The Nigerian economy is not actually growing unless GDP outstrips population growth, says economist Muda Yusuf.
Over the past six decades, the Nigerian economy has transformed significantly from a basically agrarian economy to one driven largely by the services sector and oil and gas.
The services sector has grown significantly since independence and now contributes over 50 per cent of the country’s GDP.
In more recent years, the economy has witnessed considerable changes thanks to the rise of the information technology (IT) sector, which has impacted many sectors through the digitalisation of their processes and systems.
For example, electronic payment systems have brought remarkable transformation to the financial services industries.
Transactions via electronic payment platforms and mobile are worth more than one hundred trillion naira annually – approximately $250 billion.
But despite the successful adoption on new technologies, Nigeria’s macroeconomic management framework continues to pose serious challenges to investors in its economy.
This situation has been further compounded by the shocks and disruptions inflicted by the Covid-19 lockdowns, both globally and nationally.
These challenges have manifested in a weak and depreciating currency, high inflationary pressure, a high debt profile, exchange rate volatility, a liquidity crisis in the foreign exchange market, and increasing fiscal deficit.
There are also profound concerns around investment climate issues, such as high infrastructure deficit, the worsening cargo clearing challenges, and weak productivity due to infrastructure conditions, regulatory challenges and policy inconsistency.
The importation of finished petroleum products, meanwhile, has continued to put pressure on foreign reserves and weakened the capacity of the Central Bank of Nigeria (CBN) to support the forex market.
There is a need for urgent steps to be taken to ensure a better macroeconomic management framework to stabilise the exchange rate, eradicate the challenge of illiquidity in the foreign exchange market and to stem the current depreciation of the naira.
It is imperative that the government implements urgent reforms in the foreign exchange market with greater focus on supply side strategy.
There is also a need to review the current disproportionate emphasis on demand management of the foreign exchange market.
What’s more, Nigeria needs to attract private sector capital to compliment government financing of infrastructure, and must reduce the level of debt financing especially the reliance on commercial debt to fund government operations. Public debt is already at an unsustainable threshold.
Steps should also be taken to attract foreign exchange through a strategy of ensuring new investment opportunities to stimulate foreign capital inflows into the economy.
We should be seeking more equity capital than debt capital.
The security situation also needs to be urgently addressed if Nigeria is to shore up investor confidence. Greater emphasis on quality intelligence will achieve more in the fight against terrorism than guns and bullets alone.
The oil and gas sector reform, which is now being anchored on the Petroleum Industry Act, should also be accelerated in order to ensure the unlocking of value in the oil and gas sector, particularly the gas sector.
Institutional reforms are necessary too, to ensure that the regulatory institutions have better disposition to support the growth of investment and focus less on the generation of revenue.
Finally, the international trade process needs to be reformed to prioritise trade facilitation.
The current obsession for revenue generation is impacting adversely on domestic and foreign investment. The orientation of the Nigeria Custom Service, Nigerian Ports Authority, the shipping companies and the terminal operators and the security agencies at the ports need to change in favour of an investment friendly international trade processes.
More than two decades of uninterrupted civilian rule have been integral to Nigeria’s impressive growth rate over recent decades.
But the challenge of creating an inclusive growth trajectory remains a major concern as the country grapples with economic stagnation, rising poverty and a global shift away from fossil fuels.
Muda Yusuf is an economist and former director-general of the Lagos Chamber of Commerce and Industry (LCCI). He is also the founder/CEO of the Centre for the Promotion of Private Enterprise (CPPE).