Despite Renewed Hope, Economy Still Bedevilled by Structural Challenges

In this piece, James Emejo assesses the health of the Nigerian economy in 2023, considering key macroeconomic variables.

No doubt, the current administration of President Bola Tinubu has made frantic efforts to reshape the country’s economic fortunes through the implementation of bold and critical reforms – with noticeable progress – the overall performance of the economy is still far-fetched.

Although, the president has repeatedly asked for time to return economic prosperity to Nigerians, the current hardship occasioned by recent reforms further attests to the fact that the economy remains in crisis for now.

Apart from the fact that the economy has not grown as expected, some of the latest reforms – including the removal of fuel subsidy and floating of the naira – though have increased revenues for the government, had not made any meaningful impact on the lives of the people as more Nigerians slide into poverty.

Looking at the basic parameters for measuring the health of an economy Given the level of inflation, Gross Domestic Product (GDP), unemployment, Monetary Policy Rate (MPR), and trade among others, it is evident that it is still a long walk to economic prosperity which the current government promised Nigerians.

Nigeria’s economic travails are largely associated with structural challenges, including wide infrastructural gaps limited-service delivery, insecurity, poverty, and bad governance among others.

 GDP Growth

Nigeria’s GDP growth rate fell short of projections for 2023 considering the year-on-year growth of 2.54 per cent in the third quarter of the year (Q3 2023).

This was lower than the 2.66 per cent projection by the Central Bank of Nigeria (CBN), and the federal government’s 4.20 per cent as well 3.20 per cent by the International Monetary Fund (IMF) for the year.

Former CBN Deputy Governor, Dr. Kingsley Obiora, believe the country cannot grow at the current IMF projection and expects to address rising poverty which is presently at 31 per cent.

Part of the country’s growth challenges is also attributable to the policy missteps of past governments according to the World Bank and the inability to grow the non-oil export revenues as crude oil and other petroleum products still accounted for much of the country’s export items.

According to Obiora, Nigeria’s snail’s pace non-oil exports to GDP ratio stood at 0.8 per cent between 2001 and 2011, and 1.2 per cent between 2012 and 2022.

Though the non-oil sector contributed 94.52 per cent to the economy compared to 5.48 per cent by the oil sector in Q3, there are yet concerns that the economy is yet to be fully diversified partly because the bulk of government revenues is still derived from oil sales, making the economy yet vulnerable to external shocks.

Up till now, agriculture which is regarded as a critical sector of the economy and which is crucial to the diversification objectives of the government is not fully maximized and contributed only about 29.31 per cent to growth in Q3. The insecurity affecting the sector had further constrained its contribution to growth, leaving many people unemployed, as well as putting the country’s food security ar risk.

Unemployment

Unemployment is another macroeconomic yardstick that is used to gauge the performance of the economy by showing the number of people who are willing to work but are unable to do so.

The latest statistics from the National Bureau of Statistics (NBS) showed that the country’s unemployment rate increased to 4.2 per cent in Q2 2023 compared to 4.1 per cent in the preceding quarter.

Unemployment among youths aged 15-24 years rose to 7.2 per cent in Q2, compared to 6.9 per cent in the preceding quarter. It is estimated that over 23 million Nigerians are currently jobless, a situation that is worsened by the number of companies leaving the country for various reasons.

Poverty

The World Bank defines the extreme poor as those living on less than $1.90 a day.

It stated that the recent reforms by Tinubu’s government are expected to marginally and slowly reduce poverty beginning from 2024 onward.

Sluggish growth and rising inflation have increased poverty from 40 per cent in 2018 to 46 percent in 2023, pushing an additional 24 million people below the national poverty line.

The number of poor Nigerians rose from 79 million in 2018 to 104 million in 2023, with urban poor—more exposed to

inflation—increasing from 13 to 20 million, while the

number of poor people in rural areas increased from

67 to 84 million, the bank stated in its December 2023 Nigeria Development Update.

However, in the medium term, the reforms

will expectedly reverse the rise in poverty through higher growth and lower inflation.

The bank predicted the poverty rate to reduce to 44 per cent in 2026 from 46 per cent in 2024.

Inflation

Inflation which measures the rate of change in prices of goods and commodities remained a key macroeconomic concern for the country’s economic handlers in recent times.

Currently at 28.20 per cent as of November 2023 compared to 27.33 per cent in the preceding month, the headline index is much higher than the Monetary Policy Rate (MPR) which is currently at 18.75 per cent, creating a negative interest rate regime. Inflation has reached an almost two-decade high in 2023, and higher than nine per cent target band set by the CBN.

The MPR remains negative in real terms with respect to both the past year’s inflation and the expected inflation in the next year, while real interest rates have risen significantly in advanced economies.

In effect, the cost of borrowing from commercial banks has become more expensive with the attendant implications on the cost of goods and services in the country.

Inflation has effectively eroded the value of the naira and reduced the worth of liquid assets – as well as dampened the prospects of poverty alleviation.

The World Bank insists that the country’s current inflationary pressures reflected the, “combination of loose fiscal and monetary policies, structural supply constraints, and external shocks.”

The bank further proposed a, “significantly tighter monetary policy and stronger policy transmission are needed to rein in inflation.” 

Trade balance

The country’s total external trade decreased by about N1.24 trillion to N11.60 trillion in Q3 2023 compared to N12.84 trillion in the preceding quarter.

The export component of trade dropped to N5.93 trillion, representing 19.89 per cent decline over the preceding quarter and accounted for 51.16 per cent of total trade in the review period. However, total imports increased by 4.22 per cent to N5.66 trillion and accounted for 48.84 per cent of total trade. This left the balance of trade at N269.34 billion in the period under review.

Nonetheless, exports trade was dominated by crude oil exports valued at N4.66 trillion, representing 78.51 per cent of total exports while non-crude oil exports stood at N1.28 trillion or 21.49 per cent of total exports. Moreover, non-oil products contributed N438.00 billion representing 7.38 per cent of total exports.

This is even as crude oil exports decreased by 21.15 per cent in Q3 compared to Q2 while other oil products exports was ₦837.33 billion, representing a marginal increase of 1.68 per cent compared to ₦823.48 billion in Q2.

The fact that the share of non-oil exports to trade was lower further calls for attention especially at a period when the government had increased funding to boost non-oil-related activities to diversify the economy.

In its recent report on the country, the Bretton Woods institution pointed out that with the removal of fuel subsidy and the large-scale

depreciation of the naira in June 2023, imports, including gasoline imports, are projected to fall.

“However, exports are also expected to contract, even though oil production is projected to increase, as oil prices are projected to be 20 percent lower, on average, than 2022 levels.

“Higher imports of services, especially in the transportation and travel sectors, are expected to reduce the trade balance. “In H1 2023, the trade balance stood at a deficit of 1.7 per cent of GDP, as opposed to a deficit of 1.6 percent of GDP in H1 2022,” the bank noted.

Although, there is current high expectation that if well implemented and sustained, the bouquet of economic reforms embarked upon by the present administration could boost the growth of the economy and make life better for Nigerians, the performance of the economy in last year – especially the impact of such reforms on living conditions remains below average.