Why these 5 small economies will outpace Nigeria in 2022
Nigeria’s gross domestic product (GDP) growth is expected to lag some of the continent’s smallest nations as analysed from the 2022 projections by the International Monetary Fund (IMF).
With a combined economy size that is four times less than Nigeria’s real GDP, five of Africa’s smallest nations are expected to grow at a rate that is individually higher than Africa’s most populous nation by over 100 percent.
On why the economy of Africa’s acclaimed giant will be crawling behind its smaller peers in 2022, analysts point at the country’s insecurity, lack of growth-driven reforms, foreign exchange volatility, and a harsh business environment.
“Size is not everything. In 2022 and beyond, the big boys would do well to learn from the diversification of some of their smaller neighbours,” analysts at The Economist say.
The five small countries – Rwanda, Benin Republic, Ghana, Senegal, and Seychelles – that have been predicted by the Washington-based intuition to surpass the 3.8 percent growth projection for sub-Saharan Africa region (SSA) have one thing in common – none is reliant on oil or mining.
The IMF says Rwanda will hit 7 percent growth in 2022, Benin should muster 6.5 percent, Seychelles, welcoming back tourists, could reach 8 percent. Ghana and Senegal are projected to get near their brisk pre-pandemic growth rates to settle at 6.2 percent and 5.5 percent, respectively.
Checks by BusinessDay show that most of the countries expected to top the gainers’ chart in Africa this year have a recent record of investment in infrastructure, such as in roads and internet broadband.
Analysts at the Economist describe the infrastructural development as “a commitment to further diversification, and a willingness to unshackle the private sector.”
Oil-dependent Nigeria, expected to grow by a paltry 0.1 percentage point to 2.7 percent in 2022 from the projected 2.6 percent in 2021, spent about 74 percent of its first eight-month revenue of N3.93 trillion in servicing debt.
There is a consensus among development economists and analysts that Africa’s largest economy is due for a new growth driver after several years of gorging itself on petrodollars.
“As the world shifts its attention to non-fossil energy sources, it is important that Nigeria gets its non-oil economic strategy right,” analysts at FBNQuest say.
A non-oil economic strategy is simply a growth strategy that is not dependent on oil, and it could mean either of several things, according to economists polled in a BusinessDay survey.
From poor crude oil production in 2021 to big oil companies excluding Nigeria from their 2022 spending plan, the challenges in Nigeria’s oil sector further intensify the need for increased attention to the non-oil sector, findings have shown.
The oil sector of Africa’s largest economy marked its sixth consecutive period of contraction in the third quarter of 2021, thanks to poor crude oil production capacity.
The sector failed to ride on the gains of higher crude prices, the international Brent crude price rose to a three-year high in October 2021, to exit recession as it contracted by 10.73 percent year-on-year in the third quarter of 2021, as analysed from the National Bureau of Statistics (NBS) data.
Another non-oil export strategy could be an export-led growth whereby the manufacturing sector is empowered to tap the export market in the way Vietnam did with success.
Nigeria’s power challenges, inconsistent policies, and low adult literacy make this option difficult, according to Bongo Adi, an economist.
“From its imports, you know a country that is serious about an export-led strategy, they import more of raw materials but that is not the case with Nigeria,” Adi states.
Nigeria’s trade balance took a turn for worse in the third quarter of 2021 as imports surged and the trade deficit hit N3.02 trillion, according to the latest foreign trade report by the NBS.
Africa’s largest economy imported goods worth N8.15 trillion in the review period, 58.87 percent higher than its total export value of N5.13 trillion, the highest third-quarter trade deficit in 11 years.
The weaker trade balance came as the value of import earnings swelled by 17.3 percent quarter-on-quarter, while exports grew only 1.0 percent. The trade deficit in the period under review is a deterioration of 61.6 percent compared with the second quarter 2021 goods trade deficit of N1.9 trillion.
“The increase in import bills can be partly attributed to pressure on the naira, weaker by 3.4 percent q/q and 10.7 percent y/y to average N410.29/$1 in Q3:2021, compared to N396.25/$1 and N366.52/$1 in Q2:2021 and Q3:2020, respectively,” research analysts at Afrinvest note.
Among Nigeria’s top imports in the last 10 years are refined petroleum products and food. That has however started to change slightly in recent times with imports of machinery and equipment increasing but still not enough to suggest a booming manufacturing sector.
“2021 was not a good year as we had expected; in fact, we went from frying pan to fire because as challenges intensified, we managed to produce but there was poor demand for goods,” Okhai Ehimigbai, a manufacturer and export executive at Aarti Steel says.
Another strategy Nigeria can adopt is one where investments are channelled towards human capital like education and health, according to analysts.
The amount spent on fuel subsidy would have a better impact if education and health were subsidised.
The World Bank is of the view that increased investment in human capital translates to higher economic prosperity.
“With the current COVID-19 pandemic, it is even more important to understand why countries should invest in human capital (HC) and protect hard-won gains from being eroded,” the World Bank economists say in a report.