En­gi­neer­ing a new growth strat­egy in Nige­ria

Financial Nigeria Magazine - - Contents -

Amid fal­ter­ing eco­nomic growth across sub-Sa­ha­ran Africa due to low com­mod­ity prices, re­duced for­eign di­rect in­vest­ment and other chal­lenges, the In­ter­na­tional Mon­e­tary Fund (IMF) re­leased its Re­gional Eco­nomic Out­look in May, urg­ing strong macroe­co­nomic poli­cies to un­lock the re­gion's growth po­ten­tial. In the re­port, ti­tled Restart­ing the Growth En­gine, the IMF said in­di­vid­ual coun­try's poli­cies must in­clude measures that sup­port “self­sus­tain­ing sources of growth.”

The GDP of Nige­ria, the largest econ­omy in the re­gion, con­tracted by 1.5% in 2016, its worst per­for­mance in over two decades. Av­er­age GDP growth rate in the pre­ced­ing five years was 4.7% an­nu­ally. How­ever, this im­pres­sive 'growth episode' was al­ways sus­cep­ti­ble to wide swings in oil prices. In its lat­est re­port, the IMF ad­vanced sev­eral poli­cies to en­able coun­tries like Nige­ria to en­gi­neer new growth strate­gies for sus­tained growth. These poli­cies are to be com­ple­mented by in­vest­ment in the de­vel­op­ment of hu­man cap­i­tal, in­creased di­ver­si­fi­ca­tion of ex­ports, greater tech­nol­ogy adop­tion, among other measures.

While there are a num­ber of fac­tors that con­trib­ute to eco­nomic growth, em­pir­i­cal ev­i­dence shows di­rect con­tri­bu­tion of hu­man cap­i­tal ac­cu­mu­la­tion to long-term out­put growth. There is a pos­i­tive cor­re­la­tion be­tween the de­vel­op­ment of hu­man cap­i­tal, mea­sured by in­crease in ed­u­ca­tional at­tain­ment and skills, and tech­no­log­i­cal adop­tion and in­no­va­tion. Ac­cord­ing to the Asian De­vel­op­ment Bank, im­prove­ments in hu­man cap­i­tal have played an im­por­tant role in the struc­tural trans­for­ma­tion of the Chi­nese and In­dian economies. There­fore, achiev­ing the eco­nomic di­ver­si­fi­ca­tion agenda of the Nige­rian govern­ment will not be pos­si­ble with­out an im­prove­ment in the skilled work­force re­quired to move the econ­omy up the value chain.

Hu­man cap­i­tal is also an in­te­gral el­e­ment of hu­man de­vel­op­ment, an area where Nige­ria is con­sis­tently ranked poorly. The Hu­man De­vel­op­ment In­dex (HDI) of the UNDP measures av­er­age achieve­ment in three ba­sic di­men­sions of hu­man de­vel­op­ment, namely knowl­edge, de­cent stan­dard of liv­ing, and long and healthy life. Coun­tries with more in­clu­sive and bet­ter hu­man de­vel­op­ment out­comes have higher lit­er­acy rates and longer years of school­ing, con­sis­tent with higher in­come per capita and rel­a­tively longer life ex­pectan­cies.

The low level of ed­u­ca­tional out­come and skills in Nige­ria is one of the ma­jor con­straints to the coun­try's eco­nomic de­vel­op­ment. The govern­ment in­vests more in the ex­plo­ration and ex­trac­tion of nat­u­ral re­sources than it does in de­vel­op­ing skilled hu­man re­sources. The per­cent­age of govern­ment ex­pen­di­ture on ed­u­ca­tion, as a share of GDP, is less than 0.5% in Nige­ria. In con­trast, govern­ment spend­ing on ed­u­ca­tion in the United States and Bri­tain – where a lot of Nige­ri­ans with means ed­u­cate their chil­dren – is more than 5% of the coun­tries' GDP. The South African and Ghana­ian gov­ern­ments in­vest about 7% and 6% of their re­spec­tive GDP on ed­u­ca­tion, ac­cord­ing to the UNDP 2016 Hu­man De­vel­op­ment Re­port.

An in­ter­est­ing di­men­sion about in­vest­ment in hu­man cap­i­tal is stated in a 1990 re­search by Amer­i­can economists Gary Becker, Kevin Mur­phy and Robert Ta­mura. The au­thors demon­strated that when hu­man cap­i­tal is abun­dant, rates of re­turn on hu­man cap­i­tal in­vest­ments con­tinue to rise. This high rate of re­turn does not re­sult in a de­mand for large fam­i­lies. On the con­trary, so­ci­eties with abun­dant hu­man cap­i­tal have small fam­i­lies, while con­cen­trat­ing on grow­ing hu­man and phys­i­cal cap­i­tal. Per­haps, the­o­ret­i­cally, hu­man cap­i­tal de­vel­op­ment in Nige­ria could pro­vide the un­in­tended pos­i­tive ef­fect of re­duc­ing the high fer­til­ity rate of the coun­try.

Of course, sus­tained eco­nomic growth over the long run re­quires pru­dent macroe­co­nomic poli­cies, mar­ket re­forms, im­prove­ment in the busi­ness en­vi­ron­ment, co­he­sive out­ward-ori­ented poli­cies, etc. How­ever, the main en­gine of Nige­ria's fu­ture eco­nomic growth is hu­man cap­i­tal. A well-ed­u­cated and trained stock of hu­man cap­i­tal is needed to fa­cil­i­tate the tran­si­tion to an in­dus­tri­alised and knowl­edge econ­omy. A bet­ter trained labour force, cou­pled with in­creased adap­ta­tion of tech­nol­ogy, will im­prove the pro­duc­tive ca­pac­ity of the econ­omy and put Nige­ria on the path to com­pet­ing with the fast-in­dus­tri­al­is­ing Asian economies.

A brief en­gage­ment with the Nige­rian labour mar­ket of­ten re­veals the fact that there is a se­vere short­age of skilled work­force. Al­though we have an abun­dance of univer­sity and polytech­nic grad­u­ates, em­ploy­a­bil­ity of the vast ma­jor­ity is in ques­tion. Un­der these cir­cum­stances, lo­cal com­pa­nies are con­strained in terms of pro­duc­tiv­ity and in­no­va­tion, lim­it­ing their com­pet­i­tive­ness. In­deed, higher-qual­ity tech­ni­cal and vo­ca­tional ed­u­ca­tion is needed to train and en­hance the skills of the horde of vir­ile young peo­ple so that they can reach their full po­ten­tial and be ready for the 21st cen­tury job mar­ket.

Some of the so­cial wel­fare in­ter­ven­tion pro­grammes of the Muham­madu Buhari ad­min­is­tra­tion have been de­signed to ad­dress this chal­lenge. For in­stance, the govern­ment is pro­vid­ing tu­ition for about 100,000 Sci­ence, Tech­nol­ogy, En­gi­neer­ing and Maths (STEM) stu­dents in ter­tiary in­sti­tu­tions in the coun­try. But it is still un­clear how suc­cess­fully the scheme is be­ing im­ple­mented, and the out­look for up­scal­ing it.

The Buhari ad­min­is­tra­tion has come for­ward with the Eco­nomic Re­cov­ery and Growth Plan (ERGP). The plan broadly aims at eco­nomic growth re­bound, in­vest­ing in the Nige­rian peo­ple, and build­ing a glob­ally com­pet­i­tive econ­omy. These themes are quite gen­eral. They can mean all or noth­ing. Al­ready, doubts about com­mit­ment to the im­ple­men­ta­tion of the ERGP are ris­ing. Be­yond the ex­i­gen­cies that spun the new plan, Nige­ria needs to re­think its eco­nomic growth strat­egy, pri­ori­tis­ing hu­man cap­i­tal de­vel­op­ment to re­launch sus­tain­able eco­nomic and hu­man de­vel­op­ment.

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