What is Competitiveness

Much can be made of Nigeria’s economic performance in recent years. Nigeria’s Consumer Price Index has stabilized over the last 6 years (Inflation remains double digit). The country came through the global financial crisis of 2007 – 2008 to post GDP growth figures of between 6 and 8% – at a time most developed economies experienced a marked dip. (See figure below)

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Figure 1 : Gross Domestic Product Growth rate (%) 2006 – 2012 (Source : World Bank Data – www.worldbank.com)

Early figures from the National Bureau of Statistics (NBS) GDP rebasing exercise have put the country’s Nominal GDP at $509,970.14 billion. This is likely to fuel an existing optimism, around the country’s economy, that places Nigeria amongst a subset of emerging countries. Respected former Chief Economist of Goldman Sachs, Mr. Jim O’Neill, renowned for coining the term BRIC (Brazil, Russia, India and China), puts Nigeria amongst the MINT (Mexico, Indonesia, Nigeria, Turkey) countries, a subsect of emerging countries that is estimated to seriously challenge the advanced economies and BRIC nations by 2050.

Every country faces a unique set of threats to its competitiveness and industrialisation. The strong economic performance belies the fact that there are structural issues with Nigeria’s economy. There is an inherent overdependence on revenue from mineral exports. This combined with the increasing demand for import, from an emerging middle class, places huge demands on Nigeria’s foreign exchange reserve. The Central Bank of Nigeria has had to intervene in the currency markets to defend the Nigerian Naira. However, the stock of foreign exchange reserves is limited and cannot sustain this strategy indefinitely.

Nigeria Current Status

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Figure 2: Gross Domestic Product (Billion $) 1985 – 2012 (Source : World Bank Data – www.worldbank.com)

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Figure 3: GDP Per Capita ($) 1985 – 2012 (Source : World Bank Data – www.worldbank.com)

The GDP Per Capita graph in figure 3 paints a different picture from the steady visible growth in Nigeria’s GDP from figure 2. Even with an emerging billionaire class, the growth and prosperity accrued over the last 35 years is not inclusive as seen in the poverty figures in figure 4.

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Figure 4: Source : World Bank Data – www.worldbank.com

The paradigm that with oil we can manage our way out of poverty, is deeply flawed. This is a common misconception bandied around by opinion leaders:

“Today, I am in Nigeria, that produces 2 million barrels of oil a day, has the seventh-largest natural gas reserves but the poverty rate in Nigeria has gone up from 46 percent to 76 percent over the last 13 years” – Hillary Clinton speech at Abuja Town Hall Meeting, 2009

There is a misconception that Nigeria has squandered her oil resources. Somehow, resources if judiciously managed can pull Nigeria out of Poverty.

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Figure 5: Oil Export Revenues 2004-2012

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Figure 6: Oil Revenue Per Capita 2004 – 2012 (Source: Organization of the Petroleum Exporting Countries (OPEC) – www.opec.org)

For Nigeria to have the same per capita revenue as Kuwait, oil production output will have to be scaled up by 48 times the current level. This goes to show that the continued dependence on oil revenue, in the hopes that the country will eventually achieve inclusive prosperity, is fallacious.

The global competitiveness agenda has been deepening and broadening as a market led solution.

There are several attempts at explaining competitiveness.

“…the set of institutions, policies, and factors that determine the level of productivity of a country. The level of productivity, in turn, sets the level of prosperity that can be reached by an economy…” – World Economic Forum (WEF)

“Competitiveness is a measure of a country’s advantage or disadvantage in selling its products in international markets” – Organisation for Economic Co-operation and Development (OECD)

“A nation’s competitiveness depends on the capacity of its industry to innovate and upgrade. Companies gain advantage against the world’s best competitors because of pressure and challenge” Michael Porter

Competitiveness, innovation and productivity are intrinsically linked in economic discourse. A country’s competitiveness is dependent on: the macroeconomic environment set out by the monetary and fiscal policies of that country, the microeconomic competitiveness determined by the quality of innovation and competition at the level of firms and clusters present in the country, and the country’s natural endowments.

The suitable combination of the aforementioned determinants of competitiveness will lead to a more competitive economy that supports an increasing and more inclusive prosperity for the country’s citizens.

There are two sources of prosperity. Firstly, an inherited prosperity that is limited by the extent of of the country’s natural endowments. The government plays a central role in the division of the “National Cake”.

Then there is the created prosperity derived from productivity in the utilisation of the country’s endowments. The governments plays an enabling role by providing the appropriate environment for business productivity to thrive. Increased productivity will result in a larger cake.

Key Indicators 2012 NIGERIA SOUTH AFRICA BRAZIL
Population (Millions) 162.5 50.6 196.7
GDP (US$ Billions) 268.7 384.3 2396
GDP Per Capita (US$) 1631 7507 12079

GDP Composition

GDP Composition, by Sector of Origin (Source: CIA “ The World Factbook”. 2013 est. (South Africa, Brazil), 2012 est. (Nigeria))

As it stands, inherited prosperity for Nigeria in the form of mineral resource export is by itself insufficient to sustain a large and growing population. There is a need to reduce dependency on raw material exports and improve productivity through tertiarisation to create prosperity.

It is important to distinguish between Competition and Competitiveness. Competitiveness refers to the ease, in terms of time and money spent by businesses in a country, in obtaining inputs for their operations. Competition, on the other hand, is companies’ ability to compete among themselves on a level playing field. Competitiveness relates to business environment whereas competition relates to interaction among companies in that environment.

Why Competitiveness?

The competitiveness of the Nigerian Economy matters on three levels. At the personal level it is the patriotic duty of every Nigeria to participate towards a more inclusive prosperity for the Nation. At the business level, competitiveness impacts on the costs of inputs to the business and the ease of establishing and conducting business in Nigeria. This is evidenced by the flow of Foreign Direct Investment, critical to economic development, in the country as well as the cost of insurance and financing charged to businesses in that country. To Society in general it is important to be mindful of the inclusiveness of prosperity. A more competitive economy is better equipped to address the income gap and poverty issues of the country. A vibrant middle class is critical to the proposed market led growth.

Competitiveness is the aggregation of all the social, economic, and environmental factors, including institutions and policies, which are critical to enabling a country to reach its economic potential.
Any attempt to comprehensively assess competitiveness should simultaneously capture Economic and Social development. See below for a list of credible publications on competitiveness:

World Economic Forum – Global Competitiveness Index

World Bank – Doing Business Report

Social Progress Imperative – Social Progress Index

Transparency International – Corruption Perceptions Index