Buhari’s overarching economic challenge

YOU don’t have to be an economist to know that the Nigerian economy has grown at impressive rates over the past decade.

The country’s 6.8 per cent average growth rate over the past decade conceals several dimensions of economic growth in the country: proliferation of banks, petrol stations, supermarkets, upscale hotels/restaurants, world-class movie theatres, posh cars, gigantic mansions, construction boom and fast-food restaurant chains.

Stores and markets across the country are well-stocked with a wide array of imported goods, from expensive wines to electronics, ICT products, food, clothing, footwear, etc.

But when you venture beyond the immediate vicinity of five-star hotels and exquisite tourist/diplomatic areas, you begin to ponder the following questions: how come only about 25 per cent (according to a July 2014 report by McKinsey Global Institute) of Nigerians are enjoying all these benefits of economic growth? Why are the streets and major roads filled with thousands of petty traders, hawkers, disabled persons, beggars, and hangers-on? Why are millions of unemployed university graduates roaming the streets, with several of them hoping for elusive greener pastures abroad? One might wonder why, despite Nigeria’s spectacular economic growth, an increasing number of youths and adults are still hawking low-margin telephone recharge cards, while several others eke out a living by operating motorcycles for public transportation.

Why is the informal sector bloated, with millions of underemployed youths and adults barely surviving on low productivity activities?

The lack of inclusive growth in Nigeria transcends income differentials. It is also manifested in unequal access to basic services and social programmes. While most Nigerians don’t have regular supply of electricity, a very small percentage are able to purchase generators for around-the-clock supply of electricity. This small percentage are also able to purchase water from private sources, seek medical treatment abroad, and avoid Nigeria’s crumbling public schools by sending their children abroad to attend expensive secondary schools and universities.

While there are no current data on Nigeria’s Gini index, the standard measure of inequality, the manifestations of growing inequality and lack of inclusive growth can be seen everywhere: restive youths in the oil-rich Niger Delta destroying oil pipelines, Boko Haram in the north committing atrocities, the pervasiveness of ransom kidnappers, audaciousness of armed robbers, and drug peddlers who want to enjoy the benefits of economic growth and have no legitimate opportunities to realize their dreams.

Public-sector workers across the country have recently joined the fray, protesting months of unpaid salaries, benefits and pensions.

Meanwhile, the political class and the privileged few that have access to the government continue to live ostentatious life-styles. When these workers ride on crowded and stuffy rickety buses to work every morning, they pass through gigantic mansions and posh automobiles owned by the same top government officials responsible for the non-payment of their salaries.

This fuels anger and deepens their sense of deprivation. It not only demoralizes them, but also reduces their productivity and hurts economic growth. Matters were not helped by the revelation last year that $20 billion of oil revenue could not be accounted for by the Nigerian National Petroleum Corporation (NNPC).

The yearning for inclusive growth by Nigerians played a major role in the defeat of former President Goodluck Jonathan.

President Buhari’s top priority should be how to redress the country’s egregious non-inclusive economic growth. He has vowed to fight corruption, which many believe is mainly to blame for the lack of inclusive growth in Nigeria. But those who subscribe to this view are mistaken.

The lack of inclusive growth is attributable, not just to corruption, but also to the structure of the Nigerian economy.

The structure of the economy makes it virtually impossible for growth to be inclusive, regardless of whether or not there is the political will to do so.

The dynamics of the Nigerian economy can be described quite simply as follows: about 90 per cent of the country’s revenue comes from oil exports.

This revenue is distributed amongst the three tiers of government (Federal, State and Local), who in turn use their various shares to undertake recurrent and capital projects.

According to Nigeria’s former finance minister, Dr. Ngozi Okonjo-Iweala, over 70 per cent of the funds received by the three tiers of government goes to recurrent expenditures, with very little invested in capital projects.

The little that goes into capital projects is further dissipated by corruption, mainly through contract inflation and deliberately abandoned projects.

Thus, there are no mechanisms or conduits within the economy to ensure that oil revenue filters into the real sector of the economy, or that a broad spectrum of Nigerians benefit from the country’s oil wealth.

The manufacturing sector, which would have employed the teeming number of unemployed youths in the country, is all but dead. It accounts for only 12 per cent of employment in the country, down from a high of over 30 per cent in the 1980s.

During its heyday in the 1970s-1980s, the Nigerian textile industry alone employed almost one million workers.

Today it employs about 20,000 workers, and that number is decreasing by the day. According to a 2008 report by the United Nations Conference on Trade and Industry (UNCTAD), manufacturing value added contributed a mere three per cent to Nigeria’s GDP, the lowest of all the 15 African countries in the report.

Another report by the Manufacturers Association of Nigeria (MAN) revealed that the contribution of manufacturing to the country’s GDP was flat at four per cent between 2003 and 2013, well below the 12 per cent targeted by the government.

Poverty and inequality in Nigeria cannot be solved overnight by the incoming administration. It is also delusional to assume that anti-corruption measures alone will foster inclusive growth. Inclusive growth in Nigeria requires the development of new growth drivers that harness the country’s abundant supply of labour, human capital and talents.

The structure of the country’s extractive industry, and the manner by which oil revenue is recycled will only exacerbate inequality. But developing non-oil growth drivers will take time, perseverance and good economic policies.

In the meantime, there is an urgent need for the introduction of safety nets that not only add value to the economy, but also bring a much-needed succour to the millions of Nigerians wallowing in poverty.
• Steve Onyeiwu is a Professor of Economics at Allegheny College, Meadville, Pennsylvania, USA.