The Nigerian Economy: 2007 in Review and Outlook 2008
by Akerele, Taiwo Oziametu [Director, Center for Values In Leadership]
In recent times, the Sub-Saharan African economy has been growing steadily. This is unprecedented in view of the stagnancy that characterized the region in the last few decades as a result of political instability and income volatility. Economic growth in the region hovered in the region of 6% per annum while inflation is 7.5%. The IMF and World Bank argue in separate reports that the region is witnessing its strongest growth in 30 years.
This steady economic performance in the region is driven by revenues from oil (which has been on unprecedented rise in the last few years). The three major benefiting countries Nigeria, Angola, and Gabon are presently awash with oil revenues. While Angola is witnessing its fastest growth ever (17%) projected to be 20% in 2008, Nigeria is presently growing at 6% based on the 3rd quarter report of the CBN.
ECONOMY IN 2007
Against expectations and projections, the Nigerian economy is still largely dependent on revenues from oil, this is further underscored by the 2008 budget recently presented to the National Assembly, while the oil sector is expected to contribute 80% or N3.63trillion the non-oil sector which comprises of Agriculture, Manufacturing, Solid Minerals, Services and other invisibles combined will fill the 20% funding gap which comes to a paltry sum of N910billion. The implication of this is that oil revenues as it is presently will either make or mar Nigeria’s developmental dream sequel to the transient nature of oil prices. This also negates the over emphasized government commitment towards diversifying the Nigerian economy from a mono product to a multi product economy
Under the NEEDS framework launched since March 2004, the manufacturing sector was projected to contribute at least 45% to GDP effectively overtaking oil while Agriculture was envisioned to play a key role in employment generation. This was partly responsible for the launching of the Nigerian Agriculture Credit Guarantee Scheme (ACGS) aimed at strenghetening the capacity of the Nigerian Farmers to access credit from commercial banks under the supervision of the Central Bank and the Ministry of Agriculture, the full impact of this scheme is under debate in view of the turn of events.
Perhaps the most outstanding contribution towards the realization of the Nigerian dream came from the banking sub-sector during the year under review; the industry has suddenly become the toast of international venture capital/Investors. By the end of 2007, total foreign investments in the banking sector would have reached an all high value of US1bn ((N127bn) this is a sign of continuous growing investor’s confidence in the Nigerian economy, this is coming despite the global economic crunch which has seen the US Dollars crashing against other major global currencies. Credit to the domestic economy and private sector has grown tremendously in the last 12 months.
Aggregate credit to the private sector by Nigerian banks is growing 20.6% while the aggregate credit to the domestic economy stands at 324% per annum based on the CBN third quarter report for 2007. Though this is still neglible, it is a sign that the financial services sector is poised to galvanise the productive sector of the economy. The strength of the Nigerian banks is now been put to test with most of them expanding rapidly to other parts of West Africa and beyond while branch network across Nigeria supported by Automated Teller Machines (ATM) has neared the 5,000 mark.
Indeed, the Achilles of the Nigerian and West African economy is the state of its infrastructure. It has been estimated by key government agencies in addition to data from the IMF and the World Bank that Nigeria infrastructural gap is in need of over US$510b in continuous investments for the next 15 years to bridge. This translates to US$34bn (N4trillion) per annum This is as a result of the neglect of this key area by past government in the last 3 decades. Currently the state of road networks across key trade routes is in disarray. This is most evident in the strategic Lagos-Eastern routes. it is expected that the private public partnership (PPP) policy of the Government will come to the rescue of road infrastructure across the country. There is no gainsaying that the realization of vision 2020 by Nigeria can only become a fait accompli if the road network issues are resolved.
On Railways, the previous Government entered into partnership with a Chinese firm for the 1st and 2nd phase of the project which was estimated to gulp about $17billion. This is to be financed with a credit support from the Chinese government. However, recent policy pronouncements from the central government indicate that the policy may have ran into constitutional hitches. The inability of the government to go ahead with the execution of this project will spell serious doom for the Nigerian economy. In the same vein, the 7-power stations expected to boost the power supply situation across the country located in Alaoji, Papalanto, Olokola, Eyaen, Sapele and others is been slowed down by logistical problems, this made the German Technical partner Lahmeier to threaten a pullout from the program. This has the capacity to undermine Nigeria’s dream of attaining stable electricity in 2010. Industrial capacity utilization presently stands at less than 35% owing largely to lack of power and high cost of alternatives.
Basically, the Nigerian economy continued on its steady growth part for most part of 2007. However, politics of policy reversals threatened the expected accelerated growth for most part of the year after the transition in May. The scenario which led to the NLC strike, culminating in the pull out of Bluestar from Kaduna refineries as a result of Due Process Issues should be avoided. The fight against corruption by the ICPC and EFCC which suffered serious setback due to lack of synergy in intra-governmental relations is avoidable if the culture of transparency must be enthrone in governance.
2008: AN OUTLOOK
The growth of the Nigerian economy is hinged largely on the stability or otherwise of the political leadership. The election petition tribunals are still sitting and if recent judgments are anything to go by, the economic fortunes of Nigeria in 2008 may be hanging precariously in unstable waters. However with the commitment of the Federal government to the enthronement of the principles of rule of law, due process, transparency and accountability, the confidence of investors in the Nigerian enterprise will be on the upward swing.
The passage of the fiscal responsibility signed into law by the President is expected to drive the institutionalization of disciplinary measures in budget implementation. By 2008 most states are expected to domesticate this law to guide their fiscal policies.
Nigeria’s foreign reserve now estimated to be in the range of US$49billion is expected to be judiciously utilized especially in enhancing the capacity of the nation’s ailing infrastructure and help in the growth of other industries and stabilize the exchange rate of the Naira.
The recent economic romance between China and Africa is rubbing off positively on Nigeria, with the foray of Chinese business men in all sectors of the Nigerian economy, 2008 is still a gestation period for the full impact of this romance to be felt. Volume of trade between China and Nigeria presently stands at N403b (US3.13bn). The recent visit of the Indian Prime Minister to Nigeria has further enhanced Nigeria-Indo economic ties, away from crude oil which the two countries need to power their ever growing industrial sector, India and China are expected to boost their trade with Nigeria in other sectors such as solid minerals, manufacturing, chemicals, Agriculture and cement production. The progress of work at the National Integrated Power Projects (NIPP) sites needs to be accelerated if the desired growth rate of the GDP put at 11% is not going to be a mirage.
The oil industry which contributes over 80% of government revenues contributes less than 40% of the GDP because of the closed nature of the sector; it is therefore incumbent for the government to ensure that the 10% growth envisaged for the non-oil sector is realized in view of the catalyst role this will play in the vision 2020 agenda.
The Niger-Delta region for most part of 2006 and 2007 remained volatile due to the activities of restive youths who are agitating for greater control of oil revenues, however with more funding been made available to the Niger Delta Development Commission (NDDC) based on the 2008 budget and additional funding for security agencies, oil exploration fields both onshore and offshore are expected to get to maximum production quota and hopefully help meet national aggregate demand for exports. However if peace initiatives fails to yield the desired result, growth projections for 2008 may be a still born.
Akerele Taiwo is a Banker, Policy Economist and Director at the Center for Values In Leadership based in Victoria Island, Lagos.