Economic growth, measured by the performance of the Gross Domestic Product (GDP), was good during the first quarter. According to the National Bureau of Statistics (NBS), GDP growth was estimated at 6.6 percent by end December 2012 compared with 7.43 percent recorded in the corresponding period of 2011. Growth projection for 2013 is 6.75 percent.
This indicates a slight improvement in projected growth performance. Meanwhile, the key drivers of growth were telecommunications sector, solid minerals, real estate and distributive trade. It is worrisome that the oil and gas sector posted negative growth over the last one year. The agricultural sector similarly recorded declining growth performance over the last six quarters. These two sectors together account for 51 percent of the nation’s GDP. The challenges of security and oil theft in the Niger Delta coupled with policy uncertainty may have contributed to the output contraction in the oil and gas sector. The agricultural sector suffered declines possibly as a result of the security situation, especially in the northern part of the country; this was aggravated by the incidence of flood experienced in 2012.
However, the overall growth figures showed a positive trend. We are pleased with the numbers; but we are concerned about the weak impact of the growth performance on private sector and the welfare of the Nigerian people. Virtually all business segments lamented the harsh operating environment. The power situation deteriorated as we now have a relapse into a chronic power failure. The refineries are still underperforming; unemployment level is still high and cost of fund is still high.
Sectors that posted good growth performances as at December 2012 were telecommunications, 31.8 percent; hotel and restaurants, 12.2 percent; solid minerals, 12.5 percent; building and construction, 12.6 percent; real estate, 12.4 percent; and wholesale and retail trade, 9.6 percent. However, the contributions of most of the sectors to GDP are not significant. Respective contributions are as follows: telecommunications, 7 percent; solid minerals, 0.4 percent; hotel and tourism, 0.6 percent; building and construction, 2.2 percent; real estate, 1.9 percent. The character of growth explains the limited impact of growth performance on welfare of citizens. Local value addition and indigenous participation in many of the sectors are still very low.
Nigeria, according to the International Monetary Fund (IMF), was ranked number 36 on account of the GDP, estimated at $273 billion in 2012. But it ranked 153 in its Human Development Index by the UNDP; 127 in Global Competitiveness Ranking of the World Economic Forum; and 131 in the Ease of Doing Business Ranking of the World Bank. This underscores the disconnect between economic growth, investment climate and the welfare of citizens in Nigeria. This picture also underlines the challenges we face as a nation – making economic growth inclusive.
The macroeconomic fundamentals of the Nigerian economy are good. The elements of these fundamentals include the naira exchange rate, inflation and foreign reserves.
Naira exchange rate
Exchange rate was generally stable during the quarter. In the official market, it was N155 to the dollar in January and N157 in March, a depreciation of less than 1 percent. In the inter-bank market and bureau de change, it was an average of about N158 to the dollar. It is commendable that the exchange rate has been stable over the last couple of months. For an import-dependent economy, exchange rate stability is crucial for the stability of prices and crucial for strategic planning for investors and brings a lot value to the economy generally.
It is remarkable that inflation rate is now in single digit; it was 9 percent in January and increased slightly to 9.5 percent in February. This is a positive development for the economy and private sector. Low inflation is good for the perseveration of real incomes in the economy and the welfare of citizens.
At $49.7 billion in March 2013, the foreign reserve was relatively robust as it could cover 13 months of imports. The growth in reserves represents 12.7 percent increase over the status at the end 2012. Robust reserves are important for the economy as it helps to stabilise the exchange rate and inspire the confidence of investors. The improved accretion to reserves could be ascribed to high crude oil prices in the global market. The reserve build-up could have been better but for the resurgence of pipeline vandalism and crude oil theft.
Investment climate issues
It is one thing to have good macro-economic fundamentals; it is another matter for the business environment to be conducive for investors to take advantage of the favourable fundamentals. Let’s evaluate some of the key elements of the investment climate.
The credit situation is still a major problem for investors in the economy. As in the previous quarters lending rates was well above 20 percent. Many small and medium scale enterprises still have serious challenge in accessing credit even at this high rate. The tight credit situation is a major inhibiting factor to the capacity of domestic enterprises to take advantage of the robust Nigerian market. This position was corroborated by our Business Confidence Survey for the second quarter of this year.
The credit challenge was identified as the factor with the biggest negative impact on business confidence. We reiterate our call for both fiscal and monetary authorities to work together to ease the credit conditions, especially for the small and medium scale enterprises and more importantly domestic businesses. This is critical as well to stem the gradual crowding out of domestic entrepreneurs by foreign investors.
The power situation improved slightly towards the close of last year 2012. However, this situation has since deteriorated. This development impacted negatively on investment during the quarter with increased expenditure on diesel and petrol by enterprises. This also comes with the consequences of declining productivity and competitiveness. Unfortunately no official explanation has been given for the dwindling performance in power supply.
The security situation in the country deteriorated in the first quarter of the year. It impacted on investment risk, worsened our perception and image at the global level. Access to markets in the troubled parts of the country has reduced for many enterprises and this is already affecting sales and profitability. Also many enterprises have relocated with the inherent challenges.
We are aware that the security agencies are doing their best to arrest the situation, but clearly they are still very far from being able to do so. There is evidently a need to review current strategies for better effectiveness and impact. All reasonable options should be explored to put an end to this unpleasant development. The truth is that without adequate security, nothing else would happen in an economy.
Ibru is president Lagos Chamber of Commerce and Industry.