Nige­ria’s com­pet­i­tive­ness score has dropped yet again

Financial Nigeria Magazine - - Contents -

At the heart of the di­min­ished value of Nige­ria's cur­rency, high in­fla­tion, in­ter­est and un­em­ploy­ment rates – cul­mi­nat­ing in a high mis­ery in­dex score – is the coun­try's weak eco­nomic com­pet­i­tive­ness. We can spend a lot of time talk­ing about how to fix the em­ploy­ment cri­sis or re­duce in­ter­est rates, for in­stance. But those con­ver­sa­tions would be hot air if there are no clear and far­reach­ing poli­cies to re­move the struc­tural and bu­reau­cratic bot­tle­necks that cripple our com­pet­i­tive­ness.

The World Eco­nomic Fo­rum de­fines com­pet­i­tive­ness as "the set of in­sti­tu­tions, poli­cies, and fac­tors that de­ter­mine the level of pro­duc­tiv­ity of an econ­omy, which in turn sets the level of pros­per­ity that the econ­omy can achieve." In essence, coun­tries that are more com­pet­i­tive are more pro­duc­tive. Also, in­creased pro­duc­tiv­ity is as­so­ci­ated with higher in­comes and bet­ter liv­ing stan­dards. All the top 10 most com­pet­i­tive global economies – Switzer­land, United States, Sin­ga­pore, Nether­lands, Ger­many, Hong Kong, Swe­den, United King­dom, Ja­pan, Fin­land – have th­ese in com­mon. They also have a sub­stan­tial hu­man cap­i­tal stock and their mar­kets are highly ef­fi­cient.

In the lat­est Global Com­pet­i­tive­ness In­dex (GCI) 2017-2018, Nige­ria was ranked 125th out of 137 economies sur­veyed by WEF. Although the coun­try moved up two places, com­pared to the GCI 2016-2017 re­port, its score dropped from 3.39 to 3.30 (out of high­est pos­si­ble score of 7). Nige­ria moved up the rank­ing, de­spite hav­ing a lower score, be­cause of fewer num­ber of coun­tries sur­veyed for the new re­port and de­te­ri­o­ra­tion in the per­for­mance of some economies, no­tably Le­sotho, which dropped 11 places in the cur­rent rank­ings.

The in­dex cov­ers 114 in­di­ca­tors, which are grouped into 12 pil­lars: in­sti­tu­tions, in­fra­struc­ture, macroe­co­nomic en­vi­ron­ment, health and pri­mary ed­u­ca­tion, higher ed­u­ca­tion and train­ing, goods mar­ket ef­fi­ciency, labour mar­ket ef­fi­ciency, fi­nan­cial mar­ket de­vel­op­ment, tech­no­log­i­cal readi­ness, mar­ket size, busi­ness so­phis­ti­ca­tion, and in­no­va­tion. Nige­ria's high­est score (5.0) was in the mar­ket size pil­lar; while its worst score (2.0) was in the in­fra­struc­ture sub-in­dex. Out of the 35 African economies in the rank­ings, Nige­ria was not even among the top 20.

The six most prob­lem­atic fac­tors for do­ing busi­ness in Nige­ria that sur­vey re­spon­dents iden­ti­fied are in­ad­e­quate sup­ply of in­fra­struc­ture; for­eign cur­rency reg­u­la­tions; ac­cess to fi­nanc­ing; cor­rup­tion; in­ef­fi­cient govern­ment bu­reau­cracy; and pol­icy in­sta­bil­ity. To achieve sig­nif­i­cant progress in the coun­try's com­pet­i­tive­ness, th­ese must be at the top of govern­ment's agenda.

Pres­i­dent Muham­madu Buhari's ad­min­is­tra­tion seems to un­der­stand th­ese enor­mous chal­lenges. One of the ob­jec­tives of the govern­ment's Eco­nomic Re­cov­ery and Growth Plan (ERGP) is to build a glob­ally com­pet­i­tive econ­omy. To achieve this ob­jec­tive, the govern­ment has set up the Pres­i­den­tial En­abling Busi­ness En­vi­ron­ment Coun­cil (PEBEC) to work with var­i­ous stake­hold­ers to re­move the bot­tle­necks in govern­ment bu­reau­cracy. PEBEC is fo­cused on mar­ket-based sup­ply side poli­cies to cut cost of do­ing busi­ness and gen­er­ally im­prove the busi­ness en­vi­ron­ment and help mar­kets op­er­ate more ef­fi­ciently.

A key agenda un­der the ERGP is in­fra­struc­ture de­vel­op­ment. Suf­fice to say, mod­ern in­fra­struc­ture en­hances pro­duc­tiv­ity and makes com­merce more ef­fi­cient. In­fra­struc­ture is also an en­abler of in­no­va­tion, lead­ing to the cre­ation of in­dus­trial value chains. But a con­stricted fis­cal space has led the govern­ment to em­bark on deficit spend­ing to fund in­fra­struc­ture projects. Between June 30th, 2015 to Septem­ber 30, 2017, Nige­ria's to­tal pub­lic debt stock rose by 62%, from N12.1 tril­lion to N19.6 tril­lion, ac­cord­ing to data by the Debt Man­age­ment Of­fice. Min­is­ter of Fi­nance, Kemi Adeo­sun, said the govern­ment no longer bor­rows to pay salaries, but to in­vest in in­fra­struc­ture.

But af­ter more than two years in of­fice, in­fra­struc­ture – such as power – re­mains a sig­nif­i­cant hin­drance to do­ing busi­ness, and, there­fore, weak­en­ing the com­pet­i­tive­ness of the econ­omy. Hav­ing in­curred over N7.5 tril­lion in pub­lic debt, Nige­ria still re­ceived its worst GCI score in in­fra­struc­ture, and ranked be­hind Liberia and Rwanda on the in­fra­struc­ture sub-in­dex. This puts to ques­tion the ef­fec­tive­ness of the govern­ment's deficit spend­ing on in­fra­struc­ture amid wors­en­ing macroe­co­nomic con­di­tions.

Coun­tries that are more com­pet­i­tive were given rel­a­tively strong macroe­co­nomic scores. Switzer­land, which con­tin­ues to top the global rank­ings on com­pet­i­tive­ness, has high busi­ness sec­tor so­phis­ti­ca­tion and ab­sorp­tive ca­pac­ity for new tech­nolo­gies, while it keeps im­prov­ing its in­no­va­tion en­vi­ron­ment. The coun­try also has the best­func­tion­ing labour mar­kets glob­ally. The world's most com­pet­i­tive economies also have higher scores on ed­u­ca­tion and train­ing in­di­ca­tors. Em­pha­sis in their ed­u­ca­tional sys­tems is on in­no­va­tion, cre­ativ­ity, and the abil­ity of stu­dents to be repos­i­to­ries of ideas. The an­ti­quated Nige­rian ed­u­ca­tional sys­tem – where stu­dents are taught for the pur­pose of pass­ing ex­am­i­na­tions – is not ideal for a world that is rapidly chang­ing. Is it any won­der Nige­ria's sec­ond worst GCI score is in­no­va­tion?

As busi­ness in Nige­ria be­comes more so­phis­ti­cated and mar­kets be­come more ef­fi­cient, reg­u­la­tory in­sti­tu­tions must also be tech­no­log­i­cally ready. For in­stance, the Cen­tral Bank of Nige­ria has so far main­tained a coy reg­u­la­tory stance on the use of cryp­tocur­ren­cies. How­ever, an in­no­va­tion like Bit­coin's blockchain is poised to po­ten­tially rev­o­lu­tionise the fi­nan­cial in­dus­try. Far-sighted mone­tary regimes in some de­vel­oped and de­vel­op­ing economies have taken re­spon­sive reg­u­la­tory ap­proaches on the use of blockchain in their fi­nan­cial sys­tems.

Nige­ria is the largest emerg­ing mar­ket in Africa. For this mar­ket to re­alise its full po­ten­tial, its pro­duc­tiv­ity has to in­crease. A more com­pet­i­tive Nige­rian econ­omy would at­tract for­eign in­vest­ment in the real sec­tors, spurring a higher rate of eco­nomic growth – not the hot money flows that high in­ter­est rates have at­tracted. A more pro­duc­tive and com­pet­i­tive econ­omy will also in­crease the value of the naira. An ap­pre­ci­a­tion of the cur­rency would re­duce in­fla­tion as im­ports of both in­ter­me­di­ate and fin­ished goods would no longer be as ex­pen­sive as they are to­day.

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