Last week, this column discussed the need to rethink productivity and economic growth in Nigeria based on the presentation by foremost economist, Dr Ayo Teriba. This week, we shall look at leadership’s role in engendering a new economic growth model to give our country a leap forward.
Nigeria’s adverse economic situation is stale news; many have accepted it as a norm that the country will continuously operate below its economic potential. This dire economic reality results from decades of bad economic policies and poor implementation, a chequered political history marred by a military incursion into politics, corruption, and the nascent difficulties occasioned by insecurity, economic sabotage, climate change, global pandemic crises and the Russian/Ukraine crisis. Nigeria is on her knees economically – with a high debt profile, poor revenue from the mono-product (crude oil) that is not even enough to service debts, inadequate foreign reserves, exchange rate crisis that has seen the value of the naira hammered against other world currencies, high inflation, and high-interest rate.
The Nigerian economic statistics are gloomy and are causing undue concerns for many stakeholders in the Nigeria project. Nigeria has navigated the murky waters of a financial quagmire for a few decades and has survived it, albeit with substantial economic bruises. The pervading sentiment is that no matter what happens, Nigeria will survive, things will continue as usual, and nothing will change for the better.
William Pollard, a leading light in leadership, warned against this state of path dependency when he opined that “the arrogance of success is to think that what you did yesterday will be sufficient for tomorrow.” The economic policies and actions that kept us in our current financial quagmire must change for meaningful progress. Nigeria does not need the economics of survival anymore; we need the economics of growth, prosperity, and decent quality of life for Nigerians.
One fundamental problem that is destabilising our economy is the lack of liquidity. Our negative balance of payment causes this illiquidity because our receipts from exports are far less than the expenditure on goods imported from abroad. This leads to a dwindling of our foreign reserves and a concomitant scarcity of foreign currency to fulfil the needs for the importation of foreign goods and services. This scarcity creates a parallel market that often aids the lowering of the naira value. The unofficial devaluation of the naira makes the cost of foreign goods expensive, even more so given the inflation ravaging some of these countries’ post Covid-19. Local and Imported inflation is the bane of our economy.
The Nigerian government needs to make more money from oil revenue and taxes and rely less on borrowed funds to cover recurrent and capital expenditures. They need to cover the budget deficits with massive loans from local and international institutions with high-interest rates, and we are still determining how our children will pay for these in the future. Even in an era of increase in the price of oil globally, Nigeria did not benefit maximally from this because of the low volume of oil production and oil theft that stopped Nigeria from meeting its OPEC quota monthly.
The non-oil sector contributes little to Nigeria’s income statement because the bulk of these trades is for primary products with little or no extra value added to them in the value chain. Such goods command less revenue in the international market, adversely affecting our income statement.
Unlocking Nigeria’s growth potential underscores, the need to, among other things, improve its liquidity to stabilise the system and grow the economy. The government must stabilise the exchange, interest, and inflation rates to make meaningful improvements in our economy. The exchange rate regime is a function of our foreign reserve adequacy. The global economy offers two pathways to increase our foreign reserves. It is either you earn more from exports, or you attract more foreign direct investment (FDI). Nigeria has historically preferred the path of exporting more. However, from 2010 to date, global exports have stagnated and even declined because of weak commodity prices. This has affected Nigeria drastically.
Most countries are relying on a heavy inflow of FDI, which is the economic model chosen by Saudi Arabia, Brazil, India,and others. These countries get more FDI to compensate for shortfalls in exports. Foreign direct investors will only come to Nigeria with offers to invest equity in public assets and a suitable investment climate. We offered foreign investors an opportunity in the Nigeria LNG project, which yielded substantial investment outcomes. We also did that with the liberalisation of the GSM sector, and we could see the investment inflow.
The interest rate is another crucial factor in productivity and driving growth. Financial institutions provide interest rates on loans to businesses they need to run or expand their businesses. The higher the interest rates, the less likely companies will borrow for expansion, and the lower the interest rates, the more likely the companies will borrow for operational and growth reasons. Individuals also borrow from financial institutions for personal loans, credit cards, or product loans. The lower the interest rate, the more likely individuals will borrow to purchase goods and services that help businesses expand, mainly if local companies produce the goods and services. Another impact of interest rates is that they often are benchmarked with savings rates. The higher the interest rate on loans, the higher the interest rates on savings. When interest rates on savings are high, people tend to save, but when it is low, people tend to invest, especially in the equity market.
The exchange and interest rates are monetary instruments influencing the inflation rate. Nigeria needs to stabilise its revenue by expanding its revenue sources, financialising its assets – especially its real estate, infrastructural, and portfolio assets – and maximising value chains across the various productive sectors. It needs to upskill its workforce to have the required skills in the knowledge economy, where knowledge and innovation are the keys to greater productivity. Therefore, human capital development is crucial in unleashing Nigeria’s growth potential.
Unlocking Nigeria’s growth potential requires new economic thinking by leadership in the public and private sectors. Only good leadership that understands how to open the great possibilities of Nigeria in line with global realities and using tools and resources that work will lift Nigeria from its economic quagmire. Therefore, the 2023 elections are providing an opportunity for a change in leadership, and Nigerians must look for leaders who understand the destination Nigeria must go to for growth and prosperity and who have what it takes to take Nigerians there. The intention of making Nigeria great is not enough; capacity and intellectual ability to deliver are critical. The time for transformational leaders in Nigeria is now. Nigeria needs leaders that create a vision and use highly skilled individuals rather than politicians to run the economy of Nigeria. Gather intelligent people and develop and implement ways to improve revenue, optimise assets, and efficiently manage our liabilities.
It is the responsibility of leadership to provide opportunities and the responsibility of individuals to contribute towards maximising opportunities. The government, on its part, must completely overhaul the economic system and structures to favour liquidity. Just like cash flow is the blood of a business, the government’s fiscal and external liquidity is vital in stabilising the economy. All avenues to improve the government’s income must be explored and used to make the government constantly liquid and viable.
On top of managing its monetary policies, the government must tighten its fiscal policies to grow the per capita income and increase employment while reducing unemployment . They must create a business-friendly environment where innovation and creativity thrive, and productivity is encouraged. Productivity happens within businesses, and any harsh, volatile, or challenging business environment is tough on companies and hampers their growth. The better the business climate , the more profitable the business is, and the more profitable a business is, the more it attracts FDIs with concomitant expansions and increases both in the balance sheet of companies and their income statements.
The government should understand the direct correlation between economic disempowerment and socio-political problems in the country. This is especially the case with youths, who, when unproductive for a while, tend to engage in anti-social behaviours, low- and high-level criminality, terrorism, banditry, and secessionism. The government must develop a plan to absorb most of our young people through training in new skills and upskilling them to fit into the new economic reality that rewards innovation and creativity higher than mundane production. They must use fiscal and monetary policies to stabilise consumer and equity prices, enhancing national resilience.
There is no gainsaying the enormous potential to unleash its growth potentials Nigeria has. For a long time, Nigeria has been a country of potential – potentials that are never actualised. It is only transformational leadership that will transform and overhaul the system. We need this leadership in 2023 more than at any other time. It is foolhardy to do the same thing hoping for a different result repeatedly. We need leadership with the knowledge, capacity, intelligence, and experience to midwife the greatest economic re-engineering the country has ever gone through. All other stakeholders must contribute immensely by improving the value chains within the production sectors, consuming responsibly, and creating superior value that will attract material, financial and human resources from all over the world to Nigeria.
We look forward to a new Nigeria!