The projection that the Nigerian economy would become the largest in Africa following the rebasing of its Gross Domestic Product (GDP) is at risk from lack of fiscal buffers.
This is even compounded by the growing propensity of the country to consume rather than save, BusinessDay investigations have shown.
Against this backdrop, some analysts are querying Nigeria’s economic priorities. They ask why, for instance, the bulk of the country’s total pension fund assets of over N3.7 trillion ($23.2 billion) should be invested only in government securities, such as treasury bills and Federal Government bonds.
“The SWF requires more accretion rather than withdrawals, particularly when paired with similar funds in the SSA region (Botswana’s $6.9 billion and Angola’s $5 billion),” according to analysts at Afrinvest.
While South Africa’s National Development Plan is yielding fruit, based on concessions that are making its Public Investment Corporation (PIC) with over $127 billion under management to expand its investment across Africa and beyond, Nigeria’s Transformation Agenda has produced a Nigerian Sovereign Investment Authority (NSIA) with only about $1.5 billion, with revenue to the national treasury dwindling due to oil theft and pipelines vandalism, among others.
“With or without rebasing, the $1.5 billion is absolutely inadequate,” says Razia Khan, analyst with Standard Chartered Bank, London.
“Given Nigeria’s annual spending requirements, with a federal budget that exceeds this by some multiples, it provides no buffer. How much of an income stream does it produce? What is that as a proportion of total expenditure in just one year? It is obviously inadequate,” says Khan.
“For Nigeria to develop, it needs to grow at a sustained high growth rate for a number of decades. Countries that have succeeded in achieving economic transformation have generally had high rates of investment – above 30 percent of GDP. They were only able to afford that because of their high rates of saving – also of a similar magnitude. Nigeria does itself a great disservice by not saving enough of its oil windfall. Even very small African economies such as Botswana have more savings in their sovereign wealth funds.”
John Omachonu
