Nigeria's Economy - Growth, the Only Imperative

Nigeria's Economy - Growth, the Only Imperative.

Wednesday, September 28, 2016 1:32pm / Alpha African Advisory

Background

Nigeria: Where we are today

Nigeria's population is expected to be approximately 234 million by 2025

Economic growth as the way out of poverty
The degree of Nigeria's GDP growth, especially over the last decade, has not translated into accelerated employment and reduction in poverty among its citizens compared to several other countries

Labour productivity of the Nigerian labour force barely improved over the last 6 years

In 2012, Nigeria's labour productivity per hour of $3.5 ranked poorly when compared to productivity levels in Brazil ($10.7 per hour) and Turkey ($28.9 per hour)

The countries that have been successful in reducing their poverty head count have invested heavily in infrastructure over the past 20 years.

There is a positive correlation between poverty reduction and infrastructure investment

It is imperative for Nigeria to emulate the likes of Indonesia and India to achieve the required fixed capital formation levels in order to attain a significant reduction in poverty levels.

A target fixed capital formation as a percentage of GDP of 30% is required to achieve approximately 300% increase in GDP per capita

Countries that have been successful in increasing their GDP per capita have invested heavily in infrastructure over the last 25 years. A 30% ratio of fixed capital formation to GDP is expected to result in a GDP per capita increase of at least 300% as seen in India

Nigeria's GDP will have to grow faster than its 5 year historical growth rate of 5.7% in order to significantly increase its GDP per capita ratio and to avoid falling further down the poverty ladder

There is clearly a strong relationship between GDP growth per population growth and poverty head count reduction.

China –Aggressive growth drive led to increased average GDP growth rate of 8.6% over a five year period

India –Aggressive growth drive led to increased average GDP growth of 7.3% over a five year period

Pathway to achieving the required growth
Sustained and increased investments in key infrastructure over a five year period will lead to increased productivity and ultimately lead to a significant reduction in poverty

•Government should focus on galvanising public & private sector investments to the tune of N30 trillion per annum over the next five years in order to increase productivity and employment

•This targeted stimulus package will significantly reduce the number of people in the poverty bracket.

N30 trillion annual investments over 5 years can be achieved through targeted policy adjustments

A simultaneous deployment of critical tools are required in order to raise the required N30 trillion annual investments in order to drive the economy towards the required growth

Conclusion
We must set clearly defined economic targets over the next five years

Appendix: Chile Case Study

Chile: Recession and recovery

The build up to the financial crisis

·         The Chilean economy was exposed to a significant shock as a result of the sub-prime lending crisis in the USA and the contagion effect which led to a global economic slowdown in 2009

·         Food and energy prices soared due to inflationary pressures on international goods being transmitted within Chile whilst commodity prices such as copper, fell drastically in the latter half of 2008

·     Domestic consumption declined as a result of reduced spending by the lower-income proportion of the population

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