Nigeria’s competitiveness score has dropped yet again
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.