Too sluggish and costly: Economic diversification in Nigeria

The latest indicators on the economic performance of Nigeria coupled with shocks in the global economy re-echo how vital diversifying the Nigerian economy is. For the current administration diversification has remained a rocket science, a fancy word it talked up on its agenda for the economy upon resuming office. How long does it take an administration to successfully diversify an economy; 4 years, 8 years or forever?

Data on the 2019 gross domestic product (GDP) released last week shows an annual growth rate at 2.27 percent the fastest since 2016, but still below population growth rate of 2.59 percent. And all thanks to oil.

But more and more Nigerians are poor and unemployed.

Despite the hard work of some in the public and private sectors to push the economy forward. Pushing a car to jump start it works sometimes, but if the engine is broken no amount of pushing will replace the engine. The economy is broken, it has to be fixed otherwise growth will remain sluggish. The outbreak of a coronavirus (covid-19), a new virus, is battering the global economy. It has caused the price of crude oil, the major source of dollars for government to plunge to $50.69 per barrel, the lowest level since July 2017. This is below Nigeria’s budget benchmark of $57. Some of the immediate implications are pressure on the exchange rate, depletion of external reserves, and a higher federal budget deficit which could mean more government borrowing to fund its budget. All of which will take a toll on the economy.

We can blame this on Nigeria’s slow response to diversify its economy among other factors.

The Nigerian economy isn’t void of sectors with potential; instead these sectors are starved of patient investment in the form of foreign direct investment (FDI. Instead the Nigerian monetary authority through its unorthodox policies fuelled by the obsession to defend the naira at all cost has chosen to pursue foreign portfolio investment (FPI), the so-called hot money, as a priority. On the fiscal side, the federal government hasn’t shown seriousness in attracting FDI into the country with policies market-driven reforms that make the economy right for investment. Two big sectors that employ a lot of low skilled labour, agriculture and trade, continue to struggle. Agriculture continues to grow at near the slowest pace in two decades and the trade sector remains in a technical recession no thanks to the border closure.

A closer look at the 2019 GDP report reveals some bright spots. The telecommunication sector, for example, has a lot of potential to attract lots of investment. The level of investments in a sector largely determines the growth potential of that sector. Other sectors could benefit from the reforms and regulation that boosted investment in telecommunication. Opening them all up for investments will help Nigeria break loose of its shackles to an uncertain crude oil market.

Take for example the motion pictures, sound recording and music production sub-industry in the ICT sector. It has recovered from a decline (minus 0.4 percent in 2018) to growing again at 0.2 percent. This was buoyed by the growth in revenue generated from the number of movies and music produced last year. The growth achieved last year is nothing to cheer, government policies had nothing to do with it.

If deliberate efforts are made to fix the economy, for instance, fix electricity supply which will help reduce the cost of making movies and music backed with strong anti-privacy policies, growth in this sector as well as others is better be imagined.