How insecurity cost Nigeria’s economy $10.3bn in 2020
The Federal Government of Nigeria’s inability to effectively protect life and property is taking a toll on Nigeria’s ailing business environment, costing Africa’s biggest economy $10.3 billion in 2020, according to members of the Presidential Economic Advisory Council (PEAC).
Kidnappings, hijackings, banditry and violent attacks that used to roil the oil and gas sector are fast becoming a threat to other major sectors of the economy, a development that is deterring investments and raising the cost of doing business in Nigeria.
While the threat arising from the recent wave of insecurity is still geographically contained around Northern and Central Nigerian states, the country’s commercial capital and other regions that appear to have been spared are undermined by the impact of threats in the area of access to food, communal crisis and rising cases of kidnapping.
“The economic cost of insecurity was estimated at 2.6 percent of GDP in 2020, or $10.3 billion,” the PEAC said in a presentation to President Muhammadu Buhari.
The Doyin Salami-led advisory group, charged with the responsibility of advising the President on economic policy matters, said conflicts and heightened insecurity reduce business confidence, manifested in declining foreign and domestic investments, deteriorating financial sector performance, higher fiscal cost, and security spending.
“Impacting on the efficiency of economic policy transmission and creating a further fiscal burden of replacement for governments,” the advisory council said.
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According to a document presented at the meeting, a copy of which was seen by BusinessDay, the council drew Buhari’s attention to a United Nations Development Programme (UNDP) study that estimates that Nigeria lost $141.9 billion of production to security-related violence.
“There are often widespread disruption and disorganisation of economic production as businesses and farms close down,” they said.
For most businesses operating in Nigeria, rising insecurity is now an additional risk for most of who are already exposed to regulatory inconsistency, foreign exchange volatility, and irregular fiscal and monetary policy.
The latest data from the Manufacturers Association of Nigeria (MAN) show that the utilisation of local raw materials by manufacturers in the second half of 2020 declined to 56.5 percent as against 64 percent recorded in the corresponding half of 2019; thus, indicating a 7.5 percentage point decline over the period.
The country is also recording a decline in Foreign Direct Investment (FDI) as recent data on capital importation by the National Bureau of Statistics (NBS) show that Nigeria received $9.68 billion from capital inflows in 2020, as against $23.99 billion in 2019.
According to the report, the inflows of $9.68 billion represent a 59.6 percent decline when compared with $23.99 billion recorded in 2019 and a 42.4 percent reduction compared with $16.81 billion recorded in 2018.
The amount imported is Nigeria’s lowest capital inflows in the past four years in 2020, as the last time the country recorded inflows less than $9 billion was 2016, when it received $5.12 billion in foreign capital inflows.
“Overall, Nigeria is becoming less safe each year,” SBM Intelligence, an Africa-focused geopolitical firm, said.
In the past, the government has launched military operations involving the bombing of suspected hideouts to tackle banditry and rescue victims of kidnappers.
But since the kidnappings spiked in December, there have been no arrests or prosecution. This lack of accountability, combined with the authorities’ failure to step up security and intelligence operations, contribute to a deep-rooted sense of mistrust among vulnerable citizens that put them at odds with the government, analysts say.
Nigerian President Buhari, who took office in 2015 on the back of promises to tackle insecurity, has also blamed local and state authorities for the increase in mass abductions.
In a Twitter post, he said they must improve security around schools and warned the policy of “rewarding bandits with money and vehicles” could “backfire with disastrous consequences.”
But his government has also come under fire. Experts say the members of the country’s security agencies are overstretched, poorly paid, and underequipped, while the police forces are largely centralised and unable to handle internal security challenges.
According to the 2020 Global Terrorism Index, which gauges the degree and frequency of violence by terrorist groups across several countries, Nigeria was ranked third only after Iraq and Afghanistan. Essentially, Nigeria, Iraq, and Afghanistan were described as being in a state of war.
The result of the insecurities also means some 10.5 million children in Nigeria are not in school – one in every five of the world’s out-of-school children, according to the United Nations report.