President Muhammadu Buhari has approved the immediate removal and the…
By Stanley Okeke
Nigeria’s GDP reached an all-time high of $568 Billion in 2014 after a rebasing exercise done by the previous administration but has now dropped to $481Billion (a negative growth rate of about 14% year-on-year). The Gross Domestic Product of an economy is the value of goods and services produced in that economy, for the period or quarter under review. Recent data released by the Nigerian Bureau of Statistics shows Nigeria is officially in recession as her GDP annual growth rate has now contracted for 3 consecutive quarters further down to -2.24%, the lowest in over a decade. Over 70% of Nigeria’s revenue comes from the sale of crude oil; however, the fall in price of the commodity in the global market coupled with a sharp drop in Nigeria’s daily crude oil production due to unrest in the Nigerdelta region has impacted negatively on the country’s economic growth.
Major factors that compounded the effects of our falling GDP are: reduction in revenue; rising inflation (inflation has surged from 9.6% in January this year to 18.3% after 10 months) and a colossal drop in both FDI (Foreign Direct Investments) and FPI (Foreign Portfolio Investments). With all having significant ripple effects, most notably the scarcity of foreign currencies which has spawn the spread between the interbank market rate and the ‘local’ exchange rate, so much pressure has been put on our foreign exchange reserves which is on a steady decline. These factors have unfortunately combined to push Nigeria, and consequently, Nigerians into a dismal financial situation.
How can the Nation pull out of the recession?
In simple terms – “DIVERSIFICATION”.
This word amongst many has been abused by both the government and the people. Using the financial definition, ‘Diversification is the process of allocating capital in a way that reduces the exposure to any one particular asset or risk’. The solution to our problems deeply lies in how we go about achieving this feat.
Summarily, here are ways we can achieve the objective of a pull away from recession:
- INCREASED EXPORT/PRODUCTION & REDUCTION IN DEPENDENCE ON IMPORTS
Nigeria boasts of resources (according to Nigeria Extractive Industries Transparency Initiative, it has over 40 extractable solid minerals – gold, coal, limestone, iron ore, lead/zinc) which abound in commercial quantities with a global market and also sectors(manufacturing, textile, tourism, ICT) with untapped opportunities and by applying a simple scale of preference by way of capital investments as we do not have requisite funds to bolster all these sectors at once, we would go a long way in properly diversifying away from an almost complete dependence on oil.
Also, 80% of government’s revenue is recycled into foreign exchange due to the country’s high propensity to import which puts pressure on our reserves and owes majorly to our dependence on items that can be produced in-house. In agriculture, Nigeria has a vast arable land mass and have the capacity to cultivate major crops like beans, rice, oil palm, yams, millet, melon, maize, cassava, plantains, groundnut, etc. Encouraging agriculture would mean we would not only be self-sufficient in terms of food production but also have enough to export.
Lastly, investing in sectors that would ensure we have not just products but talents is key. The World Bank has estimated the value of Nigeria’s diaspora remittance market at $21 billion, a figure that has been rising every year over the last decade and the largest in Africa. Diaspora remittances are funds sent back home by Nigerians leaving or working abroad. This remittance, next to petro-dollars, is currently the second biggest source of foreign exchange earnings by the County. Therefore, education, skill acquisition and talent development cannot be neglected and must be encouraged at every level.
- CONTROLLED EXPENDITURE
According to the 2016 budget which has a deficit of 2.2 trillion naira, Nigeria is expected to spend a whopping 69% of our estimated revenue on recurrent expenditure. Recurrent expenditure refers to payments made by governments or organizations for all purposes except capital costs. It includes payments for wages and salaries for workers, electricity bills, purchase of diesel, etc. Priority instead should be given to capital expenditure on infrastructure in key sectors with would have knock-off effects on other sectors. Applying a simple scale of preference to bringing an end to our decaying economy is highly advisable as we do not have requisite funds to bolster all these sectors at once while making steady developments to other sectors with a projected completion timeline. A typical example is the power sector which if significant improvements in generating and transmitting electricity are made would not only reduce individual costs but would also reduce companies operating costs (this means more revenue, more tax for the government, reduced product prices, etc.), encourage new startups (SMEs) amongst others which would lead to enormous growth and expansion of the nation GDP.
Therefore, I would suggest:
v Reduced personnel cost of government workers.
v Gross reduction in overheads.
v Reduction in statutory transfers to institutions.
v Austerity measures in all arms of government should be encompassing.
- PROPER GOVERNMENT POLICIES.
Appropriate fiscal (means by which a government adjusts its spending levels and tax rates to monitor and influence a nation’s economy) and monetary (actions of a central bank, currency board or other regulatory committee that determine the size and rate of growth of the money supply, which in turn affects interest rates. Monetary policy is maintained through actions such as modifying the interest rate, buying or selling government bonds, and changing the amount of money banks are required to keep/available for loans) policies.
Having effective policies would spur growth and create a better climate for both domestic and foreign investments/investors.
In conclusion, although these are no quick fixes to the current economic challenges, they are massive steps in the right direction as either investments or quick palliatives.
Stanley Okeke is a Research Analyst in a Finance Investment house in Lagos, Nigeria. He received a B.Eng degree in Chemical engineering from FUTO in 2014 and has vast experiences in various fields having served in a number of leadership positions, most notably, the President of the Nigeria Society of Chemical Engineers (NSChE) FUTO Chapter and worked as a research and development intern, human resources personnel in multinational firms and also has an immense number of volunteering experiences. He was recently recognized by the Ebonyi state government during his NYSC for his outstanding contribution towards national development as he was given the much coveted state honors award in 2016. He can be contacted at firstname.lastname@example.org