• Sunday, May 19, 2024
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Lessons for Nigeria as Vietnam takes millions out of poverty on domestic reforms, economic liberalisation

Vietnam economy

Vietnam became independent of France in 1945 while Nigeria was freed by Britain in 1960, but the Southeast Asian nation has shown the difference 15 years can make.

Between 2002 and 2018, Vietnam lifted more than 45 million people out of poverty, according to the World Bank. On the other hand, by 2018, Nigeria had become world’s poverty capital, with six people dragged into extreme poverty every minute, according to the World Poverty Clock.

In 2019, when COVID-19 pandemic was not an issue, Nigeria’s economic growth rate stood at 2.21 percent, lower than 2.6 percent population growth rate, but Vietnam averaged 7 percent growth rate— 6 percent higher than 1 percent population growth in that country.

This meant an automatic lift of thousands out of poverty. Vietnam is one of the few countries in the world today that will not see coronavirus-induced recession due to the resilience of its economy in the last 20-30 years, said the World Bank. In fact, the Southeast Asian nation with almost 100 million population is estimated to see up to 5 percent growth even with COVID-19 disruptions.

But Vietnam’s miracle of lifting over 45 million out of poverty in 16 years did not happen by chance. Experts at the World Bank and Brookings Institute attribute the miracle to three strategies: domestic reforms by reducing cost of doing business and deregulation; economic liberalisation (open borders), and investment in human and physical capital.

Due to business environment reforms and improvement in electricity (electricity supply has tripled in 10 years)­, the Southeast Asian nation has become a manufacturing hub to several investors, including Samsung, Intel and LG. Most of the firms produce in Vietnam and export to other parts of the world, creating millions of jobs and earning millions of dollars in foreign exchange.

In 2019 alone, 1.5 million new jobs were created by investors in Vietnam, according to the country’s Ministry of Labour, Invalids and Social Affairs—a year in which unemployment was over 23 percent in Nigeria. Vietnam’s exports in 2019 increased 8.4 percent to $264.189 billion—88 times Nigeria’s non-oil export earnings in 2018. Vietnam ranks 70th on the 2020 World Bank Doing Business while Nigeria‘s ranking is 131st.

The Asian country runs on hydro, coal, renewable energy and gas, with total installed capacity of almost 48,000 megawatts, but Nigeria with double population of Vietnam has 12,500 installed generation capacity and 4,000-5,000 distribution capacity, with hydro the main power source.

“Between 2002 and 2018, GDP per capita in Vietnam increased by 2.7 times, reaching over $2,700 in 2019, and more than 45 million people were lifted out of poverty. Poverty rates declined sharply from over 70 percent to below 6 percent ($3.2/day PPP),” the World Bank said on its 2019 report on Vietnam.

School enrolment in Vietnam was 115 percent in 2019, according to the World Bank, but 10.5 million children in Nigeria, especially in the North, are out of school, according to UNICEF, perpetuating poverty among the populace.
“Poor governance is one of the key drivers of poverty. Poor governance as manifested in corruption entails robbing the public of budgetary resources that could have been channelled into infrastructure and economic development,” said Obadiah Mailafia, economist and former central bank deputy governor, in a BusinessDay article entitled ‘Poverty Capital of the World.’

“Equally important is low economic growth and macroeconomic failure. Economic science has established a strong causal relationship between growth and poverty alleviation. Growth stimulates expansion opportunities for jobs and collective welfare,” he stated.

Nigeria has been hard done by falling oil prices since late 2014, which has reduced foreign exchange inflows. But the economy has failed to expand its manufacturing sector to export and earn huge foreign exchange to curb external risks. Crude oil still occupies 70 to 90 percent of FX, with the country managing demand for dollars rather than pushing for supply. In 2019, the share of crude oil exports in total exports stood at 76.5 percent, according to the National Bureau if Statistics (NBS). In the second quarter of 2020, crude oil and minerals accounted for 84.35 percent of total export, amounting to N1.87 trillion.

Doyin Salami, chairman, Presidential Economic Advisory Council, said at the recently concluded Nigerian Economic Summit that Nigeria must expand supply, and not manage demand in the economy.

“Where we are today in Nigeria is a mentality of poverty. We are managing demand, whereas we should be looking at expanding supply. Nigeria must increase the supply side of her economy,” Salami said.

The manufacturing sector in Nigeria is not competitive due to high cost of power, lack of logistics infrastructure, low local patronage, and low supply of finance to the sector and poor competitiveness of the port system.

“The slight improvement, notwithstanding, port related challenges are still present, particularly delay in clearance of imported raw-materials and machinery that are not locally available by manufacturers, including the associated high and unwarranted demurrage, which oftentimes slows down manufacturing operations and increases cost of production in the sector,” chief executives of 400 manufacturing firms in Nigeria, who are members of the Manufacturers Association of Nigeria (MAN), said in the first quarter of 2020. Premier ports in Apapa and Tin Can in Lagos have no scanners, causing delays and disrupting firms’ operations.

Nigeria has re-opened four land borders in readiness for the African Continental Free Trade Area (AfCFTA), but 44 items are still not allowed to access dollars in the exchange market. Vietnam’s economy won on the basis of open borders, allowing participation of all players in the free market.

Nigeria has borrowed from major global institutions, with debt stock hitting N31 trillion in the first half of 2020. PwC experts have asked the country to look at the option of selling dead assets worth up to $900 billion to reflate the economy and haul millions out of poverty. The Lagos Chamber of Commerce and Industry (LCCI) wants the government to embrace equity rather than debt.

“It is not just talking about lifting 100 million people out of poverty when you have no clear-cut plan to do so. Start the process by first removing barriers to business and investment, including incoherent monetary and fiscal policies,” an economist at one of the banks, who pleaded anonymity, said.