Martins Hile, Editor, Financial Nigeria magazine

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Is Tinubu’s economic growth target achievable? 12 Jul 2023

President Bola Ahmed Tinubu wasted no time in indicating the economic performance profile he wants his administration to achieve. During his inaugural speech on May 29, he said his administration targets a “higher” average real GDP growth rate over the next four years. In the last eight years of the Muhammadu Buhari administration, growth approximated a meagre 1% on the average.

Economic growth is important. It provides the opportunity to fight unemployment and poverty, as Tinubu promises to do. While many economists have said economic growth is not enough – they never dismissed its importance. But making GDP growth to deliver inclusive prosperity is what gets the real job done. Cognisant of the positive impact that economic growth should have on the welfare of the people, Tinubu went ahead to promise non-inflationary growth and poverty reduction.  

But is the new administration likely to succeed in achieving its target of 6% average economic growth rate? Under Buhari, the government set an average annual GDP growth target of 4.62% between 2017 and 2020, according to his medium-term plan, the Economic Recovery and Growth Plan (ERGP). But not only did it not attain the mark in any given year, growth was underwhelming throughout the administration that turned many Nigerians to economic migrants and left over 133 million citizens in multidimensional poverty.

KPMG has done an analysis on the prospect of Nigeria attaining 6% average GDP growth rate in the next four years. One of the ‘Big 4’ consulting firms said the new administration's target “seems overly ambitious” and the economy has "very limited space" to expand at that rate in the said period. But following the KPMG report in June, Central Bank of Nigeria (CBN)’s deputy governor, Kingsley Obiora, countered the professional services firm. In an interview with Bloomberg, Obiora said the policies of the current administration would double economic growth rate next year from about 3% in 2023.

It is one month already that his administration was inaugurated and President Tinubu has yet to present a coherent policy plan that can help achieve his GDP growth target. With regard to fighting poverty and fostering non-inflationary growth, the policies he has implemented – a managed float of the naira exchange rate and removal of subsidy on Premium Motor Spirit (PMS), otherwise known as petrol – are already having an opposite impact. Before over 150% increase in the prices of petrol began to reflect on the consumer price index, headline inflation rate grew to 22.41%, year-on-year, in May. The June figure is expected to significantly increase, given the cascading impact of a sharp increase in the cost of transportation – induced by higher pump price of petrol – on other consumer and industrial goods. Since the introduction of the new exchange rate policy, the value of the naira has also plunged by more than 60% in the official currency market, further stoking inflationary pressure.

A key implication of the loss of purchasing power, due to elevated inflation, is that Nigeria would not be able to achieve high real GDP growth rate fuelled by consumer spending. This will be due to the higher level of poverty and the decrease in people’s ability to purchase more goods and services. And as consumer spending decreases, companies’ revenues and profits would also drop, leading to declines in capital investment and potentially increase in unemployment.

Perhaps Nigerians should brace themselves for inflationary growth as may be engendered by Tinubu’s policy thrust. Turkey, whose economy has confounded many economists, recorded an average of 5.8% yearly GDP growth rate between 2002 and 2021. The country’s economy grew by 11.4% in 2021, the fastest among the G20 countries, according to the World Bank. But this growth was achieved against the backdrop of runaway inflation, which reached 85.51% in October 2022, a 24-year high. Although inflation in the Middle Eastern nation has since eased to 39.6% as of May 2023, the country still faces a cost-of-living crisis and dwindled foreign reserves.

Nigeria faces many other constraints to economic growth. The rationing of the naira notes by the banks has continued and it is further stifling consumer spending. Despite the strides in the market with regard to cashless payment innovations, many transactions are prevented by lack of access to cash, especially in making purchases from informal, poor traders. This challenge will persist because less than 65% of Nigerians have access to bank accounts. Even for those who have, lack of electricity and infrastructure and system failures prevent cashless transactions, with the poor and vulnerable populations in the rural and suburban areas greatly affected.

A longer-term factor that is also dampening growth is insecurity. The agriculture sector, which employs over 70% of the population, has been very susceptible to insecurity, especially in the northern parts of the country.

Another area of constraint to growth is the likely slowdown in infrastructure investment. With existing debt service cost gulping as high as 70% of fiscal revenue, the new administration appears to be pivoting towards raising tax revenues. Incidentally, raising taxes when companies and citizens are facing acute economic headwinds can be an effort in futility, if not counter-productive. And whereas there could be a nominal increase in budgetary allocation to capital expenditure in the next budgets, such huge naira outlay would likely have lower dollar value as most of Nigeria’s infrastructure projects (both ongoing and new ones) are effectively dollar-denominated transactions.

Sourcing external loans for the project would also be quite difficult at a time that many African countries – and developing Asian countries – are facing acute debt stress. This has brought debt forgiveness as a prominent global agenda but one that has seen little traction. According to the Debt Management Office, Nigeria essentially has very limited scope of borrowing. The government is 2.9% shy of reaching its self-imposed limit of public debt-to-GDP ratio of 40%.

Nevertheless, as already emphasised, economic growth is important. To begin to instil belief in its ability to attain its growth target, the Tinubu administration needs to address the pre-existing constraints to consumer spending and productive activities. The cash crunch, which was rumoured to have been contrived to stifle his ability to buy votes during the 2023 election, must be conclusively resolved. The match towards cashless economy is at an unrealistic pace. Countries don’t embrace cashless policy because of lack of cash but because of their readiness for it, in terms of the infrastructure and systems needed, and because of the low cost of making e-payment. These conditions are not met in the drive to force through the CBN’s cashless policy. Yet, addressing the cash crunch is one of the proverbial low-hanging fruits for the new government.

Second is addressing insecurity. President Tinubu now has his preferred new National Security Adviser (NSA) in office. Beyond this, he has not publicly shown much interest in viewing insecurity as a national emergency. Since he assumed office, many violent incidents have claimed the lives of many Nigerians. New incidents of kidnapping-for-ransom have been reported. While such activities became a pastime for violent extremists and other criminals under the Buhari administration, insecurity should not be normalised by the government under Tinubu. A dramatic improvement in security in the country would be one of the most convincing investments – and economic growth – themes of the country.  

Third is a comprehensive anti-poverty plan. The impact of consumer spending on achieving growth cannot be overemphasised. This is why the introduction of a palliatives programme to cushion the impact of the petrol subsidy removal cannot be delayed much further. World Bank, one of the chief advocates of removal of the subsidy, has now projected poverty to worsen without the introduction of a funded social protection programme. However, suffice to say that modern social programmes focused on eliminating poverty often go beyond providing immediate relief. They adopt multidimensional approaches that include improving access to education, healthcare, housing, while increasing economic opportunities for the poor.

Fourth are policies and programmes to boost the supply side of the economy. While the government would need to raise revenue to meet the demand of public expenditure, the private sector should be given due consideration. The abuses of government incentives for investment should not bring an end to such programmes; rather, the corruption in the administration of the policies and their tendency to stifle competition are what should be addressed.
Finally, there is the need for transparency and accountability in government. By not addressing these needs, the economic growth targets of the administration would turn to a mirage.

Martins Hile is a sustainability strategist and editorial consultant.