The Nigerian economy @62

On October 1, 2022, Nigeria celebrated 62 years as an independent nation. How has the country fared economically? This detailed examination was carried out by the Lagos Chamber of Commerce and Industry (LCCI) in its independence anniversary titled, “The Nigerian Economy at 62: The Need for Big Decisions”. According to the Director-General of LCCI, Dr. Chinyere Almona, in the last 62 years, the Nigerian economy has performed along the line of what policy mix used to drive the economy that had significantly transformed from a largely independent agrarian economy to a net importer of finished goods. As it is, the economy is now financed mainly by oil revenue, which had exposed the economy to effects of external shocks.

The chamber recalls that after independence, Nigeria witnessed a rebirth in 1999, which is 23 years ago, with the return to democratic administration after a protracted military rule. The Nigerian nation had survived threats of a civil war recurrence and had remained a united nation with a bright future. The chamber highlights that core democratic values and ideals needed to be given more state attention in a bid to have firmer roots, especially in the following respects: transparency in the management of public finance; rule of law; separation of powers and the inherent checks and balances; quality and independence of democratic institutions such as electoral bodies, law enforcement agencies and judiciary; citizen engagement in democratic process; and the practice of true federalism.

The “Quality of the business environment remains a concern to investors, especially in the real sector. Weak infrastructure, uncertain policy environment, and institutions have continued to adversely affect the efficiency, productivity, and competitiveness of many enterprises in the economy. These conditions pose a major risk to job creation and economic inclusion across sectors. The Gross Domestic Product (GDP) grew in 2022Q2 by 3.54% year-on-year in real terms, making it the seventh quarter of positive growth, as the oil sector had consistently recorded negative growth for the ninth consecutive quarter, contracting again by -11.8% y/y in Q2 2022 following a higher contraction of -26% y/y in Q1 for if oil revenue makes up more than 80 percent of government revenue”, Dr. Almona said.

LCCI enjoins the government to tackle the menace of oil theft and pipeline vandalism with sterner approach. The non-oil sector grew by 4.8% y/y in Q2 ’22 against 6.1% y/y in Q1 ’22. Key drivers within the non-oil economy include transportation and storage (51.7% y/y), finance and insurance (18.5% y/y), telecommunications (7.7% y/y), trade (4.5% y/y), real estate (4.4% y/y), construction (4.0% y/y), manufacturing (3% y/y), and agriculture (1.2% y/y). Combined, these sectors accounted for 78.3% of total GDP in Q2”. Furthermore, it calls on the government to continue with the non-oil campaigns and interventions to sustain the targeted financing towards boosting non-oil export for enhanced foreign exchange earnings. The growth of 1.2% recorded for agriculture and the 3% for manufacturing are comparatively low when compared with other sectors that grew at above 5% for this is also indicative of the threats facing these sectors that power Nigeria’s real sector.

On power situation in the country, the chamber regrets that poor power supply had remained a major burden on businesses. In addition, power supply had consistently lagged behind the pace of economic activities and population growth, as this development had impacted negatively on investment over the past few years with increased expenditure on diesel and petrol by enterprises, which come with the consequences of declining productivity and competitiveness. With the frequent collapses recorded by the national grid, the country can no longer rely on a centralised power source and suggesting that the way to go is renewable energy and by decentralising the national grid.

LCCI is equally disturbed that the security situation in the country had deteriorated in the previous year by assuming a very worrisome dimension. This had impacted investment inflow and worsened the country’s perception and image. Access to markets in the troubled parts of the country had been reduced for many enterprises with negative consequences for investors’ confidence. Agricultural production bases have been negatively impacted, leading to food scarcity and rising food inflation. Over the last few decades, the challenges of production in the economy had grown progressively largely because of the quality of infrastructure, which is why the risk of industrial investment is high and continues to increase.

It cautions that unless there is effective and sustained protection and support for the sector, and a dramatic improvement in infrastructure, the outlook for the sector would remain gloomy because most Small and Medium Scale Enterprises (SMEs) are constrained by rising cost of production. In the final analysis, the chamber calls for the removal of “Fundamental constraints to manufacturing competitiveness in the Nigerian economy. In reality, job losses in the sector have increased over the decades as productivity declined on the back of the difficult operating environment. Our nation is at a cross-road and in dire need of big decisions to drive the drastic transformation the economy requires to return to economic prosperity”, Dr. Almona added.