Economy: …Marred by structural defects, unfulfilled promises

Despite the fact that fundamentals of the Nigerian economy remain stronger than ever, based on macroeconomic performance assessment parameters, poverty and unemployment remain high, underlining the paradox of jobless growth. TOLA AKINMUTIMI

With the Gross Domestic Product growth rate standing at 6.18 per cent at the end of Q2 2013, arguably one of the highest globally; huge foreign reserves level at about $46 billion dollars; inflation rate maintaining single digit trend for upward of nine successive months; impressive job creation opportunities through the SURE-P and the Agricultural Transformation Agenda, ATA, steady increase in power generation and distribution as well as billions of dollar investment inflows into the economy, there could not have been a better way of rating the economy.

According to the latest GDP growth report by the National Bureau of Statistics, NBS, as the end of the first half of the year, indicated that the nation’s real GDP growth rate when measured on aggregate basis grew by 6.18 per cent in Q2, slower than 6.56 per cent recorded in Q1 and 6.39 per cent of the corresponding period of 2012.

Reflecting on the state of the economy during a media briefing about two weeks ago in Abuja, the Coordinating Minister for the Economy and Minister of Finance, Dr. Ngozi Okonjo-Iweala, re-affirmed that the economy was stronger than ever given the micro and other economic key performance assessment fundamentals. Specifically, the minister listed the job creation and improved productivity in the agricultural sector as well as huge investment inflows and ongoing upgrading of existing infrastructure as major indices to prove that the economy was on the path of sustainable growth.

Okonjo-Iweala disclosed that major achievements had been recorded in the agric sector with over 2.5 million jobs created for skilled and unskilled people across the commodity chains of cassava, in sorghum, in oil palm, in cotton, cocoa, dry season rice, rainy season rice, maize and so etc. creating. She explained on the scorecard: “Output is also increasing, all of you are aware of the briefing we gave earlier, of the 1.1 million metric tonnes of dry season rice that was produced in ten states in the North of the country.

And some of this production has been helping to moderate prices, and moderation of prices in things like beans and yam are what we can report, the national bureau of statistics has done some work on this and I think this morning on the radio, it was being discussed.

“So these are results that we are achieving, we are not saying we are there yet, that we don’t have a lot of work to do, we are aiming to create more jobs in that sector and in other sectors of the economy.

Okonjo-Iweala, who said she could cite several other investment and growth indicators of the economy, dwelt elaborately on the success of the privatisation of the power sector with the divestment of government’s equities from the 15 power generation and distribution PHCN’s successor companies from which over $2billion would be earned.

On the infrastructure rehabilitation projects, the Minister said major dual carriage ways had been repaired and functioning, listing these to include, the Kano-Maiduguri, the Enugu-Port Harcourt, the Benin- Ore and the Abuja-Lokoja roads as examples while also stating that at least one federal road had been fully rehabilitated in each of the geo-political zones in the country.

According to her, the SURE P has created 178,000 jobs just as the graduate internship programme has led to 2,000 placed in private entities. She also said that the YOUWIN had created 19,000 jobs while the agricultural sector reforms would take at least 3.5 million youths out of the labour market within the next two years.

Industrial capacity utilisation still low

Despite all the superlative report reeled out by the Minister, analysts are wont to believe very strongly that the economy remains yet to exhibit the real features of tangible growth as industrial capacity utilisation is still low just as unemployment rate and supportive factors that could help enterprises grow are lacking still.

For instance, the Lagos Chamber of Commerce and Industry, LCCI, reported that at the end of Q2, although the macroeconomic fundamentals of the Nigerian economy were trending positively with the naira exchange rate, inflation and foreign reserves serving as the elements of these fundamentals but that sound macroeconomic fundamentals were not sufficient condition for the progress of an economy.

Specifically, the chamber in its 2013 Half Year Report, pointed out that constraints of credit, power supply, insecurity challenges and other militating factors to business growth deserved more attention by government.

The LCCI stated: “The credit situation remains a major problem for investors in the economy. As in the previous review, retail lending rates was well above 22 per cent. Many small and medium scale enterprises still have difficulties in accessing credit even at this high rate. “Many are frightened to take loans because of the high interest rate. The tight credit situation is a major inhibiting factor to the capacity of domestic enterprises to take advantage of the robust Nigerian market.

This position was corroborated by our Business Confidence Survey for the second and third quarters of this year” In its recent position on the economy, the Manufacturers Association of Nigeria (MAN), admitting some level of improvement in manufacturing capacity, a verdict which did not only conflict with the feelings of the Small and Medium Enterprises owners and multilateral institutions findings on the productive state of the real sector.

For instance, while the President of the MAN, Chief Kola Jamodu, believed that the inflow of investments with about 240 new factories commencing operations in the last one year with a projected turnover of N140 billion were salutary signals indicating the growing boom in the sector.

He disclosed that some manufacturers within the past year had expanded their production base to the tune of over N100 billion Unfriendly investment climate –World Bank However, a World Bank Report as well as musings from the small and medium enterprises owners’ end contradicted Jamodu’s stance on the economy, pointing out clearly that the sector requires some measures to remain as active as desired by investors.

The World Bank report stated that investment climate in Nigeria was still not friendly and thereby denying the sector the needed investment inflow and identified the problems of epileptic power supply, access to finance and corruption as undermining the productivity potential of the industry.

The Lead Private Sector Development Specialist of the World Bank, Mr. Michael Wong, reported that manufacturing companies lost about 4.3 per cent of their sales proceeds to outage while firms operating in the services sector lost about 6.3 per cent to epileptic electricity supply. He explained: “The report showed that companies in the manufacturing sector lost 2.3 per cent of their revenue to corruption while those in the service sector lost about 2.2 per cent. “The poor performance of Nigerian firms reflects many factors.

This study focuses on constraints in the business climate and the serious costs they impose on Nigerian firms. Nigerian business biggest reported problem is the unreliable power supply. About 83 per cent of all managers surveyed considered electricity outages to be a serious problem more than any other constraint.”

The World Bank’s position was corroborated by the NBS’ report which indicated that during the Q2 2013, “manufacturing output decreased relative to the same period in 2012, adding that real GDP growth in the sector was recorded at 6.81 per cent” and that this down from 8.41 per cent recorded in Q1 2013, and 7.59 per cent recorded in the corresponding quarter of 2012.

Reflecting on the performance of the banking sector in the year under review, a leading financial expert, Dr Boniface Chizea, attested to the fact that the sector has sustained the path of consolidating the modest achievements of the three-year reform agenda of the regulatory authorities, with attempts by the regulatory authorities to achieve systems stability featuring as one of the noticeable elements of the initiatives.

According to him, whereas structurally the sector appears stable over the past year, the challenges associated with privatisation of the nationalised banks by the Asset Management Company of Nigeria, AMCON, particularly efforts by the CBN to ensure that the company maintains going concern adopting non inflationary inducing approach to providing for its liquidity needs, and the restrictive stance on retaining the Minimum Rediscount Rate over the period to the utter neglect of the cost of borrowing are some of the issues that have raised stakeholders’ concern about the state of the sector.

Chizea, a leading management consultant, also noted that although the DMBs were reporting impressive profitability performance records, their commitment to lending to the real sector, especially the micro small and medium scale enterprises, remained a snag to their operations in view of the negative implications of such disposition for job creation and sustainable growth of businesses and the economy.

He explained: “The past one year in Nigeria could be said to be a period devoted to consolidation of the changes which resulted from the various mergers and acquisitions resulting in entirely new banking entities. The challenge of harmonization of systems and practices and procedures across the various merged banks had continued almost seamlessly and is being confronted.

“Even from the perspective of regulation the banking scene had witnessed remarkable stability devoid of the turmoil which had defined regulatory stance in the not too distant past when efforts were made to stem the threats arising from the distress in the financial sector.

“Structurally, the banking sector remained stable in terms of the number of banks that have been in operation. The much anticipated privatization of the nationalized banks by the Asset Management Company of Nigeria has made uncertain progress. Going by pronouncements it was expected that by now at least one of the banks; probably Enterprises Bank should by now have been sold to private sector interests.

“But this has so far not happened. The regulatory authorities have contended with the problem of ensuring that AMCON could maintain going concern adopting non inflationary inducing approach to providing for its liquidity needs. To this end, banks have been mandated to contribute a stipulated percentage of shareholders’ funds into a sinking fund to support the operations of AMCON and this has been imposed and it is already being implemented”, Chizea said.

The seasoned public policy analyst and Managing Consultant at BIC Consulting Services said the economy needed to open job opportunities for the growing mass of the unemployed and banks have a responsibility to foster the growth of the MSME sector of the economy known for its potential for the generation of rapid and sustainable growth in job opportunities.

To another financial expert, Mazi Okechukwu Unegbu, current approaches being adopted in public finance are not only defective but also being fraudulently implemented such that the banks are not being driven by their primary roles of financial intermediation but by urges of profitability and other self-serving motives. The development, he argues, has continued to hurt the economy even as the integrity of the banking sector continues to wane by the day as a result of flagrant violation of the ethical values of the system.

Inapproriate operating instrument in banking sector Unegbu, a former President of the Chartered Institute of Bankers of Nigeria, CIBN, particularly picked holes in continued adoption of World Bank and IMF prescriptions for the economy, pointing out that Nigerian economy, based on the peculiarity of its characteristics and structure, will not buoyed by those alien policy measures. He also flawed government’s fiscal and monetary policies stance which over the years, have been based largely on conjectural rather than pragmatic and research-based analysis.

He noted: “Let me say that the Federal Government and those that operate there are ignorant of the realm of public finance in a developing nation like Nigeria where the systems are not in place. You do not run a banking system in such an environment with a 21st century instrument in an 18th century environment.

We should avoid implementing World Bank and IMF prescriptions for our economy because the indices in our economic environment are far from those of the developed world. “Recently we were told that there was going to be set up a “Super Lender” by the Federal Government that will drive interest rates lower.

Where is that going to happen? How many on-lending facilities have the government not created and how many of them worked? Were these facilities not sabotaged by the banks development and commercial with active connivance of government officials? Was any study conducted or research carried out to find out why earlier policies failed before setting up another one? “All these define the state of the banking system.

May be this is advice from World Bank and IMF. We should not listen to these Bretton Wood institutions. In fact, they should be scrapped if they are to be called world institutions serving all parts of the world”, Unegbu prescribed.

Despite the impressive statistics being bandied at public fora at home and abroad by political leaders, technocrats and managers of the economy as reflective of the growth in the economy, unfortunately the pangs of poverty bite harder just as the palliative impact of ongoing reforms on ordinary Nigerians are hardly felt yet. And what has been identified as a major constraint to the growth of the economy is its structural distortion and inability of the governments to pursue the economic diversification agenda with the political zeal and vigour it deserves.

As has been observed in recent months, the Nigerian economy has suffered serious shocks from the volatility of the international oil market prices, oil thefts, leakages in public sector finance in form of corruption and vandalism of oil pipelines with devastating implications for accruable revenues to governments and capital budget implementation at all levels of government in the country.

For instance, the last few months have been characterised by vitriolic bickering, accusations and counter-accusations between the Federal and State Governments over the inability of the Federation Accounts Allocation Committee to disburse what is due to states and local governments from the Federation Accounts. Curiously but expectedly too, the face-off has taken a political dimension with some Governors calling for the resignation of the Minister of Finance, Dr Ngozi Okonjo-Iweala, for mismanaging the economy.

Although the signals are there that commitment to diversifying the economic base by stimulating non-oil sector growth is being sustained, at least at the federal level, the results of the initiatives are not being felt yet as the critical infrastructure required to facilitate improved productivity at the grassroots, the main base of productive economic activities in the country, are not available.

Today, the state of rural roads that link farmers and other non-oil productive agents with markets is pathetic across the geo-political zones just as access to cheap, medium term credit and power supply in the villages is completely lacking. Indeed, for most Nigerians, particularly the vulnerable poor, SURE-P and other much publicised people-oriented programmes at federal, state and local government levels are nothing but mere political lyrics, sweet to the ear but psychologically nauseating to the mind in terms of their socio-economic impact for better life for millions of Nigerians.

Yes, the ongoing reforms in key sectors like power, agriculture, finance, infrastructure and aviation may have recorded some level of achievements, the lingering Boko Haram menace, lingering crisis in the education sector occasioned by the rot in primary education despite claims to the contrary by governments and lingering ASUU strike, inadequate health and other social services and many other sectors that have direct bearing on the citizenry have continued to rubbish claims of economic growth.

After all, as some analysts have argued, how can any government say things are getting better when traits of poverty and other socio-economic deprivations are well seen in millions of the citizenry?

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