Over the last 54 years the Nigerian economy has transformed from a basically agrarian economy to an economy driven largely by resources from the oil and gas sector. Today, the biggest shortcoming of the economy is its dependence on oil. It makes the economy very vulnerable to global shocks; and weak in inclusiveness.
The 15 years of uninterrupted democracy in Nigeria has earned the country enormous goodwill as one of the few stable democracies in Africa. The economy has benefited from this goodwill as investors are more comfortable in a democratic environment. This among other things has made Nigeria a major investment destination on the continent.
However, core democratic values are yet to take firm root in our democracy, especially in the following respects:
Accountability by the political leadership at all levels
Transparency in the management of public finance
Rule of law
Separation of powers and the inherent Checks and balances.
Quality and independence of democratic institutions – Electoral bodies, Law Enforcement Agencies, Judiciary etc
Citizen engagement in the democratic process.
Federalism
The LCCI recognises that Nigerian democracy is still work in progress, but it is crucial to recognise the importance of these democratic ideals in the sustenance of our democracy.
Economic growth trend, measured by the performance of the Gross Domestic Product (GDP), has been generally positive over the last two decades, averaging about 6%. This is good compared to growth conditions in most economies around the world. However, it remains a major worry that the economy is still structurally defective as it is too dependent on the oil and gas sector, creating serious vulnerability risks. The lack of political will to reform the oil and gas sector remains a major shortcoming of governance over the past two decades.
However, the transformation in the telecommunications sector stands out as the most successful reform story in the economy. We note the progress being made in the agricultural sector. But it is important to note that the sector cannot be transformed in isolation of infrastructure development and industrialisation.
The financial services sector has also shown significant transformation since independence, especially with regard to leveraging technology to enhance service delivery. The sophistication of the industry can compare with its counterparts even in the advanced economies.
However, there remains a major concern about the weak impact of the growth performance on private sector productivity and the welfare of the Nigerian people. The quality of the business environment remains a source of concern to investors, especially in the real sector. Weak infrastructures and institutions had adverse effects on efficiency, productivity and competiveness of enterprises in the economy. These conditions pose a major risk to inclusiveness and job creation in the economy.
Following the recent GDP rebasing, the Nigerian economy is now the 26th largest economy globally and the biggest in Africa with a GDP of $510 billion in 2013. It is also one of the largest consumer markets globally. However, the country currently ranks 153 [out of 186 countries] in the Human Development Index by the UNDP; and 147 in the Ease of Doing Business Ranking of the World Bank out of 189 countries. This underscores the lack of alignment between economic growth, investment climate and the welfare of citizens in Nigeria.
The Credit Situation remains a major problem for investors in the economy. Many small and medium scale enterprises still have serious challenge in accessing credit even at this high rate. The tight credit situation is a major inhibiting factor to the capacity of domestic enterprises to take advantage of the robust Nigerian market, especially the SMEs. The Credit Challenge was identified as the factor with the biggest negative impact on business confidence.
The Power situation remains a major burden on business. It is one area in which the trend since independence has been that of progressive decline. Power supply has consistently lagged behind the pace of the economic activities and population growth. This development impacted negatively on investment over the past few decades with increased expenditure on diesel and petrol by enterprises. This also comes with the consequences of declining productivity and competitiveness.
The Security situation in the country deteriorated in the last few years. It impacted on investment risk, worsened our perception and image at the global level. Access to markets in the troubled parts of the country has reduced for many enterprises and this is already affecting sales and profitability. Also many enterprises have re-located either to other parts of the country, or even outside the country.
Also related to this is the escalating oil theft and the vandalisation of pipe lines. Billions of dollars have been lost in revenue; many lives have been lost as well. The environment of affected communities had suffered serious degradation as a consequence of this problem. Indeed, the oil and gas sector suffered negative growth on the back of this challenge.
The Nigeria business environment is generally challenging for manufacturing enterprise because of the quality of infrastructure; which is why the risk of industrial investment is high and continues to increase. The various policy interventions have not had the desired impact on the sector. Unless there is an effective and sustained protection and support for the sector, and a dramatic improvement in infrastructure, the outlook the sector will remain gloomy, particularly for the small scale industries.
It is impossible to have a vibrant manufacturing sector in the face of rampant dumping of cheap imports in the country. Some of these imports are landing at 50% of the cost of products produced locally. Besides, manufacturers have to worry about high energy cost because the power improvement is yet to be sustained; they have to worry about high interest rates – 20% and above; they have to worry about a multitude of regulatory agencies making different demands on them; they have to worry about massive smuggling and under invoicing of imports and many more. The multinationals and other conglomerates in the sector may have the resilience to cope. But for most manufacturing SMEs, it is a nightmare. Yet production is critical to an enduring economic and social stability. The way forward is to address the fundamental constraints to manufacturing competitiveness in the Nigerian economy.
The reality is that job losses in the sector have been on the increase over the years as productivity declined on the back of the harsh operating environment. However, the multinationals and conglomerates have shown some positive trend in performance and resilience, especially in the foods and beverage sector as well in the cement industry. Even then, they would do much better if the operating environment were better.
• Yusuf is the Director General, Lagos Chamber of Commerce and Industry
