Friday, October 1, 2021/08:50 AM/By AbdulQudus Isiaka, Proshare Research/Header Image Credit: HGSSS & EcoGraphics
Like the devastating storms that have in the last few weeks wreaked havoc in the American coastal city of Louisiana, the unenviable assortment of economic challenges currently ravaging the Nigerian economy has been overwhelming.
The Naira slid to N570 against the US dollar in the parallel market; Inflation stayed stubbornly high at 17.01% while the large army of unemployed youths remained restive as insecurity dogged growth. Many more Nigerians have now felt the pangs of poverty as the middle class gets chiselled down. Indeed, the quality of life of the average Nigerian has plummeted. Rather than have his bread buttered, the Nigerian's daily bread got sliced in half (pun intended).
To understand the stream of possibilities, Dr Ayo Teriba, CEO Economic Associates, a Lagos-based economic think tank, led a conference that discussed Nigeria's economic outlook for the rest of 2021. The gathering also took a look at global trends and fashioned potential scenarios that could decide whether Nigeria swims or sinks in the rapid waters of global economic and technological shifts (see illustration 1 below).
Illustration 1 Mega Trends in the Global Economy
Wealth over GDP
"When assessing economic progress, the limits of income-centrism are being reached, take a look at the leading companies in the world, most of them trace their value to their balance sheet (net assets) and not their income statements" -Dr. Ayo Teriba
Teriba is known to make no bones about his unique perspectives on important economic matters, and on this occasion, he disappointed no one. In his remarks, Teriba stated that measuring countries' economic progress using the common Gross Domestic Product (GDP) metric is not helpful. To him, greater emphasis should instead be placed on the wealth creation ecosystem and much less on Gross Domestic Product (GDP). The speaker explained that given that the stock of national wealth transcends just GDP (a flow), adopting GDP as a connotation of economic progress would necessarily be very limiting.
To buttress his point, Teriba reminded conference participants that the preoccupation of Adam Smith in his 1776 classic was the wealth of nations and not the output of countries. Unfortunately, much of the Nigerian discussion around the economy seems to center around GDP, as if economic progress begins and ends with GDP. At any rate, since the GDP itself flows from the stock of national wealth, bothering about the supply of wealth would be much more forward-looking than the GDP, which is merely historical data.
The Global Crucible
The Global economy is evolving, and the pace at which this is taking place is stunning. So much is happening quickly, and early responders seize the available opportunities while ambivalent economies lag global trends and become left behind.
Perhaps the first and arguably the most critical trend which would determine the pace of economic progress in the years to come is what Dr. Teriba referred to as the fragmentation of global trade. Countries are realizing that products are indeed the results of levels of value additions.
Consequently, what should be of utmost priority to each country should be its value to productive activities anywhere in the world. From that viewpoint, countries could bother much less about their actual exports. The idea of 'made-in' is quickly becoming outdated, and in its place, the world is developing a greater interest in investing in return-yielding enterprises. Hence, the increasing rate of cross-border acquisitions and increased flow of global liquidity. Economies that have retained the 'made-in' mentality are fast turning laggards.
Drawing an inference from a time series data analysis of FDI in Emerging and Developing economies between 1990 and 2019, Teriba showed that China (now the world's second-largest economy) saw an dramatic rise in FDI between 2008 and 2019. In this period, the world's most populous country led the rest of the BRICS economies, having attracted an FDI of about $400bn in 2008 and managing to grow the same to $1.8tr (nearly three times the GDP of Nigeria) in 2019.
In the distant second place, Brazil attracted close to US$700bn in FDI in 2019. In the same year, Russia and India generated FDIs of around US$400bn each. South Africa recorded an FDI of about US$200bn. Considering the N 11 economies, Mexico, the best performing in terms of FDI, saw a rise in FDI from about US$100bn in 1999 to US$600bn in 2019. On the other hand, Nigeria, Pakistan, and Iran individually attracted less than US$100bn in 2019 (see illustration 2 below).
Teriba noted that the idea of retaining idle public assets was wasteful. Increasingly, the chances that developing economies would turn the corner and unlock their vast potentials depended on the financialization deals they complete. Further, the global economy was witnessing a wave of global liquidity which presented an enormous opportunity for economies to attract Foreign Direct Investment provided they do the needful by offering their idle public assets to investors domestic and foreign.
The global economy is seeing an increasingly intricate transition from real sector globalization to financial globalization, whereby exports decline and FDI and remittances rise.
Apart from the fragmentation of global trade and financial globalization, another major trend that characterizes the new global economy is the dematerialization of trade. Essentially, this means that services against tangibles are fast becoming the major earner of foreign exchange for countries. As a result, talent and technology would constitute the edge for progressive economies. To buttress this point, Dr. Teriba noted that patents and copyrights have now become a big deal the world over, just as developed countries compete for the best brains and the most talented professionals. They are capable of innovations and creations that can be copyrighted.
As part of his presentation, the keynote speaker at the conference and economic outlook, Dr. Teriba, presented data showing that the world's second-largest economy led the pack in terms of the number of applications for trademarks- a metric of the level of talent and innovation within the Asian country. As of 2014, the total number of trademarks applied for in China exceeded two million; the rest of the BRICS individually received trademark applications that summed up to less than five hundred thousand.
Amongst the Next eleven economies, the number of applications was generally lower. At the same time, the Korea republic saw a steady rise in the number of applications for trademarks between 1990 and 2019; the total number of applications for trademarks climbed up to over 200,000 applications in 2018. At the same time, Mexico received around 150,000 applications. Meanwhile, save for a dip in 2012, Turkey's number of trademark applications has continued to shuffle along an upward curve since 1998; in 2019, a little lower than 150,000 applications were received. Nigeria lags considerably in this regard, with less than 20,000 applications (see illustration 3 below).
Illustration 3 The Speed of Innovation in Developing and Emerging Economies
Imperatives for the Nigerian Economy
Nigeria's economy shows significant output gaps, a situation that accounts for high unemployment, double-digit inflation, a rapid decline in the external value of the local currency, and the prevalence of multi-dimensional poverty. Financialization refers to money flow from Foreign Direct Investment (FDIs) rather than Foreign Portfolio Investment (FPI). Teriba noted that this was important because FPIs, by their nature, are transitory. He observed that Foreign Portfolio Investors were not remarkably dependable.
The economist pointed out that as a matter of urgency, deal origination and consummation opportunities need to be optimized by the federal and state governments by drafting national/state asset registers to help identify the universe of investible public assets. Expert valuers would then be used to conduct a valuation of the assets to determine their worth.
He noted that targets could be set for government ministries, departments, and agencies (MDAs) to execute a targeted number of financialization deals within a specified period. These would improve government liquidity, weigh in on the value of the Naira, and encourage the transfer of hitherto idle public assets to private investors, who are possibly better managers.
In the same vein, Nigeria needs to realize that the servitization of global trade requires substantial investment in human capital to enhance the country's chances of getting a sizeable chunk of international remittances in years to come. Teriba also noted that it was necessary that the relevant laws relating to trademarks and patents be put in place, while Nigerian migrants could be tracked and incentivized to make remittances and re-invest in the country.
Citing the example of the Philippines, which had supported many of its doctors to migrate to other more advanced economies, the Teriba explained how remittances could be used to turn a country's 'brain drain' into a 'brain gain. 'India represents a case in point; the southeast Asian country saw a tremendous improvement in its annual remittances between 2004 and 2008; on account of the financial crisis, the country's remittances declined slightly but soon reversed by rising as high as US$70bn just before a sharp decline in 2015. In 2019, remittances rose above $80bn. Nigeria's remittances remained less than US$5bn; by 2009, remittances had grown to US$20bn since when it has shuffled along a flat corridor peaking at a little less than US$25bn in 2018 (see illustration 3 below).
Illustration 4: The Gains of Improved Human Capital
Related News - Dr. Ayo Teriba /Economic Associates
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3. Finding a Way Out of Nigeria's High Debt Costs - Ayo Teriba - Proshare, Sept 22, 2021
4. Insights on VAT Collection and Distribution in Nigeria - Ayo Teriba - Proshare, 20 Sept, 2021
5. Economic Associate's Conference on Nigeria's Economic Outlook to Hold in 3 States this September - Proshare, 06 Sept, 2021
10.Liquidity Still The Key Factor in Nigeria's Economic Stability in 2020 - Dr Ayo Teriba , December 17, 2019
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12. Unlocking Liquidity in Nigeria - Ayo Teriba , October 14, 2019
15. Africa Economic Outlook - Ayo Teriba - May 31, 2019