President Bola Ahmed Tinubu has set for himself a daunting target that would put his name in the hall of fame if it is attained. The president wants to take Nigeria’s gross domestic product (GDP) to $1 trillion by 2030.
The year 2030 is a scant five years away and Nigeria’s GDP currently stands at a modest $384 billion. It will require stringent fiscal disciple on the part of the federal government to meet the target.
Before the re-basement exercise by the National Bureau of Statistics (NBS) in 2014, Nigeria’s GDP was $270 billion. The exercise took it to $510 billion.
NBS is embarking on another re-basement exercise. If the 2014 exercise provides a reliable gauge, the current exercise might push the GDP pretty close to $600 billion.
That will leave the president with an achievable target of increasing the GDP by just $400 billion to attain the target of a $1 trillion economy. Nigeria’s major economic crisis emanates from the despicable depreciation of the naira.
The GDP was $510 billion in 2014 when the naira was trading at N160 to the dollar. The massive depreciation of the naira in the last two years took a toll on the GDP.
The first thing that President Tinubu has to do to make Nigeria a $1 trillion economy is to halt the depreciation of the naira. The naira’s depreciation is fueled by forex round-tripping, speculative biddings and the hoarding of allocated forex by banks.
The purchasing power parity (PPP) value of the naira suggests that the naira is stronger than what is portrayed in the parallel and official segments of the foreign exchange market.
For instance, while one can have a balanced meal in Lagos with N1,650 (the current value of $1 in the foreign exchange market), there is nowhere in New York, United States of America (USA) where one can have a meal at $1. The cheapest meal in a U.S. restaurant is $5, about N8,250 at the current exchange rate.
The simple logic behind the above economic analogy is that the naira is the victim of sabotage which can easily be halted through stringent surveillance by the Central Bank of Nigeria (CBN).
In reality, the purchasing power of the naira is about 60 per cent higher than what is portrayed in the foreign exchange market.
The president will set the economy surging towards the $1 trillion economy target if the CBN can tame the bankers conniving with bureau de change (BDC) operators to push down the exchange rate of the naira.
There are fears that the $1 trillion economy target may be elusive if the economy continues to grow at the current rate of 3.5 per cent.
Pundits contend that for the target to be met by 2030, the economy has to grow at a minimum rate of 12 per cent per annum.
That is another elusive target.
However, many believe that with the reforms initiated by the current administration, Nigeria is poised to overcome its crippling unemployment rate of 33.3 per cent and start growing at a rate that will make the $1 trillion economy target attainable.
Fitch, a leading rating firm has inched up its rating of Nigeria on the basis of current reforms. The Nigerian National Petroleum Company Limited (NNPCL) is poised to raise oil production to 2 million barrels per day.
Besides, the foreign oil companies that fled Nigeria are returning.
The $23 billion Dangote Refinery has commenced production and has taken Nigeria into the exclusive club of refined petroleum products exporters.
Above all, Dangote Refinery is activating Nigeria’s dormant petrochemical industry. It will not only create jobs but also preserve the billions of dollars Nigeria was spending on petrochemical products imports.
The refinery has created thousands of jobs and is in the process of preserving the $20 billion Nigeria spent annually on refined petroleum products imports. That will reduce the reprehensible demand pressure on the naira and enable it to appreciate.
Besides, NNPCL has issued licenses for the construction of additional 47 refineries in the country. Port Harcourt and Warri refineries are partially producing. Kaduna will soon join.
They will not only consolidate Nigeria’s position in the refined product export market, but also create jobs that will propel the GDP to the set target.
One thing that the federal government has to watch is the percentage of revenue spent on debt servicing. The World Bank threshold for debt service to revenue ratio is 22.5 per cent. Nigeria currently spends 70 per cent of its revenue on debt service. It fuels inflation and curtails growth.
The way out of the dilemma is to generate more revenue by getting the millions of millionaires in the country’s unwieldy informal sector into the tax net.
Blueprint believes that Nigeria can become a $1 trillion economy by 2030 if government exercises stringent fiscal discipline.