SAT 02 OCT, 2021-theGBJournal- Over the last 61 years, the Nigerian economy has transformed from an agrarian economy to an economy driven largely by resources from the oil and gas sector, and very recently, emerging knowledge and digital economy. The 2021 second-quarter GDP data showed that the non-oil sector accounted for 92.58% of the GDP while the oil sector accounted for 7.42%. The paradox is that the oil sector accounts for over 50% of the nation’s revenue, and over 80% of the foreign exchange earnings. This reflects the mounting imbalance in the structure of the economy since independence. It also underscores the growing decline in the non-oil sector productivity over the past 61 years. This remains the major failing of the Nigerian economy at 61. It makes the economy very vulnerable to global shocks and weak in economic inclusion.
However, the 22 years of uninterrupted democracy in Nigeria has earned the country enormous goodwill as one of the few stable democracies in Africa. However, core democratic values and ideals are yet to take firm root, especially in the following respects:
-Transparency in the management of public finance
-Rule of law
-Separation of powers and the inherent checks and balances.
-Quality and independence of democratic institutions – Electoral bodies, Law Enforcement Agencies, Judiciary, etc
-Citizen engagement in the democratic process.
-The practice of true Federalism
The LCCI recognizes that Nigerian democracy is still a work in progress. However, as in many advanced democracies, it is crucial to recognize the importance of these democratic ideals to sustain our democracy and ensure the advancement of the common good for all citizens. And very recently, a mixed colouration of insecurity, border clashes, herdsmen/farmers clashes, banditry, kidnapping, and social unrest have all emerged as critical threats to our national life.
ECONOMIC PERFORMANCE
The economic growth trend, measured by the performance of the Gross Domestic Product (GDP), has been generally positive over the last two decades, except for recent challenges posed by the COVID-19 pandemic since early 2020. There is an urgent need to address the weak government revenue base, rising and unsustainable debt profile, over-dependence on oil revenue, exposure to foreign shocks through weak forex supply, double-digit inflation, etc. We commend the political will of this administration in taking the bold step on the passage of the Petroleum Industry Act 2021.
The transformation in the telecommunications sector stands out as the most successful reform story in the economy. Many sectors have leveraged the transformation in telecoms to make significant progress through the use of ICT, especially in the services sector. Today, we have tech-enabled platforms supporting healthcare delivery, agriculture, education, transport, etc.
The financial services sector has been significantly transformed since independence through the leveraging of technology to enhance service delivery. The sophistication of the industry can compare with its counterparts even in advanced economies. However, the financial intermediation role of the banking system is still below expectation. It still has some weak linkages with many other sectors of the economy. This has constrained the impact of the sector on the economy from a systemic perspective.
The quality of the business environment remains a source of concern to investors, especially in the real sector. Weak infrastructure, policy environment, and institutions had adverse effects on the efficiency, productivity, and competitiveness of many enterprises in the economy. These conditions pose a major risk to job creation and economic inclusion across sectors.
CHALLENGES FOR INVESTORS
Power Situation
The Power situation remains a major burden on business. It is one area in which the trend since independence has been that of progressive decline. Power supply has consistently lagged behind the pace of economic activities and population growth. This development impacted negatively on investment over the past few years with increased expenditure on diesel and petrol by enterprises. This also comes with the consequences of declining productivity and competitiveness.
Insecurity
The security situation in the country deteriorated in the last decade. It impacted investment risk and worsened the country’s perception and image by the global investing community. Access to markets in the troubled parts of the country has been reduced for many enterprises with negative consequences for investors’ confidence.
Related to this are the many cases of ethnic and religious conflicts, herdsmen attacks on communities, and kidnapping. The incessant oil theft and the vandalization of oil pipelines remain major concerns for investors in the oil and gas sector. Agricultural production bases have been negatively impacted leading to food scarcity and rising food inflation.
REAL SECTOR
Over the last few decades, the challenges of production in the economy had grown progressively largely because of the quality of infrastructure; which is why the risk of industrial investment is high and continues to increase. The various policy interventions have not had the desired impact on the sector. Unless there is effective and sustained protection and support for the sector, and a dramatic improvement in infrastructure, the outlook for the sector will remain gloomy, particularly for the small-scale industries. Most SMEs are yet to recover from the impact of the COVID-19 pandemic that struck last year.
It is impossible to have a vibrant manufacturing sector in the face of cheap imports into the country, and high production and operating cost in the domestic economy. Some of these imports are landing at 50% of the cost of products produced locally. Besides, manufacturers have to worry about
-high energy costs;
-high-interest rates – 20% and above;
-a multitude of regulatory agencies making different demands on them;
-massive smuggling and under-invoicing of imports,
-trade facilitation issues at the seaports and many more.
For most manufacturing SMEs, it is a nightmare. Yet production is critical to enduring economic and social stability. The way forward is to address the fundamental constraints to manufacturing competitiveness in the Nigerian economy. Perpetual protectionism without supported mass local production cannot fix this problem.
The reality is that job losses in the sector have been on the increase over the decades as productivity declined on the back of the difficult operating environment. However, multinationals and conglomerates have shown some positive trends in performance and resilience, especially in the foods and beverage sector and other resource-based industries such as the cement industry. Even then, they would do much better if the operating environment were better.
BUILDING A SUSTAINABLE ECONOMY: WAY FORWARD
-The effective implementation of the Petroleum Industry Act is critical to reforming the oil and gas and positioning it to attract more quality Foreign Direct Investments in the sector. Such reforms would also boost investment in the sector, increase revenue and create many more quality jobs in the economy.
-Streamlining of the foreign exchange management to reduce the cost of stabilizing the exchange rate, boost the supply of the forex into the economy, prioritize the unification of the multiple exchange rates, and broaden the scope for a market-driven exchange rate. All of these are essential to reduce the systemic distortions and disruptions resulting from the current model of foreign exchange management. It is important as well to deemphasize demand management and scale-up strategies to support the supply side of the forex make.
-Urgent need for strategic responses to the looming fiscal viability and solvency crisis at all levels of governments. Acute revenue challenges are becoming an increasingly disturbing scenario at all levels of government. We need to urgently deal with the escalating cost of governance, fiscal leakages, and revenue optimization issues.
-Need to reduce the emphasis on attracting and retaining portfolio inflows with the high-interest rate to the detriment of domestic investment. We should prioritize the attraction of foreign direct investments by addressing the key investment environment issues to inspire investors’ confidence. FDIs have a much bigger potential impact on job creation, poverty reduction, and economic inclusion. The capital importation levels recorded for the first half of this year show poor performance.
–Infrastructure financing is a big issue that needs very deep reflection as we mark the 61st independent anniversary. Without a sound infrastructure base, it will be difficult to achieve the various socio-economic objectives of government at all levels. Infrastructure investment is a key driver of economic growth and development. Budgetary allocations have proved to be grossly inadequate for effective funding of infrastructure in Nigeria.
Neither can we continually depend on debt financing as the debt profile is already at an unsustainable threshold. It is thus imperative to seek innovative ways of effectively fund infrastructure in Nigeria. We need to develop new strategies to attract private sector capital to the infrastructure space. This should cover the broad spectrum of infrastructure provision – roads, railways, airports, waterways, electricity, and transition to renewable energy.
Our nation, Nigeria has come a long way.
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