New Nigerian government inheriting 70% poverty, 28% unemployment

Vanguard Africa May - 31 - 2015 , 12:47

Apparently, President, Muhammadu Buhari has inherited what can best be described as a troubled economy with 70 percent of the population in poverty, over 15million housing units deficit, epileptic power sector, depreciating local currency, which is at the exchange rate of over N200 to a Dollar, a real sector that is in comatose, environment of insecurity and inefficient transport system among other challenges.

At present, the rate of growth shows that an important sector like housing contributes only 3.7 percent to the Gross Domestic Product (GDP). Electricity generation for a population of over 170million is less than 4.000mega watts and manufacturing that is the engine growth of every developed economy contributes between 5 and 6 percent to the GDP.

Aside from the dismal growth indices, the country has a huge debt burden to settle. Economic experts who spoke with Sunday Vanguard said Nigeria’s economy is in severe stress and if not well managed can degenerate.

Mr. Olu Ajakaiye, a professor of economics and one time Director General, Nigeria Institute for Social and Economic Research (NISER), said, “In reality, the economy has been in a bad shape for a long time. So, with the new government in place, the questions we must ask are, how do we get out of this challenging situation? How do we rekindle the system to boost productivity in order to enhance tangible growth and development? It is very sad that all those years, we allowed our industrial structure to shrink, even to the point of collapse. For example, in the 70s and even up to 80s, Nigeria’s economy moved very well in the direction of even producing some capital goods.

“At that time, we had assembling plants where vehicles were assembled here in Nigeria. For instance, air-conditioners, refrigerators and other items were assembled in this country. All those assembling plants if they were still functional, the next stage would have been to de-link them from import, began to produce some of the components here, and eventually began to produce some machinery along with other equipment for our factories. That is why at that time, the plan was to develop the steel as well as plastic industries to feed the intermediate and capital goods requirement of the economy, having had the assembling plants in place, but that was not realised.

Giving a holistic statistical analysis of the economy from the 80s up to 2015, the current Director General, West African Institute for Financial and Economic Management (WAIFEM), Professor Akpan Ekpo said, “The state of the economy before Jonathan took over: Jonathan took over from late Musa Yar’Ádua, and economic growth then was 7 percent, exchange rate of Naira to Dollar was N145, foreign reserve was almost $48billion and could finance imports for about two and half years, lending rate was about 25 percent, manufacturing contribution to GDP was 8 percent and inflation was 14 percent, (double digits).

Also, unemployment was 24 percent, power supply was epileptic, the quality of education was low and provision of health services was nothing to reckon with. It was in attempt to reverse the dismal performance of the economy that YarÁdua adopted planning to fast track development. That ultimately resulted in the Vision 20:2020 blue print, which among other things was to make Nigeria rank among the top 20 economies in the world by 2020.”

The economy under Jonathan/indices of growth: He went on, “When Jonathan took over, he claimed ownership of Vision 20:2020 and derived his Transformation Agenda from the Vision’s document. The Agenda sought to grow the economy at 10 percent and above. Jonathan promised to create jobs, improve education, healthcare and infrastructure, especially power supply. However, during Jonathan, economic growth came down to 5.5percent, lending rate increased to 27 percent, our foreign reserve declined to about $31billion, partly due to the dwindling oil prices, unemployment increased to 28percent, and one must take with caution the recent unemployment figures published by the National Bureau of Statistics (NBS).

Incidence of poverty stood at almost 70percent, as the economy was growing at average of 5.5percent, and the rebased GDP made Nigeria a middle income country, the misery index was also growing, hence the economic performance was dismal. The quality of education became worse at all levels, to the point that Nigerians sent their wards abroad, even to Ghana to study. For example, the public school system was in shambles.

“Jonathan succeeded in unbundling the Power Holding Company of Nigeria (PHCN) but no further progress at improving electricity supply in the country. Under him, the GDP was rebased, putting Nigeria’s GDP at $510billion with 2010 as the reference year.

The rebased GDP ranked Nigeria as the 26 economy in the world and the largest in Africa, but had no impact on global economies as well as the Nigerian citizens, as it did not improve the standard of living. However, there were positive developments like the effort by Jonathan to revamp the housing sub-sector, by establishing Nigeria Mortgage Refinancing Company, attempt to build the Sovereign Wealth Fund (SWF) and the GDP increased slightly to 10 percent.

Broadly, the economy remains at the level of primary production still driven by commodity exports. Consequently, any negative shock like the recent decline in crude oil prices put the entire economy in disarray.”

Nigeria’s current debt profile:

He continued, “Between 2012 and 2015 we owe about $18.1billion as the country’s total debt profile, and in the last two years, government has been borrowing money to pay salaries. With the recent Debt Sustainability Analysis (DSA), what we owe is sustainable, but it is not advisable to borrow money to fund recurrent expenditure when the economy is not in a prolong recession (depression).

It is better to borrow to finance capital projects and infrastructure due to the positive multiplier effect. It should be noted that sometimes government can borrow to maintain some levels of liquidity in the system, but the rising debt profile is worrisome. After rebasing, the debt GDP ratio allowed more space for borrowing but what is important is the debt revenue. If you compute the debt revenue ratio, then we have a big challenge in the country, because as the debt is rising , the revenue is declining.”

Growth indices from 80s to 90s before democracy in 1999: He added, “In the early

80s, the economy was better and the school system was not that bad. But from 1985 to 1990 the economy experienced problems like what we are facing now. We tried different policies and in 1986 we adopted Structural Adjustment Programme (SAP) but that did not solve the problem either.

However, during 1991 and 1998, which was Abacha’s era, the economy was better, as basic macroeconomic fundamentals were in the right direction, though Abacha was a dictator. During Abacha, we adopted what was called Guided Deregulation and the economy recovered. There were jobs, lending rate was not too high, but that did not stop corruption.

Economic Performance Index (EPI) from 2009 to 2014: He explained, “In analysing the EPI the things to consider include inflation rate, unemployment level, deficit/GDP ratio as well as GDP growth. Therefore, from 2009 to 2014, the EPI showed below-average performance. In 2009, the EPI, which stood at 71.5 per cent declined to 67.6 per cent in 2013, showing poor economic performance.

The misery index increased rapidly from 20.3 per cent in 2010 to about 51 per cent in 2013, and poverty rate increased to 69 per cent in 2010 economic year. At present, the economy is growing at about 5.6 per cent after the rebasing without creating employment for the citizens.

The direction of Nigeria’s economy now: He stressed, “Our economy currently is in disarray, partly due to recurring fuel scarcity and declining oil prices. For instance, fuel scarcity of only few days sent everyone into serious shock, showing that our economy is still dependent on oil. The economy is in severe stress, but not in recession, and if not properly handled can degenerate.

The way forward: He advised, “Buhari must work with time-lines to achieve growth in different sectors. He must move fast to diversify the economy, tackle power crisis, poverty, unemployment, building of new refineries and curbing corruption. For him to succeed, he needs a committed team of technocrats determined to change Nigeria positively to implement good economic policies. On the whole, there is hope for the economy, but such hope requires adequate planning to achieve positive result.