People & Money

Making sense of Nigeria’s current economic growth trajectory

A predictable and transparent policy environment is the first and main contribution that any serious government can make to the economy.

Much of the growth in the first quarter of 2021, for example, was the consequence of the oil and gas sector shrinking far less rapidly than it had done in recent times. Not much consolation in this, when you recall that this sector has been our bête noire since 1960… Incidentally, the dominance of crude oil export dollars in our fiscal space continues to underscore the myth of a mono-product domestic economy.

If the GDP numbers released last week by the National Bureau of Statistics (NBS) tell any story at all, it is the classic tale of the subtle distinction between “six”, and “half-a-dozen”. At first blush, the data is clear evidence of the economy’s emergence from last year’s recession. If a recession is, technically, two back-to-back quarters of an economy shrinking, then, surely, two consecutive quarters of economic growth (first in the final quarter of last year and then in the first quarter of this year) ought to count for something.

Not a few commentators have asked, tongue-in-cheek, what this “something” is. Do we now have much needed evidence of the Buhari administration’s economic competence? For, surely, back-to-back economic growth must be the consequence of purposive action. On the other hand, we could simply be seeing evidence, if this were needed, that a rising tide (the global economy’s return to growth) lifts even the leakiest boat (the Nigerian economy).

Part of the answers to these questions lies in the strength of output growth in the last two quarters. The talking heads in the echo chambers where matters around the economy are mulled, appear to have settled on “fragile” as the best description of this growth. In the final quarter of last year, the economy grew by 0.11 per cent. And by 0.51 per cent in the first quarter of this year. However you look at it, both outcomes represent a considerable improvement on the lousy COVID-19-induced numbers from much of last year. Nonetheless, against the economy’s specific needs ― poverty reduction, especially ― neither is reassuring.

Yet, as an activity sector, oil and gas exploration accounts for less than a tenth of our economy’s annual output. To its credit, however, the sector is more efficiently run than any of the activity sectors in the non-oil space ― arguably because, as Chu S. P. Okongwu argued a few years ago, it is an exclave of the economy…

Much of the growth in the first quarter of 2021, for example, was the consequence of the oil and gas sector shrinking far less rapidly than it had done in recent times. Not much consolation in this, when you recall that this sector has been our bête noire since 1960. Or that the test of good governance in the country, after its first major economic crisis in the mid-1980s, has been how well successive governments have been able to diversify the source of our export earnings. Incidentally, the dominance of crude oil export dollars in our fiscal space continues to underscore the myth of a mono-product domestic economy.

Also Read: https://arbiterz.com/has-the-nigerian-state-failed/

Yet, as an activity sector, oil and gas exploration accounts for less than a tenth of our economy’s annual output. To its credit, however, the sector is more efficiently run than any of the activity sectors in the non-oil space ― arguably because, as Chu S. P. Okongwu argued a few years ago, it is an exclave of the economy with few serious linkages to it. This status has spared the sector the burden of the full weight of government’s dead hand. In recent times, this mortmain has come to be discoursed in terms of easing the cost of doing business in the economy.

If much of these costs that we would rather the economy be rid of, arise from a combination of the effect of inept government ministries, departments and agencies, and the constraints from decrepit public infrastructure, the main consequence has been to rob the economy of the resilience needed to recover from both domestic and economic shocks. Given this state of affairs, it is far from surprising that the non-oil sector has not grown as well over the last two quarters as most analysts, public policy wonks, and the citizenry would have liked. Indeed, growth in the wholesale and retail sector, a generally accepted proxy for consumer spending, has been lazy thus far. None of which bodes well for the economy’s medium-term outlook. Not just does consumer spending account for two-thirds of domestic output; but it has been hardest hit by the responses to the pandemic, and so faces low prospects of immediate or rapid recovery any time soon.

On the balance of preliminary evidence, government matters. Not, unfortunately, at the degree to which the public policy responses to the virus have strengthened its play in the economy. But only insofar as governments at the three tiers are able to guarantee level and time-stable playing fields for private sector…

How much of the poor economic performance over the last six months is the long effect of the lockdowns with which government tried to deal with the pandemic caseload last year? And how much of it is the result of the economy’s chronic inflexibility? The answers to these questions matter. First, as explanations for the constraints responsible for the economy’s snail-paced growth. And second as possible pointers to what our policy options are for driving faster-paced economic growth.

On the balance of preliminary evidence, government matters. Not, unfortunately, at the degree to which the public policy responses to the virus have strengthened its play in the economy. But only insofar as governments at the three tiers are able to guarantee level and time-stable playing fields for private sector supply responses. In this sense, the Central Bank of Nigeria’s surreptitious devaluation of the naira, after an early muscular promise to singe the fingers of currency speculators keen on shorting the currency, is a gratuitous addition to the domestic cost of doing business. A predictable and transparent policy environment is the first and main contribution that any serious government can make to bringing down the cost of doing business in its economy.

Uddin Ifeanyi, journalist manqué and retired civil servant, can be reached @IfeanyiUddin.

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