantum leap by 5.01%?
I think it is very good that we were able to record that level of growth in the second quarter. The thing is, if the Q2 is good, it is usually very good and if it is bad, it will be very bad. For the year-on-year that we recorded this level of growth means that we have three consecutive quarters of growth. It’s something for the economic managers to be happy that whatever they are doing is working. Although I still have concerns about the figure, I think it shows we are in the right direction.
But do you see this level of growth being sustained against the backdrop of high exchange rate, high inflation, high unemployment, high insecurity and other negative indices?
We recorded this level of growth despite all of these challenges you mentioned, and year-on-year it looks very significant but quarter-on-quarter it wasn’t that impressive. The projection for this year is about 2.6 to 3.0% depending on the organisation, so it is consistent with the outlook that our growth rate will be positive and close to 3.0%. The CBN projected about 2.8%; IMF’s was much lower, but basically, we are in the right direction.
You are right that the problems in the country, especially the issues around security are hampering our growth, and we probably would have recorded a rate higher than what we have now if these issues were not there. These issues contribute to the fiscal crisis that we have, and the exchange rate that we have. Security has a lot of negative implications for economic outcomes, which is why it is important that the government summons the political will to address the crisis.
If you look at the inflation figure; it is very high, food inflation is also very high because the farmers have been displaced by the herders and they cannot go to their farms to work as well as issue with transportation because of insecurity. Yes, we still need to do a lot about the security challenges.
Security has a lot of negative implications for economic outcomes, which is why it is important that the government summons the political will to address the crisis.
In other words, you don’t see this level being sustained in the next quarters?
We will continue to have positive growth but it may not be 5.01 because of these challenges. There was a time the security crisis slowed down, before it suddenly resurged in some parts of the country. Like you rightly said, year-on-year -2.01% last year was very serious because that was at the height of the COVID, and recovering from that now shows we have been able to pick out the basic threats. Truly, we need to have much more than that to be able to have GDP growth that will be able to provide a check on our unemployment level and poverty rate in the country.
What then can the government do to sustain the positive growth?
If you look at the structure of the growth, the oil GDP actually declined further with a negative growth; it was the non-oil GDP that recorded about 40% growth rate. What is that telling us, oil GDP with a negative growth rate even when it is oil that provides the foreign exchange revenue for the government and we should be worried. Some of the growths we have had in the non-oil sector are not really translating into increased government revenue because agriculture and the informal sectors have very low tax-to-GDP ratios.
Because it is the non-oil sector that is growing, we need to ensure that we integrate the oil sector more into the economy, so that its share to the revenue can also be replicated in its share of the GDP. There is a need to deepen the interconnectivity of oil with the rest of the economy to be able to optimise the recovery growth of the economy.