Africa’s biggest economy is witnessing a massive distortion, with economic analysts worried that the ugly trends continue without much effort from the government. As a result, economic indicators seem very disturbing, especially inflation, unemployment, debt, subsidy payment and poverty rate. The COVID-19 pandemic and the Russia-Ukraine war have been attributed to these challenges, with some analysts arguing that the global economy is facing a few challenges.
However, a careful look at statistics has shown that Nigeria’s challenges are worse than the experience of other emerging economies. Poor handling and bad economic policies have contributed to Nigeria’s unending economic woes despite acknowledging that external factors like the war in Ukraine and COVID-19 have added salt to the injury.
The National Bureau of Statistics, in its recent release, showed that inflation has soared to 17.1 percent in Nigeria. An increase in the market price of goods and services is felt in all sectors of the economy. As a result, the value of the naira has reduced while the purchasing power and household income have drastically reduced. Inflation has made nonsense of income saving while consumption has diminished due to unchanged income levels.
At a minimum wage rate of N30,000 monthly, it is difficult for Nigerians to survive the current inflation rate. This has several ripple effects on various sectors. The cost of production will increase, leading to businesses struggling to break even or profit. As a result, there would be business closure, job losses and fewer taxes for the government. Rising inflation could contract the economy and expose it to another economic recession.
Unemployment is currently pegged at 33.3 percent, while youth employment is 42.5 percent. The record rate of unemployment for an unproductive economy would have a more devastating effect. This unemployment is caused by lack of foreign investment in the economy, high cost of doing business, insecurity, unstable business environment and other reasons.
Persistent increase in unemployment is fuelling insecurity, youth restiveness, low output and slow economic growth and a reduction in the standard of living of Nigerians. Underemployment is also very high at 22.8 per cent, while youth underemployment is 21.0 per cent. Unemployment and underemployment have contributed to the knowledge-flight of young Nigerians away from the country in search of greener pastures or high wage rates.
Nigeria’s debt profile has continued to rise since 2015. According to available statistics, it has increased from N12.5 trillion in 2015 to N42 trillion in 2022. While borrowing may not be entirely wrong, borrowing should be geared towards financing infrastructure and boost real sectors of the economy. Instead, in Nigeria, debt and repatriated Abacha loots used for social investment programmes have been stolen and mismanaged by political office holders with no significant economic impact.
Borrowed funds have been used to pay salaries and furnish the high cost of governance that has characterised the Nigerian political space. Moreover, a vast per cent of our revenue from crude oil sales and tax has been used to service enormous foreign and local debt with minimal left for expenditure on infrastructure and vital policy programmes.
Subsidy payment for petroleum products in Nigeria is no longer sustainable. In addition, the lack of implementation of the Petroleum Industry Act has continued to stall the sector’s growth. N4 trillion has already been budgeted for subsidy payment in Nigeria for 2022, with a possibility of the figures increasing. As a result, revenue from oil has reduced despite a rise in crude oil prices in the international market.
There is no economic sense to subsidise petroleum products in an unproductive economy with prolonged queues for petroleum products in nearly all cities in Nigeria. Furthermore, the government’s inability to maintain the four government-owned refineries and the uncertain completion of the Dangote refinery would mean that Nigeria is losing a lot from foreign exchange used in payment for refining what could be refined in Nigeria elsewhere. Lack of government trust from the citizens in reinvesting the money from subsidy payment has made it challenging to stop the subsidy payment.
The World Bank’s Nigeria’s Development Update for June 2022 predicts an additional 7 million Nigerians to fall below the poverty line of $1.9 per day. This will add to the already existing 83 million impoverished Nigerians, bringing the total figure to 90 million misery-living, squalor-busted and economically hopeless citizens by the end of 2022. If these figures come by, they will represent over 45 percent of the Nigerian population and create an economic atmosphere of crisis, hunger, starvation and potentially worsening existing insecurity.
Economic planners and drivers have lost touch with the economy. As a result, the economic compass of Nigeria is missing, and the country is regressing at a record speed. The government must expedite actions to salvage the economy from total collapse.
Alikor Victor is a development economist and policy analyst at the Nextier Group.