President Bola Tinubu’s goal of N100 trillion annual Gross Domestic Product, GDP, in four years has come under scrutiny by leading financial and investment firms describing it as ambitious and unrealistic.
They, however, said it could be achieved only with a robust economic road map focused on the agriculture and manufacturing sectors with aggressive implementation driven by appropriate fiscal and monetary policy mix.
The firms include FBNQuest, a member of Firat Bank Group, United Capital Limited, a member of UBA group, as well as PFI Capital Limited and Commercio Partners Limited.
In his inaugural speech last Monday, May 29, President Bola Tinubu, among other things announced a GDP growth target of six percent per annum.
He said: “In the economy, we’ll target not less than 6 percent growth in GDP growth. We’ll do this through budgetary reforms. We’ll use a full range of domestic manufacturing and lessen importation.”
Data from the National Bureau of Statistics, NBS, show that Nigeria recorded real annual GDP of N75.768 trillion in 2022 representing a growth of 3.1 percent from N73.382 trillion recorded in 2021.
Consequently, the 6.0 percent growth target represents a 2.9 percentage point increase from the 3.10 percent real GDP growth recorded in 2022.
Financial Vanguard analysis showed that this growth target will increase annual real GDP to over N100 trillion by 2027, from N75.66 trillion recorded in 2022.
The last time Nigeria recorded 6.0 percent real GDP growth was in 2014, up from 5.5 percent in 2013.
The real GDP growth fell to 2.65 percent in 2015. It fell further to 11.62 percent in 2016, before rising to 0.81 percent in 2017, and to 1.92 percent in 2018, 2.21 per cent in 2019. In 2022 GDP growth fell again -1.79 percent before rebounding to 3.65 per cent in 2021. Consequently, the average GDP growth rate of 1.36 per cent was recorded in the eight years after 2014.
Citing this historical trend, investment analysts who spoke to Financial Vanguard, were skeptical about the Tinubu’s 6% per cent GDP growth target.
Notwithstanding, they stressed that the prospect of achieving such a target requires the implementation of a road map focused on the key sectors that can unlock rapid economic growth, namely agriculture, industry and manufacturing.
Ambitious but achievable – Analysts
According to United Capital Plc, Research Team Lead, Sylvester Anaba” The growth target of 6.0% which translates to N100 trillion increase in real GDP is ambitious. We do not believe that the current economic conditions will support such growth. However, looking at the economy in 2014, where real full-year growth was 6.2%, one may indicate that there is a possibility of achieving a 6.0% growth rate. Meanwhile, the new administration is yet to clarify how the target growth rate of 6.0% would be achieved.”
Similarly, FBNQuest Securities Limited, Equity Research Head, Tunde Abidoye, said: “While I believe that the target of achieving a 6% GDP growth and a real GDP of N100 trillion is ambitious, I still consider it to be within reach. However, the attainment of this goal relies heavily on the policy direction and implementation plans of the new administration.
Nevertheless, considering the potential challenges on the horizon, I am skeptical about achieving the 6% target within this year.”
Managing Director/Chief Executive, PFI Capital, Peter Elege said: “Looking at the current global and local economic situation, growing Nigeria’s GDP by 6% annually to N100 trillion GDP for the next four years may not be realistic. However, with a robust economic roadmap, I think, growth may average around 4.62% in the next four years.
On his part, the Co-Managing Partner, Comercio Partners Limited, Tosin Osunkoya, said: “I am confident that if resources are channelled properly, backed with unbiased economic policy reforms, the new government will be able to achieve and even surpass this growth target.”
Policy options by analysts
To achieve a 6% GDP growth rate, the FG must focus on Agriculture and Industries with specific emphasis on manufacturing, combined with policies that will address the barriers impeding the growth of these two sectors.
Citing example of 2014 when agric, industry and manufacturing grew by 4.3%, 6% and 14.7%, the analysts said that subsequently, the agric sector have to grow between 5% and 8%, while the manufacturing sector must grow between 8% and 20% for the economy to grow at 6%.
“The new administration should prioritize sectors such as the agricultural and services industries,” said Tosin Osunkoya of Comercio Partners.
According to Tunde Abidoye of FBNQuest: “While the government has to focus on all the three broad economic sectors; i) agriculture, ii) industries and ii) services, the government’s deliberate focus has to be on agriculture and industries.”
Similarly, Sylvester Anaba of United Capital, said: “The new administration’s target of 6.0% growth rate may be possible if the following sectors grow at the following rates, manufacturing (19.6%), construction (10.7%), telecommunication (6.2%), trade (5.2%), and agriculture (4.5%)”, said Sylvester Anaba of United Capital.
Speaking extensively on the need to prioritise the agric sector, Peter Elege, CEO PFI Capital, said: The agricultural sector contributed 18.67% to the Real GDP, RGDP in 2022, showing an increase of 5.81% from 2021, despite the insecurity challenges that prevailed in the farming hubs of Nigeria, such as Benue state. The growth in this sector was driven largely by Crop Production. I think the sector has the potential to grow above that, if insecurity is tackled.
“One of the major factors that have impaired the growth of the Agricultural Sector is insecurity. Farmer-herders’ frequent clash has discouraged farming activities in the food-producing areas, leading to the destruction of farmlands and crops.
“In the agricultural sector, I think tackling insecurity and subsidising fertilizer and agriculture, industries share of GDP fell to 19% in 2022 from almost 22% in 2015. Nigeria’s industrial sector appears to be in recession. For some context, the sector has contracted at an average rate of -2.6% over the past 8 quarters. The declined by -4.6% in 2022 and grew by just 0.3% in Q1 ’23.
“We attribute this to i) contraction in the oil GDP which has been in recession since Q2 ’20, and a low single-digit growth by manufacturing over the same period.
“The administration must make concerted efforts to ramp-up oil production to optimal levels of around 1.8m to 2mbpd. The commencement of operations by Dangote Refinery will bode well for the oil refining sector which has been in a state of decline for as long as I can remember. Also, manufacturing has to be prioritized.”
According to Tosin Osunkoya, Comercio Partners, “While the agric and service sectors face unique obstacles as they grow, one key setback that must be addressed is insecurity. The new government must use all available resources to keep Nigeria safe from terrorism, banditry, and kidnapping. This will help strengthen the confidence of both foreign and domestic investors. No economy, business, and society can grow or develop in an unstable, chaotic environment”.
Fiscal & Monetary Policies
Furthermore, the analysts also highlighted the mix of fiscal and monetary policy the Tinubu administration has to implement to drive growth in the key sectors and achieve the 6% GDP growth target.
The fiscal policies needed according to Sylverster Anaba of United Capital, includes:
“Increase Government Spending: The new administration can increase its expenditure on infrastructure development, education, healthcare, and other sectors that contribute to economic growth. This would stimulate aggregate demand and create employment opportunities.
“Tax Reforms: Implementing tax reforms can encourage investment and boost economic activity. It may also reduce tax rates for businesses, hence, providing incentives for investments in key sectors. It is fine to mention that simplifying the tax system can attract both domestic and foreign investments.
“Public-Private Partnerships (PPPs): The new administration can leverage private sector expertise and resources for infrastructure projects. This would not only create jobs but also enhance productivity and competitiveness.
“Subsidies and Social Safety Nets: Targeted subsidies and social safety nets can help alleviate poverty and provide support to vulnerable communities. This can enhance overall consumer spending and contribute to economic growth.”
The above fiscal policies he noted must be combined with monetary policies including:
“Lower Interest Rates: To achieve an expansionary growth, the CBN can lower interest rates to encourage borrowing and investment by businesses. This can spur economic activity, increase consumer spending, and stimulate growth.
“Open Market Operations: The Central Bank can conduct open market operations, buying government securities to inject liquidity into the economy. This can increase the money supply and facilitate increased lending by banks, leading to more investment and spending.
“Reserve Requirement Adjustments: Modifying reserve requirements for banks can increase the availability of credit and reduce borrowing costs. This can stimulate investment and business expansion.
“Exchange Rate Management: Maintaining a stable and competitive exchange rate can promote export growth and attract foreign investment. The Central Bank can intervene in the foreign exchange market to ensure stability.
“Inflation Targeting Framework: The Central Bank can set a specific inflation target and adjust its monetary policy instruments to achieve that target. This provides stability and encourages long-term investment.
“Credit Facilities and Support: The Central Bank can provide targeted credit facilities and support to sectors with high growth potential, such as agriculture, manufacturing, and small and medium-sized enterprises (SMEs) etc.”