Nigeria’s competitiveness rankings: Reality beats perception
A measure of success for any economic or social indicator lies in its ability to provoke discourse and drive positive and progressive change. We have seen the rise to prominence of several indices that attempt to measure holistically or, more specifically, different aspects of country’s welfare and prosperity. Movements up and down the indices seemingly indicate improvements or regressions. A country’s performance should therefore affect the flow of domestic and foreign direct investment or aid. However, empirical evidence shows a tenuous link. In Nigeria’s case, we see a clear misalignment between the rankings, perception and reality.
In a recent poll by the Wall Street Journal, Nigeria emerged as the frontier-market economy attracting the most attention from American and European multinationals. This contrasts dramatically with Nigeria’s ranking on the World Economic Forum’s competitiveness index ranking. I call this a risk perception arbitrage. Some players have built an industry around making profits from the gap between perception and reality. For example, in a recent international survey of emerging market investors,while only 48% of prospective investor respondents were willing to invest in Africa, a massive 82% of existing investors were willing to make additional investments in Nigeria.
The point is clear, businesses without an established presence in Nigeria tend to have a skewed perception of the challenges of operating in Nigeria. The misconceptions about Nigeria are only reinforced by isolated conflicts and incidents that have largely undeterred the country’s progress. There remains a substantial misalignment between Nigeria’s performance on some ranking Indices and the sentiment of investors who, more importantly, vote with their wallet.
More important, Nigeria’s recent progress has continued unperturbed despite fears – sometimes irrational – around weak institutions, poverty and limited infrastructure. There have been fundamental transformations driving the optimism around Nigeria’s progress towards an improved business environment.
The Nigerian government has been stellar in the management of the economy.
Nigeria’s macroeconomic environment is adjudged largely stable while exhibiting robust economic growth over the last eight years on most key economic metrics. Nigeria showed an unprecedented recovery track from the Global economic crisis in stark contrast with the largest OECD member Nations..Nigeria’s annual inflation rate also stabilized over said same period. The Financial management authorities have exhibited exceptional restrain in the management of Nigeria fiscal policy, particularly in an election period. The Ministry of finance has wisely shunned deficit financing to the benefit of of the national economy. All these translate to a stable exchange rate that is much better than Ghana or South Africa, who ironically rank higher than Nigeria on this indice (in the opinion of some ranking agencies), single digit inflation (again better than most African countries), A growing capital market and solid GDP growth year after year.
The country continues to enjoy democratic reform and stronger institutions. and independent judicial verdicts/elections against the ruling government challenge these false paradigms. We see the right enabling environment that catalyses progress in solidifying key institutions in Nigeria. We have seen a strengthening of the nations institutions in recent years evidenced by recent developments in the in the Judicial and Electoral systems. The country’s judicial system has gradually salvaged a semblance of credibility and independence. Key gubernatorial election in recent months have been largely judged free and fair. The containment of the recent Ebola outbreak and press freedom underscore this trend.
This year saw Nigeria successfully rebase the GDP and reposition Nigeria as Africa’s largest economy. The exercise was timed to coincide with Nigeria successfully hosting the World economic Forum 2014. This only fueled the mounting fervour around Nigeria’s attractiveness as a business location.
Credible international organisations have started to re-appraise long held beliefs about Nigeria. The World Bank recently revised poverty figures downwards for Nigeria by as much as half the previous estimates of poverty. It is unfortunate that the latest index came too early to allow respondents break from long held stereotypes about Nigeria. It is laughable when such ranking place some recently Ebola outbreak countries ahead of Nigeria in health indices or conflict laden countries in the Middle East ahead of Nigeria in terms of security.
Most indexes like the WEF GCI are – to use economics parlance – a lagging indicator and does not reflect the actions taken this year. We expect an improvement and better alignment with reality in subsequent years. The National Competitiveness Council of Nigeria was inaugurated by President Goodluck Jonathan in 2013, and came into full operations nine months ago. It has taken fundamental steps and put building blocks in place to improve our competitiveness situation. The most fundamental step was to work with a “brain trust” of 56 leading minds to comprehensively review our competitiveness situation, appraise, recommend and support implementation of optimum policy interventions.
We expect that the benefits of a full year of operation and direct engagement will reflect in more favourable positions for next years indexes and analyst opinions.