Nige­ria’s re­ces­sion: Can pri­vate wealth change the tide?

Financial Nigeria Magazine - - Contents -

In­tro­duc­tion

The Nige­rian econ­omy fell into a re­ces­sion in the sec­ond quar­ter (Q2) of 2016, as it recorded a GDP growth rate of -2.06% (www.nige­ri­an­stat.gov.ng/re­port/434) ow­ing, amongst other vari­ables, to the fall in the price of oil. In a bid to re­solve the cur­rent eco­nomic cri­sis, there have been propo­si­tions on mech­a­nisms to be adopted by the Nige­rian gov­ern­ment in re­viv­ing the econ­omy which in­clude: as­sets sale; ad­vance pay­ment of li­cence re­newals; in­fra­struc­ture con­ces­sions; eco­nomic di­ver­si­fi­ca­tion; widen­ing the tax net, etc.

This ar­ti­cle posits that gov­ern­ment should, in ad­di­tion to the op­tions stated above, pay at­ten­tion to mo­bi­liz­ing the pri­vate wealth of Nige­rian ci­ti­zens as a low hang­ing fruit for re­viv­ing the Nige­rian econ­omy.

To drive this the­sis that pri­vate wealth should be har­nessed ur­gently, we would an­a­lyze some em­pir­i­cal statis­tics to com­pute the pri­vate wealth of Nige­rian ci­ti­zens; and prof­fer pos­si­ble ways of uti­liz­ing pri­vate wealth to en­gen­der growth and pro­duc­tiv­ity, and to in­vest in crit­i­cal in­fra­struc­ture.

Pri­vate Wealth Drives GDP

The cor­re­la­tion be­tween the Nige­rian Oil Sec­tor (Gov­ern­ment's cash cow) and Gross Do­mes­tic Prod­uct (GDP) tells a pro­found story. Fig­ure 1 (par­tic­u­larly the fig­ures high­lighted in yel­low) leads to sev­eral con­clu­sions high­lighted be­low: a) The straight facts from the Na­tional Bu­reau of Statis­tics show that the Oil Sec­tor ac­counted for 10.45% and 8.26% of real GDP in Q1 2015 and Q2 2016, re­spec­tively. Non-Oil sec­tors on the other hand, con­trib­uted about 89.55% and 91.74% to the na­tion's GDP in Q1 2015 and Q2 2016, re­spec­tively. b) The Oil Sec­tor ac­counts for 85% of Fed­eral Gov­ern­ment's in­come but is not the key driver for Nige­ria's GDP since it last ac­counted for less than 10% of GDP. Over 90% of Nige­ria's GDP was ac­ti­vated by the pri­vate ac­tiv­i­ties in the non-oil sec­tors in Q2 2016. c) Ac­tiv­i­ties such as: Agri­cul­ture (22.55%),

Trade (17.57%), In­for­ma­tion and Com­mu­ni­ca­tion (12.68%), Min­ing (8.41%) and Real Es­tate (7.75%) led the pack in their con­tri­bu­tions to Nige­ria's GDP in the last quar­ter. d) The trend is that these top five GDP con­trib­u­tors (Agri­cul­ture, Trade, In­for­ma­tion & Com­mu­ni­ca­tion, Min­ing and Real Es­tate) have not shown a sig­nif­i­cant de­cline from Q1 2015 to Q2 2016. Con­versely, some of these sec­tors like Real Es­tate have shown growth. e) Given the above, it is clear that the fact that the oil prices have dropped does not nec­es­sar­ily mean a de­cline in ac­tiv­i­ties in the non-oil sec­tors.

It would seem in­tu­itive that if gov­ern­ment fo­cuses on poli­cies that in­cen­tivize in­creased pri­vate sec­tor ex­pen­di­ture in these five top sec­tors that are high­est GDP con­trib­u­tors, Nige­ria should im­prove by sev­eral eco­nomic in­dices de­spite the drop in oil prices. A boost in Agri­cul­ture for ex­am­ple, would re­duce food im­port bill, de­crease for­eign ex­change de­mand, in­crease em­ploy­ment and gen­er­ally re­duce food prices.

Redi­rect­ing Nige­ria's Pri­vate Wealth

Nige­ria is one coun­try where its ci­ti­zens have pri­vate wealth which, if redi­rected into the econ­omy with the right in­cen­tives and spe­cific gov­ern­ment poli­cies, may re­flate the coun­try's econ­omy within a few years.

Here are some sim­ple statis­tics that de­pict how much the pri­vate wealth of Nige­ri­ans may ac­tu­ally be worth:

I. Over­seas Ed­u­ca­tion Spend­ing:

Nige­ri­ans spend over $2 bil­lion an­nu­ally on ed­u­ca­tion abroad. (Van­guard, Fe­bru­ary 10, 2016). To put this in per­spec­tive, if $2 bil­lion is con­verted at N400/$1, it would amount to N800 bil­lion. To drive this home, kindly note that N800 bil­lion is over dou­ble the N369 bil­lion bud­geted for Ed­u­ca­tion in Nige­ria's 2016 Bud­get. Should Nige­ria not pri­va­tize some of the pub­lic uni­ver­si­ties (some of them who have very de­cent in­fra­struc­ture) and in­cen­tivize the pri­vate sec­tor to own and man­age these citadels in or­der to repli­cate what they go abroad to seek?

It should be noted that many uni­ver­si­ties in the United States are funded by pri­vate en­dow­ments.

II.Pri­vate Wealth in Domi­cil­iary Ac­counts:

The Cen­tral Bank of Nige­ria (CBN) noted some months ago (Punch, March 4, 2016) that about $20 bil­lion (N 8 tril­lion if con­verted at N400/$1) is ly­ing idle in dif­fer­ent domi­cil­iary ac­counts of Nige­rian ci­ti­zens.

III. Nige­ri­ans in the Di­as­pora:

Nige­ri­ans in the di­as­pora have re­mit­ted about $104.57 bil­lion into the coun­try be­tween the year 2010 and 2015. Anal­y­sis from re­mit­tances re­veal that about $10 bil­lion was re­mit­ted in 2010; $11 bil­lion in 2011; $21 bil­lion in 2012; $20.77 bil­lion in 2013; $21 bil­lion in 2014 (World Bank Mi­gra­tion and Devel­op­ment Brief 2015) and $20.8 bil­lion in 2015. (Mi­gra­tion and Re­mit­tances Fact Book 2011 & 2016; Cpafrica.com)

IV. Statis­tics on High Net Worth In­di­vid­u­als (HNWIs):

Nige­ria has the 3rd high­est num­ber of HNWIs in Africa. In 2013, there were 15,700 HNWIs in Nige­ria, with a com­bined wealth of $82 bil­lion, (Busi­ness Wire, Fe­bru­ary 14, 2014) which is about N32.8 tril­lion at N400/$1.

Con­clu­sions

These statis­tics are very symp­to­matic and a few clear mes­sages come through:

a) Whilst gov­ern­ment's for­eign ex­change in­come has dwin­dled on the back of fall­ing oil prices and re­duced oil pro­duc­tion, the GDP of Nige­ria is pri­vately led and held – and many of the sec­tors still sus­tain growth. b) A com­bi­na­tion of monies spent by Nige­ri­ans for over­seas ed­u­ca­tion, in­ward re­mit­tances by Nige­ri­ans in the di­as­pora and monies in Nige­rian USD dorm ac­counts show a siz­able wal­let owned by Nige­ri­ans in USD. c) An in­de­ter­mi­nate num­ber of Nige­rian ci­ti­zens (circa less than 10%) put to­gether con­trol more USD wealth (in net-worth) than the fed­eral bud­getary al­lo­ca­tions over the next few years. d) Many HNWI Nige­ri­ans who had healthy USD wealth are en­riched to­day by the de­val­u­a­tion in the Naira and may have an in­cen­tive (given the right cli­mate) to in­vest the wind­fall in Nige­ria.

A few ran­dom ques­tions may be thrown out there on pos­si­ble ways to un­lock some of the pri­vate wealth: a) Can Nige­ria at­tract more di­as­pora USD by sim­ply hav­ing in­ter­est earn­ing domi­cil­iary ac­counts, at an in­ter­est rate of a few ba­sis points above what can be earned in the typ­i­cal des­ti­na­tions like the UK or the US? b) Can gov­ern­ment at­tract im­me­di­ate in­come by a pol­icy that al­lows com­pa­nies make ad­vance or for­ward pay­ments on their taxes be­com­ing due (based on a pro­jected in­come with mech­a­nism for net­ting off when the year-end au­dit has been pre­pared)? The com­pa­nies would in ex­change re­ceive a healthy tax re­bate that should in any case be cheaper than 16% at which gov­ern­ment cur­rently bor­rows. c) Can gov­ern­ment ask some com­pa­nies to bid as con­sor­tiums to adopt some Nige­rian uni­ver­si­ties (just the way Kel­logg adopted Northwestern Uni­ver­sity, for ex­am­ple) and to take over the fi­nanc­ing of these uni­ver­si­ties in ex­change for zero ed­u­ca­tion tax (cur­rently 2% of in­come) for a set num­ber of years?

It is im­por­tant to note that whilst ci­ti­zens have an in­alien­able right to wealth preser­va­tion, it stands to rea­son that given clear in­vest­ment value propo­si­tions and the right in­cen­tives that are com­pelling; dis­cern­ing in­vestors (and Nige­ri­ans are in­deed such) would re­di­rect some of these monies to laud­able projects in Nige­ria.

Fig 1: An­nual Real GDP Con­tri­bu­tion by Sec­tor (%) Year-on-Year

Source: Na­tional Gross Do­mes­tic Prod­uct Re­port 2015-2016 (Q1-Q4; Q1-Q2)

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