Whither Nigeria’s Economic Direction?

IT is not in doubt that Nigeria is in crucial eco­nomic times. Any keen observer must, therefore, be concerned about the prospects of Lagos State which controls the largest share of the Nigerian economy. Lagos is, in many ways, the nation’s gateway to global business.

On a general note, the economic situation in the country has clearly worsened over the last few years for a variety of reasons. First. is the decline in crude oil prices from $120 per barrel in June 2014 to the current $48 per barrel, which invariably has exposed the weakened structure of the Nigerian economy. According to the Na­tional Bureau of Statistics, GDP growth slowed to 2.35% as at this year’s second quarter, com­pared to the 6.54% in the corresponding period in 2014.

The violence and acts of terror in the North- East of Nigeria have also created an unprec­edented instability, without forgetting the con­cerns relating to the Ebola outbreak in West Africa, which also added to the uncertainty in the country. These issues have resulted in, amongst many things, the funding crisis among the State governments, from which, remarkably, Lagos has been spared. Consumer demand is weakening according to our retailers and this suggests that we may not return to high single digit growth quickly, let alone the double figures that we desire.

This current downturn just adds to the exist­ing problems of inadequate power supply, poor infrastructure, more than half of the population living in poverty and significant levels of unem­ployment. The effects of the crisis are being felt at all levels of society but as is often the case, it is the poorest that are particularly vulnerable.

However, Lagos appears to be enjoying the pres­ence of a strong private sector which is poised to consolidate the state’s clear edge over others espe­cially in the key areas of job creation and thereby al­low hundreds of thousands of young graduates and youths to enjoy brighter future prospects.

It is pertinent to stress that while it is not the role of government to create employment directly – espe­cially in a country like Nigeria with a small tax base and reduced oil receipts, there is still much that the government can do.

The first important consideration, therefore, is the need to make Nigeria more competitive. The cost of doing business in Nigeria is high. We often think we are a low cost economy because wages are low but the truth is that businesses here face very high costs. The most obvious high input cost is power where manufacturers and other businesses have to pay twice the rate per kilowatt hour than the grid in order to provide the continuous power they need. There are other high costs too relating to infrastruc­ture which means logistics are incredibly difficult for business. Even our wage costs are deceptive be­cause we have low productivity.

Foreign investors have a choice and if we don’t measure up, the investment and jobs will simply go elsewhere. Similarly our companies struggle to ex­port with a high cost base – and if the Naira is strong this makes exports still less competitive.

Another issue is that of our currency. The Naira has been under pressure since the oil price collapsed and has already suffered a 25% devaluation. The Black Market rates are suggesting a further devalu­ation could take place and that business is difficult to do at the official rate. This is causing problems for any company that deals with the world beyond Nigeria – not just foreign companies. And new in­vestors will not buy into the country if they fear a sudden devaluation. It makes sense for them to wait. Business leaders are saying that we cannot delay the inevitable and unnecessary pain is be­ing caused in the meantime.

Equally important is the need to do something about the ease of doing business in Nigeria. The World Bank ranks Nigeria at 170th on its index. This is not good enough for a country with our level of ambition and expectation. This is another factor weakening our competitiveness. In some crucial areas we are even worse –for example, on registration of property, we rank 185th. This is one of a number of areas where Lagos must revolutionize the current position through an ambitious investment in a new digital land ad­ministration system. We need bold moves like this to make a difference. It will pay for itself in extra land taxes and very quickly too. And then, there is the issue of security. The perception of our country is tarnished by terrorist attacks and violent crimes. The public sector has a non-nego­tiable duty to protect its people and government must not tolerate unacceptable behaviour.

Yet, we can glean from some foreign inves­tors that Nigeria appears to be adopting an atti­tude which is too insular and protectionist. But opinions from other local producers favour pro­tectionist policies such as tariffs and banning the importation of some products. However, in some cases rather than protecting local industry it can protect inefficiency, poor quality and high prices which create a significant cost for us all as consumers. Trade barriers are usually met with more trade barriers from neighboring countries, thereby increasing everyone’s costs.

.Dr Odunlade, a Public Affairs Analyst, writes from Lagos