There is a near consensus among experts that Nigeria’s economy has excelled in contradictions. It is Africa’s largest oil and gas-producing country, but recurring shortages of petroleum products and their resultant high prices have become a clog in the wheel of economic progress. The country has large arable land, enough to produce food for local consumption and export, yet it is a net food importer.
Nigeria has a large industrial base that could position it as an industrial hub, not only for West Africa but most of the continent. Even this hope has remained a mirage. This giant imports anything, from the mundane (including toothpicks), to the most sophisticated industrial products and machinery.
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Comparing Nigeria with some of its oil-producing peers exposes the glaring inadequacies in Africa’s most populous country. In this regard, two countries stand out for this comparison: the United Arab Emirates (UAE) and the Kingdom of Saudi Arabia. Both produce the hydrocarbons on which the world economy has run for centuries and also belong to the Organisation of Oil Producing Countries (OPEC) like Nigeria.
The UAE is ranked 13th among the countries of the world in terms of gross domestic product (GDP). At the current poverty line of $2.15, the poverty rate in that country is zero, according to the World Bank, meaning that there is nobody in that country living in abject poverty.
Life expectancy in the UAE from birth is 78, versus Nigeria’s 56; so, for two people born on the same day in both countries, the Nigerian will die first while his counterpart in the Emirates will live on for the next 22 years. Its human capital index for 2020 was 0.7 (range is from 0 to 1). This is a measure of the total quality of a worker, incorporating components for survival, education, and health.
The economic indicators from the UAE tell its other interesting stories: it had a GDP of $358.87 billion last year, with a per capita GDP of about $36,284; a population of 9.99m; unemployment of -3.4 per cent and inflation of -2.1 per cent. Access to electricity is 100 per cent, while population growth is just one per cent.
Nigeria had a population of 211.4million by last year, according to World Bank estimates, with a population growth of about 2.5 per cent. But Africa’s most populous country has a poverty rate or incidence put at 40.1per cent. Nigeria’s human capital index for 2020 was 0.4.
Nigeria’s fortunes and those of the two Arab oil nations are diametrically opposed to each other.
In 2022, Nigeria’s economy has been brought to its knees by the crisis partly induced by the Russia-Ukraine war that led to a spike in energy prices. The crisis and the inflation it caused in Nigeria have pushed at least 8million people into the poverty zone, according to the World Bank.
In Saudi Arabia, this year, the economy is projected to achieve the best growth in a decade. Growth forecasts for the Saudi economy range from 7.5 per cent by the Economist Intelligence, to 8.3 per cent by World Bank, and 7.6 per cent by the International Monetary Fund (IMF). The economy grew by 11 per cent in the first half of this year, driven by the oil sector, which expanded by 21.6 per cent within the period.
In Nigeria, while the energy crisis-fuelled inflation is pushing millions of citizens into absolute poverty, in Saudi, inflation is projected to remain steady at 2.8 per cent this year despite the impact of imported commodities. Nigeria’s inflation has risen to 20.77 per cent despite an interest-rate hike by the Central Bank.
“The country continues to face massive developmental challenges, including the need to reduce the dependency on oil and diversify the economy, address insufficient infrastructure, build strong and effective institutions, as well as address governance issues and public financial management systems,” the World Bank stated in a September 14, 2022 report.
At current macroeconomic configurations, Nigeria’s growth is highly constrained, Dr Emeka Ucheaga, the chief executive officer/chief economist at EUA Intelligence said.
“On the fiscal side, the government has to build critical infrastructure (such as roads, trains, power, etc) that support productivity growth in our industries. Without infrastructure, new businesses can’t spring up and existing businesses will find it very difficult to thrive. The cost of doing business in Nigeria is very high because the infrastructure required is just not in place.
“No economy can grow at 20.7 per cent inflation rate, interest rate at 15.5 per cent, and a black market spread of N300, which creates a ridiculous 69 per cent premium between official and parallel exchange rate,” Ucheaga, a macroeconomist told Daily Trust on Sunday in an interview.
On October 21, 2022, the naira exchanged for N736.2 to a dollar in the parallel market, against N437.28 at the investors and exporters window at the Central Bank of Nigeria (CBN).
“Nigeria’s inflation threshold level is estimated to be between 11-13 per cent and above this level. Inflation has a significantly negative effect on economic growth. High inflation and economic growth don’t go together because businesses can’t survive in a market where raw material prices keep skyrocketing, the cost of labour keeps rising and the demand is non-existent because there is high unemployment and high cost of living in the country. It is a vicious cycle that Nigeria just needs to get out of immediately,” he added.
He said this was the job of the CBN, and tasked the apex bank to get the inflation rate in the country back to a single digit like we last enjoyed in 2015.
“Average economic growth between 2005 and 2015 was 6.3 per cent, with an inflation rate averaging 10.3 per cent during that period, but now, we have inflation at 20.7 per cent, which is nearly double our inflation threshold level; and because of this and the problems in our oil sector, our economic growth has halved to 3 per cent range, which is very disappointing,” Ucheaga also said.
Prof Bongo Adi, a macroeconomist at the Lagos Business School, is not convinced that monetary policy is the answer to the country’s challenges now. He said, “Since Godwin Emefiele took over as CBN governor, monetary policy has been sterile. It has not really helped the economy one way or another. We can see that the exchange rate has been on deceleration all this while; inflation has always been rising.”
Despite the sterling performance of the oil sector in Saudi, the Kingdom’s authorities are intent on reducing its dependence on oil, which is the focus of the Vision 2030 plan.
That plan aims primarily to diversify the economy away from oil and a renewed social contract. It emphasizes a shift to a new paradigm that is based on increased productivity. The overall objective of the Saudi plan is to change the role of the state or government from a “driver of the economy to an enabler of the private sector-led growth.”
“Saudi Arabia is taking impressive steps to improve the business environment, attract foreign investment and create private-sector employment. These initiatives, combined with governance and labour market reform, have made it easier to do business (a business can be registered in just three minutes), increase the number of industrial facilities and raise female participation in the labour force,” two IMF staff, Amine Mati and Sidra Rehman, wrote on August 17, 2022.
Exiting Nigeria’s current economic quagmire will require a determination by the government to rein in its overbearing presence, analysts have said. For the country to get out of the economic doldrums it has found itself, there must be a change from the current practice “where we are funding our budgets more than 4 per cent of GDP,” Omowumi Iledare, a professor of energy economics said, pointing out that this has violated the extant laws.
“In this budget (2023), all the acts are violated, including the Fiscal Responsibility Act, which states that your deficit must not be more than 3 per cent of your GDP. Now, we are borrowing money to pay for subsidy,” he added.
Ucheaga further said, “If we want to turn things around in this country, our government must be disciplined enough to stop escalating its fiscal deficits recklessly, find innovative funding ways to build its infrastructure and get the monetary variables like inflation and interest rate down to single digit levels and close the spread in the exchange rate market.”
He, however, recognised that to be successful economically, Nigeria must learn how to maximise every revenue generation opportunity.
Economic growth comes from productivity growth, and this increase in productivity can be achieved by both progressive fiscal and monetary policies.
In this regard, he argued that to be successful like its oil-producing peers, Nigeria has to fully maximise its revenue potential from oil by producing up to 2.5mbpd, saying that Nigeria is currently producing below this, “although we have the capacity to do more.”
Citing monthly reports by the OPEC, Ucheaga said Nigeria produced less than 1mbpd for the last two consecutive months, which is half of what the country should be doing at a time oil is trading at twice what it was doing early last year.
He said Nigeria currently had only about seven active oil rigs, down from 22 in early 2020. This, he said, meant that “there’s a huge problem there. In fact, the oil sector has posted eight consecutive quarters of decline, which means that the oil sector still hasn’t exited the recession it entered in 2020. The oil recession is now two years old, and somehow, no one is talking about this huge problem.”
Nigeria is currently battling the challenge of oil theft that has threatened the country’s oil output, bringing it effectively below one million barrels per day. This has added to her fiscal woes.
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