Leadership is key to unlocking Nigeria’s growth potential
Last week, this column discussed the need to rethink productivity and economic growth in Nigeria based on the presentation by eminent economist Dr. Ayo Teriba. This week we will examine the role of leadership in creating a new model of economic growth to give our country a leap forward.
Nigeria’s unfavorable economic situation is bad news; many have accepted as the norm that the country will continually operate below its economic potential. This dire economic reality is the result of decades of bad economic policies and implementation, a turbulent political history marred by military incursion into politics, corruption and the burgeoning hardship occasioned by insecurity, economic sabotage, climate change, global pandemic crises and the Russia/Ukrainian crisis. Nigeria is on its knees economically – with a high debt profile, low mono-commodity (crude oil) revenues that are not even enough to repay debts, insufficient foreign exchange reserves, an exchange rate crisis that saw the value of the Naira hammered against other global currencies, high inflation and high interest rates.
The Nigerian economic statistics are grim and are causing undue concern among many stakeholders in the Nigerian project. Nigeria navigated the troubled waters of a financial quagmire for a few decades and survived it, albeit with significant economic bruises. The prevailing sentiment is that whatever happens, Nigeria will survive, things will go on as usual and nothing will change for the better. William Pollard, a leading figure in leadership, warned against this state of path addiction when he opined that “the arrogance of success is thinking that what you did yesterday will be enough for tomorrow.” The economic policies and actions that have kept us in our current financial quagmire must change for meaningful progress. Nigeria no longer needs the survival economy; we need the economy of growth, prosperity and a decent quality of life for Nigerians.
A fundamental problem that destabilizes our economy is the lack of liquidity. Our negative balance of payments is the source of this illiquidity because our export earnings are much lower than the expenditure on goods imported from abroad. This leads to a decrease in our foreign exchange reserves and a concomitant shortage of foreign currency to meet the import needs of foreign goods and services. This scarcity creates a parallel market that often contributes to the destruction of the value of the Naira. The unofficial devaluation of the Naira makes the cost of foreign goods expensive, all the more so given the inflation that is ravaging some of these countries after Covid-19. Local and imported inflation is the bane of our economy.
The Nigerian government needs to earn more money from oil revenues and taxes and depend less on borrowed funds to cover recurrent and capital expenditures. They have to cover budget shortfalls with massive loans from local and international institutions with high interest rates, and we are still figuring out how our children will pay for them in the future. Even at a time of rising oil prices globally, Nigeria has not benefited to the full due to low volume of oil production and oil theft which have prevented Nigeria from reaching its monthly OPEC quota. The non-oil sector contributes little to Nigeria’s income statement, as most of this trade is in primary products with little or no additional value added in the value chain, and these goods generate less revenue in the international market, which negatively affects our income. statement.
Unleashing Nigeria’s growth potential highlights the need, among other things, to improve its liquidity to stabilize the system and grow the economy. The government must stabilize exchange rates, interest rates and inflation to bring about meaningful improvements in our economy. The exchange rate regime depends on the adequacy of our foreign exchange reserves. The global economy offers two ways to increase our foreign exchange reserves. Either you earn more exports or you attract more foreign direct investment (FDI). Nigeria has always preferred the export route. However, from 2010 to date, world exports have stagnated and even declined due to low commodity prices. This has greatly affected Nigeria.
Most countries rely on a massive influx of FDI, which is the economic model chosen by Saudi Arabia, Brazil, India and others. These countries get more FDI to make up for export deficits. Foreign direct investors will only come to Nigeria with offers of equity investment in public assets and a suitable investment climate. We have offered foreign investors an opportunity in the Nigeria LNG project, which has produced substantial investment results. We also did it with the liberalization of the GSM sector, and we could see the influx of investments.
The interest rate is another crucial factor in productivity and growth. Financial institutions offer interest rates on business loans they need to run or grow their businesses. The higher the interest rates, the less likely companies are to borrow for expansion, and the lower the interest rates, the more companies are likely to borrow for operational and growth reasons. Individuals also borrow from financial institutions for personal loans, credit cards or commodity loans. The lower the interest rate, the more likely individuals are to borrow to purchase goods and services that help businesses grow, especially if local businesses produce the goods and services. Another impact of interest rates is that they are often compared to savings rates. The higher the interest rate on loans, the higher the interest rates on savings. When interest rates on savings are high, people tend to save, but when they are low, people tend to invest, especially in the stock market.
Exchange and interest rates are monetary instruments that influence the rate of inflation. Nigeria needs to stabilize its income by expanding its sources of income, financializing its assets – especially its real estate, infrastructure and portfolio assets – and maximizing value chains across the various productive sectors. It must develop its workforce to acquire the skills needed in the knowledge economy, where knowledge and innovation are the keys to greater productivity. Therefore, human capital development is crucial to unlocking Nigeria’s growth potential.
Unleashing Nigeria’s growth potential requires new economic thinking by leaders in the public and private sectors. Only good leadership that understands how to unlock Nigeria’s great opportunities in line with global realities and using tools and resources that work will pull Nigeria out of its economic quagmire. Therefore, the 2023 elections provide an opportunity for leadership change, and Nigerians must seek leaders who understand where Nigeria needs to go for growth and prosperity and who have what it takes to take them there. the Nigerians. The intention to make Nigeria great is not enough, the ability and the intellectual ability to deliver is essential. Now is the time for transformational leaders in Nigeria. Nigeria needs leaders who create vision and use highly skilled people rather than politicians to lead Nigeria’s economy. Bring smart people together and develop and implement ways to improve revenue, optimize assets, and effectively manage our liabilities.
It is the responsibility of leadership to provide opportunities and the responsibility of individuals to help maximize opportunities. The government, for its part, must completely overhaul the economic system and structures to promote liquidity. Just as cash flow is the lifeblood of a business, government fiscal and external liquidity is essential to stabilizing the economy. All avenues to improve government revenues must be explored and used to make government constantly liquid and viable.
In addition to managing its monetary policies, the government must tighten its fiscal policies to raise per capita income and increase employment while reducing unemployment. They must create a business-friendly environment where innovation and creativity thrive and productivity is encouraged. Productivity happens within businesses, and any tough, volatile, or difficult business environment is hard on businesses and hinders their growth. The better the business climate, the more profitable the company, and the more profitable a company is, the more it attracts FDI with concomitant expansions and increases in both the companies’ balance sheets and their income statements.
The government should understand the direct correlation between economic disempowerment and the country’s socio-political problems. This is especially the case with young people who, when unproductive for a period of time, tend to indulge in anti-social behavior, low and high level crime, terrorism, banditry and secessionism. The government must develop a plan to absorb most of our young people through training in new skills and upgrading them to adapt to the new economic reality that rewards innovation and creativity more than mundane production. They should use fiscal and monetary policies to stabilize consumer and equity prices, thereby strengthening national resilience.
There is no doubt about the huge potential for unlocking its growth potential that Nigeria possesses. For a long time, Nigeria has been a country of potential – potentials that are never realized. Only transformational leadership will transform and restructure the system. We need this leadership in 2023 more than at any other time. It is unwise to do the same thing expecting a different result over and over. We need leadership with the knowledge, ability, intelligence and experience to carry out the greatest economic re-engineering the country has ever seen. All other stakeholders must contribute immensely by improving value chains within productive sectors, consuming responsibly and creating superior value that will attract material, financial and human resources from around the world to Nigeria.
We look forward to a new Nigeria!
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