BusinessDay

Spending without return seen hampering Nigeria’s growth

…Cordros expects 1.98% GDP growth in 2021

If Nigeria is to spend its way out of recession and boost economic growth, Africa’s largest economy would need to put its funds in investment that would yield a positive return, according to financial services group Cordros Capital.

While acknowledging the fact that there are no quick ways of developing a satisfying economy (one that will grow at a rate higher than population growth rate), analysts at Cordros Capital said Nigeria needs the will power to implement some of the economic growth policies that have been highlighted by several economists.

“We need to invest in positive return investments. Continually spending when there is no return is one of the things that will always hamper growth,” Jolomi Odonghanro, Head, Research & Strategy, Cordros Securities, said at the company’s 2021 economic outlook with the theme ‘Positioning in the New Normal’.

According to Odonghanro, once there is spending on investment with return, “then there will be funding to unlock the growth potential of the economy at large”.

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Titled economic recovery and resilience, Nigeria’s 2021 budget of N13.58 trillion which was signed by the National Assembly on December 21, 2020, comprise of total capital expenditure of N4.21 trillion and a higher recurrent expenditure (expenses for salaries and debt servicing) of N5.64 trillion.

While Security took a lion share of the 2021 budget as Defence ministry alone got N838.5 billion, Education and Health sectors were allocated N545.2 and N380.2billion, respectively.

While the 2021 budget expects the Nigerian economy to expand by 3 percent this year, Cordros Capital projects a 1.98 percent gross domestic product growth for Africa’s most populous country in 2021.

Meanwhile, Nigeria’s economy, which was already experiencing falling per capita income and double-digit inflation become more vulnerable as the impact of the global pandemic exacted a heavy toll on the economy as it entered its second recession in five years in Q3 2020 fuelled by limited buffers and structural bottlenecks

According to Christian Orajekwe – Managing Director, Cordros Securities, some of the policies that the government needs to implement to stimulate growth beyond Cordros’ forecasts are things that are in several economic documents.

“Over the years, you will realize that some of the things that we suffer as a country are because we lack the will power to execute some of the policies,” Orajekwe said.

An example of such policies, according to Orajekwe, include private sector driven economy- government allowing the private sector to drive economic growth. “We saw how that worked out in the days of banking sector recapitalization and even in the days of telecommunication.”

“If you look at the government of the day, some of the back and forth events with the private sector makes it clear that there doesn’t seem to be a clear handshake,” the MD explained.

An evaluation of Nigeria’s micro-economic indicator before the COVID-19 pandemic shows the recent challenges only made what was already a bad situation worse for the economy.

Economic growth in Africa’s most populous nation averaged 1.2 percent between 2015 and 2019. The problem with that is the population grew two times faster at an average of 2.6 percent per annum.

Nigeria retains a long list of economic reforms that can unlock economic growth and reduce poverty but have been stuck. Decrepit infrastructure and the lack of a functional rail system means Apapa, which houses Nigeria’s main post, remains a crying shame.

When transporting imported goods from the warehouse in Nigeria’s busiest seaport, businesses spend an average cost of $2,050, according to a research firm, SBM Intelligence. This is nearly ten times the $208 it cost to transport containers from Durban Harbour to South African warehouse. In Ghana, it cost $285 to transport containers to a local warehouse.

“It has been the same discussion for quite a while and all of it is centered on not only a national policy but implementation,” Odonghanro said.

Citing a recent situation that speaks to lack of policy implementation, Odonghanro pointed at the plans by the Nigerian government to roll back the recent cost-reflective electricity tariff.

“We all know the implication of a country like Nigeria having a more stable power supply, we know the implication for businesses. None of this can happen without significant investment in that sector and such can be attracted when the business is profitable and can only be achieved if there is cost-reflective pricing,” Odonghanro said.

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