• In recent times, a number of comments and articles have appeared in the media, which have tended to talk down the performance of the Nigerian economy and question the accuracy and transparency of the Excess Crude Account and the External Reserves of the country. It is essential that Nigerians understand the exact position of the economy, and the integrity of these important government accounts. This note aims to provide some facts for Nigerians on these issues, to clarify the exact position, and finally to put these concerns to rest.
• The specific issues that have been raised in recent times include the health and prospects of the Nigerian economy, the composition of the external reserves, and purported discrepancies in account balances reported by the Ministry of Finance and the Central Bank of Nigeria (CBN).
• First, the Nigerian economy is strong. Our economic performance is robust when viewed against a whole range of objective factors. Inflation is now down to single-digit at 9.0% in January 2013, compared with 12.6% in January 2012. The exchange rate has been relatively stable, and the fiscal deficit at just under 2% of GDP is on a downward trajectory, and below our threshold of 3% of GDP. Our national debt is at a sustainable level at about 19.4% of GDP. Overall, GDP growth for 2012 was 6.5%, and projected at 6.75% for 2013, compared with the projected global growth of 3.5%. The above facts have been independently noted and validated by international ratings agencies (such as Fitch, Standard & Poor's and Moody's) who have upgraded the country's economic outlook, even as other countries are being downgraded. In addition, Nigeria's bonds have recently been included in the Barclays and JP Morgan Emerging Market indices.
• Of course, we recognize the socio-economic challenges which we face as a nation. We know we still have a long way to go but let us keep working to correct what is wrong and stop focusing on the denigration of what is being done right. In this regard, we need to create more jobs for our youth to curb unemployment. Poverty needs to decrease at a faster pace, as we do not want excessive inequality to be a feature of our economic growth. For example, the recent poverty statistics released by National Bureau of Statistics show a slight decline in poverty levels of about 2% between 2003 and 2010. This needs to be further accelerated. The cost of governance also needs to be reduced, and the government is taking steps in this direction. We have reduced the share of recurrent expenditures in the budget from 74% in 2011 to 71% in 2012, and to 68% in 2013. We aim to push for a 60% recurrent and 40% capital budget ratio in the medium term.
• As part of the Transformation Agenda, President Goodluck Jonathan has emphasized the diversification of the economy to promote inclusive growth and create jobs. This is being achieved through investments in agriculture, housing and construction, manufacturing, aviation, power, roads, rail, solid minerals and the information and communication technology (ICT) sectors by both government and the private sector. These sectors are gradually transforming the economy, and creating jobs in the process. The economy is moving in the right direction.
• As noted earlier by the Federal Government, Nigeria's reported level of external reserves is comprised of three parts: the CBN's external reserves, the Excess Crude Account, and the Federal Government's funds belonging to agencies such as the Nigerian National Petroleum Corporation for joint venture cash calls and so on. This is simply a matter of definition, and follows international best practices and reporting guidelines. It is thus unnecessary to continue to dwell further on this issue.
• There have also been claims of inconsistency of account balances provided by the Ministry of Finance and the CBN. It is worth noting that the Ministry of Finance typically reports its balances following Federal Accounts Allocation Committee (FAAC) Meetings, which often take place at the middle of the month, whereas CBN data are reported at the end of each month. There is thus a time lag between the reports from the two institutions. As a result, there are usually some differences due to 'transit items' which are yet to be reconciled in both accounts. In addition, for quite a while, the CBN excess crude reports have included the $1 billion allocated to the Sovereign Wealth Fund as this is still domiciled with the CBN, whereas the Ministry of Finance does not regard it as part of the distributable Excess Crude Account.
• As an example, in Table 1 below, we provide the monthly balances of the Excess Crude account reported by the Ministry of Finance and the CBN for the period June 2012 to January 2013. As can be clearly seen, after accounting for the $1 billion allocated to the SWF, the differences are minor and are the result of time lags in the reporting mentioned earlier. Nigerians should closely examine the table and judge for themselves the reasons for the discrepancy and whether Ministry of Finance and CBN are so muddled in their accounting as some would like to suggest.
• There have also been issues raised regarding the rate of growth of the foreign reserves and the Excess Crude Account. It is worth recalling that the Excess Crude Account was established partly to provide a cushion for the Nigerian economy in times of a global downturn. In this regard, all three tiers of Government, relied on savings in the Excess Crude Account to plug the shortfall in their revenues following the collapse of oil prices in 2008. Moreover, there have been withdrawals from the ECA to pay for petroleum subsidy claims which increased sharply in recent years from N291 billion in 2007 to about N2188 billion in 2011. Finally, there has been the increased loss of oil revenues due to an upsurge in the incidence of illegal crude oil bunkering and oil theft.
• In conclusion, the Federal Ministry of Finance wishes to stress that the outlook for the Nigerian economy remains good, despite the current global economic uncertainty. We accept that government should be accountable to their citizens, and transparent to its people in terms of information, particularly regarding public finances. In this regard, we have made efforts to publish revenues allocated to all tiers of government, we have published the Federal Government's budgets down to the last details, and we have published the subsidy reinvestments (SURE-P) payments to all tiers of government. We have also published subsidy payments to oil marketers and further published the names of companies that defrauded the government in the oil subsidy regime. We will continue to make every effort to respond to demands for greater transparency because we believe this lies at the heart of good governance.
Dr. Ngozi Okonjo-lweala
Coordinating Minister for the Economy and Hon Minister of Finance
Analysis and Commentary
The economy of 21st century will not be plausible to dissect and analyze in the absence of politics because both politics and economic activities are entwined and reinforced each another. This is where political economy of Nigeria becomes significant due to consequential co-existence of the two enmeshed entities. Political economy is at the epicenter of state capitalism, an interaction between free economics and government.
In case of Nigeria there is no way one can isolate or divorce politics from the economy. The growth and sustainability of the country’s GDP is rooted on political stability or lack of it. While the economy is making some gains, the politics can be likening to the second law of thermodynamics, which is characterized by increasing disorder and instability. Nigeria’s economy in spite of its gain was still derailed by the state of the politics. The instability and rumblings in the country especially in northern Nigeria; where senseless and continuous bombings by the strange religious group Boko Haram have proven that these actions are not conducive for vibrant and sustainable economic growth.
According to the numbers coming from The National Bureau of Statistics (NBS), the country’s Gross Domestic product (GDP) was impressive at estimated annual growth of over six percent. The problem with the statistics of NBS is that many financial and economic leaders are back peddling in the endorsement of the numbers from NBS. Notwithstanding, there is a threshold of evidence to justify the stipulated economic growth especially the consumer spending and confidence. Just like any other thing in Nigeria the so called empirical tabulations coming from NBS may not be backed with authentic scientific procedure and verifiable methodology.
By any standard the above six percent economic growth is not bad at all especially when compare to the weak global growth that stood at less than 3 percent. Even Obama’s United States has seen one of its weakest GDP growths that barely rise to 2 percent. Therefore Nigeria’s economy is hovering and cruising at a bullish rate.
The major problem with Nigeria’s phenomenal growth is its inability to create jobs for millions of Nigerians, who are without jobs. Majority of the population are being swallowed by serious poverty and abject poverty that is steadily creeping into many homes in Nigeria. Those that have it worst are the youths who have the most recorded unemployment number in the country. The national unemployment number given by The National Bureau of Statistics (NBS) cannot be accepted, due to incoherent collection of date especially in the rural areas where vast majority of Nigerians dwell.
According to Vanguard, “The percentage of labour force that is without job is alarming while the army of the underemployed youths is frightening. Apart from the figures released early this year by the National Bureau of Statistics, which puts unemployment rate in 2011 at 29.3 per cent, the situation has over the years grown from bad to worse. From 2006 until 2011, the unemployment rate averaged 14.60 per cent, reaching an all time high of 23.90 per cent in December of 2011 representing about 20.3 million Nigerians who are currently jobless.
The situation which was put at about 71 per cent early this year would have rocketed to over 75 per cent, throwing even some of the hitherto employed out of jobs. The matter is compounded daily as higher institutions churn out fresh graduates to add to the already saturated labour market.”
Another major change coming to Nigeria’s economy is the rebasing with new methodology of calculation that will catapult the economy up to 40-60 percent. At the moment Nigeria nominal GDP stood at $247 billion as for 2011 according data from IMF. But with the rebasing the economy will be reaching up to $395.2, this will put Nigeria on the path of overtaking South Africa’s $422 billion economy in near future as the largest economy in Africa. This is a cosmetic change without any direct effect on the populace. But the new image will probably make Nigeria more noticeably and may even attract investments.
The new rebased economy will move Nigeria from the 40th largest economy to a 30th position. But even with that Nigeria will not make it to the twenty largest economies by 2020 as it envisioned and planned with its 2020 vision. The plan to become among the twenty largest economies by the year 2020 was poorly strategized and feebly implemented. The instability, not-so-well macroeconomic fundamentals and poor infrastructures are the barriers to the lofty goal.
Nigeria must put her attention and energy on solving the real issues of poverty and unemployment in the country not on make-believe adventures that she is not ready or equipped for.
Even if you are hiding under a cave, almost everybody has heard about Ph.D Nigerians who were applying for truck driver positions at Dangote Group of Companies. The number of joblessness which can even be higher as stated above, is an alarming number and should serve as a clarion call to policy makers and politicians that all is not well in the house of Nigeria. This is not the time to point fingers of blame to higher academic institutions for turning out graduates. After all education is the key for industrial development of a nation. Therefore it is not prudent and productive to blame the victims and academic institutions for doing their jobs. In Adam Smith’s Wealth of a Nation, he propounded the theory of division of labor. Adam Smith stipulated and argued, if not drive the point home that each sector and department of an institution must involve in co-dependency for a productive outcome.
Coming back again to political economy, in the relationship between politics and economy, no nation can thrive in economic stability with majority of its youths without jobs. The overflowing energy and restive state of the energetic youths cannot be managed without jobs for them. The problem of bombings, terrorism and kidnappings can be significantly reduced with gainful employments of the youths.
The macroeconomic policy and its implementation may be said to be fairly stable. The application of the monetary policy and the outcome from Central Bank of Nigeria has been stable for a while. The Central Bank of Nigeria (CBN) under leadership of Sanusi has failed to deliver as they promised to keep inflation rate under less than 10 percent. The yearly inflation rate was above 12 percent. At the fourth quarter of 2012 inflation rate ended at 12.3 percent in December from previously 11.3 percent in October.
Sanusi’s Central Bank of Nigeria by now has hit a roadblock with tightening of monetary tool to mop liquidity in order to checkmate inflation. But that has not been really successful and application of monetary policy as a tool to combat inflation has appeared to be waning. The benchmark interest rate as of fourth quarter of 2012 stood at 12 percent. CBN was instructed by IMF to cool off its aggressive application of monetary tool by steadily jacking up interest rate.
Apart from the devastating impact of the flood in 2012 that destroyed properties, displaced inhabitants and killed many people: The weakness of the relationship between monetary and fiscal policies cannot be overemphasized, which made the fight to lower inflationary activity much complex. There should be an effective coordination between the fiscal policy coming from the executive and monetary policy coming from the Federal Reserve Bank. Taxation and incentives can be used as tools to attract capital and consolidate economic growth.
Nigeria is gradually but steadily accumulating foreign debts by increasingly borrowing from international financial institutions. It is paramount that the accumulated loans are invested in the areas of the economy that needs to be improved for further wealth creation. The building of infrastructures including modern roads, bridges and provision of clean drinking water and steady electricity are necessary infrastructures for economic development and elevation of the nation’s wellbeing. The wealth of a nation endures and flourishes with the provision of the existential necessitates for optimum living and productivity.
Nigerian government has an important role to play in the development of her nation. The path to economic development, sustainable growth and stability are paved with discipline, hard work and 2020 vision. Government does not necessarily create jobs but must be an enabler for economic growth by protecting life and property. This implies that there must be a credible roadmap to maintaining stability. The social and physical infrastructures must be present for development to make any headway and to be sustainable.
Electricity, roads, railways, and security infrastructures are tools for upward economic growth and development. Government must do more beyond being an impartial referee and tax collector.
In 40 years, Nigeria’s population will be approaching 400 million – if you believe the population figures. Before then (29 - 40 years), Nigeria’s oil would have finished. So far, we have earned over $600 billion from oil since 1973 but cannot guarantee any of the basic necessities to the citizens – food, water, good roads, electricity, education, health, etc. The NBS tells us that 40 per cent of Nigerians were food poor in 2010 meaning that they could not afford the basic nutritional intake. For 50 years since 1962, the central objective of economic policy has been a transformation or diversification of the economy away from dependence on primary commodities. It has not happened, and will probably not happen in the foreseeable future.
So, how is Nigeria preparing for a life without oil? Where is the emerging new economy that will support the burgeoning population? A few months ago, the NBS released the first quarter GDP growth rate for Nigeria, and the public response was uproar. Many, including a major opposition political party, a former president, organised private sector, some professionals and analysts openly questioned the figures. This is not a good sign. Some boldly asked: where did the growth come from? This is a deep question but one without yet an answer.
In the next few weeks, this column intends to challenge the hypothesis that we have correctly diagnosed the problems and the solutions known but the problem is to get ‘good leaders’ that will effectively implement. We shall show that the Nigerian economy is holed up in some structural traps, and if the current constitutional - political - and economic arrangements continue, we will continue to move in circles. Progress will be by fluke, with occasional three steps forward and five backwards.
Unfortunately, we do not have the luxury of time. The dynamics of the global economy and geopolitics is changing in fundamental ways with huge risks and uncertainties. We are in a world in which the old order is fast disintegrating, and there is a rapid structural rebalancing of economic power away from the Euro-American beltway to the Asia-Pacific and emerging markets. The rebalancing of economic power will inevitably entail a rebalancing of geo-political and perhaps even military power. I see a world economy in the near future with three dominant reserve currencies (US$, Euro, and Chinese Yuan/Renminbi) with all the instabilities this would entail, and a world economy with increasing turbulence where only those countries which are constantly ahead of the curve will continue to prosper.
Given the new landscape of struggle for geopolitical supremacy, oil and raw materials; pressures to create and preserve jobs for citizens at home while capital is mobile across boundaries; as well as contest for dominance of one currency over another (as the US struggles to maintain the seigniorage and subsidised cheap credit from the rest of the world as issuer of global reserve currency), the global economy will have to brace up for a bumpy ride ahead. Where is Nigeria in all of these? Is Nigeria preparing to cope in the new world of competition or are we running yesterday’s race, and continuously playing a ‘catch-up’ race? Can we win a nuclear war with our bows and arrows? These are issues for another day.
For now, we focus on the deep question of where growth comes from. Output of goods and services (GDP) is determined by the accumulation of factors of production (labour) and (capital – investment in plant, machinery and equipment) and the productivity of these factors (determined mainly by the knowledge and skills embodied in the workers). So, which of these factors- employment of labour, new investment or productivity drive output growth in Nigeria? If you believe the unemployment numbers and what many analysts call ‘jobless growth’, then the announced ‘growth’ can only be explained by rising investment and, or, rising productivity per worker.
On the supply side, the NBS latest figures show that the structure of the Nigerian economy has remained largely the same since the 1970s. The three dominant sectors and their shares of GDP are: agriculture (40%); wholesale and retail trade (20%) and crude petroleum (15%). Solid minerals sector (0.4%) is insignificant. These primary sectors and trading constitute 75 per cent of our national output, and also account for 99 per cent of exports. The so-called ‘modern sectors’ – manufacturing (4%); telecoms and post (5.7%); finance and insurance (3.5%); building and construction (2%); real estate (2%); and hotel and restaurant (0.5%)—all account for just 18 per cent. These are the sectors in which one would expect innovation and high value-adding jobs to occur.
The NBS says “agriculture in Nigeria is predominantly rain-fed”. It does not explain its growth in terms of increased investment or productivity improvements but in terms of weather. So, once we have clement weather, growth occurs. Irrigation is largely absent; average age of the peasant dominated sector is about 57 years with their hoes and machetes, and productivity per hectare is very low. Curiously, year-in-year out, the ‘growth’ of the sector is pre-set at 6-7 per cent. If it is not new investment and increased productivity or new employments, is it that rainfall improves each year to drive ‘growth’?
The manufacturing sector is largely comatose and declined from a share of 7 per cent of GDP in 1970s to 4 per cent currently. Our manufacturers are fighting a losing battle against the armada of imports from cheaper and more productive locations abroad. Given Nigeria’s membership of WTO, there is little room to manoeuvre. Most of the industries in Nnewi and Aba are closed, and if the data from MAN are correct, then the Lagos-Ibadan industrial axis as well as the textile industries in the North are in trouble.
Nigeria’s export of manufacturing is still less than 1 per cent (after more than 50 years of attempts at industrialisation whereas all our comparator countries such as Indonesia have more than 40%). We have not been able to utilise most of the preferences under the EU-ACP pacts under the Lome Conventions and Cotonou Agreement. The manufacturing sector today cannot compete. Many erroneously believe that once we fix power, industrialisation will automatically happen. It won’t. We have not begun to prepare to industrialise.
On crude petroleum, it is basically an issue of capacity utilisation. Given the installed output capacity of more than 3 million barrels per day, anytime we increase output from say, 2 million barrels per day to, say 2.7 million barrels, we would record a huge ‘growth’.
On the demand side, the components of national expenditure present interesting dynamics. The components and their shares of aggregate expenditure as computed from the NBS 2010 GDP Expenditure Report are: private final consumption (60%); government final consumption (15%); gross fixed capital formation (13%); and net exports (12%). Many imponderables in the said report make me raise serious caveats on the reliability of the figures.
The NBS report makes a very serious statement when it argues that “in Nigeria, national savings has always been greater than investment”. Given the huge idle capacity and potentials of the Nigerian economy, it requires an annual investment rate of at least 35- 40 per cent to jumpstart the road to prosperity. Our gross national saving rate averages 15 per cent, and investment rate is below that. For a country that is grossly undercapitalised to be a net exporter of savings (capital flight) abroad is serious. NBS also gives a clue as to where the bulk of the miniscule investment is going. According to it, “the country’s gross fixed capital formation is largely influenced by acquisitions of machinery and other equipment arising from increased crude oil and natural gas exploration activities as well as investments in transport equipment”. We also know that the foreign direct investment goes mostly to the enclave oil and gas sector.
If it is not employment and investment, is it then productivity that drives growth? I have not seen any empirical study that does not conclude that productivity in Nigeria is either negative or very low.
Yes, we have over 100 universities but the effective labour wage (wage adjusted for productivity) is not cheap. It is a common mistake to think that labour is cheap in Nigeria: it is not. Once you take account of productivity, labour in many respects can become very expensive. The pool of skills per 1000 workers is very low. As a visiting professor in the US in late 1990s, the entire administration of the Department of Economics was effectively run by one grandmother. Enough said for now! What is the quality of labour force produced by our educational system? There is little research and development (R&D) happening. So, what will be our advantages to compete and win in today’s world economy?
This brings us to the key conclusion. Nigeria’s ‘growth’ story is largely an oil price and consumption story, with occasional jump in capacity utilisation and punctuated with bad data. Nigeria’s growth is cyclical and somewhat opportunistically tied to the swings in oil prices. When oil price booms, domestic aggregate demand—largely consumption—spurs the rest of the economy. According to NBS 2010, “government final consumption expenditure increased in real terms by 17.84 per cent in 2010 over the level recorded in 2009”. Government expenditure grew at almost three times the growth of the economy! This is the issue. Note that government here refers to aggregate of all governments at federal, state and local governments.
The consumption-based system fuels the ‘booming’ but unrecorded underground, largely criminal and speculative economy. This ‘booming sector’ is different from the informal sector, and involves activities in the speculative and criminal economy as well as briefcase-carrying rent-seeking activities (oil bunkering, corruption, asset price speculation, prostitution, drug trafficking, yahoo scammers or 419; kidnapping, armed robbery; smuggling; dealership in fake and substandard products; etc). The global criminal economy is estimated at over $4 trillion and Nigeria has its share. Today, a large proportion of potentially productive elite are trapped in this rent-driven sector, and it will take more than ‘reforms’ to re-engineer the system.
A collapse in oil prices also translates into catastrophic effects on the macro economy. If the oil price crashes to say $30 tomorrow, the economy and its ‘growth’ will collapse again. We experienced the same ‘growth boom’ during the first and second oil booms of mid 1970s, and 1979 - 81. Bear in mind that Nigeria is currently at about half of its per capita income of $2,300 in 1980. In so far as oil price continues to remain high and given our existing excess capacity, we will continue to have “one of the highest growth rates in the world”. But we know that it is a fluke: no country has prospered in the long term that way.
Dr. Chukwuma Soludo is a Nigerian economics professor and the immediate past Governor and Chairman of the Board of Directors of the Central Bank of Nigeria. He was named Governor on 29 May 2004, which he held until 29 May, 2009.He is also a member of the British Department for International Development's International Advisory Group.
The two-day meeting of Central Bank of Nigeria's Monetary Policy Committee (MPC) ended with a lukewarm outlook, projection and pronouncement on the state of the economy by the Governor Sanusi, the head of the country's apex bank. Sanusi noted that national economic growth may encounter some hiccups in the absence of "structural reforms". The head of the country's Reserve institute buttresseed his comment by pointing to the slight reduction of the economic growth from 7.45 percent in 2011 to the projected 6.5 percent for 2012.
It may not be fair to the monetary policy committee to ascribe the two-day summit as futile and ineffective but that may be the case. Before the meeting there were already standing facts that remained unchanged. At a whopping 12 percent interest rate, even at the face of the surging inflation rate at 12.9 percent, Central Bank of Nigeria (CBN) cannot afford to jack-up the interest rate.
The tightened of monetary policy to mop up liquidity in the monetary base may have become unresponsive and waned. Therefore monetary policy committee retained the monetary interest rate at 12 percent. The further hiking of the interest rate may result into unintended consequences. A higher interest rate may probably appreciate capital market, but at same time, it will constrict credit and liquidity in the hands of business community. And such a scenario and development comes with the slow down of economic growth. It is beginning to look like, that the interest rate at 12 percent is gradually slowing down economic growth.
Moreover the further intensification of liquidity mopping can result in the slowing down of the economy. The only alternative left to the monetary policy committee is to look beyond tighten of monetary policy. The executive arm of the government should inject fiscal policy to complement the actions of the monetary policy committee. Sanusi was underlining the forthcoming weakness of the economy, emphasizing the needed structural reform of the economy. Sanusi was probably alluding to fiscal policy application.
When Asia was experiencing higher inflationary rate in 2011, at a point monetary policy tightening was becoming waned, HSBC Global Research advised Asia to tighten fiscal policy. HSBC Global Research stated that:
“Monetary policy, in its usual form, no longer works. Raising rates simply draws in more capital, leaving financial conditions highly stimulative. Currency appreciation, of the size needed to cut off those funds, would be too disruptive. Capital controls could square the circle, but these are never watertight. Meanwhile, to some, regulatory tightening has become a valid alternative, yet this is difficult to calibrate and best serves as a complementary, rather than primary, tool to tackle inflation. In short, the hands of central bankers are tied.”
INFLATION RISING ABOVE 15 PERCENT
The slowing down of the economy may be partially attributed to lack of structural reforms as was enunciated by Sanusi. But the crust of the matter was the partial removal of the fuel subsidy that brought about the increase of cost of living and production. The country's economy is run on fossil energy and by removing the subsidy it triggered higher inflation rate which now stood at 12.9 percent. Sanui's Central Bank of Nigeria (CBN) anticipated inflation rate to rise and hover between 14-15 percent in 2012 but that will not be so. With the economic trends and the way things are going inflation rate will accelerate over 15 even up to 16 percent by the end of the year. And if the fuel adjustment program continues and the total removal of fuel subsidy becomes imminent the inflation rate may rise above 16 percent. With such an increase in the inflation rate, the country's economy will definitely slow down even below the projected 6.5 percent for 2012.
Nigeria has not yet appreciated how fickle the economic growth and inflation can become. The targeted mission of the policy makers both at CBN and presidency should be to maintain a healthy balance between monetary and fiscal policy in order to checkmate inflation and safeguard economic growth. There is so much CBN can do with the tinkering of the interest rate and with quantitative easing. These monetary tools are limited in action when faced with an accelerating inflation trends and undiversified economy like that of Nigeria.
The state of the country is becoming un-conducive for a sustainable economic growth apart from oil sector of the economy. The growth in agriculture is expected to "declined to 4.15 per cent compared with 5.54 per cent in Q1 of 2011 and 5.74 in fourth quarter 2011," as CBN governor said at the end of the two-day meeting. And “crude oil production was estimated to have declined by 2.32 per cent in quarter one 2012 compared with the decline of 2.41 per cent in the corresponding period of 2011. Non oil real GDP growth estimated at 7.93 per cent in Q1 of 2012 was much lower than 8.73 per cent recorded in Q1 of 2011.”
This is not good news for Nigeria. The social unrest and political turbulences are making investors anxious and their comfort level and commitment on Nigeria's economy is diminishing. This will encourage capital flight and fear for investing in Nigeria, moreover indigenous capitalists may even recoil their commitment for further capital investments in the economy.
The only good news coming from Sanusi's CBN is the Nigeria’s external reserves which increased from $36.66 billion in April to $38.72 billion in May. The buildup of the reserve is a good thing. Reserve can become a war chest against currency speculators and Naira appreciation can be enhanced with an increasing foreign reserve. But it is important that some of the resources coming from the sale of oil should be diverted to Nigerian sovereign wealth fund and provision of infrastructures. Nigerian sovereign wealth fund should be investing in a well tested market where risk is at lowest minimum for a good return to the country.
The legislature move to remove the autonomy of the Central Bank of Nigeria (CBN) is a bad news. The country needs an independent monetary policy institute that does its job without control from the executive and legislature. Look around the world there is no advance and developed economies without independent Central Banks. When the power of Central Bank is compromise and weakens by outside interference, investors trust on the economy will virtually dissipate and disappear. The decisions and monetary policy coming from Central Banks will not be acceptable as real when Central Bank depends on the whims of the executive and legislature arms of the government. The quest to remove CBN's autonomy is "no go area". A bastardized and compromise CBN is good for nothing institute, that is why that it is intrinsic that the autonomy of CBN must remained in tact.
The government must rekindle its effort to reassure investors, capitalists and citizens that protection of life and property is its utmost duty by the country's leadership. The upgrades of electricity infrastructures must be speed up for Nigerians are sick and tired of living in darkness at the dawn of 21st century. The provision of social infrastructures, political stability and quantifiable peace must be in place for sustainability of economic growth. The heavy lifting of structural reforms should come into play but the rudimentary steps to the reforms are to provide and build on the basic tools that are needed for a growing economy.
Former World Bank chief Ngozi Okonjo-Iweala, Mr Olusegun Aganga minister of Trade and Investment as well as Nigeria’s Central Bank Governor Lamido Sanusi are expected to spearhead Nigeria’s economic recovery, but how the two ministers deal with tensions between them and the CBN will determine their success.
Dr. Okonjo-Iweala is expected to take up the role of Coordinating Minister for the Economy and Minister of Finance, Monday 15, an expanded version of the role she held between 2003 and 2006 when she successfully secured Nigerian debt relief. Dr Okonjo Iweala is believed to have negotiated with the President clear terms on which she would be willing to return to serve in government, including being given broad powers over economic management and freedom from political meddling.
Dr Okonjo Iweala and Olusegun Aganga are big personalities that are well respected internationally. Sanusi the CBN Governor has in recent time spread his remit well beyond the fundamental role of the central bank which may lead to a clash of personality in not too distant time.
However, the creation of the Ministry of Trade and Investment seems to be paying off for the country as local and international investors are buying into the programme of government raising hope for multi-million dollar investments in Nigeria.
When the Minister of Trade and Investment, Mr, Olusegun Aganga, was appointed to drive the new initiative, the Organised Private Sector saw the appointment as strategic, especially considering the fact that his wealth of experience in investment and real sector matters, which he displayed even as the Minister of Finance, was more needed in the industry than anywhere else.
The President, Manufacturers Association of Nigeria, Chief Kola Jamodu, alluding to this fact recently said the organized private sector was indeed happy that Aganga had been posted to conclude the good works he started as the country’s finance minister, even though he wished that the Ministry of Trade and Investment could have been expanded to accommodate the name “industry”.
The captains, majors and generals of the Nigerian business community at the maiden interaction between the ministry and the local business community in Lagos two weeks ago was the first sign that the country is about to witness a remarkable change in real sector activities. The Group Chief Executive Officer, Dangote Group, Alhaji Aliko Dangote, Chairman Ikeja Hotels, Mr. Goodie Ibru; Chairman, Nigerian Bottling Company Plc, Segun Akpata; Chairman, HoneyWell Group, Oba Otudeko, among other notable industrialists pledged investments running into trillions of naira in critical projects that will impact positively in the living standards of Nigerians in the next four years.
Some banks, including First Bank of Nigeria Plc, Stanbic IBTC bank Plc, United Bank for Africa Plc and Zenith Bank Plc, among other strong banks; have also indicated willingness to invest in key sectors of the economy that will help to drive the transformation agenda of President Goodluck Jonathan.
Notwithstanding the usual perception of policy inconsistency in the country and the poor infrastructure snag in investment matters, foreign investors have also continued to show keen interest in investment opportunities in Nigeria. ‘Deep pocket’ investors from the United States, United Kingdom, Australia, China and other countries have visited the trade and investment ministry to seek for investment opportunities that can be explored for mutual benefits. Experts have said that Aganga’s Goldman Sachs background was a key factor that has raised the confidence of the international community in the Nigerian economy.
With Aganga driving real sector growth and the momentum gathered in preparation for job and wealth creation, the job of the Minister of Finance, Dr. Ngozi Okonjo-Iweala, another star cabinet member of Jonathan’s administration, may be much easier.
Notwithstanding the misconception about the two key appointments in some quarters, a frontline industrialist, who asked not to be named, because he could not comment publicly on the matter, said Okonjo-Iweala and Aganga were friends coming from the Diaspora with the same passion about their country, Nigeria, adding that, with their belief in each other’s abilities, the Nigerian economy would be the better for it.
“From what I know about the two key ministers’ capabilities as well as the good relationship they have going for them, I think this is the time to really expect a turnaround of the Nigerian economy,” the industrialist, who spoke with journalists recently in Lagos.
To meet the target set for unlocking capital and growing the real sector of the Nigerian economy, taking the trade and investment minister began his job with a three-day retreat with the directors and chief executive officers of the ministry.
The retreat was targeted at making the staff of the ministry key into the new drive with a view to changing their orientation in preparation for the hard work ahead. Aganga noted at the retreat that the whole idea of the transformation agenda was to create economic growth in the country and ensure the creation of jobs, stressing that the ministry would focus on the implementation of mandatory skills transfer to Nigeria by foreign construction companies as well as develop industrial clusters for the real sector.
The Bank of Industry, Department of Trade in the ministry and the other parastatals and agencies under the ministry have also mapped out clear plans to create additional three million jobs in the next three years as the first step towards the eradication of poverty in Nigeria. This was one of the highpoints of the communiqué issued at the end of a three-day retreat of the ministry in Abuja.
According to a statement from the ministry, as part of the strategies towards achieving this, the different departments and parastatals will develop a comprehensive backward integration programme aimed at improving innovation and productivity for rice, sugar, wheat, yam, potatoes, starch and palm produce, among others. The statement said the ministry would establish model industrial clusters in each geo-political zone across the country.
It said, “In line with the mandate to lead the nation’s investment, job creation and economic growth aggressive investment drive, the ministry must be refocused and repositioned in order to effectively serve as the flag and hub of industrial revolution that will help Nigeria take its rightful place in global affairs. In this regard, departments, agencies and parastatals under the ministry have pledged to create not less than 3,100,850 new jobs within the next three years.
“To achieve effective export promotion, participants agreed on the need for increased efforts towards streamlining the nation’s export produce and documentation as a way of facilitating trade through stronger collaboration with all relevant trade facilitation.”
With the right awareness campaign and the momentum already being gathered for investment growth, the stage is set for Okonjo-Iweala to perform in the right direction.
Dressed in a blue blouse and skirt made of African print with black spots and with her landmark headgear, Mrs. Okonjo-Iweala entered the Senate chambers at precisely 12.10 p.m. and was let off at 1.15 p.m. for ministerial screening. She was quizzed on several issues pertaining to the economy and for the first time was publicly made to disclose reasons for her unceremonious exit from the Olusegun Obasanjo cabinet. Noting that Nigeria was eating out of what it should be using to develop itself, Mrs. Okonjo-Iweala said: "I am really worried about the issue of making sure our budget is not eaten up by recurrent expenditure. How can we invest in capital if we’re spending all our money on recurrent expenditures. Can we run a budget that is not negative? Absolutely. We can do it, we have done it. We have been able in the past. Recurrent expenditure "I strongly believe that we should try as a country as much as possible live within our means. Right now we need to work very hard because the budget that we have is such that the current expenditure is almost 74 per cent of the budget, therefore, there is not as much left for capital, so we need to work hard to put in place policy that will make it possible to continue to implement fiscal policies that will enable us to tackle the various challenges in the economy while at the same time living within our means." She noted that the recurrent expenditure was crowding out other necessary investment in infrastructure especially power and as such solicited the help of senators to help the executive branch of government by giving the push to cut down recurrent spending. Also noting the effect of unemployment on the economy, she said: "I think the main problems in the economy have to do with creating jobs. We have unemployment rate of about 14 to 16 per cent, but very large under-employment and the issue is how to make the economy growing in a way that it will create jobs, so those fiscal policies have to be supportive of sectors that are going to be job creating, because we now have growth, but we need to translate that growth into jobs, so those are the kinds of fiscal policies that we need to encourage. We should privatize sectors that are job creating." Noting the declining performance of the federal budget, she said: "When I joined the administration of Chief Olusegun Obasanjo, the budget implementation was 30 percent in 2003, we got up to 90 and 85 percent as at the time I was leaving. And that was a good for any country. As at now the implementation is at 53 percent. I don’t see any reason why the budget will not be fully implemented, if it is reasonable and delivered on time. Budget will be fully implemented if the revenue is coming with less expenditure." Expressing concern that the country was not maximally exploiting its oil revenues, she said: "We are losing reserves, it shouldn"t be, we should be increasing our reserves, at the same time. I am aware that part of the reserve maybe due to decision to support the naira, I don’t think is something that is untoward, but if we want to revalue the naira this will not be the time to think about it. I think we should wait until things are more stable, we are growing our economy, we are creating jobs, we make sure our young people are working and the sectors we have are really giving what they should before we think in that direction." Investment in oil sectcor Answering a question on the Joint Venture Companies, JVC, Okonjo-Iweala said: "On the issue of JVC I think there are number of modalities that many countries use to manage the oil sector, exploration in their countries and investment into the oil sector. I think the problem that we have is that our own portion of the joint venture over time we have difficulties meeting that, but I don’t see anything wrong with them per se, I think in the beginning if you are going to go that route, you really need to have strong presence and advise to make sure that what you negotiate really obeys the law that will be of benefit to the country at the end of the day after the whole process." Inevitably, she was drawn to why she had to resign from the Obasanjo government after her successful role in erasing most of the country’s debts to the Paris Club of debtor nations. She said: "I did not run away, I was here. I resigned, I served the country for about three years and when I determined that I could no longer perform and give to the country the way that I would want, I resigned, which is the honourable thing to do, so I did not run away. When the circumstances are appropriate to serve, you serve and if they are not appropriate, you go and do something else. I think three years plus of service is quite substantial, not only in Nigeria, but elsewhere in other countries, it is regarded as a good amount of time to have given the country and I intend to implement and if Iam cleared I will do my job." On the usefulness or otherwise of sustaining the subsidy on petroleum, Mrs. Okonjo-Iweala said that subsidy was a good instrument needful in narrowing the economic gap between the rich and the poor but lamented that where it is not effectively utilized it becomes wasted. She said that she was especially touched by the wide gulf between the rich and the poor in Nigeria saying that narrowing it was one of the incentives for her returning to the federal cabinet. She noted: "We have coefficient of inequality. It is this inequality that is holding us down. People keep asking why I want to come back to work, but the reason is simple. In a country where the rich keeps getting richer and the poor keeps getting poorer, we need to bridge the gap. We live in a country, where the rich can just wake up and decide to travel abroad, just as their children school abroad and have access to good healthcare. On the part of the poor, the reverse is the case." In addition, Iweala said: "The children of the poor don’t have good schools to attend to and no good healthcare system in a country of 150 million people. That is the inequality we are talking about. We must change this because I know it is possible to do so. I will ensure that we improve the lot of the common people, in order to prevent our young people from moving abroad." Vanguard's HENRY UMORU, CHARLES KUMOLU, INALEGWU SHAIBU& OGECHI OHAEGBULAM
Dressed in a blue blouse and skirt made of African print with black spots and with her landmark headgear, Mrs. Okonjo-Iweala entered the Senate chambers at precisely 12.10 p.m. and was let off at 1.15 p.m. for ministerial screening.
She was quizzed on several issues pertaining to the economy and for the first time was publicly made to disclose reasons for her unceremonious exit from the Olusegun Obasanjo cabinet.
Noting that Nigeria was eating out of what it should be using to develop itself, Mrs. Okonjo-Iweala said: "I am really worried about the issue of making sure our budget is not eaten up by recurrent expenditure. How can we invest in capital if we’re spending all our money on recurrent expenditures. Can we run a budget that is not negative? Absolutely. We can do it, we have done it. We have been able in the past.
"I strongly believe that we should try as a country as much as possible live within our means. Right now we need to work very hard because the budget that we have is such that the current expenditure is almost 74 per cent of the budget, therefore, there is not as much left for capital, so we need to work hard to put in place policy that will make it possible to continue to implement fiscal policies that will enable us to tackle the various challenges in the economy while at the same time living within our means."
She noted that the recurrent expenditure was crowding out other necessary investment in infrastructure especially power and as such solicited the help of senators to help the executive branch of government by giving the push to cut down recurrent spending.
Also noting the effect of unemployment on the economy, she said: "I think the main problems in the economy have to do with creating jobs. We have unemployment rate of about 14 to 16 per cent, but very large under-employment and the issue is how to make the economy growing in a way that it will create jobs, so those fiscal policies have to be supportive of sectors that are going to be job creating, because we now have growth, but we need to translate that growth into jobs, so those are the kinds of fiscal policies that we need to encourage. We should privatize sectors that are job creating."
Noting the declining performance of the federal budget, she said: "When I joined the administration of Chief Olusegun Obasanjo, the budget implementation was 30 percent in 2003, we got up to 90 and 85 percent as at the time I was leaving. And that was a good for any country. As at now the implementation is at 53 percent. I don’t see any reason why the budget will not be fully implemented, if it is reasonable and delivered on time. Budget will be fully implemented if the revenue is coming with less expenditure."
Expressing concern that the country was not maximally exploiting its oil revenues, she said: "We are losing reserves, it shouldn"t be, we should be increasing our reserves, at the same time. I am aware that part of the reserve maybe due to decision to support the naira, I don’t think is something that is untoward, but if we want to revalue the naira this will not be the time to think about it. I think we should wait until things are more stable, we are growing our economy, we are creating jobs, we make sure our young people are working and the sectors we have are really giving what they should before we think in that direction."
Investment in oil sectcor
Answering a question on the Joint Venture Companies, JVC, Okonjo-Iweala said: "On the issue of JVC I think there are number of modalities that many countries use to manage the oil sector, exploration in their countries and investment into the oil sector. I think the problem that we have is that our own portion of the joint venture over time we have difficulties meeting that, but I don’t see anything wrong with them per se, I think in the beginning if you are going to go that route, you really need to have strong presence and advise to make sure that what you negotiate really obeys the law that will be of benefit to the country at the end of the day after the whole process."
Inevitably, she was drawn to why she had to resign from the Obasanjo government after her successful role in erasing most of the country’s debts to the Paris Club of debtor nations.
She said: "I did not run away, I was here. I resigned, I served the country for about three years and when I determined that I could no longer perform and give to the country the way that I would want, I resigned, which is the honourable thing to do, so I did not run away. When the circumstances are appropriate to serve, you serve and if they are not appropriate, you go and do something else. I think three years plus of service is quite substantial, not only in Nigeria, but elsewhere in other countries, it is regarded as a good amount of time to have given the country and I intend to implement and if Iam cleared I will do my job."
On the usefulness or otherwise of sustaining the subsidy on petroleum, Mrs. Okonjo-Iweala said that subsidy was a good instrument needful in narrowing the economic gap between the rich and the poor but lamented that where it is not effectively utilized it becomes wasted.
She said that she was especially touched by the wide gulf between the rich and the poor in Nigeria saying that narrowing it was one of the incentives for her returning to the federal cabinet.
She noted: "We have coefficient of inequality. It is this inequality that is holding us down. People keep asking why I want to come back to work, but the reason is simple. In a country where the rich keeps getting richer and the poor keeps getting poorer, we need to bridge the gap. We live in a country, where the rich can just wake up and decide to travel abroad, just as their children school abroad and have access to good healthcare. On the part of the poor, the reverse is the case."
In addition, Iweala said: "The children of the poor don’t have good schools to attend to and no good healthcare system in a country of 150 million people. That is the inequality we are talking about. We must change this because I know it is possible to do so. I will ensure that we improve the lot of the common people, in order to prevent our young people from moving abroad."
Vanguard's HENRY UMORU, CHARLES KUMOLU, INALEGWU SHAIBU& OGECHI OHAEGBULAM
Africa is the world’s most profitable region, says Econometrix chief economist Azar Jammine. At a presentation in Johannesburg yesterday, he cited an analysis by the University of Oxford which showed that, adjusted for risk, Africa came out “way above” Asia and Latin America.
Jammine, with Frontier Advisory chief executive Martyn Davies, presented the findings of the MasterCard Worldwide Insights report, entitled Taking Stock: The State of Sub-Saharan Africa.
The report shows growth in the region has not been dominated by mining. Between 2002 and 2007, the fastest growing sectors were hotels and restaurants, with annual growth of 8.7 percent; financial services at 8 percent; transport and communications at 7.8 percent; construction at 7.5 percent; and utilities at 7.3 percent.
“Services are just as important, if not more important, than resources, in terms of economic opportunities,” Jammine said, but noted manufacturing and agriculture lagged.
Jammine and Davies painted a convincing picture of the recent continental success story, after decades of lagging the world. Since 2000, when The Economist magazine labelled Africa “The Hopeless Continent” in a controversial cover story, the region has experienced the third-fastest economic growth in the world.
“Ironically this publication appears to have marked the turning point in perceptions of economic opportunities on the continent,” the report said, predicting Africa would take over from China and India as the world’s engine of growth.
The report showed sub-Saharan Africa was the only region in the world that saw an increase in foreign direct investment (FDI) during the 2007/08 financial crisis and the global recession that followed.
The continent is vast – 30.3 million square kilometres – big enough to accommodate China, the US, western Europe, India and Argentina.
And it has the fastest growing population in the world, set to top 1 billion within the next six years, providing a major share of the world’s future workers, Jammine said. “We are talking about an increase of 700 million working age people over the next 40 years, bigger even than the 600 million increase we are looking for in Asia.” He contrasted it with western Europe, where there would be a 23 percent decline.
Sub-Saharan Africa is urbanising rapidly – with cities growing faster than in any other region. It has 52 cities with more than 1 million people, more than double the number in 1990.
This pattern of development created a massive demand for infrastructure, goods and services, Jammine said, “and offers immense opportunities to supply the requirements of an urbanising population”.
A resource that is still relatively untapped is land.
Jammine said Africa had 60 percent of available arable land and had the potential to be a bread basket to the world.
Only a third of arable land had been cultivated in Africa which meant there were “enormous possibilities if one can develop the farming acumen and acquire the technology within the continent to develop the agricultural resources”.
But there are challenges.
Davies pointed out an anomaly: despite its growth rate Africa is falling behind in terms of competitiveness. South Africa, which performs best, ranks only 54 out of 139 countries on the World Economic Forum’s competitiveness index. Davies warned that the region’s growth could stall and even decline without greater competitiveness. - Business Report
Nigeria for permanent membership
In Seoul, capital city of South Korea the leaders of G20 nations will soon gather again for an important summit. G20 is powerful group of developed and emerging economies that dominate the global economic scene and have a lion share of 95 percent of the world economy. The fundamental purpose of the group is to stabilize the world economy. Without doubt G20 is the place to be and any important nation missing in the action will definitely felt the financial and economic ramifications.
Nigeria for all the encompassing reasons should have been the permanent member of the group. But due to her prior devastating political-economic structural imbalances she was inhibited from not making the membership at the inception of the group. Intrinsically, things are gradually but steadily changing in the country and Nigeria is making progress that must be appreciated. Democratic capitalism is taking holds in the country; the politics of military dictatorship has given away to democratic pluralism. Economic strangulation by collectivism and centralization has been reformed and economic opportunity is becoming reachable. Nigeria is heading towards a right direction but she is not yet home free.
Even with the accumulative progress Nigeria is still not invited as a permanent member as the “Twenty world leaders come together in Seoul this November to discuss the state of the global economy as it emerges from the financial crisis. Together, they will take the necessary steps to reduce market volatility and move past the crisis, creating sustainable growth going forward.”
The government of the President Goodluck Jonathan is steadily rising to the occasion of protection of lives and property. By no means one cannot boast that Nigeria is a perfect nation. One thing for sure Nigeria as a nation has begun to make the serious decision and showing signs that she is willing to make changes - to make life better and livable in the second largest economy in Africa and the most populous country in the continent.
President Goodluck Jonathan is making a progress that should be encouraged and nurtured. The government of Nigeria under his leadership is making practical plans to have a free and fair election in 2011. He is making effort in turning around paucity of energy in Nigerian industrial landscape. The major vulnerability of Nigeria’s economy is insufficient electric power supply which has hampered maximum economic output and industrialization. Recently, a large resource was set aside to revamp electric energy supply coupled with privatization proposal. We can say for sure that Nigeria is moving in the right direction.
The principal global economic powers especially United States and China are highly committed to financial global stabilization inorder to enhance trade and commerce with modest inflation and deficits. They should recognize the importance of Nigerian active participation on economic global scene as a full member of G20. Nigeria has a bulging GDP and is a major supplier of oil to US and China. Therefore Nigeria as an acceptable economic powerhouse can aid to stabilize Africa in general and the West Africa sub-region in particular.
Nigeria is making a substantial move to address her structural imbalances in the area of economics and politics; the admission into G20 will booster her confidence as she strives to better her Scio-economic and political standing in the world. Africa needs Nigeria to make it and a responsible and successful Nigeria, will impact positively to Africa.
Nigerian economy is growing steadily at 7.3 percent in second quarter of 2010 and is being projected to grow to 10 percent in 2011. The Nigerian GDP was about $207 Billion in 2008 and foreign debt-to-GDP ratio is estimated at about 3.1 percent. With a sustainable debt and one of lowest debt-to-GDP in the world, Nigeria is poise for tremendous growth in near future.
Nigeria does not necessarily have to lobby to be admitted to G20 but she must made her case to the august body and reminds everybody that a stable and economically growing Nigeria will contribute immensely to the stability of the global economy.
Most importantly, President Jonathan must be encouraged in his challenging goal to improve the lot of the country. The best thing that the rest of the great emerging powerful economies including China, India, Brazil and South Africa could do are to play a vital role in making the permanent membership of Nigeria to G20 possible.
Nigerian economy is growing at a fast pace. This year at the tail end of second quarter the economy is growing at the rate 7.3 percent compared to the global sluggish and anemic growth. “According to forecasts by OECD (Organization for Economic Cooperation and Development), global economic growth this year will be 4.6 percent compared to 3.4 percent forecasted by the organization earlier. In 2011, the OECD expects growth in the global economy at 4.5 percent compared to 3.7 percent projected earlier. Faster recovery of the global economy takes place at the expense of economic growth in Asia. In particular, China's GDP growth is projected at the level of 11.1 percent this year.
Econometric forecasting "provided by the International Monetary Fund (IMF), global economic growth will amount to 4.2 percent this year.” And Nigeria is projected to grow at 10 percent in 2010 and preceding year. This is keeping Nigeria in a good company of one of the fasted growing economies in the world.
For the concerted and coordinated global economic growth and financial stabilization, the G20 cannot afford to overlook the importance of Nigeria. As an emerging economy and leader in the continent of Africa, Nigeria is a resourceful nation. Nigeria needs a permanent seat at the table where economic decisions affecting Nigeria and Africa are made.
Nigeria’s economy is growing and the statistics coming from National Bureau of Statistics (NBS) are testament to the blossoming GDP. Well, this side of the story is rosy on the paper, but the other side which is the reality is that regular people are suffering with massive poverty and unemployment. The rosy economy does not reflect on the poor masses. The paradoxical outlook is pointing to the inability of the growing economy to ameliorate the living conditions of the working people.
To be conservative with numbers, Nigeria makes at least $50 million dollars daily from the export of the crude oil and investments are streaming into oil and non-oil sectors. The country’s foreign reserve is about $38.2bn and the economy is growing at second quarter at the rate of 7.3 percent. It is beginning to look that the new emerging paradigm of economic growth in Nigeria does not come with benefits. While Nigerian economic is growing at the rate of 7.3%, the unemployment is scaling at 19.7 percent according to statistics from National Bureau of Statistics (NBS). This is troubling to a nation of which 70 percent of the population is living in poverty.
Realistically, unemployment at 19.7 percent cannot be accurate. With enormous joblessness in rural areas where most Nigerians dwell, the rural unemployment when factored into the equation together with the alarming unemployment among our youths, the unemployment figure from NBS cannot be accurate. The jobless economic growth poses a great trouble to policy makers in the country and they must be scrambling to do something about it. Even the Minister for Finance Olusegun Agaga is disappointed with the inconsistencies of the economy, he said, “the paradox of a growing GDP at the same time as we are witnessing growth in unemployment, which is most severe on youth in urban areas.” The Honorable Minister Agaga has good intentions but his options are limited.
“However in the same period, the national unemployment rate has risen annually, from 11.9 per cent in 2005 to 19.7 per cent in 2009, according to the National Bureau of Statistics,” said Minister of Finance Olusegun Agaga. He further acknowledged that real GDP of the country has been thriving at sound footing consecutively for previous five years, measuring at six percent or higher each year between 2005 and 2009.
With global exposure of the Minister of Finance, Mr Olusegun Aganga, a former Goldman Sachs executive appointed in March by President Jonathan, he recognised that such a paradox in the economy cannot be sustainable in the sense that the alarming poverty and poor quality of existence in the country lowers the standard of living. The perilous situation is unacceptable for the youths energy must be directed to productive venture that will enhance quality of life. The quantum increase of crime and social ills associated with unemployment cannot be overemphasised.
On the inflationary trends, Wall Street Journal reported that, “Nigeria's annual inflation rate rose to 13% in July from 10.3% in the preceding month, the National Bureau of Statistics, or NBS, said on its website. The higher inflation rate was attributed to the rising prices for food items like yams, potatoes, meat, fish, cooking oil and fresh tomatoes. Nigerian inflation stood at 11% in May, 12.5% in April, up from 11.8% in March. It was 12.3% In February and January, and 12% in December 2009. Nigeria slowed inflation for most of 2006 and 2007, achieving a single-digit rate.”
The observation that is gaining momentum is that monetary policy has run its course and its application to resolve and control inflation is waning. Nigerian policy makers must look outside the conventional solution particularly on the usage of monetary and fiscal policies to restrict inflation. The next bold move is to strengthen economic output in the country. This not the clamping down on foreign imported goods but to gradually increase the incentives to attract local investors to start manufacturing in the country and raising the raw materials from the country. The key is to encourage local investors who know the terrains of the local economy to rise to the occasion of satisfying the final consumers.
The budgetary location at the tune of N704 naira has been release to the state and local governments. “Nigeria sold 126.46 billion naira of 20-year, 5-year and 3-year sovereign bonds at its eighth debt auction of the year, the Debt Management Office (DMO). It sold 41.64 billion naira in the 20-year papers, 42.33 billion in the 5-year bonds and 42.49 billion naira in the 3-year instruments at an auction. The amount raised was 20 percent more than the 105 billion naira the debt office initially proposed to auction.”
Reuters reported that “Nigeria sold 5-year and 3-year sovereign bonds at its eighth debt auction of the year” and it was confirmed by Debt Management Office (DMO). Nigeria was reported selling 42.49 billion naira in the 3-year, 42.33 billion in the 5-year bonds and 126.46 billion naira of 20-year. Earlier, Nigeria sold through DMO 42.49 billion naira in the 3-year instruments, 42.33 billion in the 5-year bonds and 41.64 billion naira in the 20-year papers. “The marginal rate on the 3-year bonds rose slightly to 7.54 percent from 7.48 percent last month, the 5-year paper was up to 9.25 percent from 8.85 percent and the 20-year bonds climbed to 11 percent from 10 percent.”
There is no doubt that Nigeria is fast becoming bullish in selling bonds to raise money. Nigeria must realize one essential component of issuing bonds is the unflinching commitment to honor the debts when they attained maturity. DMO may be hearty and excited to be selling those bonds but they have a big work for them in near future. Debt Management Office (DMO) has to justify the issue of the bonds and to make sure that no scandal or mismanagement will lower Nigerian financial ratings from Standard and Poors. The money raised by Nigeria must be prudently invested with probity and transparency to bolster the confidence of the market.
Naira is hovering at slightly below and above N150.70 to dollar, which is not really bad. The demand of dollar is quite high at the local market which can justify the weakening of naira which can be compensated by the monthly sales of dollar by big energy companies. The foreign reserve which stood $38.2 billion can act as a war chest to safeguard the value of naira.
Nigeria’s economy is churning along after the problems of liquidity and banking sector meltdown that nearly crushed the financial market. The economy is progressively in recovery and it looks like the confidence of Nigerian consumer is gradually rebounding. But we cannot say for sure the exact figure because quantification of confidence has not been documented nor recorded. All the economic indicators are pointing in affirmative and right direction. Therefore the economy can be say to be relatively healthy, the key economic indicators including the inflation rate is at 11% in the month of May. The increasing inflationary pressure which subsided from 12.5% to 11% year-on-year is a good response and these recent indices were documented by Nigeria’s National Bureau of Statistics (NBS). The food price inflation also came down in the second quarter from 14.3% in to 12.3, a sign that the gripping hands of inflation around the economy is waning.
Without doubt the monetary policy coming from Sanusi’s Central Bank of Nigeria (CBN) has a positive outlook on the economy which has been growing at the rate 7.3% and attracting investments mostly in petroleum sector.
The "revised estimate for real Gross Domestic Product (GDP) by the National Bureau of Statistics (NBS) indicates that the economy grew by 7.23 percent first quarter of 2010 as against 6.7 percent it had earlier projected for the quarter." This is impressive compares to the world economy that has been expected to be growing at the rate 3.9 % in 2010 as result of the global recession.
The greatest threat to Nigeria’s standard of living other than inflation is unemployment; even with progressively growing economy at the rate of 7.3% the economy is not producing enough jobs to make a reasonable impact on employment. The Finance Minister Olusegun Aganga stated that unemployment in Nigeria was about 19.7% but financial and economic experts at Afripol Organization quantified that the real unemployment figure might be higher when rural and urban joblessness among the Nigerian youths are factored into equation. The collecting of data on employment will be probably cumbersome, if not difficult in rural areas where modern technology is scare and out of reach.
It must be noted that Nigeria has trade surplus with many western countries including United States at the tune of $5.5 billion. The executive arm of the government must work hard to rectify the inability to successfully implement the federal budget as it was written. As a result of shortfalls from oil revenue, Nigeria proposed issuing bonds of about N867.5 billion to finance its deficit. On the financing of budget deficit including the 2010 current expenditure the Director General of the Debt Management Office (DMO), Dr. Abraham Nwankwo reminded Nigerians that government is now borrowing from the capital market and particularly by issuing bonds to raise money. On borrowing Dr. Nwankwo did emphasis that: "Borrowing is a normal feature of all economies. Nigeria is currently one of the lowest in terms of ratio of debt to GDP (Gross Domestic Products). This does not mean Nigeria is doing well, as what is more important is whether the proceeds is being used judiciously." Therefore it is imperative that borrowed money or any money allotted for the budget is prudently utilized in its implementation.
President Jonathan reaffirmed the deficit issue on the letter he wrote to the lawmakers: "Specifically, recent revenue developments indicate significant shortfalls in both oil and non-oil revenue which may well continue for the rest of the fiscal year with adverse implications for the financing of the budget. Consequently, given the recent drop in international oil prices from over US$80 per barrel to under US$70 per barrel; it is prudent to revise the oil bench mark price to a more realistic level." He further states that, "The 2010 budget was predicated on a revenue benchmark of $67 per barrel of crude oil. But in his letter to the Senate, President Jonathan asked it to "revise downwards the aggregate level of expenditure from the N4.608billion approved in the 2010 Appropriation Act and adjust the budget details accordingly."
Daily Trust editorial, added: "In a bid to balance the budget, the federal government has also resolved to borrow from domestic and foreign sources. The 2010 budget will receive $500 million USD (N75 billion) from international bonds and has projected to borrow N897.3 billion from an already ailing domestic financial system. Several banks in the country have for several months survived on life line provided by the Central Bank of Nigeria (CBN) but the federal government still expects to suck such huge amount to finance the budget deficit."
The manufacturing sector recorded a lower output from " 7.03 percent in 2009 to 6.43 percent in 2010" due to lack of electric power and paucity of credit. Nigerian manufacturers do import a reasonable amount of raw materials from abroad and foreign exchange becomes an impediment to free flow of raw materials coupled with the government higher tariffs.
Mr Aganga, Nigerian minister of finance and a former managing editor at Goldman Sachs expected the economy to grow at 10 percent by 2012. According to him, Nigeria is making the requistive moves especially with rebuilding of the infrastructure, diversification and privatisation to ensure the positive economic growth.
Africa Political and Economic Strategic Center (Afripol) is foremost a public policy center whose fundamental objective is to broaden the parameters of public policy debates in Africa. To advocate, promote and encourage free enterprise, democracy, sustainable green environment, human rights, conflict resolutions, transparency and probity in Africa.