Another recession: Rewane’s economic equation
Recently, the Minister for Finance, Budget and Planning, Zainab Ahmed warned that if the current Coronavirus pandemic persists for six months or more, Nigeria faces the possibility of experiencing another economic recession.
It will affect the revenue profile of states and the Federal Government as the price of crude oil has plummeted far below $30 per barrel.
The Federal Government was therefore, looking for alternatives to fund the budget. That explains the reason behind the setting up of the Presidential Task Force on COVID-19 headed by the Secretary to the Government.
Perhaps, we should learn from the submissions of erudite economist, Bismarck Rewane when the country entered recession back in 2016.
Some of the prominent features that characterise the series of public lectures, delivered on annual basis by top technocrats and eminent citizens at Bells University of Technology, Ota are the pragmatic solutions and practical means they offer, towards resolving the persistent socio-economic challenges that bedevil our nation, Nigeria. From the intractable electric power supply, climate change, the corruption debacle, entrepreneurship through to building collapse and the current economic recession, the answers are there for the asking. That is, if our policy makers and those who implement them are ready to glean a lesson or two from them.
In that well-laid tradition, the recent 8th Convocation Lecture given at the country’s premier private university of technology, by none other than erudite economist, Bismarck Rewane of Financial Derivatives Ltd did justice to the topic. It has to do with how to get Nigeria out of the darkening hole of an economic recession.
According to Rewane, economic development can be measured by looking at the state of human development, institutional structure/evolution as well as physical development. The Human Development Index (HDI) as the closest measure covers the three dimensions of knowledge, a long and healthy life and a decent standard of living. Another measure is the state of institutions in a country. Without polarised institutions, a certain group of individuals and organisations tend to capture all the wealth, power and opportunities the country has to offer. We have seen this happen in Nigeria, over the decades.
“Things may get even more difficult…But any sustainable economic progress will require a new direction, driven by a cocktail of comprehensive and timely policy actions implemented by a forward-looking and innovative government.”
Nigeria, which recorded one of the fastest growing economies in the world over the past decade, is currently “in one of her darkest moments- a period of negative economic growth and gloom. Between 2006 and 2014, average growth was about 6.5percent compared to the 4.5percent growth for Sub-Saharan Africa region.” The past two years have however, witnessed a significant macro-economic headwinds. This has been triggered by the slump in global oil prices which plummeted from $115 per barrel in 2014 to a price that hovers around $40 pb. Add these to the fall in oil prices driven by the rising production in shale oil in the United States, the global rout in the prices of oil and commodities and Rewane calls it “Oil Shock 1.0”.
In addition, renewed militant activities in the Niger Delta, with a wave of attacks on oil pipelines that have put four key oil exports streams under force majeure ushered in what he calls “Oil Shock 2.0”.The oil output has since declined from 2.2 mbpd in January 2016 to 1.37 mbpd in May. The results are obvious with foreign exchange constraints.
Currently, we are witnessing the first recession in over 20 years, with the economy contracting by 0.36% ,2.06% in the first and second quarters and the recent revelation of a negative growth of -2.27% in the third quarter. Instead of the potential growth of 5.2%, 5.9%, 6.6% and 3.8% between 2012 and 2015 Nigeria’ economy has expanded by 4.3%, 5.4%,6.3% and 2.7% in that order. Also, weak macro-economic environment deters business and investments. The CBN’s Purchasing Manager Index (PMI) as an indication of the state of the manufacturing sector has contracted. In the latest Global Competitiveness Report Nigeria fell three places to the 127th position, scoring less in technological readiness, innovation and infrastructure.
The way forward, according to Rewane is the application of radical innovation across sector and industries. This will enable Nigeria to leapfrog more expensive, less efficient processes to accelerate inclusive growth and drive sustainable development. Our political leaders should learn from countries such as Rwanda and South Korea, that have suffered similar or even worse economic fortunes before. For instance, only 22 years ago, Rwanda was enmeshed in inter-ethnic genocide that sent over 800,000 citizens to their early graves. But between 1996 and 2015 its GDP based on purchasing power parity has more than tripled to $1,758.73 by tapping into the technological and innovation wave sweeping the global market.
On the technological front it partnered with the California-based Zipline and launched the first national drone delivery program on October 13 that currently makes 5o-150 daily deliveries to 21 locations. Now, the country is nearing 40% internet penetration up from 10% in 2012.
On the 2017 World Bank Doing Business Report Rwanda ranks second in Africa and 54th overall compared to Nigeria’s 169th out of 190 countries. Apart from cashless payment system in bus routes it has introduced Rwandan Integrated Electronic Case Management System (IECMS) to improve the delivery of judicial services to its citizens. Similarly, agricultural research development spending by government and NGOs has increased by almost 50% in 2011.In 2012 Carnegie Mellon University known for its technological expertise on ICT established a campus in Rwanda.
In a similar vein, South Korea, a resource-poor country transformed into a high-income, innovation-driven industrial economy in 50 years. How did it achieve the feat? It was by employing a technology-driven growth by prioritizing manufacturing and high-tech exports. It was complemented with increased state-led spending on Research and Development, focus on SMEs. The GDP rose from 1.7% in 1991 to 4.1% in 2013. It will be investing a whopping $1.4billion in the next ten years on nine identified core technology areas.
The flicker of hope we have is that digital technology has taken precedence with the growth of startups in areas such as hospitality, tourism, agriculture, education and financial services. The fastest growing segment in the Service Sector is ICT which accounts for 10% of the country’s GDP. Nigeria’s capacity for innovation was ranked 77th amongst 138 countries. Internet penetration has hit47.44% the second highest in Africa. And four telecoms operators have rolled out 4G services.
Indeed, the booming ICT space was boosted by the recent visit of Mark Zuckerberg. With the establishment of our first ICT University and the adoption of e-voting to institute transparency in the electoral process we may well be on our way to taking the first step out of the dark hole of recession.
But shall we capitalise on our areas of strengths and stop playing politics with the economy? Are those in government reading this piece and more importantly taking steps to ameliorating a bad economic situation? The answer, as they say is blowing in the wind.
Ayo Oyoze Baje
Baje is the Media Consultant to Bells University of Technology, Ota