Trillion Dollar Economy Beckons – Insights into Tinubu’s Policies That Will Change the Face of Nigeria’s Economy

Policy Statement 12

The World Bank projects that the value of Nigeria’s Gross Domestic Product in 2024 will reduce to $394.94 billion at current prices, that is, a decline of $82.44 from the 2022 size when it was stated to be $477.38 billion. This projected shrinking of the size of the Nigerian economy will reflect in further reduction of the nation’s per capita GDP to $1700, that is, the value of the country’s economic output per person which is calculated by dividing the GDP of a country by its population. 

The reality of the Nigerian national economy is that though it may be large in comparison to other countries in Africa, it pails to insignificance when the value is hypothetically shared among the population.

Yet, it is the submission of analysts through the years that even a casual observer of Africa is likely to be aware that very few African nations have Nigeria’s level of economic potential. This country is abundantly endowed with both natural and human resources. 

Nigeria provides investors with a cheap labour pool, a wealth of natural resources, and perhaps the largest domestic market in the African continent. The nation has a large amount of arable land and favourable environmental factors that support agricultural activities. 

In addition, Nigeria has the second-largest oil reserves in Africa. Along with having abundant oil and gas reserves, the nation also has about 37 solid mineral types that are commercially available and can be utilised in a variety of fields, including construction, pharmaceuticals, food processing, and other manufacturing processes. 

Nonetheless, despite these vast resource base and investment opportunities, the nation has not been able to grow its economy significantly or draw – in a foreign investment portfolio on a par with its economic potential.

To provide possible reasons for this awkward state of economic anaemia, some other analysts had tried to explain the situation with the “natural resources curse hypothesis.” Essentially, it means that countries rich in natural resources have lower growth rates. The reason for this unexpected negative relationship between natural resources and growth is that natural resources exclude physical, human, institutional, and other variants or indices of capital measurements. 

The main mechanism begins with the export of natural resources. When the country, which is rich in natural resources, exports these resources, foreign currency inflows to the country increases, and domestic currency gains value. Invariably, imports increase, and domestic product slows down, leading to poor capital formation and, ultimately, contributing little or no value to the economy. 

Over time, this degenerates into a dependency syndrome in which the domestic economy depends, wholesale, on foreign goods and services for its sustenance. This situation exposes the economic conditions of the country, for good or bad, to determinant forces that are outside its geographical boundaries. In our consideration, Nigeria has become a typical showcase of this aphorism.

Deriving from the above, it can be assayed that the Nigerian economy is of the jaundiced type in terms of growth and inclusiveness. To put this in context, economic growth is a process whereby the real per- capita income of a country increases over a long period of time, measured by the increase in the amount of goods and services produced in a country.

Economic growth occurs when an economy’s productive capacity increases, which, in turn, is used to produce more goods and services. Essential to economic growth is capital formation, which refers to the proportion of present income saved and invested in order to augment future output and income.   

Deficient capital formation has been variously cited as the most serious constraint to sustainable economic growth. Its enablement is a major trigger of the venerated “Big push” economic manoeuvre. This implies that countries needed to jump from one stage of development to another through a virtuous cycle in which large investments in infrastructure and education coupled with private investment would move the economy to a more productive stage. Thereby breaking free from economic paradigms that manifest in lower productivity. 

In Nigeria’s drive towards rapid economic growth, analysts have continued to opine that the economy should be growing at the rate of at least 15 per cent per annum. This had been difficult for an economy that has been categorized as one with low savings, and even lower investment despite the Federal Government, at different times, implementing policies and reform initiatives that could turn the economy around. These policies include the National Economic Empowerment and Development Strategy (NEEDS), privatization, and commercialization of federal and state-owned enterprises, which were initiated to escape these low savings and low investment trap.

This lack of investable funds or their low availability, particularly in the productive sectors of the economy, has in turn been blamed for the unfavourable investment environment. This is one other reason Nigeria is classified among the class of less developed countries. Evidently, promoting balanced investment in physical and financial assets as well as human, natural, and environmental capital is necessary for the promotion of sustained economic growth. 

Directly linked to this is the Brussels Declaration which sets 30 global development objectives for LDCs, including a 25 percent investment to GDP ratio and a minimum of 7 percent annual GDP growth rate for LDCs to achieve sustainable development and poverty reduction. Analysts have further suggested that developing countries should aim for and maintain a level of private investment of at least 25 per cent of GDP in order to sustain growth and poverty reduction.

They noted the significance of private investment in contributing to economic growth, including its capacity to efficiently allocate and employ resources. The assumption is that investment rates between 20 and 25 per cent could lead to growth rates of between 7 and 8 per cent based on the experiences of Asian nations. 

Generally speaking, public expenditure is classified into two categories, that is, recurrent and capital expenditures. A historical review of Nigeria’s public expenditure profile in this regard indicates that a greater percentage of government expenditure was on capital expenditures between 1970 and 1980. Within this period, the total capital expenditure outlays constituted about 57% of government’s expenditure profile, while the remaining balance of 43% went to recurrent expenditures. Meanwhile, the government retained revenue was N56, 617.90 billion, while the expenditure was N60, 632.80 billion, resulting in deficit financing of N4, 0114.90billion during the period. The period was remarkable in Nigeria’s socio-economic development. Apart from the establishment of many public enterprises; it witnessed the nationalization of several privately-owned companies and the execution of second and third National Development Plans between 1970- 1974 and 1975-1980, respectively. 

However, the period 1981- 1995 witnessed a dominance of recurrent expenditure over capital expenditure. The government spent a total of N579, 062.90 billion on the former, while N404, 419.4 billion, was spent on the latter. This represents a ratio of 58.82% to recurrent expenditures and 41.12 % to capital expenditure. The period 1996 – 2001 marked yet another remarkable period in government expenditure profile. The period witnessed capital expenditures exceeding recurrent expenditures. The capital expenditure was N1, 529,072.10 trillion, while the recurrent expenditure was N1, 372,415.00 trillion. Though government expenditure exceeded revenue during the period by N47, 122.20 billion, the increased capital expenditure was expected to impact positively on the level of infrastructural development.

Nevertheless, the above fit could not be sustained nor maintained by the government in the period 2006 to 2007.The recurrent expenditure rose from its previous period figure of N1.3 trillion to N10.8 trillion resulting in 693.2 % growth rate while the capital expenditure increased from N1.5 trillion to N5.8 trillion during the same period indicating a 281.7% growth rate. The period 2008- 2011 witnessed yet another era of recurrent expenditure dominance over capital expenditure .The government spent a total of N10.6 trillion on the former, while a mere N3.9 trillion was spent on the latter.

On the private sector investment front, compared to the recommended investment threshold, Nigeria’s average private investment as a share of GDP fell below 15% between 1999 and 2019. This percentage falls short of what is required for attaining greater growth rates and what is available in the majority of Sub-Saharan African economies. The simplified fact in Nigeria shows that private investment growth has been surprisingly poor and continues to decrease despite an increased drive for economic liberalization from the government to private sector-led growth strategies in recent years. All these have grave implications for the country’s gross fixed capital formation profile.

An examination of CBN reports show that Nigeria’s gross fixed capital formation was 11.63%, 10.23%, 8.15%, 10.48% and 11.02% of Gross Domestic Product between 2010-2014, compared with 43% in Mauritania in 2014, 32% in India, and 58% in Bhutan. This suggests that the poor level of capital formation is a probable contributor to the inability to achieve the various development plans conceived and implemented in the country at various times.

In 2017, gross fixed capital formation for Nigeria was 14.7 %. Impressively, gross capital formation (% of GDP) in Nigeria was reported at 33.83% in 2021, according to the World Bank. Our argument is that public spending on infrastructure alongside the supply of public goods can also be an obvious complement to private investments. The demand for public inputs and support services may boost the demand for private production, which in turn raises the demand for private output, while aggregate demand and savings can improve the supply of resources in general.

 Public investment of this kind can also improve private investment prospects and enhance the efficiency of capital.

It is at this intersection of public and private spending and gross capital formation that we situate the declaration by the President Bola Ahmed Tinubu’s administration that it aspires to a possible one trillion dollar economic size for the country over the next eight years. 

Given the nation’s constricted economic space and the corruption and bureaucracy that had traditionally and historically constrained the ease of doing business, this declaration may be dismissed as political sloganeering and a fortuitous use of economic phrase to ingratiate the government in the public minds. 

But, our readings of the policy deployment environment since that declaration was made will confirm the plausibility of the declaration. Our thinking is premised on two principal policies showing the seriousness and commitment of the Federal Government to engineer a hundred per cent-point expansion of the Nigerian economy. This we hope will effectively enhance per capita GDP in alignment with global requirements and actual higher standard of living impact on the average Nigerian.

The Renewed Hope Infrastructure Development Funds (RHIDF), the Presidential Economic Coordination Council, and the embedded Economic Management Team, and the Emergency Taskforce are the policies we believe will change the tide of economic narratives of the country. Our aggregated view of these policies is that they constitute both the framework and fulcrum of the Tinubu’s presidency’s vision for a trillion Naira economic size.

A flip back to the past shows that over the last nine years or thereabouts, the Nigerian national budget have averaged, in dollar term, a $28 billion to $34 billion dollar range, meanwhile, as earlier noted, the recurrent side of the annual Appropriation Act have always taken the chunk of the expenditure size to as much as 70 percent. The spending of the remaining 30per cent, which is roughly estimated at about nine billion dollars, left to capital expenditure, is often indeterminate. 

This is because, it is just recently that the Federal Government, in collaboration with the National Assembly, have had to extend the life of ongoing Appropriation Acts to cover the periods that enable a hundred percent capital expenditure as captured in the different Acts. When this annual nine billion dollar capital expenditure is juxtaposed against the annual $35billion, the Renewed Hope Infrastructure Development Fund (RHIDF) is targeting to raise and expend on both hard and soft infrastructure projects and facilities, the only way to describe the vision is to say it is audacious. Yet, we dare to submit that this is the only channel available to the country to depart the perennial state of economic doldrums and vulnerability. The success of the RHIDF is a definite engineering of the process of capital formation that is required for national inclusive economic growth.

The RHIDF, in our consideration, is the outcome of critical thinking, especially from a leadership that understands the place of infrastructure renewal and enhancement in enabling and driving economic growth. It compares to the United States of America’s $1.2 trillion Bipartisan Infrastructure Law (BIL) signed into law by President Joe Biden two years ago. Like the BIL, the underlying intendment of the RHIDF is to invest in infrastructure that can strengthen long-term productive capacity while creating opportunities for people in disadvantaged communities. As Janet Yellen, USA’s Secretary of the Treasury, observes, the combined focus on growth and broadly spreading economic opportunity is the foundation of modern supply-side economics. 

Two years down the line, the BIL is acclaimed to have been largely successful in accomplishing its stated objectives on account of the availability of reliable funding sources. Will the RHIDF effectively get off the ground, especially in the face of other such infrastructure funding entities of the past that could not deliver on stated objective because of funding and bureaucratic constraints? 

We think there is a practicability inherent in the conceptualization of the RHIDF so much that we believe that if the RHIDF represents the audacious vision coupled with the many funding and financing channels it itemises, the Presidential Economic Coordination Council (PECC) is the equivalent of the scaffolding for its realization. 

We agree that there had been entities such as the PECC in the past but the President must have determinedly corrected the shortfall of the membership composition of similar entities of the past by including State Governors, all service and spending MDAs in this. The membership is also inclusive of the Governor of the Central Bank of Nigeria. Its expansive nature enhances its structures to be beyond being an advisory body as obtained in the past to a quasi-decision making entity.

The PECC is comparable to the Economic Coordination Committee of Pakistan which is both a federal institution and a consultative forum with responsibility to finalise executive economic decisions and to assist the Prime Minister and his key staff on issues involving economic security and geo-economic policies.

We notice that the inclusion of members of the organized private sector in the PECC is conditioned on a one-year tenure. This allows inflow and outflow of credible private sector stakeholders in the committee. Operationally, the Economic Management Team (EMT) is attached to the PECC as its working group, this effectively, makes the PECC the direct report of the EMT such that it is monitored by and accountable to the PECC.

We envisaged that for the first time in the economic management hemisphere of the country, all regulators, economic decision makers, investors, bankers, manufacturers and such others, will be one in review, consideration and decision making on economic policies. This has implication for the crystalisation of Federal Government’s policies on which basis we are assured of the positive outcomes and accomplishment of the objectives of the $35 billion RHIDF annual infrastructure investment in the economy and other developmental focused policies.

We, however, wish to canvass the adoption of the whole society approach to the realization of the mandates of the RHIDF by including funding of capital projects in States and Local Government Areas (LGAs). Our argument is that the assurances of infrastructural provisions across the States and LGAs, especially in infrastructure underserved States and LGAs, will not only lead to economic growth but also engenders a truly inclusive growth with associated multiplier effects. 

In this regard, the RHIDF may wish to adopt the matching funding mechanism by which the participating State and LGA determine its preferred project and makes available a given sum for which a matching grant will be provided by the RHIDF. It is the aggregation of these expected tiers of investments that predisposes us to asserting that Nigeria’s GDP size can actually balloon to more than a trillion dollars. Therefore, the RHIDF should be supported to succeed.

Signed
Chief Niyi Akinsiju, F. Cifian
Chairman,
Independent Media and Policy Initiative

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