Wednesday, 6 November 2013

State of the Nigerian Economy 2013

By Bayo Ogunmupe

State of the Nigerian Economy 2013

IN order to measure the outcome of an economy, you have to visit the economic policy of the government. Thus, to be able to act on economic information, you may have to look into the statistics, data and other clusters of available information. Reading the statistics poorly may end up in wrong decisions taken. Timely readings will stimulate meaningful policy actions. According to Ayo Teriba, chief economist of the Econ, data updates in the Nigerian yearbook, fact books aren’t reliable for they won’t be available for use till very late in the year.
  For example, the Annual Report of the Central Bank of Nigeria (CBN) which ought to be published by the second quarter of the year in June, had not been published by October 31, 2013. Also, only the 2010 annual abstract of the National Bureau of Statistics was available by the end of October 2013.
  Therefore, we can only rely on statistics obtained from the Internet. So much for the hindrances to measuring the state of the Nigerian economy. However, in this exercise, we shall measure the state of the Nigerian economy on economic parameters of our dilapidated infrastructure, absence of regular electrical power and the rut and neglect of our tertiary education.
  Our current travail is linked to things we should do which we did not do either due to dearth of leadership traceable to intellectual weakness or financial profligacy. Another contributory factor is impunity – situations where culprits should be punished but the authorities refused to act.
  Let us start finding the panacea for our economic woes through the examination of impunity from prosecution now rampart in the polity. We start from oil theft, with an estimated 150,000 barrels of crude oil being stolen daily from the delta in the first quarter of 2013, and a global loss of 400,000 barrels of crude oil, it is clear, oil theft is an organized crime in Nigeria.
  In fact, President Jonathan, during his media chat in September, confessed that government had allowed the crime of oil theft to go on for too long. He also told Nigerians that those involved in oil theft were rich, powerful and well connected people in society.
  A well known militant-Tompolo recently shared the same view with president Jonathan when he said, “Oil theft is a business for the rich. Tunde Ruwase, vice president of the Lagos Chamber of Commerce recently accused the Federal Government of knowing those behind oil theft. He said only the rich and powerful could engage in oil theft, arguing that the equipment like barges, tankers as well as the manpower used in stealing oil cannot be bought by the poor.
  Nenji James, chairman of the Civil Liberties Organisation accused politicians for the crime. He said it is high time security agents went beyond rhetorics and go for the real culprits. Mutiu Sunmonu, managing director and country chairman of Shell Petroleum Development Company said, ‘I believe the perpetrators of oil theft need to be arrested and prosecuted. Until there is deterrence, oil industry doesn’t stand a chance of survival against this illegal bunkering of the scale we are seeing today.”
  Boniface Aniebonam, the chair of the Board of Trustees of the New Nigerian Peoples Party wondered how crude oil theft could go on without government connivance.
   He said something tells him that there is official endorsement of this large scale larceny. In recent years, graft has flourished like unemployment. The impunity with which crime is carried out in the country is stunning.
  Actually, criminality thrives because of impunity. Although Jonathan promised to check impunity during his last media chat, critics aver that the president’s hands are tied because oil thieves are people whom he cannot fight, they are his cronies. Moreover, Jonathan had declared in an Abuja church that he was neither a Pharaoh nor a Nebuchadnezzar. He also said he was not a lion or an army general trained to do things with immediate effect.
  However, going by recent reports economists say that Nigeria’s revenue dropped by 42 per cent monthly since July because of the distruption to oil production caused by oil thieves who hacked into pipelines. Worse still, reports from the labour market leave much to be desired. Indeed, Nigeria’s unemployment rate rose from 21.1 per cent in 2010 to 23.9 per cent in 2011, so said the National Population Commission (NPC) in a release on October 10, 2013. The NPC said figures from the National Bureau of Statistics (NBS) showed Nigeria’s economic growth had not translated into job creation.
  The NPC report said that NBS estimates Nigeria’s population grew by 3.2 per cent in 2011 from 159.3 million people in 2010 to 164.4 million people in 2011, reflecting rapid population growth.
  In 2011, our unemployment rose to 23.9 per cent compared to 21.1 per cent in 2010. It said the labour force swelled by 2.1 million to 67.2 million people with just 51.2 million persons employed, leaving 16 million people jobless. The report added that unemployment was higher in the rural areas at 25.6 per cent than urban centres where it is 17 per cent.
  Thus, unless government takes decisive steps by clamping down on oil thieves, confidence in the government will be eroded. Government needs to openly dissociate itself from allegations that those in oil theft have its backing, otherwise people will continue to see as hypocritical, government preaching against the crime. Jonathan’s estimation in the eyes of Nigerians would be poor as he would be seen as an ethnic jingoist who is more interested in the affairs of his kinsmen than the good of all Nigerians.
  Meanwhile, Jonathan’s persistent search for the saving grace may be found in steering Nigeria towards modernity. This can be achieved by strengthening the institutions meant to protect Nigeria from internal and external economic disasters. For example, the Excess Crude Account and the sovereign Wealth Fund shielding the economy from declining oil prices are now in place. Jonathan should be shopping for a competent replacement for the meticulous and indefatigable Lamido Sanusi the outgoing Central Bank governor. For an active Central Bank (CBN), a transparent bond market and a stock exchange that is on the rebound are areas where we have recorded significant gains.
  Our current financial boon has gone beyond oil and gas. The growth of our non oil sector has been impressive. Agriculture, wholesale and retail trade and services have come to the fore to compete with petroleum. But the pace has been slow compared with the joust between the president and the state governors over federal allocations.
  These fights are often dressed in the costume of true fiscal federalism.
  Though both the states and the federation have tax raising powers, both never exercised such powers. However, what we sorely needed now are institutions which ensure security of lives and property. Such institutions are hospitals, the police, the National Guard and financial independence for the judiciary.
  On hospitals, the best hospital in Egypt is owned by Egyptair, Egypt’s biggest airline. Nigeria can imitate that by partnering with a private company to foster medical tourism through creating big and efficient hospitals. Jonathan should call on Globacom, Shell or Mobil to establish hospitals for the good health of Nigerians. Two companies can partner with the government on a joint stock basis with a company becoming the core investor.
  On security, government should increase the strength of our police force from 377,000 cops to one million men, because we need 1.7 million policemen to secure 170 million Nigerians.
  In spite of our economic boom, the Nigerian nation state remains vulnerable to factional disputes such as that of Boko Haram. Repeated outbreaks of violence show limited acress to security, making the people vulnerable to instability arising from shifts in the dominant ruling coalition. Thus, it is essential for our democracy to build a strong united and enlightened civil society to check the excesses of a predatory government elite.
  Next on our agenda is the profligacy of the past as a factor in our present situation. In 2004, during Olusegun Obasanjo’s administration and the first coming of Finance Minister, Ngozi Okonjo-Iweala, the Paris Club of creditors wrote off $30 billion debt. We then paid arrears of six billion dollars which was 40 per cent of the debt. But now in the light of the present indebtedness of the United States government, it is arguable whether that payment was wise. We believe it was impolitic for Obasanjo to heed Okonjo-Iweala’s advice urging him to pay our debt in a once for all basis.
  Presently, the national debt of the United States before the October 2013 two week shutdown was $17 trillion. Yet United States isn’t thinking of paying part of it in a once for all basis. That stand was informed by the opinion of economists since debt levels do not affect economic growth significantly. In 2010, economists Kenneth Rogoff and Carmen Reinhart reported that among 20 developed countries studied, the yearly growth of GDP was 3 per cent, when debt was low (i.e. under 60 per cent of GDP).
  But it dips to 1.6 per cent when debt was high, i.e. above 90 per cent of GDP. However, other economists including Nobel laureate Paul Krugman have argued that it is low growth which causes national debt to increase rather than the other way round – meaning debt propels the economy forward.
  Indeed, former U.S. Central Bank chairman, Ben Bernanke stated in April 2010 that “Neither experience nor economic theory indicates the threshold at which government debt begins to endanger prosperity and economic stability. However, a high debt level may result in inflation if currency devaluation is viewed as a solution to debt reduction. If wages are rising due to inflation, fixed amount of debt can be paid off more easily using cheaper dollars. This helps the debtor but hurts the debtholder, who receives less value in return for their loan. Those pieces of information rendered the 2004 debt payment ill-advised and profligate.
  But despite government’s no cause for alarm’ assurance, Nigeria’s debt is mounting. After the debt relief initiative of 2004, our stock of foreign debt declined with US$3.8 billion domestic debts by August 2006.
  The revered Scottish economist Adam Smith (1723-1790), author of The Wealth of Nations said that when national debts are accumulated to a certain level, there is scarcity since such debts have never been completely paid. That aphorism is coming home to roost  as Nigeria treads the old path of foreign indebtedness. According to an article by Okonjo-Iweala on Nigeria in the Internet, Nigeria’s current external debt stands at $34 billion. She gave our domestic debt as N6,537 trillion as at December, 2012. However, the total domestic debt of the 36 states and Abuja has been put at N1.5 trillion in 2012.
  But as at 30 September 2013, Nigeria’s debt has risen to N8.32 trillion, the Debt Management Office (DMO) has said. This excludes the domestic debts of the 36 states and the FCT. These data were released on the DMO website on 11 November, 2013.
  This was contained in the 2013 Report of the Annual National Debt sustainability Analysis of the Debt Management Office.
  However, economists have raised the alarm that Nigeria is treading the old path of indebtedness. For instance, Nigeria signed a $1 billion loan with China for infrastructure development as part of a US$3 billion facility approved by China at low interest rate. Thus, we have returned to the era of the debt ridden society of the new millennium. In order to stem the tide of the debt deluge, Dr. Teriba averred that Nigeria should engage the President to institute an annual state of the economy address where the president shall provide the people with where the economy is coming from, where it is going and wherewithal to attain full employment for the people.
  According to Teriba, Nigeria’s economy has grown very fast since the year 2000.  This was in response to surges in global trade. In particular, our GDP has doubled from N20 trillion in 2007 to N40 trillion in 2012. Our oil and gas output rose from N7.5 trillion in 2007 to N15 trillion in 2012. In the non-oil sector, our GDP rose from N12 trillion in 2007 to N25 trillion in 2012. Crops rose from N6 trillion in 2007 to N12 trillion in 2012. On trade and commerce our economy’s GDP rose from N6 trillion in 2007 to N11 trillion in 2012. Comparatively, with a nominal GDP of $250 billion in 2012, Nigeria is 30th, among the list of world’s biggest economies. We were 40th in 2005, 52nd in 2000. Nigeria is the second largest economy in Africa, coming behind South Africa. Nigeria is set to become one of the 20 biggest economies by 2020.
  Unfortunately, Nigeria’s growth is cyclical because of our dependence on global commodity price swings. Our gains may be wiped out by any oil price crises. Which is why we need new creative thinkers as policy makers. The profligacy of paying $6 billion as debt arrears in 2004 is responsible for our present lack of electricity, poor state of tertiary education because of our inability to refurbish university laboratories. Also the current state of our economy confirms the persistence of mediocrity among our leaders. Moreover, lack of patriotism has been identified as the missing link between our oil wealth and the present widespread poverty among the populace.

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