Nige­ria’s growth im­per­a­tive

Business Day (Nigeria) - - COMMENT - PA­TRICK ATUANYA

Here are some sta­tis­tics that should put Nige­ria’s eco­nomic man­agers to shame (as­sum­ing they still feel such worldly emo­tions). The United States is on track to hit the Trump ad­min­is­tra­tion’s 3 per­cent growth tar­get this year, af­ter ex­pand­ing at a 3.5 per­cent an­nu­al­ized rate in the third quar­ter (Q3) of 2018, fol­low­ing growth of 4.2 per­cent in Q2, and 2.2 per­cent in Q1, while the Chi­nese econ­omy (sec­ond largest econ­omy glob­ally) grew around 6.6 per­cent in 2018.

The United States has the largest econ­omy in the world at $20.4 tril­lion, ac­cord­ing to data from the In­ter­na­tional Mon­e­tary Fund (Imf),china fol­lows next, with $14 tril­lion.

An econ­omy the size of the US, which is ex­pand­ing at a 3 per­cent clip im­plies new eco­nomic out­put of around $612 bil­lion be­ing cre­ated an­nu­ally, while for China (ex­pand­ing at 6.6%) it means $924 bil­lion of new eco­nomic ac­tiv­ity/ex­pan­sion (as­sum­ing ex­change rates re­main fairly stable in the pe­riod).

Both economies are cre­at­ing on an an­nual ba­sis new eco­nomic ac­tiv­ity larger than Nige­ria’s an- nual eco­nomic out­put of about $420 bil­lion.

More wor­ri­some though is the fact that these 2 economies (U.S and China) bump­ing up against the ‘law of large num­bers’ (wherein if a firm, com­pany or econ­omy be­comes big­ger, high growth rates be­come in­creas­ingly dif­fi­cult to main­tain), are out­per­form­ing Nige­ria which is grow­ing from a very low base.

In the past four years Nige­ria’s an­nual growth rate has av­er­aged: 2015 (2.8%), 2016 (-1.5%), 2017 (0.83%), 2018 (1.9 %*).

Nige­ria should man­age growth of just 1.9 per­cent in 2018, ac­cord­ing to World Bank es­ti­mates.

This should rise to 2.2 per­cent in 2019, the World Bank said last week Wed­nes­day in its an­nual Global Eco­nomic Prospects.

While the 2015 growth rate of 2.8 per­cent was the weak­est level since 1999 and down from 6.2 per­cent recorded in 2014, there is still no sign that growth is set to re­turn to lev­els (circa 7% per an­num) needed to lift mil­lions of Nige­ri­ans out of poverty.

This is frankly un­ac­cept­able and threat­ens to be­stow a lost decade of poverty, un­em­ploy­ment, mis­ery and wors­en­ing in­fra­struc­ture/ qual­ity of life to the ever ex­pand­ing pop­u­la­tion of Nige­ri­ans.

It is in­struc­tive that Nige­rian eco­nomic man­agers do more than pay lip ser­vice to growth as so­cial safety net pro­grammes or dish­ing out of ‘free’ money by the State (in the form of in­ter­ven­tion pro­grammes) to the so called poor can do no more than tin­ker at the edges.

The Fed­eral Gov­ern­ment must know that there is no sub­sti­tute for growth and mar­ket re­forms for lift­ing mil­lions of Nige­ri­ans out of poverty. It must also know that it is fail­ing woe­fully in that re­gard right now and must duly change course.

Since ini­ti­at­ing mar­ket re­forms in 1978, China has shifted from a cen­trally-planned to a more mar­ket-based econ­omy and has ex­pe­ri­enced rapid eco­nomic and so­cial de­vel­op­ment.

China’s GDP growth has av­er­aged nearly 10 per­cent a year—the fastest sus­tained ex­pan­sion by a ma­jor econ­omy in his­tory—and has lifted more than 800 mil­lion peo­ple out of poverty (World Bank).

China reached all the Mil­len­nium De­vel­op­ment Goals (MDGS) by 2015 and made a ma­jor con­tri­bu­tion to the achieve­ment of the MDGS glob­ally.

In­dia, an­other ma­jor global econ­omy (GDP $2.85 tril­lion), has be­tween 1990 and 2013, pulled some 170 mil­lion peo­ple (the sec­ond-most num­ber of peo­ple in the world) out of poverty, re­duc­ing the num­ber of its cit­i­zens liv­ing in ex­treme poverty by 25 per­cent.

Dur­ing the same pe­riod, life ex­pectancy in the coun­try rose by more than a decade (Mck­in­sey Global In­sti­tute, MGI).

The World Bank fore­casts that In­dia will be the world’s fastest grow­ing ma­jor econ­omy for the next 3 years with GDP growth num­bers ex­ceed­ing 7 per­cent an­nu­ally.

Get­ting your econ­omy to ex­pand at 7 per­cent per an­num usu­ally en­tails hard work by eco­nomic man­agers in­clud­ing pro-growth gov­ern­ment poli­cies, at­tract­ing and keep­ing ma­jor global com­pa­nies and man­u­fac­tur­ers, and stream­lin­ing reg­u­la­tions.

Mck­in­sey Global In­sti­tute in a re­cent re­port found that big com­pa­nies are driv­ing GDP growth in coun­tries that are grow­ing fast and lift­ing their cit­i­zens out of poverty.

MGI found that out­per­form­ers iden­ti­fied in the re­port have al­most twice as many large firms (publicly listed ones with an­nual rev­enue of over $500 mil­lion) as other de­vel­op­ing coun­tries, ad­justed for the size of the economies.

Pres­ence of big firms also leads to clus­ters of in­no­va­tion and in­creased pro­duc­tiv­ity.

In Nige­ria the ur­gent need for growth can­not be overem­pha­sised.

The neg­a­tive wealth ef­fect from fall­ing stock mar­kets, poor fis­cal po­si­tion of the Gov­ern­ment (Fed­eral and State), lack of jobs/op­por­tu­nity for mil­lions of young grad­u­ates, all de­rive one way or an­other from low or anaemic GDP growth and ab­sence of re­forms.

Nige­ria’s cur­rent sit­u­a­tion is made more baf­fling by its in­fra­struc­ture needs in all sec­tors.

Whether it is roads, high speed rail, sub­ways for cities, bridges, broad­band/high speed in­ter­net, ho­tels, food pro­cess­ing, car assem­bly, power, ser­vices, res­tau­rants, man­u­fac­tur­ing, food pro­cess­ing, health­care, qual­ity ed­u­ca­tion, oil re­fin­ing, hous­ing, and so on, there is mas­sive un­met de­mand in Nige­ria.

This means Nige­ria is very far from cap­i­tal mis­al­lo­ca­tion like be­ing done in some parts of China and so can at­tract cap­i­tal to make these cap­i­tal in­vest­ments, pro­vide a re­turn on in­vest­ments, cre­ate jobs, boost growth sharply and pro­vide a bet­ter qual­ity of life for most of its cit­i­zens.

Even with its im­pres­sive eco­nomic per­for­mance Chi­nese pol­i­cy­mak­ers are still laser like fo­cused on growth and un­der­stand its far reach­ing im­pli­ca­tions for em­ploy­ment, in­come and sta­bil­ity.

China is tar­get­ing growth of about 6.2 per­cent over the next two years to meet the Com­mu­nist Party’s long­stand­ing goal of dou­bling gross do­mes­tic prod­uct and in­comes in the decade to 2020, and to turn China into a “mod­estly pros­per­ous” na­tion.

It is sober­ing that while a coun­try like China that is light years ahead of Nige­ria is still set­ting high growth tar­gets, Africa’s largest and ar­guably most im­por­tant econ­omy seems re­signed to medi­ocre eco­nomic per­for­mance.

Send re­ac­tions to: com­[email protected]­ness­day­on­line.com

Atuanya is the ed­i­tor of Busi­ness­day. Email: pa­[email protected]­ness­day.ng Twit­ter: @patrick­_at­u­anya

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