… Says Nigerian economy structurally defective
As Nigeria marks her 59th Independent anniversary tomorrow, the Lagos Chambers of Commerce and Industry (LCCI) has said that infrastructure financing is a big issue that needs very deep reflection.
Speaking in a statement in Lagos on Sunday, the Director General of LCCI, Mr. Muda Yusuf stated that without a sound infrastructure base, it would be difficult to achieve the various socio-economic objectives of government at all levels.
Yusuf noted that Infrastructure investment was a key driver of economic growth and development adding that budgetary allocations had proved to be grossly inadequate for effective funding of infrastructure in Nigeria.
“Neither can we continually depend on debt financing as debt profile is already at an unsustainable threshold. It is thus imperative to seek innovative ways of effectively funding infrastructure in Nigeria. We need to develop new strategies to attract private sector capital to the infrastructure space. This should cover the broad spectrum of infrastructure provision – roads, railways, airports, water ways, electricity and other forms of energy”, he said.
The Director General revealed that economic growth trend, measured by the performance of the Gross Domestic Product (GDP), has been generally positive over the last two decade which he said was good compared to growth conditions in most economies around the world.
He however stated that it remained a major worry that the economy was still structurally defective as it was too dependent on the oil and gas sector, creating serious vulnerability risks.
Yusuf added that the lack of political will to reform the oil and gas sector remained a major shortcoming of governance over the past decades.
According to him, “Over the last 59 years the Nigerian economy has transformed from a basically agrarian economy to an economy driven largely by resources from the oil and gas sector. The 2019 first quarter GDP data shows that the non-oil sector accounts for 90.9% of the GDP while the oil sector accounts for 9.1%.
“The paradox is that the oil sector accounts for over 50% of the nation’s revenue and over 80% of the foreign exchange earnings. This reflects the mounting imbalance in the structure of the economy since independence. It also underscores the growing decline in the non-oil sector productivity over the past 59 years. This remains the major failing of the Nigerian economy at 59. It makes the economy very vulnerable to global shocks; and weak in economic inclusion.”
He noted that the transformation in the telecommunications sector stood out as the most successful reform story in the economy adding that many sectors had leveraged the transformation in telecoms to make significant progress through the use of ICT, especially in the services sector.
He believed that the financial services sector had been significantly transformed since independence through the leveraging technology to enhance service delivery even as he opined that the sophistication of the industry could be compared with its counterparts even in the advanced economies.
“However, the financial intermediation role of the banking system is still unsatisfactory. It has weak linkages with many other sectors of the economy. This has constrained the impact of the sector on the economy from a systemic perspective.
“The quality of the business environment remains a source of concern to investors, especially in the real sector. Weak infrastructure, policy environment and institutions had adverse effects on efficiency, productivity and competitiveness of many enterprises in the economy. These conditions pose a major risk to job creation in and economic inclusion across sectors”, he said.
On the challenges to investors, the Director General observed that the Power situation remained a major burden on business as it was one area in which the trend since independence had been that of progressive decline.
“Power supply has consistently lagged behind the pace of the economic activities and population growth. This development impacted negatively on investment over the past few decades with increased expenditure on diesel and petrol by enterprises. This also comes with the consequences of declining productivity and competitiveness”, he stated.
Yusuf further pointed out that the Security situation in the country deteriorated in the last decade saying that it impacted on investment risk and worsened the country’s perception and image by the global investing community even as he opined that access to markets in the troubled parts of the country had reduced for many enterprises with negative consequences for investors’ confidence.
He continued, “Related to this are the many cases of ethnic and religious conflicts, herdsmen attacks on communities and kidnapping. The incessant oil theft and the vandalization of oil pipelines remain major concerns for investors in the oil and gas sector. Billions of dollars have been lost in revenue; many lives have been lost as well. The many oil producing communities suffered serious environmental degradation as a consequence of this problem.”
On real sector, he posited that “Over the last few decades, the challenges of production in the economy had grown progressively largely because of the quality of infrastructure; which is why the risk of industrial investment is high and continues to increase. The various policy interventions have not had the desired impact on the sector. Unless there is an effective and sustained protection and support for the sector, and a dramatic improvement in infrastructure, the outlook for the sector will remain gloomy, particularly for the small-scale industries.
“It is impossible to have a vibrant manufacturing sector in the face of cheap imports into the country, and high production and operating cost in the domestic economy. Some of these imports are landing at 50% of the cost of products produced locally. Besides, manufacturers have to worry about high energy cost; they have to worry about high interest rates – 20% and above; they have to worry about a multitude of regulatory agencies making different demands on them; they have to worry about massive smuggling and under invoicing of imports, they worry about trade facilitation issues at the sea ports and many more. For most manufacturing SMEs, it is a nightmare. Yet production is critical to an enduring economic and social stability. The way forward is to address the fundamental constraints to manufacturing competitiveness in the Nigerian economy. Perpetual protectionism cannot fix this problem”.
On the way forward, the LCCI DG called for urgent reforms in the oil and gas sector to reduce the bleeding effect of the current state of the sector on the economy even arguing that such reforms would also boost investment in the sector, increase revenue and create many more quality jobs in the economy.
He also called for streamlining of the foreign exchange management to reduce the cost of stabilizing the exchange rate, boost supply of the forex into the economy, prioritize the unification of the multiple exchange rates, eliminate multiple windows in the forex market and broaden the scope for a market driven exchange rate adding that “all of these are essential to reduce the systemic distortions and disruptions resulting from the current model of foreign exchange management” while harping on the need to deemphasize demand management and scale up strategies to support the supply side of the forex make.
He continued, “Urgent need for strategic responses to the looming fiscal viability and solvency crisis at all levels of governments. Acute revenue challenges are becoming an increasingly disturbing scenario at all levels of government. We need to urgently deal with the escalating cost of governance, fiscal leakages and revenue optimization issues.
“Need to reduce the emphasis of attracting and retaining portfolio inflows with high interest rate to the detriment of domestic investment. We should prioritize attraction of foreign direct investments by addressing the key investment environment issues to inspire investors’ confidence. FDIs have much bigger potential impact on job creation, poverty reduction and economic inclusion.
“The LCCI commends the decision to set up an Economic Advisory Council made up of economists of repute. This would surely facilitate the bridging of the skill gaps in economic management and foster the development of a sustainable framework for the acceleration of economic growth and development.”
Photo: Director General, LCCI, Mr. Muda Yusuf.
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