6% – 0% in 2 years: My perspectives
It is somehow ironic that the last quarter that confirms Nigeria’s dramatic economic decline from a 6 percent growth to -2 percent in 24 months coincides with the publication of a series of economic briefs by The Economist. The publication recently addressed six key economic ideas of the last fifty years, including that by Hyman Minsky, who had argued many years back that booms always precede bust, and stability precedes instability. Thus, those that are familiar with his writings will describe this period as our own Minsky moment. Nonetheless, no one could have predicted that Nigeria, in 2014, growing at 6 percent, and for a decade leading to 2014, could so dramatically decline to a negative growth of 2 percent exactly 24 months after.
After two weeks delay, the National Bureau of Statistics (NBS) confirmed that not only did Nigeria enter recession at the end of the Q2, it recorded another increase in unemployment to reach 13.3 percent for the first time since the new methodology was in place and quarterly data are released on the variable. It also confirmed that inflation rose to over 17.1 percent.
There is no doubt in my mind that these are terrible times. There is also no doubt in my mind that there are both remote or long-term and immediate reasons why we entered recession. Let us deal with the long-term issues first.
Today, the oil industry accounts for about 8.26 percent, down from 11 percent of Nigeria’s GDP two years ago, and before year 2016, accounted for about 86 percent of government revenues and more than 90 percent of export earnings. The underlying implication is that Nigeria’s 40-year growth history shows that the above trend rates occur when oil prices are high. Nigeria’s high growth rates are thus induced by the high oil prices, and thus high productivity in the oil and gas industry in the decade leading to 2014. Then bear in mind that this sector is capital intensive, and thus consistent high productivities in the sector have little or no implications for employment growth. These are no mere coincidences. Resource rich growth is like doping. When the doping wears off, the real strength of the economy appears. If you look at the growth trend since the 1970s, the swings induced by oil prices have not stopped, but have only improved because the periods of high oil prices have been longer since the turn of the century, but also because there are some other elements that make the Nigerian economy slightly more resilient than in the 1970s.
Second, in the same vein, the non-oil sector made up of about 91.8 percent of GDP but much of which is made up of the informal economy.
The NBS estimates that Nigeria’s informal economy is now worth N39 trillion or about 56 percent of GDP. Thus, despite being large in size, the sector is largely fragmented, poorly regulated and therefore contributing little to government revenue. This sector also consists largely of wholesale and retail trade, sectors with very low productivity, and their growth fuelled by high oil prices in the first place. Therefore, this disjointed nature of the structure of the Nigerian economy meant that much of the economy was being untaxed. As a result, Nigerian governments over the years have found it easier to rely on revenues from the oil sector to fund its budgetary expenditure. And when oil prices fall, they result to debts, and debts overtime lead to instability.
While some reform measures were taken in the last decade to correct some of these underlying weak economic conditions, those measures did not go far enough. For the sake of repeating the arguments I have made in the past, and at the risk of being generalistic, our policies fail to correct the anomalies mentioned above because they ignore local realities. However, despite all the long-term issues, the main immediate reason we entered recession is because it took five months to appoint ministers, and it took another six months before any semblance of economic thinking started.
However, these are economic theory-based explanations. In the long term, what is important is that our present economic conditions are a reflection of the political direction and choices we have made since the 1970s. Starting from the 1970s, we increasingly distorted the underlying parameters for sustained prosperity by arrogating all powers of economic policy to the federal government. It has been the case since the 1970s, and even under this present government, it is not changing and there is no sign that it is going to change. As a result, we have consistently seen increases in rural-urban migration that only lead to unemployment and underemployment, rather than being drawn by jobs in the urban areas. In relation, and in addition to this also, productivity remains extremely low in the agricultural and rural sectors.
In conclusion, we are not growing, we are getting poorer, and unemployment is growing. Proposed economic policies must tackle these symptoms of our economic predicament. There is no one single policy that will tackle all these, and all policies must be coordinated, often missing in our considerations. The implications of a poor and weak growth, such as we have now, are why we cannot afford a low growth trap such as we had in the 1980s and 1990s. It will be severe for poverty, unemployment and potentially destabilizing. These are symptoms we are already seeing.
Ogho Okiti