By Emmanuel Akin-Ademola
Nigeria has arguably the biggest economy in Africa, yet, it ranks 40th among African countries in revenue Gross Domestic Product ratios in 2021, owing to its low production, exports, and heavily dependent oil economy that has been prone to recessions whenever there is a massive dip in oil prices.
The current Muhammadu Buhari-Led administration came in 2015 and promised to address the problems that posed significant challenges to the country’s development. However, the administration made a wrong move by imposing border restrictions to majorly encourage economic diversification and agriculture production for a state that had not yet matured enough to produce for its citizens.
According to figures from the United Nations Food and Agriculture Organization, rice production increased from an annual average of 7.1 million tonnes between 2013 and 2017 to 8.9 million tonnes in 2018; which isn’t an impressive rate that would have been envisaged at the outset of the move, and inflation plummeted the purchasing capability of individuals in a country that spends more than 50 percent on food consumption.
Nigeria is currently in a debt risk situation which is hurting the country’s economic growth. This has created an impact on local businesses leading to increased corrupt tariffs activities by smuggling of goods through the country’s borders. As a result of the increasing tariffs, goods became more expensive and the government couldn’t fund itself out of recessions on its own, it had to borrow, hence increasing the national debt!
A country with a history of import bans’ debt has surged from 658 percent to N26.9 trillion in the last 21 years since the return to democratic rule. On July 7, 2021, the upper chamber approved a loan request of N2.343 trillion, approximately $6 billion, and another $8.3 billion and €490 million — which is not an impressive move seeking to relieve heaping debts. Nigeria needs to know that borrowing to meet the needs of recurring expenditure risks the country into a series of falling into debt traps. Nigeria needs to adopt a clear national strategy that considers how the country’s economy will grow sustainably.
On October 7, the President blamed the second phase of the recession on Covid 19 and oil prices falling, as well as having to “spend” to relieve the economy by taking out loans that are unlikely to be repaid soon. It is also worth noting that the naira value has depreciated by more than 200percent since 2015. This translates to higher living costs and lower living standards for citizens in a country that relies on exports.
Upon all these debts, the country has not been a good resort for foreign investors. It lacks the basic provisions for an investment-friendly environment with amenities like water, good security, stable electricity, and transportation. These are still perplexing issues that the government has failed to resolve!
How long will the country continue to borrow its way out of economic downturns?
Nigeria’s borders were reluctantly opened in December 2020 when the country ratified the African Continental Free Trade Area agreement (AfCFTA).
The Minister of Finance, Budget and National Planning, Dr. Zainab Ahmed, recently remarked that Nigeria’s problem is not the debt it owes but its low revenue generation to finance national projects. While this is true, the government has recently run out of ideas to develop new initiatives.
Nigeria’s unemployment rate is 33.3 percent while retaining a dependency ratio of 86 percent, according to Statista. This gives a basic x-ray of her economic problems with a future that is far from becoming better as Fitch Ratings projected that Nigeria’s debt-to-revenue ratio will rise to 395 percent by 2022.
However, apart from its enormous natural resources, the country is blessed by its large population; if production capacities are augmented by governmental organisations like encouraging free trade and exploring AFCFTA’s benefits of a free market, and private organisations, it would generate more revenue and create a favourable job avenue for its citizens.
Emmanuel Akin-Ademola is a writing fellow at African Liberty.