Diversifying the Economy: Time to include the MSMEs
I would like to know if anybody has discovered the true reasons why the diversification of our economy has remained an academic exercise. Some people will say it is because in Nigeria we don’t solve problems; we only kick the can down the corridor until our term of office is over; then we pass it on to the new man and begin to heckle him to resolve what we left in the can we kicked for years. Others may say rightly that we are more interested in the spoils of office than the colour of the ink used to write our names when we are gone. Much as these are classic views, there are a few others. Nigeria is once again motioning to the world that it has decided to diversify its economy away from oil but the world is laughing derisively because we are saying this for the umpteenth time. Some even say we do not mean it when we say diversify the economy.
The Nigerian economy is about to, once again, return to the path of growth. At least, everybody who should know seems to agree on that, including the International Monetary Fund (IMF) and the World Bank. They all projected positive growth figures for Nigeria in 2018. The IMF is expecting substantial growth in the global economy, the GDP of which it has set at 3.9 per cent for this year, with Nigeria and other emerging economies leading the growth at a growth rate of 4.9 per cent. In particular, the Nigerian economy, which has been generally upbeat since turning the recession corner, is forecast to grow more in 2018. Although Nigeria’s projected growth rate at 2.1 per cent is lower than that of Sub-Saharan Africa put at 3.4 per cent, it is however better than South Africa’s 1.5 per cent, even though Nigeria’s growth outcome is expected to slip back to 1.9 per cent in 2019.
The World Economic Outlook, which made this prediction, was short on the reasons for the expected slip back in 2019. However, it does appear that they considered it an obvious fact. We know Nigeria is facing an election year and what is likely one of the most contested elections in her history. The usual trepidation among investors is fast coming to play. Politics has taken the front burners as governance and economics recessed. This is so all over the world. The only difference is that Nigeria’s federal government has much of the national purse. It also does much of the significant spending in the economy. Therefore, any slow down on its spending reflects in a general economic lull – a lull that has been amplified by the feud between the Executive and Legislature.
Somehow, the gods have been smiling at this government of late. Brent crude price is close to $80 and is forecast at well over $100 by close of year. Inflation has come down to 12.48 per cent and heading towards Central Bank’s target of 6 to 9 per cent, due, among others, to the stability in the supply of foreign currency. The drop in inflation may be sustained if the new guys at the Monetary Policy Committee (MPC) continue to see the value of positive interest rates, and not be scared of investment flow reversal feared in some quarters to attend the gradual interest rate hike plan of Jerome Powell, the new US Fed Chief. Some tenuous management is needed here.
Already, the markets are showing signs of instability and reacting quickly. The stock market is trending upwards, after a yoyo period, perhaps on the effect of decisions being made by portfolio managers and their investors. Investors are calling funds from TBs and moving into bonds. We expect more market reaction. But it is hard to say how the numbers will stand at the end of the year. We have just brought to a close one of the longest budget stand-offs, which produced a budget that is significantly different from what the executive transmitted to the parliament. It does appear that the executive may have to carry on without further battles with the legislature. Time is of the essence and it is not on the side of the executive.
After all the positive points about our growth possibilities, we need to face our economic reality. The more important issue truly is not whether growth is sustained or diminished in 2019. Those are relevant but it has become more important to focus on the sources and impact of growth than its quantum and direction. Nigeria is still the most dangerous place to have a baby. It is competing with Sierra Leone, Central African Republic and Chad, for the trophy of where mothers die the most in child birth. Nigeria has the worst maternal mortality rate, ahead only of these very poor countries. How do we explain the fact that Nigeria is competing with war ravaged countries in human development? The answer is simple: the people do not benefit from their economic growth. Growth impacts only a small portion of the population. Income is distributed according to access to patronage and not productivity.
We kick the can of every challenge. Today, we are pursuing the diversification of the economy but you can bet it’s all a kicking of cans. The economy is SME-driven. I am yet to see any clear plan to empower the SME sector, which is the bulk of the economy. There is no deliberate channelling of productive forces to the sector. It is not even being prepared for increased productivity. Granted that much has been done to provide them with finance, we now know that finance is not their major problem. The rate of drawdown of the available facilities is an indication that the problem is beyond finance. Capital follows profitability. Finance may even become dangerous if too much of it is made available to businesses that have limited investment opportunities. It may even lead to debt overload. What business opportunity have we created for small businesses? Is there any industry feeding the SMEs with job orders and taking supplies from them? There is no effective economic linkage. We cannot diversify without a solid attempt to direct business activity to the MSMEs and link them to big business.
Truly, this economy cannot be diversified without a policy on local content and the patronage of domestic producers. That is how to invigorate the SME sector. It is ironical that this government does not see anything wrong in the use of expensive foreign SUVs as official cars. Peugeot may be importing CKD while Innoson may lack mass output capacity, the fact remains that they add value and create jobs. They rev up the SME sector through orders for tyres and tubes, bolts and nuts.
As Coordinator of the federal government delegation to South East Asia in 1990, I have elsewhere told the story of our study of the Malaysian industrialization strategy, which led us to establish the National Land Development Authority. The Proton Saga had achieved about 55% local content at the time of our visit. It has long since become fully Malaysian car. The Proton Exora won the Future Car Challenge organized by the Royal Automobile Club in the UK. But here, we are either busy starving Peugeot of orders and buying Range Rovers or striking Innoson down for very strange reasons.
Emeka Osuji