According to a recent report by the International Monetary Fund, Nigeria has regained the title of Africa’s biggest economy a few months after the country lost the prime position to South Africa. The IMF’s World Economic Outlook for October projects Nigeria’s Gross Domestic Product at $415.08bn, well ahead of South Africa’s GDP which was put at $280.36. It will be recalled that following a drastic fall in the value of the naira on the back of the removal of the peg to the dollar by the Central Bank of Nigeria, South Africa was reported, sometime in August this year, to have upstaged Nigeria as the biggest economy in Africa.
The IMF report is cheering news especially to managers of the Nigerian economy who now have something to point to as evidence of prospects of an early exit from the current economic recession consistent with assurances they had given earlier. The slowdown in economic activities is taking a great toll on the ordinary Nigerian and this revelation by the IMF is capable of inspiring hope and restoring some confidence in the economy. In fact, it is well-documented in literature that economic recessions have psychological and confidence aspects. For example, if people expect a recession to be prolonged, there is the tendency to save money rather than invest. Such expectations can create a self-reinforcing downward cycle thereby worsening the recession not least because a behaviour that may be optimal for an individual (such as saving more during adverse economic conditions) can be harmful to the economy if too many people toe the same path. This is what economists refer to as the paradox of thrift. In the circular flow of income, one person’s consumption is another person’s income.
Similarly, if they expect economic activities to slow down for a long time, firms tend to postpone planned investments and cut down on staff strength in order to improve their chance of weathering the storm. In fact, the term “animal spirit” has been used to describe the psychological factor underlying economic activity. Robert Shiller had argued that “when animal spirits are on ebb, consumers do not want to spend and businesses do not want to make capital expenditures or hire people” and thus plunging the economy into a deeper recession.
It is in this context that the seeming upbeat disposition to the recession by the government finds explanation. Drawing from this theory, there is sense in putting up a bold face and painting a rosy picture even when the stark realities point to the contrary. A few weeks ago, Vice-President Yemi Osinbajo, who is also the chairman of the economic management team, had assured the nation that the economy would exit the recession before the last quarter of this year winds to a close. By the same token, the Central Bank of Nigeria Governor, Godwin Emefiele, was confident that the recession would be short-lived when he stated that the “worst is over”. In the face of economic turbulence, the psychological aspects are often ignited; those saddled with the responsibility to steer the country away from it must be seen to inspire hope in their words and deeds.
That said, should Nigerians now roll out the drums having beaten South Africa to clinch the top position? Without a doubt, this disclosure by the IMF will rekindle the nation’s pride as the Giant of Africa and will most probably feature prominently in any SWOT analysis on Nigeria. However, of what use is higher GDP figure if a majority of the citizens live below the poverty line? Sadly, one of the most striking outcomes of the economic growth trajectory in Nigeria prior to the oil price slump in 2014 was the rising poverty level amidst growth records that were largely non-inclusive. The country is still reeling from the effects of the widening inequality inflicted on Nigerians by shocking levels of corruption and mismanagement of oil revenue.
The truth is that the GDP size is only a necessary condition for economic development. It is not a sufficient condition. If it were, countries like the United States of America and Chin, the two largest economies in the world, would command the highest standard of living. Instead, it is relatively small economies like Norway and Sweden that are listed by the World Bank as having the highest standards of living. Nigeria may have overtaken South Africa with regard to the monetary value of final goods and services produced in each country but trails behind in many crucial aspects including infrastructure, financial institutions and general business environment. The economies of South Africa and Nigeria have something in common: Both rely heavily on commodity exports. However, while diversified commodities make up 65 per cent of exports in South Africa, the narrative in the case of Nigeria is that of the dominance of crude oil, which accounts for more than 90 per cent of the country’s foreign exchange earnings. The current recession is a price the country is paying for over-reliance on a single commodity.
In terms of quality of life and general business climate, South Africa has an edge over Nigeria. In its 2016 Human Development Index report, the United Nations Development Programme publication ranked South Africa 116th and Nigeria 152nd out of 188 countries. The HDI is a standard means of measuring human development which refers to the “process of widening the options of persons, giving them greater opportunities for education, health care, income and employment”.
Also, South Africa fared better than Nigeria in the 2016 Ease of Doing Business report published by the World Bank, which assessed the business economic conditions of 189 countries. In it, South Africa placed 73rd on the ranking while Nigeria took the 169th position. What is more, the 2016 Social Progress Index which measures the capacity of countries to meet the basic human needs of their citizens based on well-defined wellness indicators, ranked South Africa and Nigeria 59th and 119th respectively out of 133 countries. All these measures of the quality of lives of the citizenry demonstrate how much better off South Africans are in general compared to Nigerians.
So, it goes without saying that while the size of a country’s GDP does count, the standard of living of the citizens is more important. Nigeria is currently battling an economic recession. The National Bureau of Statistics predicts that the economy is likely to shrink by 1.3 per cent in 2016 while the IMF expects Nigeria’s GDP to contract by 1.7 per cent in 2016 and slowly recover in 2017, growing by 0.6 per cent. Whether the recession will eventually turn out to be “V shaped” (brief recession followed by a rapid and sustained recovery) or “U shaped” (prolonged slump in economic activities) will be a function of not only the type of policies and measures put in place to stimulate the economy but also the speed and commitment with which the right policies are implemented.
In its effort to once again get the economy on a positive growth path, the government should not lose sight of the fact that GDP growth is only a means to an end. Until Nigeria makes a significant leap in the Human Development Index, indicative of an improvement in the citizens’ standard of living, it is not yet Uhuru.
Uwaleke, a Fellow of ICAN, is an Associate Professor of Finance and Head of Banking & Finance Department at Nasarawa State University Keffi.
END
Be the first to comment