Is Our Economy Growing?

Economic growth has been controversial lately. Bismarck Rewane started the debate when he publicly doubted National Bureau of Statistics’ (NBS) 7.23% first quarter 2010 growth arguing that indices used worldwide as proxies for growth such as housing, automobile and retail sales and manufacturing output did not support NBS’ data. That resonates with Nigerians who cannot feel growth in their pockets as poverty and unemployment remain prevalent. Bismarck is right that economic growth has not translated into improvements in firm and consumer prosperity, but that is not because the data is wrong! While I accept NBS growth data as probably correct, I identify two fundamental factors which make economic growth (without more) largely irrelevant to business performance and individual well-being in Nigeria!
Irrespective of GDP growth rate, Nigerians may feel no improvement except we change the economic structure and alter the flow of benefits of growth in favour of businesses and citizens. And this is not a strange phenomenon in economics! Economists are familiar with notions like “jobless growth”, “inflationary growth”, “non-inclusive” and “lop-sided” growth, “growth without development” etc. Nigeria’s GDP is essentially dominated by agriculture (42%); crude petroleum and natural gas (20%); and wholesale and retail trade (23%). Together these account for approximately 85% of Nigeria’s economy! Crude exploration and export is an enclave activity with few jobs and linkages and limited (if not negative) domestic impact! Agriculture remains primitive and doesn’t generate modern employment!! And trading (especially in predominantly imported goods) adds little value and requires insignificant domestic investment!!! All other sectors-telecommunications, manufacturing, solid minerals, real estate, building and construction, finance and insurance, power and utilities, hotels and restaurants and services collectively account for only 15% of economic output!!!
I don’t think Bismarck sufficiently takes this defective economic structure into account! If manufacturing contributes 25% of GDP, manufacturing output will be a useful proxy for growth, but certainly not here where it tragically accounts for only 4% of GDP! Automobile sales may mirror growth in countries with a large middle class, but not where only government, large companies and banks buy cars. When 54% of our populace live in poverty (and another 25% perhaps in semi-poverty), do we seriously expect retail sales or housing data to reflect growth? Given our current economic structure, unfortunately the dominant proxies for growth will be reflected in rainfall and food production, Niger-Delta peace and crude oil output, and dollar purchases at the CBN! Moreover, the sectoral make-up of NBS’ overall growth projection tallies with sensible analysis-telecommunications grows consistently at more than 30%; finance and insurance growth rate declined in third and fourth quarters of 2009 (the highpoint of Lamido Sanusi’s intervention); agricultural growth correlates with rainfall patterns; manufacturing growth is only modest; and the “amnesty effect” is revealed as oil sector output growth gets positive from second quarter of 2009 after years of negative performance.
In my article titled, “Has the Economy Turned the Corner?” (28/10/09), I argued that irrespective of economic growth, “the substantive point about the structure of our economy remains”; that “the most depressing statistic about our economy however remains the contribution of manufacturing to output-4%” and asked Nigerians and policy makers to “imagine the results in employment generation and other economic indices if we could raise manufacturing output to 20% of GDP and increase capacity utilisation to 90%”. Indeed I have constructed an ideal model if we want jobs, poverty alleviation and inclusive growth-manufacturing-20%; agriculture-20%; services-15%; oil and gas-10%; wholesale and retail trade-10%; solid minerals-7.5%; power-5%; telecommunications, post and ICT-5%; real estate and construction-5% and others-2.5%.
That leaves the second problem-how are the benefits of economic growth shared? A company may grow turnover, but shareholders may receive lower dividends for a variety of reasons-input costs, operating expenses, energy costs, management profligacy, employee salaries, taxes and municipal charges, excessive compensation and bonuses for executives, fraudulent procurement practices etc. Nigeria Inc is that company! Corruption means resources are diverted to private uses rather than public good. Distribution of economic resources is grossly lop-sided in favour of political office holders, legislators, senior bureaucrats, and politicians. Even if the economy grows at 15% per annum, these factors ensure that businesses and citizens may not feel any impact.
A clear illustration is the capital and recurrent budget for the National Assembly which has grown from N7billion in 1999 to over N120 billion in 2010. That excludes “constituency projects” which are recorded as executive expenditure, but in reality resources devoted to maintaining legislators. The budgets for the Presidency, Ministers and Special Advisers, Governors, Commissioners, Local Government Chairmen and Councillors and federal and state legislators in addition to all manner of board chairmen and members, special assistants, senior special assistants and personal assistants means that little if any resources trickle down to the people.
As we so often find with economic and policy analysis, the apparent explanation is not always right! Instead of blaming NBS growth data, economists should focus on other data which reflect Nigerian economic reality-poverty prevalence, human development indices, unemployment, private sector credit, manufacturing share of GDP/capacity utilisation, local content in industry, power and infrastructure deficit, absence of economic linkages, import reliance, interest rates, taxes and multiple charges, high business operating costs, ratio of oil to non-oil exports, crime and insecurity etc. The solution lies in economic re-engineering and diversification and dealing with governance, corruption and the incentives for public service.