Wednesday, 31st May 2023

23 years of democracy: Economy buckles under political risks, official graft

By Geoff Iyatse, Adeyemi Adepetun, Helen Oji (Lagos), Collins Olayinka and Anthony Otaru (Abuja)
17 June 2022   |   3:35 am
With a few exceptions such as telecommunication, financial services and oil and gas, to an extent, the economy has buckled under the weight of inconsistent policies, and multiple taxation..

President Muhammadu Buhari PHOTO: FACEBOOK/FEMI ADESINA

For the economy, it has been a mixture of growth and gloom since the country returned to democracy in 1999.

With a few exceptions such as telecommunication, financial services and oil and gas, to an extent, the economy has buckled under the weight of inconsistent policies, multiple taxation and inefficient power, among other headwinds. At best, growth in the past 23 years has been anaemic.

The financial system, which is expected to fund the desired growth, is nothing short of a leech, profiting from the ruins of the unsupportive policies and the misfortune of the average citizens.

For instance, a recent report by Coronation Asset Management said the total average interest-earning assets of the six top banks rose from N6.5 trillion in 2010 to N26.9 trillion in 2020, a growth rate of 311 per cent. Across bottom-line indices, the performance of banks has been phenomenal. From the famous Soludo consolidation to the most recent COVID-19 disruption, banks remained bullish.

In 2020 when COVID-19 shrunk businesses, the total assets of the top five bank groups – Access, First Bank of Nigeria, Guaranty Trust Bank, United Bank for Africa and Zenith – rose to N37.5 trillion, from the pre-pandemic value of N29 trillion. The growth translates to about 25 per cent growth year on year. Interestingly, customers’ loans to the total asset ratio of the banks in the same period did not follow a similar growth path. The growth declined from 38 per cent in 2019 to 33 per cent as it rose marginally from N10.9 trillion to N12.5 trillion.

The shrinking loans and advances imply that more of the assets of the banks were channelled to non-core areas, a challenge the former Director-General of the Lagos Chamber of Commerce and Industry (LCCI), Dr. Muda Yusuf, said has contributed to the funding crisis in the real sector.

In the same 2020, Zenith Bank’s Treasury bill portfolio increased by close to 60 per cent (from N991 billion to N1.58 trillion), while its loans and advances grew by merely 20.5 per cent to N2.78 trillion. Also, First Bank’s investment in securities as of December 2020 was N1.55 trillion against N2.2 trillion in total credits extended to its customers.

Access Bank also grew its loan portfolio by over 70 per cent in the past three years, a feat partly attributed to its merger with the defunct Diamond Bank, with the figure hitting N3.6 trillion as of December 31, 2020. Yet, securities and other assets weigh heavily on its book.

Besides, a larger proportion of banks’ total credit is extended to the exclusive public and oil/gas, while sectors that have a direct impact on the people were left in limbo. Of the N20.4 trillion total industry credits as of December 31, 2020, the government had N1.8 trillion. The amount was about 18 per cent increase from the N1.5 trillion reported at the close of 2019.

Banks were also exposed to oil/gas exploration to the tune of N3.9 trillion or 19 per cent, while agriculture, the country’s highest employer of labour, received N1.05 trillion. Out of the total net domestic credit extended to the economy in Q1 this year, the government took as much as 28 per cent, leaving other sectors to scramble for the balance.

The combined profit after tax (PAT) of the five biggest players, which are classified as systemic important banks, rose from N684 billion in 2019 to N719.7 billion. On average, the five banks’ portabilities grew by five per cent in the same year most of their physical operations were shut down to contain the spread of COVID-19.

From 2016 to 2020, the top five banks made a total PAT of N3.3 trillion, with year-on-year profit growth of between 3.7 and 24.7 per cent. Sadly, the economy they service entered into recession twice in the same period. Two out of the five years, the GDP wobbled through negative growth.

These data are not isolated cases. They reflect a history dominated by big banks operating in a shallow and tumbling economy.
In retrospect, one of the major sectors of the economy that has remained resilient, despite the obvious policy flaws and several challenges, is the information and communication technology (ICT) sector.

Under Communication and Digital Economy, there are six agencies – the Nigerian Communications Commission (NCC), National Information and Technology Development Agency (NITDA), National Identity Management Commission (NIMC) and NigComSat. Others are NIPOST and Galaxy Backbone Limited.

Findings showed that from 8.50 per cent telecommunications contribution to the country’s gross domestic product (GDP) in 2015, the figure rose to 14.43 per cent as at H1, 2022. The telecoms contribution strengthened ICT contribution to GDP, which currently stood at 17.92 per cent, according to data from the National Bureau of Statistics.

It has, however, not been all rosy with the telecoms sector as some policies and regulations impacted the sector’s performance.

For instance, the December 2020 NIN-SIM policy impacted the sector negatively, where telecom operators lost some 15 million subscribers. It was further compounded by the directive from the Ministry of Communications and Digital Economy in April 2022 that SIM cards not linked to owners’ National Identification Number (NIN), outgoing calls should be barred from such lines. As of then, close to 75 million telephone lines were barred.

While NIMC can be commended for increasing NIN issuance from 40 million as of 2020 to over 82 million within the last two years, however, in May, MTN claimed that some 19 million subscribers were affected, while Airtel Nigeria, said that only 35.9 million out of its 44.4 million active customers had linked their NIN with their SIMs as of the end of April. It subsequently means that 8.5 million customers of the telco were yet to comply and have been placed on ‘receive only’.

The implication of this was revenue loss on the part of the telcos and low tax remit to the government in the long run. It must be stated that Nigeria currently has 201 million active telephone subscribers.

After the successful auction of the 3.5GHz spectrum for the deployment of 5G by the NCC, operators have been mandated to start deployment by August. Hopefully, a new revolution is expected in the sector.

Despite about $80 billion investment in the telecoms sector, it must be mentioned that some 25 million Nigerians in 114 localities in the country have not had any access to basic telephony services.

According to operators, this has been largely due to the rise in insecurity in the country, as it has not been sustainable deploying infrastructure in perceived volatile areas of the country. But it appears there is hope, following the approval given to the world’s richest man, Elon Musk, through his SpaceX, to bring Starlink into Nigeria to deepen connectivity in the country, largely via satellite technology.

As such, the entrance of Starlink is expected to give a fillip to the Federal Government’s 2025 broadband target of 70 per cent penetration and 90 per cent coverage of the population.

It is also expected to fast-track Nigeria’s digital economy agenda, which hopes to digitize all government activities as soon as possible.

Speaking with The Guardian on the impact of the sector on the growth of democracy in Nigeria, Chairman, Mobile Software Nigeria, Chris Uwaje, agreed that the ICT sector has no doubt contributed immensely to the country’s economic and national development, however, said the required numbers don’t seem to add up to the acclaimed vision.

“This is more so, when poverty indicators continue to skyrocket: 13.2million of school, over 27 million unemployed and about 42.3 million underemployed, while many millions cannot find one meal per day. Youths nowadays believe in ritualistic means to survive and/or Cybercrime. More than ever before, the knowledge economy is redefining the trajectory of global development. When economic growth is slower than population growth, there should be a great concern to leadership,” he stressed.

On his part, the founder, Jidaw Systems and Science, Technology and Innovation (STI) Policy Advisor, Jide Awe, said the National Digital Economy Policy and Strategy (NDEPS) developed by the Ministry of Communications and Digital Economy has been the main policy/regulatory instrument providing overall guidance for the ICT/Telecoms sector.

He said the important and ambitious effort to enable Nigeria and Nigerians to leverage digital technologies for development focuses on diversification of the economy and attainment of socio-economic goals.

Awe observed that extensive and detailed, the eight pillars of the NDEPS cover key areas, adding that interestingly, several policies/regulations developed for most of the areas covered are actually in the alignment of the NDEPS Pillar of “Developmental Regulation”.

“While there has been noticeable activity for most pillars, there is still a long way to go in terms of achieving the nation’s digital development and inclusion objectives.

“For example, and most importantly, greater attention and investment are required for the “Digital Literacy and Skills” pillar which is fundamental to a vibrant and inclusive digital economy and utilizing the massive potentials and innovativeness of our youth. Digital Literacy and skills are the critical foundation as we need to be creators, developers, innovators not just consumers to be competitive and fulfil our potential in this era,” Awe stressed.

According to him, the Nigerian National Broadband Plan 2020-2025 and the National Policy on 5G Networks for Nigeria’s Digital Economy are notable policy and regulatory developments focused on deepening broadband penetration and improving telecom infrastructure that aligns with the “Solid Infrastructure” pillar.

“A significant development during this period was the licensing Infrastructure Companies (InfraCos) to deepen broadband penetration. Despite the harmonization of the Right of Way (“RoW”) charges policy approved by the Federal Government of Nigeria, in 2017, through the National Executive Council (the “NEC”), which resulted in an RoW Charge Agreement with all the governors of the 36 states of Nigeria, it is disturbing that only a few governors are on board.

“The transparent issuance of licences to MTN Nigeria and Mafab Nigeria Communications Limited – winners of the 5G auction after making payment – is an important first step in the 5G policy implementation process. The huge investment in 5G licences is a sign of investor confidence in Nigeria’s telecoms sector,” he stated.

The Jidaw System boss, however, said some telecoms infrastructure policy and regulatory challenges, such as multiple taxation and regulations, Right-of-Way issues, network security issues and provider challenges persist due to a lack of political will. As a result, he said digital inclusion is still a major challenge due to the cost of data and phone calls, broadband penetration gaps and other concerns.

Awe noted that the introduction of the Nigeria Data Protection Regulation (NDPR) and the establishment of the Nigeria Data Protection Bureau are strategic regulatory interventions that strengthen public confidence in the use of digital technologies and participation in the digital economy, which is in line with the “Soft Infrastructure” pillar. He observed that there has been promising activity in this area with the gradual development of the data protection and privacy ecosystem. Balance is required to foster innovation while promoting safety and protection.

According to him, the Nigeria Digital Innovation, Entrepreneurship and Startup Policy (NDIESP) is a development in line with the “Digital Services Development and Promotion” pillar to leverage digital innovation and entrepreneurship. While activity and interest are high with huge opportunities for young people, greater investment is needed in startups and young innovators

The Chief Economist, African Export-Import Bank, Dr. Hippolyte Fofack, said the telecommunications and financial services sectors, as well as investment in strategic industries, are responsible for Nigeria’s economic growth resilience.

AN independent investor, Amaechi Egbo, said there is little to celebrate about Nigeria’s democracy at 23, as the government continues to pay lip service to governance issues, while killer groups are running berserk and overawing public safety.

According to him, the government is plunging the economy into unprecedented debt without corresponding improvement in the lives of Nigerians.

He said these are some of the things that have thrown nations into brutal wars from which they never recovered.

For the capital market, Egbo admitted that several transformational changes occurred in the market, which set the stage for unimaginable growth between 1999 and 2008 when the market peaked.

According to him, the most monumental event that shaped the golden era of the capital market was the commencement of the Central Securities Clearing System (CSCS) on April 14, 1997.

“CSCS was established to provide electronic-based automated clearing, settlement, delivery, and custodial services. The revolutionary change in settlement and delivery to transaction plus 3 days (T + 3), from between three and 12 months before automation, paved the way for the explosion of transactions in subsequent years.

“The final earth-moving event that occurred in the capital market at the heels of restoration of democracy in Nigeria was a transition from the manual Call – Over trading system to the Automated Trading System (ATS) on April 27, 1999. Through the tight coupling of ATS and CSCS, the game-changing transformation, which started in 1997, was completed, leading to seamless automation of the capital market.”

Vice president of Highcap Securities, David Adonri, said the journey so far by Nigeria’s capital market since the restoration of democracy in 1999 has been faced with challenges.

Although he admitted that the market has reengineered and is currently driven by world-class technology processes with equities market capitalisation and index increasing to N28.719 trillion and 53,270.88.

However, he pointed out that the primary market segment for new issues, an area of the capital market, which showed good promise after 1999, has practically vanished.

“Save for the mega listing of Dangote Cement Plc. in 2010 and the twin listing of MTN Nigeria and Airtel Africa by way of introduction in 2019, the primary market has been mainly a platform for public debt issuance. Retail investors’ confidence that was severely eroded in 2008 is also yet to be restored.”

Adonri argued that the nation’s pervasive nationwide security challenge would continue to erode investors’ confidence and retard investment inflow into the country unless adequate steps are taken to reverse the trend.

He insisted that Foreign Direct Investment (FDI) has reduced significantly because security is the number one variable that woos foreign investors before Returns on Investment (ROI).

He urged the Federal Government to intensify efforts towards tackling these challenges to stem the further loss of investment.

Adonri also stressed the need for the government to encourage the private sector to create more jobs by initiating favourable policies and closing the infrastructure gaps.

A stockbroker with Valmon Securities Limited, Tajudeen Olayinka, said the capital market in Nigeria has truly evolved, with more securities and commodities exchanges, including an Over-The-Counter Exchange (OTC), providing different levels of support to the nation’s economy.

For instance, he noted that the market could now boast of all relevant Financial Market Infrastructures (FMIs) such as Payments’ Infrastructure, Securities Clearing and Settlement Systems, Central Securities Depository, Central Counter Party, Trade Repositories against what was obtainable before May 29, 1999, when only one securities exchange, which is the defunct Nigerian Stock Exchange (NSE), was in existence.

Recall that the positive impact of change on the political landscape in 1999 became the watershed from where the Nigerian capital market began its rise.

The market was a major beneficiary of structural reforms in the economy, which began in 1999.

As a result, the growth rate of the economy rose from about three per cent per annum before 2000 to over seven per cent per annum before the global meltdown in 2008.

The ratio of market capitalisation to GDP attained an unprecedented height of 34.6 per cent in 2006.

The market enjoyed a decade-long boom which culminated in its highest growth in March 2008, when the All Share Index (ASI) of the defunct Nigerian Stock Exchange (NSE) now NGX, reached a peak of 66,000 points.

However, by March 5, 2008, when the ASI and market capitalisation attained their highest levels of 66,371 points and N15.64 trillion respectively, the decade-long sustained growth had transformed into a ripe asset bubble.

As a result of the global meltdown, which caused a mass exodus of foreign portfolio investment and due to the credit crisis that rocked the stock exchange and eroded investors’ confidence, the asset bubble burst in April 2008, nearly crashing the market.

To restore confidence in the market, the SEC intervened to clean up the Stock exchange in 2010 but before then in 2009, CBN had also intervened in the banking sector through AMCON to save the damaged balance sheets of banks.

The market continued its recovery trend from 2010 up to Q1 2014, as a result of various reforms and vastly improved macroeconomic conditions. Improved global and domestic economies provided the enabling environment for growth.

Unfortunately, the sudden collapse of the crude oil market in 2014 and following the nasty buildup to the 2015 general election, complicated by worsening insecurity, together with the delay by President Buhari to form a cabinet, resulted in economic stagflation which depressed the market.

The midterm Economic Recovery and Growth Plan (ERGP) together with the CBN’s creation of the market-based Importers and Exporter’s foreign exchange window healed the economy and facilitated a 42 per cent appreciation of ASI in 2017.

However, from H2, 2018 things fell apart again following another nasty buildup to the 2019 general election. The election was judged non-credible and fraudulent, provoking low investors’ confidence. As a result, the market lost 14.6 per cent in 2019.

Nigeria descended into another stagflation in 2020 due to socioeconomic disruptions of the COVID-19 pandemic, rising insecurity and governance incompetence, which has continued to take its toll on the stock market to date.

Although the equities unexpectedly appreciated by 50 per cent in 2020 due to the government’s expansionary monetary policy of NESP which forced the exit of financial assets from debt to equities.

The President of the Standard Shareholders Association, Godwin Anono rated the country’s democratic regime as one that has failed to create a competitive edge for the domestic investment market.

He argued that the era delivered less than expected in terms of stimulating growth, noting that the application of democratic practice has been below par.

According to him, the economy is impacted negatively by social factors such as inequitable political organisations, dysfunctional institutions, insecurity and poor leadership.

As the Muhammadu Buahri administration draws to a close, economists have charged the government to leverage the private sector to fast-track growth.

Speaking with The Guardian, Prof. Akpan Ekpo of the University of Uyo, said: ‘Unfortunately, this government witnessed two recessions in the last seven years, although it claimed it has gone over it the economy remains in stagnation till date, today, we have rising inflation, massive unemployment amid low productivity across the board.”

He explained that the insecurity in the land does not only affect foreign direct investment inflows but also affects domestic investors.

“Portfolio investors have created serious capital flight for the country, many investors are diverting their investments into neighboring countries, recent data from the National Bureau of Statistics shows that Foreign Direct Investment [FDI] has reduced significantly by 79 percent, so with this, the impact on the economy has become unbearable for the country,’’ Ekpo said.