The physical infrastructure was no better then than it is now, and banks’ lending was no more diversified. Yet earlier this decade Nigeria posted decent, if not spectacular, rates of per head growth, which might now give rise to nostalgia in some quarters. If we wanted to debunk the achievement, we could point to oil prices above US$100/b, the near depletion of the excess crude account (ECA), and the accumulation of sizeable arrears to contractors and others. To pursue this line of thinking, all tiers of government were supporting household consumption. The oil economy does indirectly account for at least 50 percent of the Nigerian economy if only less than 10 percent in the national accounts.
A repeat is not possible. The oil price is now somewhat lower although it is possible to construct a scenario of recurring tensions in the Middle East and of an economic meltdown in Venezuela to get us back to US$100/b. The balance in the ECA is little more than US$2bn, and the operation of the treasury single account has created something approaching a fiscal straitjacket.
China has lifted hundreds of millions of its population out of poverty by delivering double-digit growth over two decades. On the African continent, it is said that Ethiopia has achieved the same over one decade but for smaller numbers obviously. Nigeria needs a decade of 8 percent plus annual growth to make a sizeable impact on poverty and unemployment levels.
In our view, this requires a core role for the government and the broader public sector including the CBN, but not a replication of their past efforts. We are not an advocate of small government. There is a compelling argument that an industry performs better with limited official intervention. It has been made for the telecoms sector in Nigeria and for horticulture in Kenya but it has limited application across the economy.
The transformation of Nigerian agriculture from mostly subsistence to commercial, for example, will not happen unless the authorities are involved in proving inputs (including credit), let alone building rural roads. As analysts dissect the national accounts of the past few quarters, a consensus has emerged that agriculture has performed relatively well. It could have done better naturally but the progress it has made reflects the focus of the current and previous administrations.
The government has a role to provide the correct enabling environment, and we can see the reward for its efforts in Nigeria’s move more than 20 places up the table in the World Bank Group’s Doing Business 2018. It can sell off some state-owned companies in industries where it has underperformed. It can provide incentives for industries it wants to encourage while remaining selective and recognizing the fiscal consequences of not being so.
The public sector also has to provide credit where the private does not. Agriculture is a well-documented case in point. The Anchor Borrowers’ Programme is the latest CBN initiative to release funds to the sector. Development banks and marketing boards were out of fashion in the 1980s, and many were closed down under World Bank credits in the name of structural adjustment. Fashions change, and we currently have the Bank of Industry, the Bank of Agriculture, the Federal Mortgage Bank of Nigeria and the latest addition, the Development Bank of Nigeria. The commercial banks are not going to finance mass housing and support bona fide microfinance, so the relevant state institutions have to step in.
Yet another role for government is to deliver good fiscal discipline including rigorous procurement, reduction of wasteful expenditure, monitoring of public contracts, and best practice in debt management. From the far corner of this virtual room, I hear the objection that these standards have proved beyond most Nigerian administrations. This may be the case but public officials have to work towards them.
The benefit of this discipline is that the FGN could then provide the largest input that would restore, and even improve upon the growth rates achieved in the first half of the 2010s, and on a basis to create employment and reduce poverty. That input is capital spending by the three tiers of government. The published numbers point to movement in the right direction. The Office of the Accountant-General of the Federation shows FGN capital expenditure at N600bn in the calendar year 2016, rising to N1.2trn last year.
We all know that industry could function far more productively and at lower cost if it had uninterrupted access to power from the national grid. Some official estimates have put the funding gap in the power sector at US$10bn per year for five years. The bill could well be higher. The same could be said of the railways, the roads, the airports, and broadband. This is the way forward for Nigeria to deliver the growth to create jobs, raise incomes and lift its citizens out of poverty. It has been tried elsewhere, notably in East Asia, and worked. It requires not so small government.
The laissez faire alternative will not cover the many areas which the private sector will not enter.
Head, Macroeconomic & Fixed Income Research