It is not in doubt that Nigeria is in crucial economic times. Any keen observer must therefore be concerned about the prospects of Lagos State which controls the largest share of the Nigerian economy. Lagos is, in many ways, the nation’s gateway to global business.
On a general note, the economic situation in the country has clearly worsened over the last few years for a variety of reasons. First is the decline in crude oil prices from $120 per barrel in June 2014 to the current $48 per barrel, which invariably has exposed the weakened structure of the Nigerian economy. According to the National Bureau of Statistics, GDP growth slowed to 2.35 per cent as of this year’s second quarter, compared to the 6.54 per cent in the corresponding period in 2014.
These issues have resulted in, amongst many things, the funding crisis among the state governments, from which, remarkably, Lagos has been spared. Consumer demand is weakening according to our retailers and this suggests that we may not return to high single digit growth quickly, let alone the double figures that we desire.
This current downturn just adds to the existing problems of inadequate power supply, poor infrastructure, more than half of the population living in poverty and significant levels of unemployment. The effects of the crisis are being felt at all levels of society but as is often the case, it is the poorest that are particularly vulnerable.
However, Lagos appears to be enjoying the presence of a strong private sector which is poised to consolidate the state’s clear edge over others especially in the key areas of job creation and thereby allows hundreds of thousands of young graduates and youths to enjoy brighter future prospects.
It is pertinent to stress that while it is not the role of government to create employment directly – especially in a country like Nigeria with a small tax base and reduced oil receipts, there is still much that the government can do.
The first important consideration, therefore, is the need to make Nigeria more competitive. The cost of doing business in Nigeria is high. We often think we are a low cost economy because wages are low but the truth is that businesses here face very high costs. The most obvious high input cost is power where manufacturers and other businesses have to pay twice the rate per kilowatt hour than the grid in order to provide the continuous power they need. There are other high costs too relating to infrastructure which means logistics are incredibly difficult for business. Even our wage costs are deceptive because we have low productivity.
Foreign investors have a choice and if we don’t measure up, the investment and jobs will simply go elsewhere. Similarly, our companies struggle to export with a high cost base – and if the naira is strong, this makes exports still less competitive.
Another issue is that of our currency. The naira has been under pressure since the oil price collapsed and has already suffered a 25 per cent devaluation. The black market rates are suggesting a further devaluation could take place and that business is difficult to do at the official rate. This is causing problems for any company that deals with the world beyond Nigeria – not just foreign companies. And new investors will not buy into the country if they fear a sudden devaluation. It makes sense for them to wait. Business leaders are saying that we cannot delay the inevitable and unnecessary pain is being caused in the meantime.
Equally important is the need to do something about the ease of doing business in Nigeria. The World Bank ranks Nigeria at 170th in its index. This is not good enough for a country with our level of ambition and expectation. This is another factor weakening our competitiveness. In some crucial areas, we are even worse –for example; on registration of property, we rank 185th. This is one of a number of areas where Lagos must revolutionise the current position through an ambitious investment in a new digital land administration system.
We need bold moves like this to make a difference. It will pay for itself in extra land taxes and very quickly too.
And then there is the issue of security. The perception of our country is tarnished by terrorist attacks and violent crimes. The public sector has a non-negotiable duty to protect its people and government must not tolerate unacceptable behaviour.
Yet, we can glean from some foreign investors that Nigeria appears to be adopting an attitude which is too insular and protectionist. But opinions from other local producers favour protectionist policies such as tariffs and banning the importation of some products. However, in some cases rather than protect local industry, it can protect inefficiency, poor quality and high prices which create a significant cost for us all as consumers. Trade barriers are usually met with more trade barriers from neighbouring countries, thereby increasing everyone’s costs.
What then should government do differently? We need the investors to come into our country. This will create jobs and wealth at all levels of the economy and all over the country.
In the longer term, we have a range of areas in which to invest to help drive the economy. The obvious ones, of course, are: more reliable power supply and the need to reduce the chronic traffic problems by investing in the transport system. Then concerted efforts must be made to lower the current interest rates. The average lender borrows at interest rates of upwards of 20% per annum, which really is not sustainable.
The recent introduction of the Treasury Single Account by the Federal Government and some states like Lagos is a step in the right direction.
We need to institute economic policies that engender an all-inclusive growth. An estimated 70% of Nigerians, 125million people, live below the poverty line. This is an important consideration for any economic activities to be instituted by the managers of the Nigerian economy.
We must applaud and support the President’s drive to end corruption which has a corrosive effect on business at all levels. It is a critical weakness that makes it hard for everyone to do business in Nigeria.
Equally, we must not forget the long term drivers. Our youths are our future. Our demographics are seen as favourable as we have an increasing proportion of the population at working age and a smaller dependent population. We must invest in our youths – their education, their health and improve the security of the society in which they live so they are ready for the opportunities on offer.