_________Why the economic figures were unsustainable and promoted by corruption

In 2013 Nigeria rebased her old GDP figures to a new one of USD$510 overtaking South Africa to become Africa’s biggest economy, but a closer look at the figures reveal a lot of inconsistencies and an economy built and driven by liquidity and corruption between 2009 and 2014 which portrayed a growing economy rather than economic expansion pursued by the government leading to unsustainable economic growth.

The events of the last two years has shown how vulnerable the Nigerian economy can be attacked, both the fall in oil price and the attack on oil installations reducing the country’s output from 2.2 million bpd to 1.4 million has shown how vulnerable Nigeria’s monolithic economy is. If indeed Nigeria’s economy was growing rather than expanding, the economic events of the last two years would have only slowed down the growth rather crippling it, other sectors should have been keeping the economy moving.

A look at the GDP………….According to the World Bank, Nigeria’s GDP was as follows:

1. 2006………USD$145.4 billion
2. 2007………USD$166.5 billion
3. 2008………USD$208.1 billion
4. 2009………USD$169.5 billion
5. 2010………USD$369.1 billion………Increased by USD$200 billion from 2009 to 2010.
6. 2011……….USD$411.7 billion
7. 2012………USD$460.9 billion
8. 2013………USD$514.9 billion
9. 2014………USD$568.5 billion….increase of about USD$400 billion from 2010 to 2014

Note!………..Credit Economy Vs. Liquid Cash Economy

Countries that are able to grow and sustain consumer spending are countries that are majorly credit economies where credit cards are used. When the economy slows down people continue to spend, though it might not be as frequent as when the economy was booming but spending continues because they have access to credit facilities which has no limited years of terms of repayment, as long as you are able to pay monthly interests and don’t exceed the credit limit by paying money into the account when available, this helps to stabilize or continue growing the consumer spending of the GDP………..in essence it is like the overdraft facility given to a business to help the company cash flow when transactions are low.

To encourage consumer spending and to boost sales, major retailers and whole sales outlets like Walmart, Home Depot, Canadian Super Stores etc. have their own credit cards which helps shoppers buy goods which are repayable over 12 to 18 months……..these are part of what increases consumer spending in these economies.

But in a liquid cash economy like Nigeria where everything is paid for with cash at the point of sales, when there is a slowdown or distress in the economy, it causes a cash crunch and it becomes difficult for people to spend because they have minimal access to cash, hence the consumer spending in the GDP is greatly affected, it may stop growing or start to decline…….

Breaking down the GDPs……….and how they make sense!

Between 1999 and 2009 the economy grew and reached USD$208.1 billion in 2008, it fell to USD$169.5 billion in 2009. CONSUMER SPENDING OR SERVICES as a percentage of GDP stood at an average of 24.5% in those 11 years, the liquidity in circulation was minimal and at the same time our External Earnings stood at 43% of GDP in 2006, which meant we were getting substantial foreign exchange earnings.

Between 2009 and 2010 the Nigerian GDP increased from USD$169.5 billion to USD$369.1 billion (117.8%) increase, a whooping USD$200 billion increase overnight……the interesting thing about this growth was that CONSUMER SPENDING or services as a percentage of our GDP increased to 51.2% jumping at over 100% increment, at the same time our EXTERNAL EARNINGS further reducing from 43% of GDP in 2006 to 25.3%. What this means is that our source of FOREIGN EARNINGS in dollars had further reduced.

A good economist will question what was driving our “ASSUMPED GROWTH”….How can the economy grow by USD$200 billion in one year without a productive, manufacturing or innovative sector… Between 2009 and 2014, the economy expanded by about USD$400 billion at an average of USD$80 billion every year reaching USD$568 billion………if indeed government expanded the economy using fiscal policies, where are the infrastructure (Roads, power supply, buildings driven by government mortgages, public schools, hospitals etc.) to show for it.

With the rebasing of Nigeria’s GDP in 2013, agricultural sector declined from 33% to 22%, services increased from 26% to 51%, oil and gas was 15.9%, manufacturing 6.7%, Telecoms 8.7%, and entertainment 1.2%. By 2014, services had further increased to 55.5%, agriculture reducing to 20.2% and manufacturing reducing further to 4% and external earning also reducing further to 18% of GDP, the manufacturing and productive sector of the economy was further reducing while our consumer spending was on the rise.

Mr. Remi Ogunmefun the DG of the Manufacturers Association of Nigeria (MAN) further buttressed this point when he stated in The Guardian of 31st Oct. 2015 that “manufacturing contributes only 4% to Nigeria’s GDP”. The manufacturing sector which would have really been termed as the productive sector as it could give us external earnings and reduce our dependency on imports and help our dollar reserve and strengthen the Naira was so minute.

NOTE!…..

A good look at other countries with high consumer spending or services as a percentage of GDP shows a gradual build up over the years and hence have become sustainable, South Africa is an example…..the consumer spending increased at an average of 3% or less from the 80’s to where it is today reaching 68.1% of GDP in 2014.

Many have said the aggregate performance of the economy was growing, but what is the aggregate performance, did we really have a growing economy or an expanding economy.

One major thing to note here is Consumer Spending or services as a percentage of GDP, and according to the World Bank,….Services, Etc., as value added include value added in wholesale and retail trade (including hotels and restaurants), transport, and government, financial, professional, and personal services such as education, health care, and real estate services. Also included are imputed bank service charges, import duties, and any statistical discrepancies noted by national compilers as well as discrepancies arising from rescaling.

A good look at other countries with high consumer spending or services as a percentage of GDP shows a gradual build up over the years and hence have become sustainable, South Africa is an example…..the consumer spending increased at an average of about 3% or less from the 80’s to where it is today reaching 68.1% of GDP in 2014.

A Critical Look at the Consumer Spending or Service Sector Compared to Other Countries….

Oil and natural gas accounts for 91% of Nigeria’s total exports, with the price of oil falling at over 100% and daily output reduced from a capacity of 2.2 million bpd to 1.4 million by the militancy in the Niger-Delta, Nigeria’s Trade deficit reached N171.3 billion as at the end of March 2016 from a surplus of N168.7 a year earlier and it is forecasted to reach a deficit of N228 billion by end of August……our earning have totally dwindled and we are spending more on imports. It is either government borrows to cover up the gap or continue to deplete the foreign reserve to meet up, this has greatly affected the spending capacity.

With less liquidity in the economy consumer spending or services starts to decrease, but looking at the consumer spending or services of the Nigerian Economy compared to country like South Africa……Whole Sale and Retail Trade (including hotels and restaurants)……..As people get richer shopping increases, but did Nigeria benefit from people coming from outside the country to shop?…….in 2013 South Africa generated R218.9 billion (USD$23.8 billion) from tourism which impacted its whole sale and retail trade including hotels and restaurants….57% (USD$13.6 billion) was from domestic visitors while international visitors accounted for 43% (USD$10.2 billion). Spending by International visitors to South Africa included: Road Transport, Non-Specific Products, Accommodation, Air Transportation, Tourism-Connected Products, and Others.

April 14, 2016 ThisDay Newspapers reported that “Nigeria to generate USD$2 billion revenue from tourism” a statement credited to Dr. Paul Angya the acting Director General of the Standard Organization of Nigeria………USD$2 billion in tourism from a USD$570 billion economy with consumer spending of about 55.5% of the GDP…….what this clearly shows is that Nigerians are the sole purchasers of their retail and whole sales activities including hotels and restaurants……tourism in Nigeria is majorly business tourism and not holiday or leisure.

The failure of the government to invest in education has made the private sector capitalize on the void……while the government of South Africa invests 6.1% of its total GDP on education among the highest percentage in the world providing good public schools, Nigerians pay some of the highest school fees in the world to send kids from kindergarten to high school…….the decadence in the public educational sector and the high school fees is part of what is driving up consumer spending.

From 2011 to 2014, the Nigerian government spent an average of 3.6% on health expenditures as a total percentage of GDP compared to South Africa with an average of 8.75% way above the 5% recommended by the World Health Organization (WHO), Health care in South Africa varies from the most basic primary health care, offered free by the state, to highly specialised, hi-tech health services available in the both the public and private sector. The healthcare system is one of the major factors stretching Nigerians and at the same time increasing consumer spending.

In July 2015, PricewaterhouseCoopers (PWC) reported that Nigeria’s Real Estate could raise by 49% from USD$9.16 billion in 2015 to USD$13.65 billion in 2016 growing at average of 8.7% annually and surpassing the country’s GDP growth of 7.4%…..the question is what is driving the Real Estate in a country where over 95% build and not through mortgage……as corruption reached its highest peak it created a multiplier effect with people investing in Real Estate…….most Real Estate investors went bankrupt because they were competing with people who stole and had free funds to develop properties.

Real estate was majorly driven by corruption, as people stole they invested in capital projects, looking around the Real estate market confirms this, most high rises in places like Ikoyi have less than 40% occupancy,…..GRA Ikeja and Abuja are equally not left out.

The banks carried out the transactions which off course increases their profits, and as people get richer imports increases because they are able to afford more foreign goods and government make more money from duties..

While Nigeria may boast of a population advantage which may increase GDP during a boom and collapse under a burst, countries like South Africa have built better and sustainable institutions that can weather the advent of shocks helping maintain stability in the economy…….if the Nigerian government wants sustainability then it must build better institutions that will help diversify its economy.

The Capital Outflow…..and why we must develop the Service Sector to bring in Foreign Exchange, stop capital outflow or create a trade balance.

Education!……….Nigeria’s massive Imports of Education and a source of Foreign exchange for other countries.

Note: when you travel outside the country on holidays, studying, or medical trips…..it is recorded as imports because you are taking forex out of the country.

Education is not just about academics anymore….strategically, it is a source of foreign exchange and an inflow of the most brilliant minds contributing through innovation to foreign economies while residency and citizenship are offered.

Education is not just about academics anymore….strategically, it is a source of foreign exchange and an inflow of the most brilliant minds contributing through innovation to foreign economies while residency and citizenship are offered.

In 2015, International Students contributed more than USD$30 billion to the US economy, they contributed £14 billion to the UK economy, with a projection that this could rise as high as £26 billion by 2025, USD$17.5 billion to the Australian Economy in 2015, Canadian government in 2012 reported that the total amount that international students spend in Canada ($8.0 billion) is greater than the export of unwrought aluminium ($6 billion), and even greater than the export of helicopters, airplanes and spacecraft ($6.9 billion) to all other countries. The annual expenditure of $8.0 billion by international students translated to estimates of almost $4.9 billion worth of contribution to GDP, 86,570 jobs, and $455 million of government tax revenue.

University World News, an online newspaper on Universities worldwide reported in May 2014 with a statement credited to the former Central Bank Governor:

“Although there are no comprehensive data on the number of Nigerian students abroad, recent data have shown that there are about 71,000 Nigerian students in Ghana paying about US$1 billion annually as tuition fees and upkeep, as against the annual budget of US$751 million for all federal universities. In other words, the money spent by Nigerian students studying in Ghana alone with a better organised system is more than the annual budget of all federal universities in the country,” Sanusi said.

“Nigeria is today placed third on the list of countries with the highest number of students studying overseas.”

In 2010, Nigerian students spent about N246 billion (USD$1.58 billion) using the exchange rate of that year on UK education sector, and in 2012 Exam Ethics International, a non-governmental organization stated that Nigerian students spent over N1.5 trillion (USD$10 billion) studying abroad that year. Compared to the N4.8 trillion Federal Governments Budget of 2012, Nigerians spent 31.3% of that estimated budget on education outside the country.

In October 2015, governor Nyeson Wike of Rivers State Stated that he had paid about N1.4 billion in the last 4 months on Students studying at foreign Universities on government scholarships. In 2012, Mrs. Hindatu Abdullahi the Director of federal Scholarship Board (FSB) stated that the Federal Government spent more than N900 million to sponsor 150 students abroad 2011, N6 million (USD$40k) per student for the year compared to the N14.14 billion allocated to Nigerian Universities that year……representing 6.4% of funds allocated to all the universities for 150 students.

The International Consultants for Education and Fairs (ICEF) reported in April 2012, and quoting Iain Stewart a member of the British parliament “There will be nearly 30,000 Nigerian students in the UK by 2015. These numbers account for seven percent of the total UK university population; this is a very significant number,” he said. Only next to China and India.

Of the 380,376 African students electing to study abroad in 2010 (representing roughly 10% of the world’s international students), 29.2% went to France while South Africa came second with 15% generating a massive income for the country’s economy, South Africa has become the major destination in Africa for African students.

Healthcare!…… Nigeria’s massive Imports of Healthcare and a source of Foreign exchange for other countries.

“The Economist” magazine reported that the “The Organising Committee of the Nigerian Centenary Charity Ball has calculated that Nigerians spend around N250bn (US$1.6bn) a year on medical treatment abroad.”

In 2013, the Intelligence Unit of “The Economist” magazine reported that the “The Organising Committee of the Nigerian Centenary Charity Ball has calculated that Nigerians spend around N250bn (US$1.6bn) a year on medical treatment abroad.”

According to the Indian High Commission, Indian hospitals received 18,000 Nigerians on medical visas in 2012, 47% of the Nigerians were in India to receive medical treatment and spent approximately USD$260 million.

Nigeria lacks major airlines that could create profit or trade balance in air transportation to these destinations….18,000 patients to India alone flying on Emirate airlines, Quarter, or Turkish Airline at an average cost of N280,000 as at 2012 cost the country’s economy additional N5.040 billion (USD32.5 million). The drain pipes are just too much.

The interesting thing is that countries are perfecting their health sectors as a source of external earnings, Costa Rica generated USD$338 million in revenue through medical tourism for the economy in 2013, Australia generated USD$26 million in 2013……and in 2013 Thailand generated USD$4.3 billion in Medical tourism alone. ◦According to Alpen Capital Investment Banking, the United Arab Emirates’ medical tourism sector is growing strongly and reached $1.69 billion in 2013. Dubai Healthcare City (DHCC) is one of the largest healthcare tourist destinations in the region. According to DHCC, they handled approximately 500,000 patients in 2011, 20% of which were medical tourists.

In 2010 alone, 18 hospitals in the UK made £42 million from medical tourism, London hospitals generate approximately 20% of their total revenue and profits from the overseas patients. Medical tourists spent an estimated £219 million on hotels, restaurants, shopping and transport in the UK. In 2012, German hospitals EUR1 billion annually to reach EUR4.6 billion by 2017. Guatemala, 5,000 medical travelers in 2012 and earnings of USD$35 million, expected to reach 20,000 healthcare travelers by 2015. Medical Tourism contributes about USD$150 million to the health sector of the South African economy annually.

While citizens of these countries may also go seek medical attention abroad, there is a trade balance in the healthcare sector, the question now remains that our health sector is at a serious trade deficit as we do not have people flying into Nigeria on medical Tourism. The interesting thing about Medical tourism is that other sector of the economy like, transport, airlines, hotels, restaurants, banks, and shopping all gain from these sector, and these are all recorded under consumer spending.

Economic Expansion vs. Economic Growth………..The Nigerian Scenario

The irony of this is when the injection of liquid cash stops, the economic expansion stops and once the expansion stops, the economic growth is either stunted or destroyed because the growth neither has a generic or organic foundation but merely driven by injection of cash.

Our economy was only expanding and not growing……….economic growth is fueled by need in the economy or other economies that trades with your country, it basically fills a void, while economic expansion is fueled to create a need for the economy to grow.

While economic growth can lead to economic expansion, economic expansion can also lead to economic growth, but the difference is this….economic growth is generic or organic in nature, it gradually gathers momentum and it is sustainable on the long run because it is driven by productivity, manufacturing, and innovations and as it grows it leads to economy expanding in other areas from profits generated. Even if there are shocks within the economy, it will not collapse but might only slow down…the reason is because there are constant demand for the productivities, manufactured goods, and new innovations which are introduced and continues to push the economy to new potentials…….when economic growth is born out of productivity, manufacturing, and innovation, it is self-sustaining….these factors continue to fuel the growth.

On the other hand, economic expansion can cause economic growth which may not be sustainable on the long run……why is this?…….this is because economic expansion is always as a result of liquid cash that is injected into the economy as in the form of fiscal policies (Stimulus) or monetary policies to help the economy boom by stimulating people to spend. The liquid cash can also be through corruption or any other source and this was what happened in the year 2009 to 2014 and it continued to reflect in the GDP. The irony of this is when the injection of liquid cash or corruption stops, the economic expansion stops and once the expansion stops, the economic growth is either stunted or destroyed because the growth neither has a generic or organic foundation but merely driven by cash.

It is only in Nigeria that one sees services as a percentage of GDP increasing without seeing infrastructural developments……if indeed government was expanding the economy through fiscal policies then we should see these infrastructures, other than that the simple explanation will be that corruption reached its highest peak fueling consumer spending…….now that the corruption has been reduced, Nigeria’s earnings from crude reduced, the realities of a non-productive economy is showing its ugly face.

While consumer spending increased, the productive sector of the economy was shrinking and as people spent it gave the illusion that our economy was growing. If indeed Nigeria’s economy was growing and not expanding, we should have other sectors sustaining the economy in the face of the economic quagmire.

Productivity, Manufacturing, and Innovation as the Engine of Sustainable Growth…….

China, India and Nigeria were the fastest growing economy, Nigeria was third in line after China and India. Nigeria built her economy around consumer spending or services which was highly driven by corruption hence unsustainable.

Manufacturing as contribution to percentage of GDP from 2010 to 2014……..China averaged 31%, India averaged 17%, South Africa averaged 13.5% while Nigeria was gripping with a mere 4%. High Technology exports which is driven by Innovation as a percentage of manufactured exports…….China averaged 26.4%, India averaged 7.5%, South Africa averaged 5.3%, the United States which is majorly driven by innovation averaged 12.5% with Nigeria at a mere 1.8%.

Research and Development expenditure which builds innovation and leads to economic growth as a percentage of GDP…….China averaged 1.9%, India averaged 0.8%, South Africa averaged 0.7%, the United States 2.8%, Israel has the highest with 4.1%, and Nigeria was last recorded in 2007 with an expenditure of 0.2%.

Total High Technology exports in 2014……China was USD$568.6 billion, India was USD$17.3 billion, South Africa was USD$2.5 billion, and Nigeria USD$139.6 million. South Africa we claim to be bigger than had a Technology export 18 times bigger than that of Nigeria.

Even with a population of about 178 million and a working age group of 53.7% of the population coupled with cheap labour, Nigeria has not been able to harness the potentials of its productivity

The obvious truth is we are building an economy without a solid foundation for sustainability, whatever shock we face within the monolithic economy brings us back to square one, and our economy is not focused on factors that promotes organic growth and retain sustainability.

Prof. Charles Soludo vs. Ngozi Okonjo-Iweala….and the N30 trillion wastage

In 2015 Prof. Charles Chukwuma Soludo former Economic adviser and Central Bank Governor under the then President Olusegun Obasanjo in an open letter had accused the Okonjo-Iweala and the Jonathan Administration of wasting N30 trillion of Nigeria’s funds since his inception to power. Many asked and accused the economist of where he cooked up the figures from, but simple maths from oil proceeds alone accounts for most of the missing funds.

Between 2009 and 2014, crude oil sold at an average of USD$110 per barrel and Nigeria’s budget on average was pegged at USD$76 leaving the country with an excess crude sales of USD$34. Put in mind that during Jonathan’s presidency Nigeria reached its optimum capacity of crude oil exploration of 2.2 million Bpd, daily output was very stable because of the heavy payments to the Niger-Delta Militants.

USD$34 on 2.2million Bpd for 5 years amounts to USD$136.510 billion, and in those 5 years the Naira averaged N155 to the dollar which gives a whooping figure of N21.159 trillion. The depletion of the foreign reserve coupled with other mismanaged funds would have summed up Soludo’s figure of N30 trillion. Even if the N30 trillion was not the exact figure, his assumptions was near right.

These are part of the funds that found their ways into people’s pockets and fuelled the consumer spending in the economy that gave the illusion of an economic growth, the obvious truth is that we are returning to the true state of what the economy is and should be, we were existing on a foundation of mismanagement and corruption.

President Buhari must not make the same mistake………………

With a vulnerable oil dependent economy, we must be ready to build other institutions, building our economy around consumer spending or services overnight is a short term progress at the expense of a long term economic sustainability.

Even as President Buhari fights corruption which is one of the best things ever to happen to Nigeria, he must not make the mistake of failing to developing other institutions that will generate external earnings for the country, other than that the economy will only be going round in endless circles……

There is so much capital outflow from Nigeria and the little left to develop the economy are stolen, government MUST develop the education and healthcare industry to reduce these capital outflow or create a balance of trade in these industries.

A projected USD$2 billion in revenue from the tourism industry is a far cry from a diversified cultural and tourism sector like Nigeria, the civil unrest and disturbances across the country has limited Nigeria’s potential to gaining a fair share of world holiday and leisure tourists.

Innovation is what pushes an economy to its potential, government must encourage and invest in innovation, there is no sense in exporting agricultural produce only to go back and import them as canned or packaged finished products. Most agricultural produce perish within one month, innovation through canning and packaging can give a product a life span of up to one year or more reducing wastage and which can be consumed locally to depend less on import and also export to generate external earning.

Nigeria MUST increase manufacturing as a percentage of GDP harnessing population and cheap labour which at the end of the day will also increase productivity of the population.