• Sunday, May 26, 2024
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BusinessDay

Nigeria’s path to inclusive growth

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In the past, Nigeria’s growth performance has been very impressive. It has enriched the oil sector, attracted multinational investors and rocked the markets. But it is not creating jobs.

In its recent regional economic outlook, the International Monetary Fund (IMF) suggested that with a gradually improving outlook for the global economy, growth in sub-Saharan Africa is set to strengthen. However, the IMF forecast relies on certain policy choices – strong investment, favourable commodity prices, and prudent macroeconomic management. It is subject to potentially significant downside risks.

Nigeria has enjoyed strong growth of 6 percent a year over the last decade. That’s the good news. The bad news is that despite sustained growth, the official unemployment rate has increased and poverty remains high.

The problem is that as long as Nigeria’s growth is not inclusive, it cannot become a BRIC successor – a large emerging economy, such as Brazil, Indonesia, or Turkey.

Economic challenge, social threat

Nigeria’s growth pattern is a challenge, but not unique. When Goldman Sachs identified the emerging group of potential successors to BRICs a few years ago, the Philippines made it into the list, along with Nigeria. In the past, the Philippines’ gross domestic product (GDP) has tripled to $250 billion; not far from Nigeria ($269 billion).

In January, the Philippines reported a 6.8-percent year-to-year growth, which made it the growth leader in Southeast Asia and which trails Nigeria only by 0.5-1 percent.

In most BRIC economies, growth translates to jobs. And yet, in the Philippines, labour outcomes have been less responsive to growth. Even in 2011-2012, unemployment rate stayed at 7 percent, while underemployment rate rose to 22.7 percent since the number of full-time jobs declined by half a million in the same period. If you ask ordinary Filipinos about the growth of their nation, most will say, “I don’t feel it.”

When growth is real, but not inclusive, it is not just an economic challenge, but a potential source of social instability, over time; and perhaps more so in Nigeria.

After all, some 95 percent of Nigeria’s tradable exports comprise oil and petroleum. In contrast, the Philippine export portfolio is more diversified, including electronics, transport equipment, garments, copper, oil, coconut and fruit. Nonetheless, one of four Filipinos remains below poverty line; in Nigeria, almost two of every three.

Growth and prosperity – or decline and instability?

In all BRIC economies, inequities have typically increased during their high-growth phases, except for Brazil (the exception that confirms the rule). In these large emerging economies, job-creation has been strong and unemployment low.

Despite Nigeria’s fairly solid growth rate, Nigeria’s poverty rate – as measured by those living on less than $1 a day – has continued to rise from 52 percent in 2004 to close to 70 percent. At the same time, income inequality has widened in most regions.

In the long run, such evolution is economically unsustainable and socially unbearable. If disparities will continue to broaden and deepen, economic polarisation will generate social friction.

Emerging nations enjoy demographic dividends, while fragile economies miss them. In one way or another, all BRICs have managed to take advantage of their demographic dividends, by creating jobs for the youthful populations. This logic has been particularly impressive in East Asia, but it is not inevitable. In much of the Middle East and North Africa, similar demographic dividends have expired, in the absence of adequate job creation.

For all practical purposes, the net effect has been longstanding economic decline, continued social turmoil, and increasing instability – as evidenced by the Arab Spring since 2010-2011.

Next transformation agenda

But how could Nigeria enjoy the benefits of inclusive growth?

Upgrade and ‘clusterise’ in the oil sector. Most successful industrialisers and BRICs have used spearhead industries, natural resources, or both, to build more sustained growth. In Nigeria, the oil sector has neither spurred employment nor improved incomes, but it could do both. For instance, the Petroleum Technology Development Fund could redirect some of its resources more aggressively toward supporting new entrepreneurs and thus encourage supply chain linkages and a new generation of entrepreneurs in Nigeria.

Encourage entrepreneurship and productivity in agriculture. Any successful industrialisation has been predicated on rapid increases in agricultural productivity. In Nigeria, agriculture accounts for less than a third of the economy, but still employs two of three Nigerians. The current double-bind – largely subsistence agriculture, low industrial job-creation – is untenable. During the half decade preceding the global crisis, over 50 percent of Nigeria’s non-oil economy was driven largely by agriculture. Instead of subsistence-based, low-tech and low productivity, the agricultural sector needs more value-added, high-tech and high productivity. It needs a real transformation agenda.

Foster industrialisation and manufacturing. In East Asia, demographic dividends have been accompanied by strong job-creation. With rising agricultural productivity, rural migrants have entered the nascent cities, in which rapid urbanisation has created new job opportunities. In turn, these positive externalities have boosted technology diffusion, high value-added products, greater linkages in the economy; that is, a wider employment base and rising incomes. Along with the oil cluster and high-productivity agriculture, Nigeria really needs a thriving manufacturing sector, which provides greatest relative benefits to economic development. Currently, it represents less than 5 percent of GDP – only a fourth or seventh of that in other emerging economies, such as Brazil, China, or Indonesia.

Government as a competitive coach. In the early days of independence, Nigeria’s states were still more competitive in economic activity and social service delivery. In the absence of lucrative natural resources, the nation had to take advantage of its comparative advantages. In the past decades, the decline of competitive federalism has gone hand in hand with the success of the oil sector, which, in turn, has promoted dependency rather than initiative. Nigeria needs more competitive states that should be judged by job-creation, school systems and health care.

Accountability, integrity and innovation. In turn, the new approach to federalism should be predicated on accountability and assertive efforts against corruption at the level of state, localities, as well as markets. Accelerated development would also require innovative industrial policies. For instance, strong coordination between Ministries of Agriculture, Industries, as well as Technology and Innovation, would be better equipped to speed up the development path from agriculture to industry and to high-tech. As the experiences of the BRIC economies attest, the role of the Ministry of Information & Communications is vital because it can speed up technology diffusion significantly.

In the final analysis, government should be thought of as a catalyst, or a coach. Government can create foundations for growth, but only markets can create prosperity.

When only one of ten income earners are responsible for more than two-fifths of total consumption expenditure, as reported by the National Bureau of Statistics, it is prudent to conclude that Nigeria’s strong growth has been accompanied by exclusive growth.

Today, Nigeria’s growth is not inclusive. It does not involve broad, employment-intensive sectors. It is not growth of the people, by the people, for the people. In the long term, that is not recipe for growth and prosperity, but for decline and instability. What Nigeria needs is inclusive growth.

DAN STEINBOCK

Steinbock is Research Director of International Business at India China and America Institute (USA) and Visiting Fellow at EU Center (Singapore) and Shanghai Institutes for International Studies (China).