What really is the state of the Nigerian economy, in relation to the current global economic headwinds ravaging crude oil-dependent countries?
The Nigerian economy today is doing quite well. The whole world knows that countries that produce oil and depend on oil where they get most of their revenues are presently going through hard times. But, in spite of this fact, Nigeria has very unique situation, where her economic indicators remain very positive.
A good example of this will be what you can regard as the macro-economic indicators and micro-performance. At this time, Nigerian economy is growing at well over five per cent yearly. Unlike last year or before, when we were actually growing at about seven or more per cent; that was at a time everything was in order. But today, the IMF is predicting that we shall grow in 2015 at about 4.8 percent; whereas, figures from our own National Bureau of Statistics (NBS) (remember that the Bureau conducts surveys, and its numbers are more robust than that of the IMF) suggest that we will grow at about five percent or 5.2 or 5.3 percent, which is not bad at all. Bear in mind that the European Union, as a bloc, is not doing better; even Germany and others are not doing better — they are growing below two per cent of GDP in 2015.
If you look at growth in some other oil-dependent countries, they are doing below zero percent. The U.S is recovering, and this is helping to fuel growth in other parts of the world. China and India, which used to have higher growth, have also slowed down. Oil-producing countries, like Russia and Venezuela, have negative growth; only few countries like Saudi Arabia, Kuwait, and Qatar, among others, are managing a positive growth.
The various rating agencies that have tested Nigeria did not downgrade the country, which is very good; they have kept Nigeria on a watch, the same thing with Saudi-Arabia. So, when you see Nigeria being classified in the same level with Saudi-Arabia, then you know that we are doing well.
Why is it that Nigeria, according to you, is doing very well, even in the middle of global economic challenges?
The reason we are doing well is due to what we are achieving in sectors other than oil. So, you find that Nigeria is in a fairly comfortable position. Apart from the growth numbers that I just gave you, inflation in this country has remained in single digit in spite of the currency that has been experiencing some level of depreciation.
We have inflation at single digit at this point, in spite of what is happening to our oil revenues and the Naira. The point I’m trying to make here is that a very good thing is happening to the economy that has kept inflation at that level. A good example is Agricultural production, where we now have huge output of products that are helping to feed Nigerians. The high output ensures that our markets do not lack the necessary products because it is when you don’t have enough supply in your market (and the demand is there) that you now have inflation being pushed up so much.
You find that, in spite of the floods we had some couple of years ago, and in spite of the depreciating Naira, Nigeria still has excellent inflation numbers that are in single digits. That, I believe is something to be celebrated.
Take a look at these:
• 2014 Fiscal balance as % of GDP: 1.2 per cent was projected while actual balance was 1.04 per cent
• Balance of Payments as percentage of GDP was 3.67 percent in 2014 (source: IMF, WEO 2015
• Job creation in 2014 was about 1.4 million (source: NBS
• Poverty rate for the country is 33.1% (source: World Bank
• Agriculture: Total food imports bill declined by N906 billion, from N2.38 trillion in 2011 to N1.5tr by 2013.
• Improved access to agricultural financing
• Eliminated corruption in the agricultural inputs (fertilisers and seeds) supply mechanisms through the GES E-Wallet System.
• Registered 10.5 million farmers and over 6.4 million have received subsidised inputs through the E-Wallet
• Increased Rice Production and improved cassava value chain
• Improved dry season farming output – production of 1.74 million MT paddy upped by 1.22 million MT dry season output.
• Achieved high quality cassava substitution for imported wheat flour (up to 20 percent substitution) in the baking industry
• Increased private sector investment in high-value Cassava processing; Cargill (Starch), Unilever (Sorbitol)
• Cassava exports are increasing: secured 3.2 million MT contract orders from China for export of dried cassava chips which can earn the government up to $1.3 billion over the medium term.
Let me also talk about unemployment, because, as you know well, the major thrust of our economic policy is how we can create jobs. Because it is not enough to simply say, we are growing if the growth is not affecting the ordinary Nigerian. We have been having unemployment quite high for sometime now but see what has happened presently. The NBS with their own survey demonstrated that we are creating about 1.4 million jobs.
If you are creating 1.4 million jobs, it means that the only issue we have is that of new entrants into the job market. The new people who are graduating into the market are presently about 1.8 million every year. What this simply means is that we are creating jobs but not enough to accommodate every new entrant. Today, jobs are being created in diverse areas, like the non-oil sector, which is what gives us a good feeling and good hope — you know that oil does not even employ many people.
Today, we also have the Nollywood entertainment industry quietly and efficiently employing many people. You also have the telecoms and related sectors also creating jobs for Nigerians. So, when you put all these together —you may say that we still have challenges with unemployment, and we would be the first to acknowledge that — those problems are being tackled through the normal systems that most countries use to do these things.
How come that, in spite of these achievements by government, Nigerians still find it difficult to believe that the economy is working?
I have already acknowledged to you that we still have some problems. Nobody will say to you that all is perfect at this point. But a lot of achievements have been recorded.
One thing that I must admit we haven’t done well is to communicate the achievements of this administration. We are too busy — apparently doing the next thing, planning a new one and moving other new things forward. As I just told you regarding the international oil downturn, Nigeria is one of the few oil-dependent countries that are still highly regarded, in terms of GDP growth. If it does not grow at all, there is nothing to share.
But you are having a growth that is quite positive, it is simply that it is not growing enough as expected; the sharing of that growth, which is inclusive, growth is not sufficient such that it is not affecting everybody and letting Nigerians know what has been done. But it is necessary for Nigerians to know. But one of the ways you have to judge a country’s economic performance is the indices that I gave you.
You have other economies that are actually contracting. You remember that Nigeria’s recent re-basing has shown that the Nigerian economy is by far the largest in Africa, worth about $510 billion; the next, of course, is South Africa ($200 billion). You can actually see the gap. So what you are looking at is that the youth population is quite large and, if we create 1.4 million jobs and if you do not have a job, you will think that nothing has happened because it is not 100 per cent. That is the effect that you are seeing. It is only those that have benefited from the jobs created that would agree that government is doing well.
It is when we have programmes like the YOUWIN, GWIN and GIS that you actually see young people whose lives have been touched by the action of government, it is only at that point that people really come out to tell their stories about what government is doing. But you must take those stories very seriously.
Could you explain how much hurt the fall in oil prices has caused the Nigerian economy and how it could impinge the 2015 Budget implementation?
When people talk about the achievements of government, you need to take a look at the infrastructure; people who drive around the country will tell you that there are major improvements on road networks. The road from Abuja to Lokoja and beyond, all the way to Benin, in Edo State, and, indeed, from Benin to Ore-Shagamu-Lagos, have marked improvements. Also, the roads from Kano to Maiduguri is wearing a new look. The Lagos-Ibadan Road is under construction; we have the second Niger Bridge that has been there; before now, no government deemed it fit or took any real action to do it. But now, it is under construction.
I am not saying that all of the problems have been solved, but you can see some clear and determined strides being made in those areas. Government introduced SURE-P, a major instrument carved out as deliberate government policy following partial subsidy withdrawals. Government has been able to put a lot of infrastructure in place. If someone says, the economy is not working, I stand to ask, what is economy? These are the drivers of economic performances, good infrastructure.
The rail system was moribund for over 25years in this country, and Nigerians, who are not old enough, may not properly appreciate the fact that there was a time we had the railways that were working in this country.
The system collapsed, and now the administration of President Goodluck Jonathan has said that we must bring back the rails to this country — and you can see it.
The dredging of the Lower-Niger, the Benue River are things that many previous administrations only talked about theoretically; it is only under this administration that determined efforts are made to bring these things back on track and to life.
Last year, the President launched the NMRC funding and financing initiatives, which, for the first time, made it possible for young people to aspire to own their own homes or houses and pay mortgages for over a long period of time, contrary to the cash-and-carry economy we have been witnessing in the past. Every house that is being built can create many jobs, and we have built 100,000 housing units. These, in turn, have created between 500,000 and 600,000 jobs.
The president, when he launched it, gave a clear directive that he wanted younger people in the society — young couples, people just starting up in life — to be the major beneficiaries. Initially, we thought of having 10,000 mortgages, but 66,000 applied in the first instance. The people who were enthusiastic came on board and this is fantastic. We have already processed 33, 000 of those applications.
The Industrial Revolution Programme is also doing well; you now have Nigeria-made vehicles being assembled here. With time, the local content will be appreciated. Presently, we have Innoson Motors as a very good example; so, if we now have Nissan Motors, Toyota Motors and many more coming back into the country you can see how the economy will be re-invigorated. So this is another major initiative of this administration.
To answer your question, the reason we are having these problems is that the United States’ shale oil and gas production has kicked off; technology has equally improved worldwide. This has made the market more competitive. The shale oil of the US has come into the market with a high volume, and is now displacing OPEC productions. Global demand for oil today is between 93 and 95 million barrels per day.
OPEC produces about 30 million barrels per day. This has been on for a very long time, you might not know that I worked in OPEC (that was the same figure we’ve seen for a very long time). You can see that global demand for oil at that time was about 72 and 73 million barrels per day. All the increase of 20 million barrels per day has been eaten up by non-oil producers and lately the shale oil that has come on board.
You need to know why OPEC is feeling reluctant to cut production, because the more it cuts, the more those people enter the same market space, which may not help the price in the medium to long term. But I believe that the stance taken by OPEC may not go far because the falling oil price is affecting every body.
The US, some shale oil producing companies have been forced out of business because they were expecting the price to be $ 75per barrels; but when the price goes up to $50 per barrel, then you cannot remain in business. But some of them have begun to have a rethink, which is why oil prices have recovered a little (from the low of about $47 per barrels some weeks ago, to about $60 per barrels today)
Now the impact on the Nigeria, no body should decisive himself, the impact is quite significant. We have submitted the budget to the National Assembly at $65 per barrel. After we submitted the budget to NASS in December, we saw that price of oil continued to decline and eventually bottomed at $45/46; now, it has gradually recovered at nearly $60 per barrel. We have done a new budget submission to NASS fopr the MTEF, based on $52 per barrel. The Senate passed it at $52, and the House passed it at $54 per barrel. I understand now that both of them have reached a compromise of $53 per barrel; so, we are concerned that the price is half of what it was last June, which is very painful.
If you have a price that is now declining to just 50 percent of what it was, it means that you are loosing a similar revenue value. The point being made here is that yes, the impact is severe, it is affecting the revenue of government, but, as a nation, you have to be able to pick up yourself and dust yourself up and move on. Nobody is going to clap for you that you sit on the ground doing nothing and you think the world will come to your rescue?
If you ask any of these countries suffering from it, they are all out there doing one thing or the other, which is the reason why, in the case of Nigeria, we took steps immediately to introduce a number of reforms. One of them, which actually started before the oil price collapse, is the diversification of our revenue base by getting the FIRS to engage some consultants to improve their tax administration.
We gave them a target of extra N75 billion for 2014; what did we find? We found out that this people have done a N110 billion extra as at December, using some measures that they identified. Now, we have ramped it up and told them to implement the other measures as identified in the diagnosis and that is fantastic. In the current budget we have given to the NASS, non-oil revenue is slightly more than oil minerals for the first time, showing that we are getting away from an oil-based economy to that of non-oil.
One major issue is the inability of your office to effectively fund the capital component of the budget; the question really is, why plan for what you cannot execute?
When people ask me this, I cast their minds back to a few years ago. You will probably recall that, few years ago, MDAs were returning unspent monies to the treasury, which was why we created a line of unspent balance accounts. The reason we had that was that we didn’t have the revenue challenges that we face now. At that time, we could fund 100 per cent; releases were 100 per cent; and cash-backed 100 per cent, they were on time.
But the challenge was that some of the MDAs didn’t have the capacity to implement. Even some contractors were not having capacity to mobilise and do all that, so on December 31, they loose the right to spend the monies, because the Constitution says every Budget should be for only a 12 month- cycle.
So, it is not correct to say that, every year, we have a budget we cannot fund; we have had, in recent years, serious challenges with oil production.