By Andrew S. Nevin PhD
According to Moody's, Nigeria's economy is set to grow at 2.5% in 2017. Some are calling this an improvement (here is Punch's take, for example: http://punchng.com/topmost-global-rating-body-nigerias-economy-will-improve-2017/). And after a year where the economy actually contracted, this can feel like progress. But it is simply not good enough.
To begin with, Nigeria's population is growing at 2.8% per year. Our working age population is growing even faster. So 2.5% economic growth means we are still going backwards, with GDP per capita declining and unemployment increasing, as the growth rate is not enough to absorb all the young people who need to work.
More critically, our target should not be 2.5%, or 4%, or even 6%. Given our potential across so many sectors - agriculture, manufacturing, IT, hospitality, mining, to name just a few - we should be growing at at 7-9% per annum.
But this is not going to happen unless we get a significant boost to private sector business investment (from both foreigners and Nigerian entrepreneurs). And this boost is not going happen while we continue to languish at 169th place in the the Ease of Doing Business Survey (and basically last among large countries, those with over 50 million population).
A couple of the barriers that are particularly urgent to solve are power and the exchange rate regime. 3 years ago, Nigeria created the Gencos and Discos and the National Grid entity and we were generally optimistic that the power supply would increase. This has not happened, and all industry players are currently in deep financial distress. If we don't figure out a restructuring that creates incentives for the private sector to make and deliver power, we are not going to make progress in any of industries where Nigeria has great potential. After all, who can build a manufacturing powerhouse using electricity generated from very expensive diesel?
The exchange rate regime also needs to be reformed. The CBN made an important step forward in creating the interbank market in June 2016 ... but we continue to have multiple markets for Naira (inter-bank, BDC, and parallel), creating incentives for round tripping rather than productive activity and confusing potential foreign investors to the point where they are sitting on their hands until their is more clarity.
Beyond these specific issues, however, Nigeria overall needs to become an attractive place to invest. Everyone will have a (close) look at Nigeria because of the extraordinary demographics and market size ... but they will not invest unless we make a real effort to make Nigeria a great place to put your capital and time (whether you are Nigerian or foreign). And this effort needs to come from Abuja and every state in the country. So far, despite some rhetoric about improving the business environment, there has not been enough tangible action to show Nigeria is serious making itself a great place where the private sector can flourish.
The news is not all bad, however. One critical bright spot is Lagos. If Lagos was a country, it would be the 5th largest economy in Africa. Governor Ambode has already set his sights on Lagos becoming the 3rd largest economy. He has made his vision simple enough for all of us to understand - 'safe, clean, prosperous Lagos.' And he has made improving the Ease of Doing Business a cornerstone from the beginning of his administration including, for example, the concept of a one stop shop for overseas investors, a concept that has worked well in many other places.
Lagos doing well is not a sufficient condition for Nigerian doing well. But it is a necessary condition, and as Lagos makes good progress, let's hope it becomes a beacon for Governors around the country who genuinely want to see progress in their States.
2017 is a critical year for Nigeria. We squandered the time and resources afforded by $100 oil. We cannot afford for 2017 to not be a year of great progress.
Andrew S. Nevin, PhD, is Financial Services Advisory Leader and Chief Economist at PwC Nigeria and global co-leader of PwC's global financial services Project Blue framework. Andrew is currently based in Lagos Nigeria.