By Obadiah Mailafia
PREDICTIONS are a rather perilous enterprise. They are predicated on some important assumptions; some of them realistic and a good number rather unreliable. They also depend on several critical variables, some of them predictable while others are not quite.
In making those forecasts as I do today, I am assuming that there is likely to be a second wave of COVID-19 lockdowns in the advanced industrial economies and in the emerging economies, with the exception of China. At the same time, the gradual acceptability of the COVID-19 vaccine will bring a gradual halt to the spread of the global pandemic by Q3 of 2021.
Oil prices are likely to remain low, maybe inching moderately upwards by year’s end. During 2018, oil prices averaged $71.21 per barrel. During 2019, the figure was $64.3 per barrel. In 2020, as the world underwent the Black Swan event of COVID-19, oil prices went to a low of $41.43 per barrel.
The general forecast for this year 2021, according to industry experts, is $48.53. With gradual recovery in the world economy, we should see prices rapidly climbing up to a possible high of $70 per barrel, other things being equal.
According to the IMF, global GDP fell from an annual growth rate of 2.9 percent in 2019 to a massive contraction of -4.9 percent in 2020. It is, however, forecast to rally back to 4.2 percent in 2021. China remains the engine and locomotive for global economic growth. Despite the pandemic, the economy managed to sustain a growth rate of 4.9 percent, which was its lowest in 44 years.
Growth is, however, projected to rally above the eight percent mark this year. For the USA, the economy contracted by -3.8 percent in 2020, and forecast to recover to 3.2 percent in 2021. For the OECD countries as a whole, GDP growth fell by -5.8 percent in 2020. It is, however, projected to recover to 3.7 percent in 2021.
The Nigerian economy officially fell into recession in 2020. The IMF Article IV visitation team in December last year painted a rather bleak picture of contracting growth, rising inflation and a weakening exchange rate. Growth in Nigeria contracted at -3.2 percent in 2020. It is projected to recover marginally to 1.4 percent in 2021.
The Naira is increasingly under pressure and is currently selling at N460 to the USD in the parallel market. The current account balance has been in the red for quite a while, as capital inflows dwindle and trade performance weakens. Inflation is currently hovering at double digit. The American economist, Steve Hunke, of the Johns Hopkins University places Nigerian inflation at over 33 percent.
Food inflation in particular is worsened by the looming crisis in the agrarian countryside, particularly in the Middle Belt, which is the bread basket of the country. Worsening social conditions are reflected in rising hunger and higher food prices and the crisis of youth unemployment. It is currently estimated that 97 million Nigerians have fallen into conditions of destitute poverty as internationally defined.
According to the latest figures from the Debt Management Office, DMO, the national debt has ballooned to N31 trillion (which is about $85.9 billion). A sizeable chunk of this debt is owed to foreign creditors, including bilateral lenders such as China.
The government is facing what is increasingly looking like a fiscal crisis, as government revenues continue to fall while a sizeable portion of government funds are going into debt-servicing. More than 400 federal agencies have been unable to pay salaries to public sector workers for several months in a row.
Nigeria’s economic challenges are compounded by the geopolitical challenges of banditry, violence and terrorism. There is also the increasingly fractious nature of the struggles within the political parties, linked to deepening regional tensions and a looming legitimacy crisis for the current APC-led administration of Muhammadu Buhari.
The youth unrest that exploded with the ENDSARS protests brought out the fangs of a highly repressive state apparatus. The state is looking increasingly as a monstrous Leviathan which sucks the blood of its citizens. What is worse, a government that came into power with an ostensible commitment to fighting corruption has become a catalyst and purveyor of corruption.
Rightly or wrongly, many Nigerians perceive this government as a group that possess a sinister hidden agenda anchored on nepotism and illiberalism. Recently, the globally influential Financial Times newspaper of London warned that Nigeria is on the verge of becoming a “failed state”.
Economists have developed the concept of “path-dependence” which is borrowed from the laws of Newtonian mechanics. Social systems and processes are likely to take on a momentum of their own along the path that they are wont, unless an opposite force compels them to change direction. Based on this concept of path-dependence, we cannot anticipate quantum leaps or sudden surprises.
Snail-slow pace of growth
Under the current administration, the economy is expected to continue on its snail-slow pace of growth. The IMF projects a GDP growth of 1.4 percent for the Nigerian economy in 2021. Given our demographic growth rate of 2.6 percent, this translates to -1.2 percent growth in real terms. This means that poverty is bound to persist. Unemployment will continue while poverty and hunger are likely to continue to bite harder.
The misery of the people is likely to worsen. And considering the growing balance of payments challenges, pressure on the naira, rising indebtedness and inflationary spirals, we anticipate some exchange rate adjustments. We project that the Naira will be exchanging at N520 to the USD by year’s end 2021.
Geopolitically, as we move closer to 2023, infighting within the ruling party will become more fractious. The PDP, the principal opposition party, also has its own internal divisions. The political elite will be at one another’s throats. The ruling party will lose its coherence and sense of purpose and direction.
Government and leadership will be in disarray. This can only feed into the tendency towards a downward spiral of decline and deceleration in terms of economic growth. Regional tensions will worsen. Regional security networks such as Amotekun in the South West and the IPOB-led Eastern Security Network, ESN, will wax stronger. The Federal Government may want to send in the army to tame them. Resistance will be ferocious. Nigerians will retreat into their ethnic and religious cocoons. Anomie and drift will characterise the new zeitgeist.
Nigeria appears to me in the sad image of an orphan. It is the only country in the world where its parents and siblings want to take everything from her but have nothing to give in return. The hatred for this orphan even by her siblings, parents and relations is deep and visceral. But no one wants this orphan to really die. They prefer to keep her alive so that they can continue to commit rape and rapine against her.
There are rumours of war and secession in the air. Nigerians are already used to dancing at the brink. They will push themselves to the edge of the Victoria Falls of history, only to retreat in horror at the inevitable consequences of pushing over the edge. But the psychological traumas of such abuses are incalculable. They sap the spirit and destroy the moral capital that holds communities together. The orphan will continue to limp along through another year.