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A critical appraisal of the Nigerian economy 54 years after independence
By Professor Mike Idi Obadan
Fifty-four years after Nigeria attained political independence in 1960, the Nigerian economy as at today, is as portrayed by the UNDP’s Human Development Report, 2008/2009, to the effect that: “Now, at the threshold of the golden jubilee of Nigeria’s political independence, the country surely has a scorecard; but it is an unimpressive one relative to its contemporaries in the 1960s and 1970s. What is different about Nigeria is that its poverty and poor human development performance are avoidable. Forty-nine years of managing its own affairs has shown that the country has immense potential, is blessed with human and natural resources, yet exhibiting significant deprivation in the midst of plenty . . . It is a country of extremes – extreme wealth on the one hand and extreme want on the other – which makes it possible for some 20 percent of the population to own 65 percent of its national wealth”. Indeed, Nigeria is richly blessed with a very vast natural resource base, in the form of large oil and gas reserves, estimated at 39 billion barrels and 189 trillion standard cubic feet, respectively, to last many years. It also has a wide expanse of fertile agricultural land and good climate, and large untapped solid minerals deposits.
Sometime ago, the Raw Materials Research and Development Council (RMRDC) identified over 30 solid mineral deposits (metallic and non-metallic) in varying degrees of abundance in different parts of Nigeria. So far, only a small proportion of the deposits is being exploited. The country also has a large human resource base, reflected in a population currently estimated at over 168 million people including a well-educated manpower stock. The entrepreneurial spirit of the people is very high. The country, thus, has enormous potential in agriculture, industry, minerals, science and technology, among others, in terms of achieving respectable growth and development. And as if the Almighty God particularly singled out Nigeria for limitless blessings, the country, unlike a number of other countries, has not experienced any of those calamitous natural disasters that have frequently been reported in the media. Natural disasters, in the form of earthquakes, tremors, hurricanes, cyclones, monsoon and other floods, volcanic eruptions, wildfire outbreak, among others, have continued to wreak havoc in different parts of the world but Nigeria has been spared the agonies of these disasters, except the self-induced internal strifes, the latest of which have manifested in widespread insecurity of lives and property and Boko-Haram insurgency in the North East, among others.
In spite of the resources available and plethora of economic strategies and measures implemented since political independence in 1960, the challenge of economic and social development in the country has remained daunting such that the management of the economy, over the years, has not been something that engenders pride. Respectable economic development of the country has remained elusive. The state of the Nigerian economy has continued to reflect the paradox of poverty and misery in the midst of plenty. In the light of the foregoing, the important questions that continue to agitate the mind are: Why has the Nigerian economy remained underdeveloped or undeveloping? Why has the country not been able to break away from the vicious cycle of poverty? The majority of its citizens are poor and hungry even though they are humorously considered as the happiest people in the world. The inference, therefore, is that even though resources are necessary for economic development, their existence alone does not constitute a sufficient condition for development to occur. They require good management and governance. These have been lacking in Nigeria, such that gross economic mismanagement, bad governance and failed political leadership as well as failed economic policies have tended to explain why all the renewed efforts, reflected in wide ranging economic reforms in the past decade of democratic governance, under conditions of an oil boom, have not delivered the much desired economic development and improvements in the lives of the Nigerian citizens.
Development goals and frameworks
In Nigeria, the objectives of development management have evolved against the backdrop of numerous challenges facing the country such as general underdevelopment in the colonial period, manifested in various sectors of the economy, particularly infrastructure and social services; post-civil war reconstruction and development of the 1970s through rehabilitation and expansion of existing socio-economic infrastructure, enhanced participation of the government in agricultural production and promotion of domestic industries through the policy of import-substitution; and tackling the challenge of low economic growth and low per capita income in the decades of the 1980s and 1990s. Even though the economic growth performance has improved significantly since the 2000s, averaging over 6.0 percent, there is still the subsisting challenge of achieving growth with commensurate employment and effectively addressing two other daunting challenges, namely, the very high incidence of poverty and infrastructural decay/collapse.
It is against the backdrop of the nagging development challenges that various goals of development management have been articulated in the key policy documents since Nigeria attained political independence in 1960. The overarching goal of the country’s economic development has been to achieve material prosperity, stability, peace and social progress. More specific objectives of economic and social development are contained in various policy documents of government.
In the light of the development challenges and policy goals, different development paradigms, philosophies, strategies and policies have been formulated and implemented since political independence in order to achieve respectable economic and social development. In this direction, the country has experimented with two major development philosophies or paradigms, viz: public sector-led development strategy and market – based strategy/private sector-led growth strategy. The latter strategy has been given strong expression since the introduction of the Structural Adjustment Programme, 1986 – 1988. On the other hand, in the public sector-driven growth, the government assumed the “commanding heights” of the economy in the 1970s and dictated the pace of growth through its involvement in virtually all activities including production. Development planning has been an instrument to actualise this paradigm.
Since political independence, the following are the key development and policy plans that have been implemented:
The development plans indicate Nigeria’s commitment to planning as a major strategy for achieving economic development and social progress, particularly, in the spheres of social-economic infrastructure development, industrialization, modernization, achieving high rates of economic growth, poverty reduction, and significant improvement in living standards of the people. The last three in the above list constitutes the current planning and development frameworks in the country.
The Nigeria Vision 20: 2020 (NV 20: 2020) which is a long-term planning framework is a reflection of Nigeria’s ambition to be a great economic power as one of the top 20 economies in the world by 2020. The associated Economic Transformation Blueprint articulates Nigeria’s economic growth and development strategies for the 11-year period between 2009 and 2020. It is being implemented with a series of National Development Plans, beginning with the First Medium-term National Implementation Plan, 2010 – 2013. The vision is that by 2020, Nigeria will have a large, strong, diversified, sustainable and competitive economy that is one of the top 20 economies, with an overarching target of at least $900 billion in GDP and a per capita income of at least $4,000 per annum.
Of particular significance in the table are the projections relating to GDP size, economic structure, agricultural productivity, manufacturing contribution to GDP and electricity generation. The installed capacity for electricity is expected to increase from 6,000 MW in 2009 to 35,000 MW by 2020.
The vision document has no programmes and projects. These are featured in the First National Implementation Plan, 2010 – 2013. The Plan focuses on laying the foundation for achieving the Vision; contains the medium-term strategic policy direction, development priorities implementation strategies and expected deliverables; and a summary of States’ Investment Plans.
In line with the three key pillars of the Vision and the theme, the Implementation Plan seeks: to engender accelerated pro-poor growth; achieve an average GDP growth rate of 11.0 percent and a target GDP of N50 trillion ($333billion) by 2013; raise the GDP per capita from $1,075 in 2009 to $2,008.75 by 2013; generate jobs to absorb the teeming unemployed and create new opportunities; improve the nation’s global competitiveness; and raise public confidence in the nation’s governance system, etc. These are all geared towards attaining the millennium development goals (MDGs) by 2015, and moving the nation towards its vision by 2020. To realize the objectives, the three tiers of government and the private sector are to make investments in the various sectors totaling N32.38 trillion over the four-year period with projected total public sector investment requirement being N19 trillion out of which N10 trillion is Federal Government investment and N9 trillion for the States and Local Governments. The private sector investment is projected at N12.95 trillion in four years. A breakdown of the projected Federal Government investment in the various sectors shows that physical infrastructure is accorded the highest priority (33%). The Transformation Agenda (2011 – 2015) is said to contain a set of priority policies and programmes which derived from the First National Implementation Plan. The implementation of the Nigeria Vision 20:2020 economic transformation blueprint and the Transformation Agenda has continued while it is not clear as to what has happened to the First National Implementation Plan whose implementation was to have ended in 2013 and succeeded by the Second Plan.
Now, the important question relates to how the economy has performed over the years with a plethora of development strategies and policy measures having being implemented. In Nigeria, the implementation of various development strategies have not resulted in significant overall impact, especially considered in relation to the set objectives and the very high hopes of the citizens. No doubt, some achievements are discernible under successive development plans. A number of major projects were executed in such important sectors as transport, communications and power, education, health, among others, with significant contributions to the economy. Success was also achieved in the implementation of World Bank-assisted Agricultural Development Programmes (ADPs) and the National Accelerated Food Production Programme (NAFPP).
Notwithstanding, plan implementation with respect to aspects of the physical structures tended to reflect lack of consistency and discipline in implementation. Many of the projects reflected several inadequacies and uncompleted/abandoned projects have littered different parts of the country, with some in different stages of decay. Also, the performances of most of the public enterprises (PEs) established over the years have been dismal in terms of huge financial losses incurred, indebtedness, poor customer service, and inability to meet customer demands. The financial losses incurred by inefficient PEs imposed a heavy budgetary burden on government treasury. Nevertheless, as a result of the implementation of the projects, a foundation has been laid for the future development of the economy, especially in the context of privatization that most public enterprises have now experienced.
In the decades of the 1980s and 1990s, economic growth posed significant challenges to the Nigerian economy. Over this period, economic growth rates were unsatisfactory. They averaged less than 2.0 percent in the 1980s and were slightly better in the 1990s, although still less than 3.0 percent on average as shown below.The Structural Adjustment Programme (SAP) was introduced in 1986 against the background of the negative economic growth rates of the first half of the 1980s. But even with the SAP reforms the performance of the economy was generally sluggish.
• 1960 – 69: 3.8%
• 1970 – 79: 5.6%
• 1980 – 89: 1.9%
• 1990 – 99: 2.9%
• 2000 – 09: 6.1%
• 2010 – 12: 7.4%
Against the backdrop of the poor performance of the economy in the 1980s and 1990s, the Nigerian economy can be said to have achieved marked improvement in GDP growth and some other macroeconomic variables in the decade of the 2000s, thus suggesting a positive impact of the economic development strategies.
Positive trends can be observed for nominal and real GDP, per capita GDP, total trade and oil exports, foreign direct and portfolio investment, crude oil production, export and prices, external reserves. But the performance of gross investment, inflation, exchange rate and budget deficit (2009 – 2011) is unsatisfactory. Even the per capita GDP level is inadequate.
From the decade of the 2000s, economic growth performance has continuously been celebrated by government officials. In the 2000s, decade growth averaged 6.1 percent and the economy was considered one of the fastest growing economies in the world. The growth rate averaged 7.4 percent between 2010 and 2012. Some stakeholders are, however, skeptical about the growth rates, questioning their reliability amidst increasing incidence of poverty. The recent GDP growth performance has been attributed largely to non-oil sector activities, especially, agriculture, wholesale and retail trade, and telecommunications as the growth drivers. These sub-sectors contributed an average of 27.6, 28.4 and 24.4 percent to the growth of real GDP in 2010, 2011 and 2012, respectively. The growth rate of non-oil GDP averaged 7.0 percent in 2010 – 2012 while that of oil GDP averaged -0.4 percent. Nevertheless, the oil and gas sector remains the major driver of the economy, providing over 95 percent of export earnings and a sizable proportion of government revenue. The activities in the non-oil economy are delicately predicated on developments in the oil sector. The manufacturing sector as a driver of growth needs to be stimulated considering its linkage to agriculture through agro-allied industries and to the oil and gas sector through petro-chemical industries.
Undiversified Economic Structure
Despite the impressive official growth figures achieved, the economy has not experienced any meaningful transformation. The structure of the economy in terms of production has not changed much unlike the economies of those countries in the league of the top 20.
The structure of Nigeria’s GDP exhibits the following features:
– Domestic output is dominated by primary production. Agriculture and crude oil/gas sectors accounted for more than 60 percent of GDP in 2002 and 55 percent in 2010. Agriculture continues to dominate employment accounting for over 60 percent while the oil sector continues to account for the highest proportions of foreign exchange (95%)and domestic revenue(over 60%).
– In contrast, the manufacturing sector has been relatively stagnant losing its share of GDP from 6 percent in 1985 to the abysmally low share of 4.2 percent in 2012.
– Although the non-oil sector has assumed an increasing role as the driver of growth, some of the growing sectors account for very low shares of output, e.g, Telecommunication (7.5%), Building and Construction (2.2%); Real Estate and Business Services (2.0%); Solid Minerals (0.4%); etc, all in 2012.
If the above structural characteristics persist, it is doubtful if the envisaged optimal economic structure in NV 20: 2020 will be realized. The envisaged structure by 2020 is as follows: agriculture (3 – 15%); industry (30 – 50%); manufacturing (15 – 30%); and services (45 – 75%).
What is clear is that structural transformation, as measured by increasing value-added production and shifts in employment from primary to secondary/tertiary sectors, has continued to elude the economy. Nigeria’s economy still suffers a structural weakness as it continues to depend significantly on commodity production and exports with little value addition and few backward and forward linkages to the other sectors of the economy. This structural weakness has prevented the country from translating growth into commensurate employment and faster social development. Yet, structural transformation is essential for the economy to accelerate and then sustain broad-based growth; to improve social conditions by creating jobs, lowering inequality and reducing poverty; and to reduce vulnerability to external shocks.
However, the recent rebasing of the GDP results indicate a stronger diversification of the Nigerian economy than what the un-rebased data suggest. The results indicate that the structure of the Nigerian economy has changed significantly, leading to a decline in the share of agricultural sector and a rise in the share of services in nominal GDP, indicating stronger diversification of the Nigerian economy than earlier reported.
According to the NBS, the number of economic activities accounting for 70% of nominal GDP has risen from three to six after rebasing. In 2013, the six activities included crop production, trade, crude petroleum and natural gas, telecommunications and information services, real estate as well as food, beverage and tobacco. The point must be made, however, that this new found “achievement” from rebasing of GDP must be taken with caution devoid of celebration as the realities on ground do not reflect any major structural shifts.
Very importantly, the desired optimal economic structure by 2020 is feasible to the extent that agricultural productivity will increase significantly, at least six-fold as envisaged in the Vision document, while the binding constraints on manufacturing production are effectively tackled. One of these constraints is poor electricity generation and distribution, especially in relation to the needs of industry. Industry operators have groaned for a long time because of the inadequate and epileptic power supply. A World Bank study of investment climate in 26 states in Nigeria in 2011, confirmed the enormity of the power problem. Over 83 percent of the industry operators sampled complained of poor electricity supply as their binding constraint. Even though the government has in place a power sector road map and huge sums of budgetary allocations are being made to the power sector, the possibility of a quantum leap in power supply materializing is low judging by past experience. Today, the government celebrates power generation of 4,500 MW and actual availability of less than 2,500 MW. Then, what miracle will bring about 35,000MW power generation by December, 2020 although Nigerians will be most pleased if it happens? Since 1999, there has been so much talk by successive governments of ensuring adequate power supply. Huge sums of money have allegedly been spent. Yet, the nation is continuously in darkness. Interventions to address the power problem have been something like motion without movement.
Disparity between growth and development outcomes
No doubt, economic growth is crucial for a country like Nigeria that exhibits most features of an underdeveloped country. But growth is not desired for its own sake. It must lead to respectable human and physical development of the country, and significant improvement in living conditions of the citizens. The relatively good economic growth rates of the 2000s, notwithstanding, the quality of life and social indicators have been uninspiring, as reflected in low per capita income, increasing incidence of poverty, inequality, unemployment, and uninspiring health and other social indicators. As the World Bank (2013) has rightly observed, “Nigerian statistics reveal a puzzling contrast between rapid economic growth and quite minimal improvements for much of the population”.
Per capita Income
Perhaps, because of the rapid population growth rate of the country, per capita income growth is relatively low at an average of 5.7 percent over the period, 2009 – 2012. Even though the per capita income has shown upward trend in recent years ($1,560.00 in 2012), the pace of improvement in living conditions is rather slow, implying that the gains in social conditions are failing to match the observed economic performance. The new rebased GDP figures show Nigeria’s per capita GDP as having increased to about $3,000.0, but the people’s pitiable living conditions have not changed.
The strong growth has not translated into broad-based economic and social development needed to lift millions of people out of poverty and reduce the wide inequalities in the country. The trend of relative poverty incidence in Nigeria has generally shown upward trend, having increased from 27.2 percent in 1980 to 54.4 percent in 2004 to 69 percent in 2010, indicating that 112,518,507 Nigerians are in poverty. The Central Bank of Nigeria reports a provisional poverty incidence of 72.0 percent for 2012. This thus creates a paradox in that the poverty incidence has increased substantially in a period when the economic growth rates were relatively high, averaging over 6.0 percent. Besides the relative poverty measure, all the other measures of poverty indicate increasing poverty incidence. The self–assessment measure also shows substantial increase in poverty incidence. In 2004, 75 percent of Nigerians considered themselves to be poor, but this went up to 93.9 percent in 2010. One tempting suggestion here is that the economic growth rates of recent years were not pro-poor.
Currently, Nigeria faces the challenge of meeting the MDG of halving poverty by 2015. Indeed, the recent reports on Nigeria’s MDGs show that on current trends, Nigeria would not achieve all the MDGs by 2015. The country has the potential to achieve the targets set for universal primary education, gender equality and women empowerment, HIV/AIDS, environmental stability and developing a global partnership for development. In contrast, progress is sluggish in the spheres of poverty reduction, child mortality, material health, and diseases other than HIV/AIDS.
Low Human Development
Related to the high incidence of poverty is low human development. Nigeria’s Human Development Index (HDI) was 0.471 in 2012 (marginally up from 0.434 in 2005), putting the country as a low human development country with the rank of 153rd out of 186 countries. The index of 0.471 did not compare favourably with levels achieved by many other developing countries, e.g. Korea (0.909); Chile (0.819); Argentina (0.811); Malaysia (0.769); UAE (0.818); Saudi Arabia (0.782); Libya (0.769) and Iran (0.742), the last four being major oil producing countries. The HDIs of the states in the country reflect the low national HDI. Some states have less than 0.30 HDI. Human development is thus so low across the country.
The inequality index has remained high and, indeed, worsened. High inequality weakens the impact of growth on poverty reduction. Between 1985 and 2004, inequality in the country worsened, with the index rising from 0.429 in 2004 to 0.45 in 2010, placing the country among those with the highest inequalities in the world. The high inequality manifests in highly unequal income distribution and differential access to basic infrastructure, education and training and job opportunities.
High Unemployment Rates
In recent years, the incidence of unemployment in Nigeria has been deep and widespread, cutting across all facets of age groups, educational strata and geographical entities. The unemployment rate increased significantly from 13.1 percent in 2001 to 19.7 percent in 2009 and 23.9 and 27.4 percent in 2011 and 2012, respectively. These are very worrisome figures. As Nigeria’s growth is driven by primary commodities with low employment intensity, the country continues to suffer from high unemployment, especially youth unemployment estimated at over 60 percent. The growing sectors provide few opportunities to absorb the teeming new labour market entrants and those that had lost their jobs through the harsh business environment. Besides, investment remains concentrated in the capital intensive extractive oil and gas industry with few employment opportunities and limited forward and backward linkages to the rest of the economy at the present time.
Other Social Indicators
Two other indicators, life expectancy at birth and adult literacy rate, reflect mixed performance. The adult literacy rate improved considerably from about 25 percent at independence in 1960 to 57 percent in 1996. For many years, it remained stagnant at 57 percent but it increased to 66.9 percent in 2007 and has remained stagnant at this rate since then. In the same way, life expectancy at birth improved from 41 years at independence in 1960 to 48 years in 1981 and 52 years in 1990. It increased to 54 years in 1998 and remained stagnant at this level for sometime. It has, however, declined in recent years, for example to 47.6 years in 2012, reflecting the deteriorating and unsatisfactory health care delivery system in the country, and despite the large variety of modern health facilities that were developed over the different plan periods.
From the foregoing, it is clear that the present growth rates and patterns have not been adequate to support levels of poverty reduction and job creation necessary to prevent a growing number of poor and unemployed Nigerians. The realized growth rates of the 2000s to the present, although relatively high, are very much below the economy’s potential and the expected double digit growth rates that are required to halve poverty by 2015 and achieve other MDGs as well as NV 20: 2020. Very importantly, the quality of growth has been poor; it is non-inclusive, narrow, jobless and non-poverty-reducing. Indeed, it appeared to have been poverty-increasing in recent years. The country requires robust, broad-based and inclusive growth for a long period.
From the foregoing, it is clear that there are numerous challenges that the government must seriously seek to address in order to achieve the desired economic transformation and development of Nigeria. Among them are:
• Reversing the trend of growth without employment.
• Achieving double digit growth rates in order to realize the current vision of the country to become one of the 20 leading economies in the world by the year 2020.
• Reversing the trend of dilapidated economic and social infrastructure.
• Accelerating the move towards achieving all the MDGs by 2015.
• Reversing the trend of low capacity utilization in the manufacturing sector.
• Diversifying the economy away from oil.
• External shocks, reflected in high volatility of crude oil exports and earnings and global economic and financial crises and developments of alternatives to crude oil; and internal shocks, reflected in oil theft and destruction of oil pipelines with so much negative impact.
• Making the Nigerian economy competitive. The level of competitiveness of Nigeria has tended to decline over time and, in comparative terms, the country is one of the least competitive economies in Africa.
• Tackling the bug-bear of growing insecurity of lives and property.
• Improving the efficiency of small and medium enterprises and strengthening entrepreneurial development.
• The challenge of expanding non-oil tax base and placing less reliance on oil-based revenue. On the expenditure side, is the challenge of improving the efficiency and effectiveness of public spending which is low at present.
• In the financial sector, there is the challenge of ensuring a positive linkage between the growth of the financial sector and that of the real sector.
• Redressing the shortcomings in the Nigerian business environment which significantly impede both domestic and foreign investment.
• Finally, is the challenge of improving governance, especially successfully fighting corruption. The implications of corruption for Nigeria’s development have been quite glaring – low level of investment, poor quality public investment, increasing poverty and low human and physical development. If the government continues to be patronizing corruption, the prospects of achieving the desired economic development becomes even dimmer.
After 54 years of reveling in flag independence since 1960, Nigeria is yet to meet her development aspirations. It has been left far behind by countries that were at the same level of development five decades ago. The outcomes of economic and social development management and reforms have not justified the resources allegedly spent and the plethora of strategies, policies and measures implemented. The policies have been high in quantum but low in development outcomes. Lacking has been the political will to implement good policies sincerely and efficiently and devoid of corruption and vested interests. Of importance, however, in an overarching manner, have been other inhibiting factors such as:
• Crass opportunism and greed in the management of national resources. The Nigerian elites, in particularly, the political elites, have been very greedy and selfish;
• Political instability, crisis/conflicts, criminality alongside growing insecurity of lives and property;
• Low public spending efficiency and effectiveness; and
• Bad governance and political leadership failure.
It is now clear that availability of resources and implementation of a plethora of development strategies do not, on their own, bring about development. The human factor matters in utilising resources and policies to bring about improved development outcomes. In fact, it is what has made the big difference in other successful countries. In those countries, the human beings that manage their economies exhibit discipline, commitment and patriotism and instill in their people a sense of sacrifice and national pride. Also, the leaders inspire the people to make sacrifices towards achieving national development. They make the people have a sense of belonging, nurture a virile democratic culture, and lead by example. But in Nigeria, governance and political leaderships have failed the nation and the people. The leaders, through open and callous looting of the nation’s resources with impunity, have alienated the people rather than inspire them or make them have a sense of belonging. If Nigeria were to have good governance, zero tolerance to corruption, national discipline and commitment to development, there would have been a big positive difference in the lives of the people.
If Nigeria is to move out of the present unsatisfactory state of economic and social development, into the realm of sustainable and high quality growth and development to put her in the league of developed countries, then the government must do a number of things. First, is the need to take the following seriously: Political stability, security of lives and property, institution of sane democracy and good governance marked by zero tolerance for election rigging and electoral fraud, and corruption, implementation of good policies and ensuring macroeconomic stability and transparency and accountability in both public and private sector management. Secondly, and very importantly, Nigeria must learn lessons from other successful countries including Botswana in Africa and the High-Performing Economies (HPAEs) of East Asia – Japan, the ‘four tigers’ (Hong Kong, Republic of Korea, Singapore, Taiwan – China), and the three newly industrializing economies of South East Asia (Indonesia, Malaysia and Thailand). One of the key lessons relate to government commitment to and active intervention in development. Finally, is the need to take national development planning seriously to serve as an important economic management strategy. Most modern industrialized countries developed with a combination of the strategies of planning and the market. Planning permits a systematic, disciplined and coherent management of the economy. But then, the implementation of Development Plans must be taken very seriously against the backdrop of the important lessons learnt from previous planning experiences.