The setback suffered by Nigeria’s balance of payment in the third quarter of 2018 once again establishes the fact that the country is an import dependent economy and it also brings to the fore the need to build an export oriented and well diversified economy. Ultimately, a balance of payments problem is a foreign exchange problem, a revenue problem and an economic growth problem.
Last week, the Central Bank of Nigeria (CBN) reeled out disheartening statistics to the effect that the economy suffered a $4.5 billion balance of payments deficit in the third quarter of 2018 on the back of poor non-oil export. This compares with a $504 million surplus in the second quarter.
A balance of payment deficit is the result of too little export. This situation should make the government take a second but critical look at the capacity of the economy to produce goods for export and the incentives for exporting same from this economy. Where there is deficiency, the economy will continue to lag. Exports are a crucial part of the national income equation; where they dip significantly, an economy will earn fewer dollars and decelerate, leading to either of recession or depression. Already the economy is fragile with last quarter GDP at 1.81 percent with inflation rising to 11.28 percent from 11.26 percent.
The future does not appear bright, indeed the economy may suffer a tail spin from government’s plan to increase exercise duties on export as revealed in the proposed 2019 budget. It is the most inauspicious time for such a policy, at a time when all hands should be on deck to galvanise and encourage exportation and not to discourage and strangulate businessmen and corporations that want to do the needful.
That said, it now behoves government to sanitise the business environment with a view to bringing down the cost of business and remove encumbrances to getting forex that enable acquisition of inputs for manufacturing, such as the multiple windows available to access forex. This can only be done once the economy is properly diversified and grounds laid for a groundswell of exports from multiple sectors.
It is time for government to champion a full blown export policy as did the South Koreans and other South East Asian countries that saw them emerge as tigers in the 1990s and that has today ensured a very high standard of living for their people. The model in South Korea was to develop conglomerates known as Chaebol. The South Korean government generously supported the chaebol since the early 1960s, nurturing internationally recognised brands such as Samsung and Hyundai. They produce nearly all the electronic items and automobile we know in this part of the world, helping the country enjoy a positive trade balance of $6.6 billion in the month of October on total export of $55 billion.
We have repeatedly advocated that government can start with low hanging fruits like services, tourism and transportation to repair the trade deficit. Services account for 58.8 percent of Nigeria’s Gross Domestic Product (GDP) as of 2015. It has grown 97 percent in the last ten years from 20.5 percent. Nigeria ranks 27th worldwide and number one in Africa in services’ output.
The prospect of a services led growth should move government to transform the country to a services hub with the financial services taking the lead. Banks have shown this is possible with their footprints all over the continent. There is hope for this sector which currently generates nearly 60 percent of GDP.
Also of strong potential contribution to the country’s economic development is transportation, which includes investment in infrastructure to facilitate the use of trains whether mono or fast speed; ferries and air travel facilities. In emerging markets like Singapore and South Africa, transportation has leapfrog agriculture in terms of contribution to GDP. We can also do the same. It is only when the economy is put on such a sustainable path can we stop fretting about trade imbalance.
We also enjoin government to look closely at tourism, which has put countries like Kenya, Tanzania, the Gambia and the Seychelles on the world map, helping their economies earn billions of dollars. Certainly, the government can achieve better results with tourism with natural destinations littering the length and breadth of the country.
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