Analysts unravelling cracks in Tinubu’s $1trn economy dream

ONOME AMUGE IN LAGOS, NIGERIA

Nigeria has long been a proverbial playground for extravagant policy announcements that have, more often than not, floundered in their quest for success. This striking pattern of “flavour-of-the-month” policymaking has resulted in a misguided emphasis on ambitious goals, to the detriment of human development.

So it was with a familiar sense of déjà vu that President Bola Tinubu announced his administration’s goal for the country to reach a $1 trillion economy by 2026.

President Bola Tinubu declared his administration’s aspiration for Nigeria to become a $1 trillion economy by 2026 at the 29th edition of the Nigeria Economic Summit Group (NESG) in October 2023, with the theme “Pathways to Sustainable Economic Transformation and Inclusion.” 

Addressing an audience which included key operators of the country’s private sector, President Tinubu stated: “A one trillion-dollar Nigerian economy is possible by 2026 and a three trillion-dollar economy is possible by the end of the decade. We can do it with double digit, inclusive and sustainable and competitive growth.’’ 

With this ambitious target set against a backdrop of previous policy failures, many a Nigerian ear was left to wonder if this goal would transcend mere words and materialise into meaningful change for the country’s wobbling economy.

While some have lauded President Tinubu’s declaration as a sign of intent to boost the country’s economic fortunes, many analysts have remained sceptical. They argue that achieving a $1 trillion economy would be nothing short of miraculous given Nigeria’s unresolved economic struggles and the numerous obstacles that have impeded its progress in the past.

Indeed, Nigeria’s path to prosperity has proven elusive, with past efforts often falling short of their intended impact. As such, the president’s ambitious target has left many wondering if this lofty goal represents genuine progress or just more lofty rhetoric in a long line of failed promises.

Renowned economist Bismarck Rewane recently raised his scepticism questioning President Tinubu’s ambitious target of a $1 trillion economy by 2026.

As managing director of Financial Derivatives Company,  a versatile economic think-tank and niche investment boutique in Nigeria, Rewane brings a wealth of experience and expertise to bear on Nigeria’s economic operations. In his estimation, the current administration’s goal is an ambitious one that may prove unattainable given the country’s historical struggles with economic growth and development.

Rewane, in a recent interview on Arise TV’s morning show, laid bare the formidable obstacles that, in his estimation, make President Tinubu’s $1 trillion target a near-impossible feat.

The economist  enumerated the myriad challenges that stand in the way of the president’s ambitious target, leaving viewers with a sobering understanding of the hurdles that lie ahead.

Rewane identified Nigeria’s sub-par GDP growth as an impediment to the country’s ambition for a $1 trillion economy.

The country’s GDP growth rate for the second quarter of 2024 may have increased slightly to 3.19 percent up from 2.98 percent in the first quarter as announced by the National Bureau of Statistics (NBS), but as Rewane, an insider as part of President Tinubu’s economic management team, observed, this growth is still sadly inadequate.

“The current GDP growth rate of 3.19 percent is too slow to make any significant difference,” Rewane remarked.

Rewane, with the dispassionate clarity of an experienced economist, outlined the Herculean challenge facing Nigeria in its quest for a $1 trillion economy. He pointed out that while Nigeria’s current GDP stands at $384 billion, to reach the target, the economy would need to achieve a 200 percent growth in the next four to five years, an unlikely scenario, according to him.

While the government might have grand aspirations to shield the economy from external shocks, Rewane pointed out that the economic reality on the ground tells a different story.

“We also said we want to insulate our economy from external shocks, but as we integrate our economy into the global economy, we are increasingly exposed to those shocks,” he said.

Rewane noted that as Nigeria becomes more integrated into the global economy, it becomes vulnerable to external economic factors, which can be unpredictable.  He asserted that this unpredictability, coupled with domestic inflation and exchange rate volatility, has made it even more difficult for Nigeria to achieve its $1 trillion economic target.

Preceding Rewane’s blunt assessment, analysts from Agusto & Co, a leading Nigerian credit rating firm, had in May 2024, expressed scepticism over the federal government’s plan to reach a $1 trillion GDP by 2026.

Agusto & Co described the ambitious target as “a dream” due to the various economic factors that continue to impede Nigeria’s economic growth and stability.

The company’s assessment of the federal government’s $1 trillion GDP goal came after the news that Nigeria had fallen from the ranks of Africa’s top economies. 

In its report, Agusto & Co identified Nigeria’s recent downgrade from the first to the fourth largest African economy as a direct consequence of persistent economic problems such as the weak naira and the removal of fuel subsidies, which have hampered the implementation of much-needed policy reforms.

“The government’s ambitious plan to reach a $1 trillion GDP by 2026 seems increasingly like a dream deferred. However, we believe that a longer and perhaps more tortuous path could be a modest price to pay to deepen the foundations for a more resilient economy set on a path of sustainable and accelerated growth in the long term,” the credit rating firm stated.

Analysts have not only questioned the feasibility of Nigeria reaching a $1 trillion economy by 2026 but also scrutinised the underlying assumptions needed for such a feat.

They argue that for Nigeria to achieve a $1 trillion economy by 2026, the value of the naira would need to appreciate significantly to approximately N237.53 to the U.S. dollar which is highly unlikely, given the existing macroeconomic conditions in the country.

Tajudeen Ibrahim, director of research and strategy at Chapel Hill Denham, also weighed in on the feasibility of Nigeria achieving a $1 trillion economy by 2026, stating that the likelihood of this target being achieved is minimal due to the volatility of the country’s foreign exchange market.

“If we can fix our challenges by addressing the fundamental issues that have been the major challenges, then we can be talking about the relative stability of the currency over the medium to long term. By then, we can be thinking or talking about something that is even more than the $1 trillion economy in terms of size,” Ibrahim said.

Economic analysts have also underscored the need for the Nigerian government to broaden its economic strategy beyond the banking sector, emphasising that diversification is crucial to achieving the ambitious target of a $1 trillion economy. This recommended shift in focus, they argue, will support a more balanced and sustainable growth trajectory, expanding Nigeria’s economic potential beyond the financial sector and bringing it closer to the coveted $1 trillion economic milestone.

Led by the unflinching resolve of the CBN, the Nigerian banking sector has been called to arms in the service of President Tinubu’s vision of a $1 trillion economy.

New capital requirements, displayed as a rallying cry for financial fortification, is believed to strengthen and stabilise the nation’s banks, reinforcing their positions as the frontlines of economic realisation and ushering Nigeria towards one of its boldest economic ambitions yet.

To counteract the naira devaluation’s adverse impact on bank capital and boost the banking sector’s capacity to support PresidentTinubu’s vision of a $1 trillion economy by 2026, the CBN announced a comprehensive review of capital requirements for commercial banks, merchant banks, and non-interest banks on 28 March 2024.

This decisive step, according to the apex bank,  is aimed at strengthening the resilience and solvency of the banking sector, promoting financial stability, and ensuring that banks have sufficient capital to support the growth and prosperity of the Nigerian economy.

Though the CBN’s efforts to enhance the resilience of the banking sector are laudable, Ike Chioke, Afrinvest’s group managing director, offered a sobering perspective on the nation’s ambitious economic goal, stating that diversification beyond the banking sector is essential if Nigeria is to fulfil its dream of becoming a $1 trillion economy.

Speaking at the unveiling of the Afrinvest 2024 Banking Sector report, themed “Recapitalisation: Catalyst for a $1 Trillion Economy?”, Chioke made a case for broadening the nation’s economic strategy, advocating for a more holistic approach that encompasses a wider range of industries to ensure sustainable growth and the realisation of Nigeria’s $1 trillion economy goal.

“To achieve a $1tn economy, Nigeria needs to grow beyond the banking sector. Every aspect of the economy must grow alongside it,” he said.

In his assessment of the factors that would facilitate Nigeria’s attainment of a $1 trillion economy, Chioke emphasised the crucial role of human capital development, drawing on the examples of Mexico, Indonesia, and Turkey, nations with higher GDP per capita and human capital indices.

Thus, the Afrinvest MD stressed the need for Nigeria to prioritise initiatives that improve the skills and capabilities of its people, in order to reach the levels of development and prosperity observed in these comparable countries.