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Economy, Finance

Slow growth, uncompetitive economy highlight challenge for next president

Nigeria’s economic performance has been lacklustre since 2015 when the country slipped into its first major recession in 25 years.

GDP growth declined from 2.11 percent in Q4 2017 to 1.95 percent in Q1 and 1.5 percent in Q2 of 2018.

The manifesto released by PDP presidential candidate, Atiku Abubukar, mentions some of these problems, stating, “Nigeria’s economy is uncompetitive, undiversified and foreign direct investments are in decline.”

The challenge for the next president (whoever it is may be) would be to navigate these problems amid a still fragile recovery, little or no elite consensus on the way forward and a short electoral cycle (four years) that discourages reforms.

Key economic sectors are dragging owing to what many analysts call ‘absence of economic direction’.

The major economic challenge facing Africa’s biggest economy is poor ease of doing business environment. Nigeria ranks 115th out of 140 countries in World Economic Forum (WEF) competitiveness ranking, which is worse when compared peers such Brazil, South Africa and Turkey.

In 2016, Nigeria embarked on several reforms—ranging from ports to taxes— to attract new investors and retain existing ones. This culminated into the establishment of the Yemi Osinbajo, the vice president-led Presidential Enabling Business Environment Council (PEBEC), whose reforms moved Nigeria 24 places in the World Bank Ease of Doing Business index, from 169 to 145 in 2018.

However, Nigeria dropped a spot to 146th among 190 countries in the World Bank’s 2019 Doing Business Index despite an improvement in ease of doing business score from 51.52 to 52.89.

In 2017, Foreign Direct Investment returned $987 million in 2017 as against $4.7 billion in 2014.

The FDI slumped by 29 percent to N379.84 billion in the first half of 2018 from N532.63 billion in the corresponding period of 2017 owing to the closure of two global lenders, according to CBN 2018 half year data.

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Foreign portfolio investors who brought in N437.14billion into the stock market as of August took N469.71billion out of the same market, according to the trading figures from major custodians and market operators on their Foreign Portfolio Investment (FPI) flows. Total transactions on the Nigerian Bourse declined from January high of N394.44billion to N133.84billion in August.

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Analysts say portfolio inflow into the Nigerian equity market will remain subdued over the rest of the year. They angle their expectations on political uncertainties, the trade spate between the United States and China.

“Higher yield in developed economy and tensed political climate in the country were major reasons for investors pulling out despite the relative stability in exchange rate”, Damilare Asimiyu, economist and research analyst at GTI Group said in a recent note.

Two foreign banks—HSBC and UBS— have exited the country, bringing the number of foreign banks to eight as of end of June 2018, according to CBN.

In 2014, Procter&Gamble set up a $300million diaper line in Agbara, Ogun State, which was tapped as biggest US non-oil investment in Nigeria.

Four years after, the company has packed up, citing restructuring as its main reason. But those familiar with the company told BusinessDay that the company had to shut down its Agbara plant due to high production cost incurred at the plant.

Local manufacturers spend billions of naira annually on energy, resulting in high production cost and skyrocketing prices of goods. Manufacturers spent N51.35 billion on alternative energy sources in the second quarter (H2) of 2017; N66.03 billion in the first half (H1) of 2017; N62.96 billion in H1 of 2016, and N69.99 billion in H2 of 2016, according to the Manufacturers Association of Nigeria (MAN).

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“It is no more news that manufacturers in Nigeria currently self-generate over 13,000MW through alternative sources of energy in order to stay afloat. In fact, cost of alternative electricity generation alone constitutes about 40 percent of our production cost. With such high costs, made-in-Nigeria products will hardly be competitive,” Frank Jacobs, immediate past president of MAN, said at a special interactive forum on Eligible Customer Regulation of the Nigeria Electricity Regulatory Commission (NERC) in June 2018.

Number of taxes payable by businesses across the country is 54 as against 37 in 2014.

The sudden suspension of the Export Expansion Grant in 2013 and continued delay in its implementation since Buhari came on board in 2015 have axysphiated exporters, making their products uncompetitive in the global market. The scheme was originally meant to cushion the effect of high production cost for exporters in order to make them competitive, but exporters are now left with little option as some of them like RN Global have closed shop.

Manufacturers say that high interest rate, necessitated by high inflation rate, is squeezing them.

Results of survey conducted by MAN shows that the average interest rate banks charged manufacturers in the second half (H2) of 2017 was 23.05 percent as against 22.65 percent in first half (H1) of 2017 and 21.4 percent  in H1  of 2016.

Nigeria’s infrastructure state has worsened, with roads to Apapa and Tin Can ports in Lagos almost inaccessible.

GE, last week, pulled out of the consortium that was going to invest $2.0 billion into the country’s railway into Apapa.

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The country dithered for two and a half years until GE sold its global transport business, resulting automatically in a pull-out of the deal it had with Nigeria.

Nigeria loses N6.7 trillion annually to the state of the ports, according to a latest report released on Tuesday by the Lagos Chamber of Commerce and Industry (LCCI).

A breakdown of the numbers shows that  Africa’s biggest economy loses N600 billion in customs revenue, $10 billion (N3.6trn) in non-oil export sector and N2.5 trillion in corporate earnings across various sectors on annual basis.

“The concessioning of Onitsha seaport  should be finalised, while government should improve the security situation along and within the Warri port in order to ward off militants and touts. Stakeholders request that government should approve and publicise a bouquet of incentives to importers and exports that patronise ports outside Lagos,” Babatunde Paul Ruwase, president of the LCCI, said in a press conference.

Source: Patrick Atuanya & Odinaka Anudu

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