I present to you the full lenght of Mr. Peter Obi’s Speech At The Renaissance, Ikeja… Sustaining Growth through Diversification of the Economy
Since the beginning of the 21st century, the Nigerian economy has been on growth trajectory, growing on average above 5% until recently.
This economic growth for over a decade led Nigeria to becoming Africa’s biggest economy with a Gross Domestic Product (GDP) of more than USD 500 billion. However in August 2016, following two consecutive quarters of negative growth, Nigeria went into economic recession, and now has been through six quarters of negative growth.
The question to ask is how will Nigeria come out of recession and bounce back to sustainable growth? The answers are:
1 Aggressive savings to build the external reserves and
2 Diversification of the economy away from dependence on oil for our export earnings to manufacturing and other value added services.
3 Evolving qualitative and development oriented education system. Oftentimes, we say that the solution to our economic problem is to diversify.
But our local economy is fairly diversified. Our current GDP figures, for example, shows that non-oil is contributing over 80% of the GDP. However, the tragedy of our situation is that 90% of our export revenue comes from oil.
For example, the last published 2015 data shows that of the total export revenue of USD45.5 billion oil exports accounted for USD42 billion, leaving the non-oil sector, which is has the biggest GDP contributor to account, for only about USD3 billion.
With virtually one source of export revenue and very poor savings one does not need to be an Economist to grasp why Nigerian economy is volatile and weak. Therefore the critical challenge for achieving sustainable economic growth in Nigeria is for our country to make agriculture, manufacturing and other sectors contribute more to our export revenue by revolutionizing the manufacturing sector whose contribution is still below 10% of the GDP.
In 1980, the Nigerian industrial capacity utilization was 70%, contributing over 15% of the GDP, but has since gone prostrate, producing merely 9% of the GDP. To further elucidate on the need for aggressive savings and kick starting of an industrial revolution, it is important to compare Nigeria’s economic data with that of six other countries with similar trajectory, (i.e. military intervention, corruption, militancy, terrorism): Indonesia, Turkey, South Korea, Thailand, Malaysia, and China. GDP(2010 Base Year), USD Billion 1980 2016 %Change Nigeria 143 420 193.71 Indonesia 161 1,000 521.12 Turkey 200 1,000 400.00 South Korea 149 1,300 772.48 Thailand 66 400 506.06 Malaysia 45 350 677.78 China 340 11,000 3,135.29 Foreign Reserves, USD Billion 1980 2016 %Change Nigeria 11 30 185.71 Indonesia 7 115 1,669.23 Turkey 3 105 3,081.82 South Korea 3 365 12,066.67 Thailand 3 170 5,566.67 Malaysia 6 105 1,809.09 China 10 3,000 29,900.00 Market Capitalization, USD Billion 2016 Nigeria 32 Indonesia 400 Turkey 200 South Korea 1,200 Thailand 350 Malaysia 200 China 7,000 Research findings show that countries compared above and their achievements were as a result of aggressive savings and diversification of their economies towards manufacturing and value added.
Some of them that were endowed like Nigeria with natural resources, agricultural raw materials had prospered by supporting their farmers to produce more, build appropriate technological capacity, infrastructure, and support to enable local firms have the ability to add value and export more knowledge intensive products. They have invested in sound education system and skills training to enable their economy move towards today’s knowledge economy especially towards manufacturing and industrial revolution. They have achieved sustainable economic growth and development by investing in their human resource, technological innovation, enterprise and aggressive increase in industrial capacity utilization.
Aggressive Savings and diversification of our economy towards manufacturing and investment in education will turn around our economy from recession to sustainable growth based on the following facts:
1) Savings will enable the country to achieve macro-economic stability by ensuring stable interest rates, moderate inflation and strong capital inflows from foreign investors (portfolio and direct investments) that will in turn help the government to raise the capital to start rebuilding deteriorated infrastructure.
2) Urgently provide necessary support to unleash a revolution in the manufacturing sector as well as micro, small and medium scale enterprise which are very critical to any developing economy in terms of increased productivity, provision of needed employment and reducing poverty.
Turnaround of these critical sectors will lead to increase in exports revenue from the non-oil sector. Economic problems of Nigeria can be traced directly to the under performance of these critical sectors. The benchmark set for any developing economy is that the manufacturing sector should account for at least 15% to the GDP.
Comparison of Manufacturing Contribution to GDP 2015 Nigeria 8% Indonesia 30% Turkey 25% South Korea 35%-40% Thailand 35% Malaysia 25% China 35%-40% 3) Investment in Education. Research has shown that in today’s knowledge economy, the more you invest in education, especially in Science, Technology, Engineering and Mathematics, (STEM) the better your economy as these education and knowledge fields drive today’s economy and will continue in the future.
To use two countries as examples, China and India: India today has received FDI inflow of over USD150 billion in ICT related investments while China receives FDI inflow of over USD1.3 trillion which is driven by STEM skill and low manufacturing base.
To further appreciate how Nigeria’s under-development can be partly blamed on our failure to embrace the right quality of education, Nigerian national and state budgets for 2017 were approximately N14trillion which is about USD40billion (using N350/USD) while Apple’s Q1 2017 revenue was about USD78 billion which is almost twice Nigeria’s budget.
This is clearly why we must invest in education. To further buttress the importance of having a robust savings and vibrant manufacturing sector in Nigeria, let’s review China’s steep climb from poverty to the world’s largest economy on purchasing power parity basis. Since 1980 when China moved to market based economy, its economy grew rapidly at an average rate of 10% annually over three decades, lifting 800 million people out of poverty.
This rapid growth can be attributed to a number of factors – visionary and committed leadership and large scale capital investment in development of critical infrastructure financed by huge savings. China today has the highest savings-GDP of any country in the world.
Other factors include the diversification of its economy, especially towards manufacturing sector. In 2015, its manufacturing sector contributed 40% of its GDP. Over 80% of its export revenue comes from manufactured finished goods in addition to providing jobs for several millions of people, directly and indirectly. Importance of savings cannot be over emphasized as it enables nations to inject needed fiscal stimulus at a time of economic difficulty or recession.
For example, China was the first major economy to emerge from the global economic crisis in 2008 and did so in a spectacular way by injecting several billion dollars into its economy. To even bring what I am saying home, let us look at few more examples.
In 2002, Nigeria was a net importer of cement, importing over 6 million tonnes while only 2 million were produced locally, expending huge foreign currency for the imports, as well as sustaining jobs of the exporting countries.
Today, Nigeria is not only producing sufficiently its cement requirements, but is now a net exporter to other countries, saving the foreign exchange being used for importation in the past, creating several jobs directly and indirectly. The biggest cement company, Dangote Cement Plc, is the largest quoted company on the Nigerian Stock Exchange almost 25% of the entire Exchange.
Again, the upcoming Dangote Refinery which is expected to be completed in 2019 will be contributing about USD13 billion annually to the national economy by saving about USD7.5 billion through import substitution and generate additional USD5.5 billion through exports of refined petroleum products, fertilizer and petrochemicals while providing over 150,000 (one hundred and fifty thousand) direct and indirect jobs.
Just using these two examples can show the value, which a vibrant manufacturing sector and Micro, Small and Medium Enterprises (MSMES) can contribute to sustain our economy.
In conclusion, aggressive savings, diversification of our economy towards manufacturing, export of value added and knowledge-based products are the antidotes to addressing Nigeria’s current economic quagmire. Peter Obi, CON ( August 10, 2017)