The year 2019 was a rather predictable year for the Nigerian economy. If you could describe it with one word it would be “drift”. A state of inaction. In 2019 we saw GDP grow at a steady pace of around two percent. Better than the previous year and some way better than the recession economy of 2016 and 2017, but still slower than population growth. Which means that on average Nigerians got poorer in 2019. How much poorer? We do not know because we have not officially measured poverty in years. The growth was also some way off the seven percent growth target from the economic recovery and growth plan (ERGP). Not also great.
Other macroeconomic variables also drifted. Inflation? Hovered around 11 percent for most of the year. Not as bad as the 15 to 16 percent of the recession years but still some way off the single digit target set by the central bank. Unemployment? That one we don’t know, we haven’t measured it since the third quarter of 2018. My guess would be that the rapid increase we saw during the recession years would have slowed but I doubt it has started to come down. The stock exchange? Drift. Infrastructure challenge? Drift. Not getting better but not really getting worse either.
Now, if we were a rich economy with high average income and a high quality of life then drifting would not be so bad. Unfortunately we are anything but that. We are an economy that badly needs growth. Not just fast growth but inclusive growth. So, whereas we have lost the sense of crisis we felt when everything was falling through the roof from about 2014 to 2017, we are still in crisis. Just without the sense of urgency.
If you are an economist and a casual observer of the Nigerian economy then all this drift would have been very predictable. It is almost common knowledge that when an economy is faced with terms of trade shocks there are roughly two possible paths. The first is to allow rapid macro adjustment, absorb the shocks, take the pain and then look to move on. Kind of like what Egypt went through. The second is to try to resist and do things to prevent that macro adjustment until you cannot resist any longer. Afterwards you still end up adjusting by force. If you are smart then you unwind some of the things you did to try to prevent the adjustment. If you are not so wise you stick with them. Either way the outcome is a sluggish economy for some time. How long? Well that depends on how quickly those “destructive” policies are unwound.
Which ones did we do in 2014 to 2016? The second of course. We tried to deal with a terms of trade shock by restricting imports. Restricting access to foreign exchange. Jacking up rates to attract short term portfolio funds. And so on. In the end we still had to take the painful adjustment. The economy stopped collapsing as expected but we have not unwound all those things we did.
If you thought the 2019 election would serve as a good point to unwind some of that then you would have been mistaken. Instead we seem to doubling down. The 41 items banned from forex list has been expanded to include things like milk with other additions maybe coming soon. Doubling down. The policy of trying to attract US dollars from short term portfolio funds at huge cost? We have scattered our debt markets trying to achieve that goal. Doubling down. The policy of trying to force lending at single digit rates to “preferred” sectors? We have added a minimum loan to deposit ratio policy and financial repression on top of it. Doubling down. The philosophy of trying to grow the economy by restricting imports? Shut the border. Doubling down.
So, what does all that mean for the economy in 2020? Well if we are lucky we will continue drifting. But the risks are building up and if we get unlucky then we may find ourselves in a spot of bother. Still, I guess we should be thankful for having survived 2019.
NONSO OBIKILI
Dr. Nonso Obikili is chief economist at BusinessDay
