Andrew Nevin, Chief Economist at PWC outlines the five critical economic issues to ponder if Nigeria is to ignite its economy and put it on a sustainable growth path.
Power of the Diaspora – the only thing holding the economy up (1)
• The official inflow of migrant remittances into Nigeria in 2018 is estimated at USD22Bn (source). The estimate for 2019 is about USD25Bn
• To put this in context, this is about 7% of Nigeria’s GDP.
• The transfer from NNPC to the Government was a little less than the USD11Bn in 2018.
• This means that the Diaspora is providing more than double the FX to Nigeria than our oil provides to all levels of governments.
• In fact, this understates the amount, because the $25Bn is the official remittance flow. The AfDB has a rough estimate that unofficial flows (like the Aboki system) are about 50% of official remittances.
• If this applied to Nigeria, it would mean that remittances would be close to USD40Bn and more than 3 times the USD the government receives from oil
• In terms of annual emigration, the total number of Nigerian emigrants grew from 448,500 in 1990 to 1.3 million in 2017 … and the total size of the Diaspora is 15m according to FG
• It is also worth noting that the fantastic Nigerian Diaspora is doing incredibly well … Nigerian Americans already earn more than the average American, an incredible accomplishment for such a new immigrant group
• So what does all this mean? Simply that our biggest export is not oil it is people.
• Let me repeat this .. Nigeria is not an oil economy and our biggest export is not oil … Our biggest export is Nigerians.
• What it also means is that the only thing holding up the economy is the Diaspora; if we didn’t have this massive flow of remittances, I am pretty sure the economy would collapse
• What is confusing to me is why this is not discussed more … official figures keep repeating that oil is our biggest export when it is not true. We have a flow of almost $40Bn that is not discussed much … very difficult for me to understand how someone can claim to be analyzing the Nigerian economy when they don’t look at the biggest item
• We of course can question whether this is helping us overall from an economic view as we lose people, but obviously people with skills are saying their skills cannot be monetized here … but we cannot deny is that the only thing holding up economy in the incredible Nigerian Diaspora
• This structure also creates 2 parallel FX universe – one where the FX starts with the government, and one where the FX starts with millions of individuals … this is of course why we don’t pay much attention. The Diaspora flow goes directly into the hands of millions of Nigerians family who use it for healthcare, education, housing, and even feeding
• One unmistakable conclusion from this is that Nigeria needs a powerful Diaspora strategy, one that maximizes the benefit Nigeria receives from the remarkable Diaspora. Why are we not paying more attention to our biggest resource
Mobilizing our dead capital from within Nigeria (2)
• We continue to get poorer and poorer as our growth is lower than population growth; with population growth of 2.7% per annum, even if we grow GDP at 2.5% at 2019, we are getting poorer and poorer
• And even if grew at 3.5 per year, it would take about 100 years to double GDP per capita
• IMF recently warned us we could face up to 8 years of getting poorer and poorer – 2015-2022 – unless we do something
• Obviously, to grow GDP 6-8% per annum – required for reducing poverty and unemployment – demands investment; in fact, about 26-28% of GDP needs to be invested per year to grow 6-6%, meaning we need total investment of about N35Tr-N40Tr a year.
• We currently do not have enough domestic savings for this – we only have about half the investment required
• This means we need foreign investment – both FDI and FPI – as PwC has disussed extensively over the past few years
• However, taking foreign capital is not ideal … so we need to think about if we have more capital here than we think
• And I think we do … that is, have more domestic capital than we think
• I want to highlight the immense domestic source of capital we have that remains untapped.
• PwC estimates that Nigeria has about N170 trillion in dead capital, predominantly in real estate. This means if we could unlock N10Tr a year of this and invest , it would make an enormous contribution to
• What is dead capital? These are assets that cannot be easily transferred, where title is uncertain, so cannot be converted to their most valuable social and economic use, and cannot be used as collateral, so prevent investment in other businesses.
• Dead Capital holds back every sector – for example, a woman cannot easily sell a plot of land, then go and liver with her sister and use the proceeds for a new business.
• But it holds back the real estate sector the most, which is an enormous problem for Nigeria
• PwC believes the Real Estate sector is most important because we all need somewhere to live and somewhere to work; because we have 17m housing deficit and because real estate creates immense employment benefits, from the construction material, through to the construction which requires masons, plumbers, electricians, carpenters, and labourers, through to demand for home items as people furnish their homes
• To put this another way, even if all other sectors are firing, if real estate is not working, then we cannot grow the economy at the required 6-8% … nothing else can compensate
• So it is vital that we unlock our immense dead capital the real estate sector so we can create domestic capital – relying less on foreigners
Our incredible shrinking public
sector (3)
• In 2000-2002, the public sector expenditure averaged about 25% of GDP; so material and enough to make a difference both in terms of fiscal stimulus as well as delivery of critical services
• However, over the last 2 decades, the public sector has been slowly shrinking; total expenditure of all three levels of government in 2017 was only about N13.2 trillion, at 12% of GDP. That year, we spent about N1.5Tr on interest and NASS costs alone added another N125Bn, meaning that real spending that affects Nigerian people directly was closer to 10% of GDP.
• This might sound significant, but in fact, when we express this in per capita terms (including the interest and NASS) it is about N70k per capita
• Let me repeat this … the government at all levels spends just N70k per capita for public education (primary, secondary, and tertiary) at all levels, healthcare, infrastructure investments, the military and security with all our challenges, running the embassies, etc. I am pretty sure that everyone in this room spends N70k on a single night out in Lagos quite frequently.
• This is much, much smaller than virtually any other country, including comparable nations like Ghana and South Africa
• In a very real sense, we have almost no public sector that impacts people’s lives in a significant way
• I think one reason we don’t talk about this enough is that the shrinking of the public sector has been a drip, drip process over 2 decades. So we have a mental model of the public sector being muscular and having resources, but it is simply not true
• It also underscores what PwC has said for some time – we need a much bigger private sector (10-15 times bigger than today in 15-20 years) and that we can’t rely on fiscal stimulus to government programs or to fund things like infrastructure … the only thing the government can do is create an enabling environment.
• The fact that our public sector should be a real worry for us … So what are the implications of having such a small public sector?
The Informal Sector and the Self-Organizing Nation (4)
• With such a small public sector, it is a fair question to ask why is Nigeria not a failed state?
• Because in fact, despite this incredibly small public sector, we are not a failed state … even though we have immense challenges, millions of Nigerians go about their business every day and in many areas we are in fact making progress
• The reason we are not a failed state, in my view, is the incredible self-organizing capabilities of Nigerians. In the absence of the State providing essentials, people at an individual and collective level simply organize themselves.
• Examples abound – markets, private schools, innovative ways to produce electricity at small scale – particularly solar, the Igbo apprenticeship system that is receiving global attention
• One of the most impressive to me are the incredible professional organizations in Nigeria – groups like ICAN, CIBN, IoD – that do incredible things for the country in raising standards. These groups are totally self-organized, they make sure their members pay their dues, they deliver value, and they govern themselves
• Of course, most of large companies also self-organize, in the sense they backward and forward integrate so they can deliver in a difficult environment where they cannot rely on the public sector providing what is provided in other jurisdictions.
• So in a real sense, Nigerians are organizing themselves in the absence of a State
• This presents a real challenge for the government ... there are certainly benefits to have a more organized public sector, and to bring more people into formal structures; but people can’t be forced into formal structures. The formal structure has to be better than informal or self-organized structure.
• To give a simple example; I earn Naira. When I need GBP, I use the informal Aboki system. I have no idea whether it is legal or not. But what I do know it is faster, cheaper and seems to me more secure than the formal system.
• I would not change to the formal system through the bank unless the formal system was better than the Aboki system
• Similarly, Nigerians are not going to migrate to formal systems unless the formal system is better than the informal system.
• The public sector certainly needs to raise more money to create better formal structures; but very difficult to raise more tax revenue when the economy is not growing and people are getting poorer and poorer
• So I think we all need to have a good think about the self-organizing and informal structures Nigerians have created, and where and how they can be transitioned to more formal structures with a stronger public sector.
• But what we cannot do – in my view – is try to force the informal and self-organized structures to come into formal and public sectors systems unless the formal systems are better for the people involved.
Nigeria’s brand (5)
• To close with the 5th issue, I want us to reflect on an challenge that is causing immense harm to Nigeria – our poor brand value
• We are all aware of this, as we are confronted with this every day in our discussions with people from abroad. People have beliefs about Nigeria that are not accurate – beliefs about crime, beliefs about the sophistication of Nigerians, beliefs about corruption, beliefs about the security situation.
• Our poor brand is a major reason why Ghana got more FDI in 2018 than us, despite an economy that is perhaps 1/7 our size!!
• The 2019 edition of U.S. News and World Report’s Best Countries rankings ranks Nigeria in the 74th position out of 80. The rankings are based on evaluation – entrepreneurship, adventure, citizenship, cultural influence, heritage, movers, openness for business, power (as in how powerful in the world) and quality of life.
• 74th out of 80 …
• I do not know how to address the brand issue … but I do know that prominent Nigerians like everyone in this room all have a role to play
• And we need to put the issue on the national agenda … because even if we improve the country, then we will not reap full results unless we can also get the brand to capture the improvements, as well as capturing what is remarkable about Nigeria – our energy, our entrepreneurship, our connectedness, and our fantastic culture as expressed through art, music, and Nollywood
Thank you for taking the time out of this incredible event to listen for a few minutes. I hope that raising these 5 issues gives a little bit different perspective on our challenges.
Everyone in this room is a leader in Nigeria. Nigeria will only reach its potential if leaders are they change they want to see …
Andrew Nevin
Dr Nevin who is Chief economist at PWC, received a PhD from Harvard and a Masters from Oxford University. He delivered this paper at a birthday dinner for Pascal Dozie.
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