By Arize Nwobu, Acs,
MON NOVEMBER 7 2016-The economy is in a recession with a threat of depression as evidenced in the rate of unemployment which stands presently at 13.3%; 3.3 basis points above the recession threshold of 10%, and 7.7 basis points nearer the depression benchmark of 20%.
Recession is characterized by business cycle contraction and general slowdown of economic activity when output falls, unemployment rises and government borrows more. But depression is a more severe situation.
Ten major factors contributed to the present predicament, 1. The monolithic nature of the economy, with oil accounting for 90 per cent of exports, 25 per cent of Gross Domestic Product (GDP) and 80 per cent of government revenue, 2. Seismic change in global oil price, which desta bilized government’s projections. 3. Lack of strategic agility by successive leadership which could not diversify the economy to enable it shift balances and absorb shocks in a globalized economy with changing perspectives, 4 Absence of defined growth strategies, arising in turn, from in-application of theoretical and creative system thinking, 5 Un-patriotism and pervasive systemic corruption, 6. Commitment of what development economists term ‘’Original Sin’’: it is defined as ‘’the inability to issue debt in local currency, and reliance mostly on external grants and concessional loans to fund government deficits and capital spending which tend to pass currency risk to consumers’’. 7.Infrastructure deficit, 8. Six months of lacuna preceding the appointment of Ministers, 9. Retreat of foreign investors, 10 Negative communication.
The quick fixes in the present circumstance are in the Keynesian ‘’pump priming’’ ( government spending of money raised by borrowing to stimulate the economy), and the inflow of dollars.
Government is in a financial strait and is musing on asset stripping to raise money to stimulate growth, and dollar scarcity has challenged the creative faculties of CBN Governor, Mr Godwin Emefiele and his team. They are doing the best they can in the maze.
It is not easy to manage ‘’The Policy Trilemma’’, also known as ‘’The Impossible Trinity’’(the interacting trio of exchange rate, foreign capital flow and Sovereign monetary policy), more so, in a time like this when things have gone awry and nothing is cast in stone.
The apex bank deserves commendation and not vilification. Besides holding forte during the six months of a lacuna, Mr Emefiele and his team have proven to be pragmatic, creative and flexible, dynamic and patriotic, except that the Nigerian economy is a paradox which defies canons of development economics and with too much leakage and sabotage in the system which frustrates policy initiatives and demands harsh punishment for saboteurs.
CBN policies aim primarily at protecting and recreating the economy for sustainability. Besides its developmental initiatives which include a scheme for self-sufficiency in food production, especially rice, the new flexible foreign exchange regime has been widely applauded as a bold and positive initiative.
Its operating dynamic is in accordance with democratic capitalism, and barring systemic malfunction the policy will boost foreign investor confidence and dollar supply. Already, CBN has reported an inflow of US$1billion since the introduction of the policy.
The introduction of a forward market to hedge volatility in the foreign exchange market, and the licensing of Foreign Exchange Primary Dealers are innovations that will deepen the market.
The apex bank’s retention of the Monetary Policy Rate (MPR) at 14 per cent has also been applauded by the International Monetary Fund IMF and other experts, including former CBN Governor, Sanusi Lamido Sanusi, though the former Managing Director/Chief Executive Officer, Asset Management Corporation of Nigeria AMCON, Mr Mustafa Chike-Obi, holds a contrary view and advocates an expansionary monetary policy by lowering the MPR, because, according to him, the present inflation rate, at 17 per cent was not caused by a demand factor.
But, beyond the quick fixes, government need to evolve cutting edge strategies to achieve long term growth and sustainable development, and that means we need to return to realities of the basics.
First, we need to realize that our economy is still factor-driven, 56 years down the line. The World Economic Forum’s ‘’Global Competitiveness Report’’, in accordance with general economic development theory, divided countries into three different stages, namely, 1. Factor-driven economies: ‘’where countries compete primarily on the use of natural resources and unskilled labour and companies compete on the basis of price as they buy and sell basic products, 2. Efficiency-driven economies: ‘’where growth is based on the development of more efficient production processes and increased product quality’’, 3. Innovation-driven economies: ‘’where companies compete by producing and developing new and different products and services by using the most sophisticated process’’.
Most developing nations, including India are factor-driven economies, while most of the developed world are innovation-driven, and among the BRIC, Brazil, China and Russia are in stage two. (Efficiency-driven). But it is noted that China’s competitiveness is ahead of other developing nations and is fast driving to stage 3.
It took US, Britain, Germany, Canada and Russia approximately 60 years to get to the stages of maturity, and South Africa is currently driving towards maturity with the development of ‘’world class’’ infrastructure, a prerequisite for poverty reduction.
Nigeria, with massive natural resources and human capital should have been in stage two by now and rearing to go. But we seem to be in noctambulism and not going the way of nations that are determined to attain greatness and find a place in the international economy, beyond oil.
As a factor-driven economy, we should have a strong and reinforced head start with a high and consistent output, with the rate of development rising to over 10 per cent of national income or net national product; and with substantial development of manufacturing sectors with high rates of growth.
Equitorial Guinea, for instance, in the take-off stage of development, has the largest increase in GDP growth since 1980s with a rate of productive investment that has risen from 5 per cent to over 10 per cent of income.
We need to re-invent the economy such that output will regularly outstrip the increase in population, otherwise, based on expert forecast, on the basis a 2.5 per cent Cumulative Average Growth Rate (CAGR), which translates to a population of 196.8 million in 2018 and 233.6 million in 2025, respectively, the socio-economic dynamics of the country may take a turn for the worse in the near future.
The leadership need to create growth momentum and block leakages. Presently, the economy is over leaking, going by the ‘’leaky bucket model’’ of growth and development expounded by Avik Basu.
The political class constitute a drain on the economy. They eat our tomorrow today. We should not have a political class that indulges in conspicuous consumption and leisure living, at the expense of the economy, a major reason recurrent expenditure is often skewed over capital expenditure.
Capital should be mobilized especially from local resources and channelled into the economy and not state consumption. As noted by Demirigue-Kunt and Levine, ‘’mobilization of resource for economic growth is the primary target of development’’.
Besides, we have an uncanny and sinful penchant for the consumption of foreign goods and services including those that can readily be procured locally. It is preposterous to build up foreign economies to the detriment of the local economy.
As Basu noted, ‘’Money circulates within the region when money that is earned locally is also spent locally. And the ‘’leak’’ in the bucket that allows money to escape from the country is created when goods and services from outside the region are purchased with local money. It is typically assumed that a robust economy requires both the availability of capital and its circulation within the region’’.
Government should consider the following strategies to recreate the economy. One, assemble experts versed in theoretical and system thinking or scenario planning to constantly research, evaluate, explore the future through global environmental scanning and lateral thinking, in order to advise on the evolution of policy options that suits our peculiarities pre and post dispensations. Two, adopt an endogenous growth model and leverage our large population to drive growth as obtains in the US.
Three, apply ‘’The big push’’ and ‘’Schumpeterian’’ growth theories to achieve a quantum leap. ‘’The big push’’ theory suggests ‘’that countries need to jump from one stage of development to another through a virtuos cycle in which large investments in infrastructure and education coupled with private investments(entrepreneurship) would move the economy to a more productive stage’’, and the Schumpeterian growth model hinges on innovation and technology (creative destruction).
Four, evolve interventionist policies to promote industrialization, otherwise not much will change. All major developed countries in including the US, used interventionist economic policies at one point or the other to promote industrialization and protected industries until they had reached a level of development when they are able to compete in the global market.
Sri Lanka, used import substitution to improve local food production, and rice was the most spectacular success. Even the US, in the 1970s used the Import Substitution Industrialization policy (ISI) as a means to promote national and regional development in the ‘’Buy American Campaign’’.
The Nigerian Investment Promotion Commission (NIPC), Nigeria Export Promotion Council (NEPC), Ministry of Industry, Trade and Investments and Ministry of Agriculture should market Nigeria aggressively.
Five, at this stage, agriculture should have been highly mechanized and given a boost through vibrant commodities exchanges. It is retrogressive, 56 years gone, to call out to skilled manpower to return to subsistence farming instead of being preoccupied with agriculture entrepreneurship( exploration and exploitation of the agriculture value chain).
In summary, infrastructure, education, entrepreneurship, technology and innovation are bedrocks of poverty reduction . We need innovations such as witnessed in the telecom industry and Nollywood to transform the economy.
As noted by Peter Howitt, ‘’economies that cease to transform themselves are destined to fall off the path of growth’’. And growth need to be equitable or inclusive and coupled with development, which entail increase in citizens’ quality of life, measured by literacy rates, poverty rates, environmental quality, life expectancy and freedom of expression.
For infrastructure, government should pay more than a cursory attention to the capital market and maximally exploit the mechanism of the market to drive economic growth and development. The power of the capital market is immense. Innovative products can be structured to boost the stock of infrastructure, as was done in India. Government should seek advice from securities and investment experts in this regard.
There cannot be any inclusive economic growth and sustainable development without a vibrant capital market, and any effort to drive growth without the instrumentality of the market can only result in short-changing the economy.
On education, emphasis should be on functional education which empowers youths instead of the prevalent ‘’diploma disease’’ which has tended to saturate the labour market.
Entrepreneurship is the engine of economic growth and should be encouraged in special ways. It may be necessary to note that typical entrepreneurs are more than just business owners. In a technical and strict sense, entrepreneurs are rare people and often few in the society.
They are innovative, audacious, bold and daring with a pioneer mentality. They are the real risk takers and change agents, with power to conceive and actualize virgin ideas that can create tremendous multiplier effect and large income stream. A typical example is the founder of ‘’Facebook’’, Mark Zuckerberg and other such great innovators around the world.
Some of the well known typical Nigerian entrepreneurs include Ben Murray Bruce (who pioneered the revival of Cinema at a time home video was hotly in vogue), the co-founders of GT Bank- Messrs Fola Adeola, late Tayo Adenirokun et al( who audaciously floated the bank at a time the banking industry had a crisis of confidence and changed the face of banking in Nigeria for good), Dr Mike Adenuga Jnr (who introduced the hitherto ‘’impossible’’ per second billing system and saved Nigerians from the stranglehold of ‘’yellow’’.) and Tony Elumelu (the big dreamer and strategist, now ‘’Africapitalist’’, who floated Standard Trust Bank, noted for aggressive and innovative marketing, and which progressed to merge with UBA Plc, a bigger brand, in one of the most strategic mergers in the capital market.).
Others are Linda Ikeji (the blogger who blogged her way through celebrity gossip, into the millionaires club), Otunba Subomi Balogun (the dapper and quintessential banker who circumstantially promoted the first wholly indigenous merchant bank and made great success of it, Aliko Dangote (Africa’s richest man who has an uncommon faith to invest massively in manufacturing in Nigeria against all odds, Innocent Idibia (Tuface) whose brand changed the face of Hip-hop music in Nigeria, and others.
Above all, the leadership need to continually engender an atmosphere of peace and orderliness, by first sowing into the lives of Nigerian youths, in line with the divine principle of sowing and reaping, in order to reap unalloyed patriotism and increased productivity that will drive the economy to greater heights.
Nwobu, Chartered Stockbroker and Business Journalist, is Assistant Director/ Head, Research and Technical, Chartered Institute of Stockbrokers. He wrote via email@example.com. Tel 08033021230