. List insecurity, devaluation, inflation, unemployment as key
Clara Nwachukwu
Economic experts have said the 5.1% year-on-year growth recorded in the second quarter (Q2) 2021 gross domestic product (GDP) cannot be sustained till the end of this year because of prevailing structural challenges and security crises in the country.
Nigerians had received the National Bureau of Statistics (NBS) GDP report with shock, because many believe there was no corresponding value addition in the life of the common man to match this level of growth.
As a result, experts, who spoke with Sustainable Economy, said unless the government tackles the multiple infrastructure deficits, high foreign exchange (FX), high inflation, high unemployment rates as well as the now hydra-headed security crisis, such level of growth will not subsist till the year end.
They attributed the unexpected year-on-year Q2 growth rate to the resumption of full economic activities across sectors compared to a year ago, and the relaxing of restrictions to enable the movement of persons, goods and services, a reason the non-oil sector became the major contributor to the GDP rise.
Infrastructure deficits
Renowned Macro-economic and Public Policy Analyst, Prof. Ken Ife, said for the government to attract the much-needed foreign direct investment that will trigger the diversification of the economy, it must tackle the infrastructure challenges. “Investment is a function of infrastructure. If you want to diversify the economy you have to provide infrastructure in those areas you want to diversify to.”
Agreeing that the NBS Q2 GDP report came as a shock to experts because it exceeded all national and international projections, Ife, however, argued that there is nothing spectacular about the growth rate.
According to him, because the country was coming from ground zero occasioned by complete lockdown of activities due to the COVID-19 protocols a year ago, any little change will appear significant.
He explained: “Remember this rate is year-on-year so because the corresponding period last year was -6.10% because of the COVID lockdown, the growth now is magnified. The recovery that we have now is from all the sectors that were heavily affected by the lockdowns.
“The fact is that when you are down, for instance, you lost some money from N1000 and you have N500 left, you will have a drop of 50% in your income. From this N500 level, if it increases to N600, that is 20% and this looks large even though it is just N100 more, whereas, if you had the N1000 and got N100 more this will be only 10% increase.
Insecurity hampering growth
On his part, The Head of Department, Economics, University of Ibadan, Prof. Adeola Adenikiju, noted that year-on-year the growth rate looked very significant, but quarter-on-quarter it wasn’t.
He said: “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.
Adenikiju, a Petroleum Economist and member of Board of the Central Bank of Nigeria (CBN), agreed with Ife that the rate of growth appeared significant because of the COVID-19 lockdown period.
“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.”
But Financial Economist at the Babcock University, Ogun State, Prof. Joseph Ajibola, was more assertive in his pronouncement that the rate of growth may not be sustained for the rest of the year. “…The impact of the 3rd wave of COVID-19; second, devaluation is affecting businesses; third is inflation and our type of inflation is cost-push inflation. All these put together with restrictions of movement between Nigeria and the rest of the world will constitute some drawbacks in the 3rd and 4th quarters.”
For Ajibola, the Q2 GDP was not really unexpected because of the many incentives that were rolled out by various agencies of the government. “The Central Bank of Nigeria for example, doled out almost N3trillion to various sectors – Agriculture, Manufacturing, Textile, SMEs, even NIRSAL, which is CBN-owned microfinance bank disbursed about N50billion to small scale businesses.”
The loss of jobs due to the negative effects of the pandemic may have driven more people into the retail trade, commerce, and logistics.
Sustaining positive growth
To sustain positive growth for the rest of the year, Political Economist, Prof. Pat Utomi, urged the government to tackle the insecurity challenges as well as the bottlenecks at the ports, even as he insists that Nigeria’s GDP is grossly undervalued.
Adenikiju agreed that a lot still needs to be done about the security challenges, adding that the negative oil contribution to the GDP is worrisome, especially as the growth witnessed in the non-oil sector does not translate to increase in the government revenue.
The Director-General, Lagos Chamber of Commerce and Industry (LCCI), Dr. Chinyere Almona, who noted that the “loss of jobs due to the negative effects of the pandemic may have driven more people into the retail trade, commerce, and logistics,” urged also appropriate responses to current economic challenges if performance will be sustained.
“We must watch and respond appropriately to the major threats to this growth performance like the third wave of COVID-19 infections that could lead to restrictions of movement, the rising spate of insurgency, banditry, kidnapping, and the persistent farmer/herder conflicts.”
In addition to tackling all the structural issues, Ajibola, a former President, Chartered Institute of Bankers of Nigeria (CIBN), also called for improvement in the ease of doing business in the country.
Harping on the structural problems, Ife, who is also the Lead Consultant to ECOWAS Commission on Private Sector Development, sought increased use of technology to improve Nigeria’s competitiveness and productive efficiencies as well as greater efficiency in the government’s expenditure, which he said is responsible for the leakages in the system.
