14 October 2016, Sweetcrude, Lagos — On the 28th of September 2016, the World Economic Forum (WEF) released the 2016/2017 Global Competitiveness Index (GCI) report. The index measures the set of institutions, policies, and factors that set the sustainable current and medium-term levels of economic prosperity.The 12 pillars of the WEF GCI consists of static and dynamic components that collectively determine the level of productivity and competitiveness of an economy.
The Global Competitiveness Index 2016-2017 measures and ranks competitiveness of 138 economies. Nigeria’s ranking deteriorated from 124th in 2015-2016 to 127th in 2016-2017 similar to 2014-2015 rank.
This three place deterioration corresponds to a five place drop in ranking when 2015-16 rank is common-sized to reflect differences in sample sizes for both years. The drop in ranking is attributed to two core pillars, the macroeconomic and financial market efficiency.
Nigeria’s macro-economic pillar dropped from 81st in previous year‘s report to 108, down by 21 places. Financial market efficiency pillar ranking dropped 10 places from 79th to 89th, this continues a downward trend in this pillar for the past 3 reports.
Nigeria’s Macroeconomic pillar drop can be associated with the fall in commodity prices worldwide and with greater significance: low oil prices. Low prices reduced the level of macroeconomic activity through the mechanisms of lower forex supply and reduced government revenue.
This had a knock on effect on other pillars especially Nigeria’s Financial market efficiency pillar which dropped due to the uncertainty and lack of confidence in the financial markets.
Uncertainty on policy stances, currency volatility and lower sovereign ratings led to an exodus of foreign direct investments, local investor apathy and seismic foreign portfolio reduction in the stock markets.
Nigeria’s foreign exchange revenue relies heavily on crude oil exports accounting for 90% of foreign exchange earnings, lower oil prices coupled with reduced output due to militant activity in the Niger Delta have had a magnified effect on foreign reserve depletion and a fiscal shock.
For an oil producing country to import refined fuel and the philosophy of a strong naira is another contributor to depleted foreign reserves. Since the onset of the oil shock, the NCCN maintains its position that foreign exchange reserves used to defend the naira and to import refined fuel could have been reprioritized to provide fiscal space for the government and domestic private sector refining.
In 2016, the introduction of the Treasury Single Account (TSA) by the government had significant effect to the size of loanable funds at banks disposal thus reducing ‘the availability of credit’. Despite the Central Bank putatively ending its currency peg, it retains restrictions on access to the interbank market, meaning access to foreign exchange remains difficult for businesses.
Nigeria’s best performing pillar remains its market size where she ranks 26 in this year’s report. When common sized to the previous year figure, ranking remains unchanged. Infrastructure (132nd), Health and primary education (138th) and Higher education and Training (125th) remains a challenge to promoting Nigeria’s competitiveness as this year’s report says it will affect the future human capital needs of Nigeria.
The MINT countries average score is 4.18 higher than Nigeria’s score of 3.4. All MINT countries rank dropped except for Mexico who moved up the ranks by 6 places. The BRICS countries average score is 4.52 higher than the average score of the MINT and Nigeria. Every BRICS country improved in rank with India having the largest upward movement by 16 places in 2016 GCI.
Nigeria is not listed among the top 20 economies in Sub-Saharan Africa. Sub-Saharan Africa average score is 3.5, 0.1 higher than Nigeria’s score. Also Nigeria is among the 17 economies transitioning from Factor driven to Efficiency Enhancer driven economy.
The NCCN recommends a strong campaign to tackle the drop in revenue. The government needs to harmonise and simplify tax policy at Federal and Subnational level. This coupled with an expanded tax base will reduce the incidence of tax on a small subset of the society and also achieve government revenue diversification.
To improve doing business environment in the country capital investments into infrastructure must be made a priority. Nigeria can emulate Singapore who transformed their economy by putting in place necessary infrastructure which led to inclusive socio-economic growth over the years.
The economy expanded port capacity and this created a competitive environment. They also created rapid railway systems in high density areas within the country to enable free movement of people and commodities.
These recommendations would not be actualised if the image of the country is not improved to draw in investments. It is paramount the President adopts a role of chief marketing officer portraying the country as a safe, stable and good place to do business which instils confidence in Nigeria as a country, its economy, financial institutions, financial markets and macroeconomic environment in total.
The figure below shows the Nigeria’s pillar ranking in the last two years.