Revisiting IMF’s Scorecard on Nigeria’s Economy
The recently released International Monetary Fund’s World Economic Outlook, which foresees South Africa taking over from Nigeria as the largest economy in Africa in 2024 is the latest pointer to the severity of revenue challenges, gaps in infrastructure, and the unabated pressure on the naira which have combined to make life unbearable for ordinary Nigerian, writes Festus Akanbi
For Nigerians going through the current economic hardships exacerbated by the spiralling cost of living, last week’s publication of the International Monetary Fund World Economic Outlook, predicting that Nigeria would lose its preeminent position as the largest economy in Africa in 2024 is a confirmation that the country is still buffeted with many unresolved economic issues, especially the free fall in the value of the Naira.
The publication sees South Africa’s gross domestic product reaching $401 billion based on current prices in 2024, compared with Nigeria’s $395 billion and Egypt’s $358 billion.
Although the IMF data shows Nigeria’s economy has eclipsed South Africa’s since 2018, the reality today is that Nigeria’s fortunes have dimmed along with a decline in the production of oil and it has been grappling with runaway inflation and a plunge in the value of the naira.
In her reaction, a Bloomberg economist, Yvonne Mhango said, the IMF’s projections reflect where it believes meaningful reforms will take place.
She is optimistic that Nigeria and Egypt would regain their top spots, with the former taking a strong lead, pointing out however that, “for Nigeria to realise the GDP expansion projected by the IMF, we think oil output must be restored to its potential; insecurity needs tackled; and the bottlenecks in the power sector addressed.”
Both Nigeria and South Africa have been grappling with many economic challenges in recent years. While South Africa’s struggles with electricity supply are more recent, Nigeria has been plagued by chronic power supply issues that have defied lasting solutions.
Nigeria’s Economic Fundamentals
It’s been a very painful experience for Nigeria in recent times as the economy tailspins despite a cocktail of reform programmes unveiled by the current administration.
Perhaps, the major economic challenge is the erosion of revenue largely caused by the failure to meet Nigeria’s OPEC quota as oil theft and opaqueness in crude oil management rob the country of the much-needed revenue.
As oil revenues dwindle so also the accretion of the nation’s foreign reserves. Coupled with the falling capital importation, the naira value has continued to nosedive so much that the Naira exchanged for a dollar at N1,170 at the unofficial market and N808 per dollar at the Nigerian Autonomous Foreign Exchange Market (NAFEM) last week.
Analysts listed other challenges including the unabated problem of insecurity especially in the food-producing regions of the North. The immediate fallout of this was the upsurge in food inflation as shown by the latest inflation figure of 26.72 per cent for September.
It is indeed a sad development for Nigerians who are being forced to pay through their noses for food items and other household needs.
Today, a bag of rice goes for N50,000, just like the sharp increase in onions, tomatoes, and other food ingredients.
Also within the same period, the price of 12.5kg of domestic gas moved from N6,500 earlier this year to N13,700 in some parts of Lagos last week.
In a country with rising unemployment rates, analysts said it will be difficult for the government to address the insecurity problem as many of the citizens may continue to defy law and order in their desperation for survival.
The escalation in the cost of living is also taking its toll on businesses. Reports have it that manufacturers are not spared with Nigerians opting for cheaper imported products, which their meager wages can afford. Analysts said the pressure may force more companies to choose between winding up or churning out cheaper but inferior products as a desperate means for survival.
Constraints
Nigeria’s economy is also constrained by many structural issues, including inadequate infrastructure, tariff and non-tariff barriers to trade, obstacles to investment, lack of confidence in currency valuation, and limited foreign exchange capacity.
To compound Nigeria’s woes, the country witnessed a decline in total capital importation, dropping to $1.03 billion from $1.5 billion in Q2 2022, marking a 32.90 per cent decrease, according to the National Bureau of Statistics.
Capital importation means all the money or investment from foreign countries into Nigeria’s economy. It involves the inflow of funds for investment, trade or business expansion.
According to the Bureau, investment ranked top accounting for 81.28 per cent ($837.34 million) of total capital importation in Q2 2023, followed by portfolio investment with 10.37 per cent ($106.85 million) and foreign direct investment with 8.35 per cent ($86.03 million).
Although the 2023 Real GDP is still being computed, reports showed that Real GDP growth fell to 3.3% in 2022 from 3.6% in 2021, precipitated mainly by a decline in oil production. This led to a 5% shrinkage in the overall industry, which was offset by expansion in services (7%) and agriculture (2%).
Unfortunately, the loss of oil revenue is being replicated in the non-oil sector of the Nigerian economy. This was captured in the opinion of the Director General of the Country Department of the AfDB Group, Mr. Lamin Barrow, who listed some of the major bottlenecks limiting full exploitation of the non-oil sectors of Nigeria’s economy to include macro-economic instability, low productivity, inadequate access to credit for small and medium-sized enterprises, infrastructure and logistics deficiencies, especially inadequate power supply.
In his speech at the 2023 Nigeria Employers’ Summit in Abuja, titled, “Trade and Non-Oil: Changing the Narratives for Rapid National Development,” Barrow said that to remove the barriers to non-oil trade and exports, Nigeria must decisively fix its power sector, once and for all. The DG also told the government to improve tax collection and tax administration, plug leakages in tax collection and enhance the efficiency of public investment programmes.
According to him, Nigeria’s revenue-to-GDP ratio, at the moment stands at about eight per cent and is among the lowest globally and lags behind the West African average of 13 per cent.
Limited Opportunities for Nigerians
In the observation of the United States Agency for International Development (USAID), Nigeria has failed to justify its huge economic potential in the standard of living of its people, saying “Despite having the largest economy and population in Africa, Nigeria offers limited opportunities to most of its citizens. A Nigerian born in 2020 was expected to be a future worker 36% as productive as they could have been if they had full access to education and health, the 7th lowest human capital index in the world.
“Weak job creation and entrepreneurial prospects stifle the absorption of the 3.5 million Nigerians entering the labour force every year, and many workers choose to emigrate in search of better opportunities.”
The USAID is optimistic that the current reforms initiated by the President Bola Tinubu administration will begin to pay off by next year, stressing however, the need to sustain the current momentum.
In a recent statement on its website, USAID said, “These reforms, together with global oil prices remaining above their historical averages, are expected to begin to reduce fiscal pressures and unwind the critical macroeconomic distortions that held back growth in the past. The economy is expected to grow at an average of 3.4% between 2023 and 2025, benefitting from the reforms undertaken, a recovery in the agriculture and services sectors, and, over time, increased scope for government development spending.”
In what looks like a warning not to back down on the ongoing reforms, the agency said if the reform momentum is maintained, concerted efforts to achieve fiscal and monetary policy consolidation, reduce insecurity, strengthen public services, and improve the business environment and openness to trade, could boost investments and productivity, allowing Nigeria to return to a high growth path.
It is under the scenario that revenue from oil and non-oil sectors will flow unimpeded and the pressure on the local currency will be effectively tackled.
