Transitioning the economy to stage two

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By Arize Nwobu Acs

THUR, JUNE 15 2017-On July 4, 2017, the Chartered Institute of Stockbrokers (CIS), will hold its Annual National Workshop at Transcorp Hilton Hotel, Abuja, with the theme, ‘’Transiting From Recession to a Global Economic Power: A Working Template for Nigeria’’. The workshop will witness an assemblage of eminent personalities and experts in finance, business and economy, including the Vice President, Professor Yemi Osibanjo, Minister for Industry, Trade and Investment, Okechukwu Enalamah,  former Minister of Finance/ National Planning (now CEO SUSMAN and Associate), Dr Shamsudeen Usman,  Director General, Securities and Exchange Commission (SEC), Mounir Gwarzo, CEO, NSE, Oscar Onyema, Executive Director, Nigerian Investment Promotion Commission, Ms Yewande Sadiku and Group CEO, MTN, Bob Shuter among others.

The Chartered Institute of Stockbrokers is  a professional body of high repute that regulates the practice of stock broking in Nigeria and conduct examinations leading to qualification as securities and investment professional. It is also noted for organizing strategic platforms for quality discourse on topical issues on finance and economy for national advancement. The forthcoming national workshop is auspicious and desirous.

For the past 56 years, the Nigerian economy has remained largely in stage one of the economic development strata and needs to transit to stage two. Stage one economies are Factor-driven,  ‘’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’’. Factor-driven economies do not rule the world. They merely get by and are more prone to shocks in a globalized economy with changing perspectives and fierce competition.

Stage two economies are Efficiency-driven, ‘’where growth is based on the development of more efficient production processes and increased output quality.’’ Stage three economies rule the world. They are Innovation-driven, ‘’where companies compete by producing and developing new and different products and services by using the most sophisticated processes. But some economies in stage two such as China which is nearing stage three, also play big in the global economy. Stage three economies are Innovation-driven,.

The Nigerian economy, besides being in stage one for 56 years,  is also unbalanced and very prone to shocks. It is largely  monolithic and import-dependent and has been abused and mismanaged over the years. It can also be qualified as over leaking, going by the ‘’leaky bucket model  of growth and development expounded by Avik Basu in the ‘Urban and Regional Planning Economic Handbook’.

He noted that, ‘’local economies are often described by a ‘’leaky bucket’’ model in which the bucket represents the local region and money can both circulate within the bucket and flow in and out. Money circulates within the region when money that is earned locally is also spent locally. The ‘’leak’’ in the bucket that allows money to escape from the community 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’’.

Being largely import-dependent, the Nigerian economy has excessive outflows than inflows and receives minimal energy relative to its potential. As Brad Bradshaw noted, ‘’the economy is made up of two activities, moving things and transforming things. The level of economic (energetic) activity within the economy is determined by the energy entering the economic system and the efficiency with which things are moved and transformed. Any economy needs increased efficiency and productivity throughout the entire economy by a minimum of 2 per cent per year.’’

The Nigerian economy needs to be re-fixed, reinvented, reenergized, kick-started and redirected to transit from stage one to stage two towards attaining its fullest potential. As experts converge at the CIS Annual National Workshop, they need to holistically focus on both the short-term and long-term factors which are necessary and sufficient to pull the economy out of recession and drive sustainable growth and development.

The short-term factor relates to Aggregate demand, which comprises consumer expenditure, gross capital investment, government spending, export and import. It is driven by interest rate( low interest rate is desirable), consumer confidence( a market indicator that measures the degree of optimism that consumers feel about the overall state of the economy and their personal financial situation), bank lending, value of exchange rate and asset prices.

Aggregate demand needs to be increased to boost energetic inflows and rev up the economy. Presently, all the variables are not looking up. Aggregate demand needs to be increased to boost energetic inflows to rev up the economy. What then would be the strategies to that effect? The situation calls for creative thinking to evolve policies to restructure the economy, and memetic engineering of our economic and consumption culture to power endogenous growth.

The long term factors which the experts should focus on, include how to maximally utilize the natural resources, development of human capital which entail the productivity of workers, determined by levels of education, training and motivation. There is no substitute for quality education. Nations can only go far with economic growth development with a pool of well educated and motivated work force.

Other long-term factors include strength of labour markets,  capital formation and technological development. Capital formation imply creating productive capital in the economy including building plants, hiring workers and  improving infrastructure. The higher the capital formation of an economy, the faster an economy can grow its aggregate income.

The importance of infrastructure in economic development cannot be overemphasized. Infrastructure is defined as the ‘’fundamental facilities and systems serving a country. The physical components of interrelated systems providing commodities and services essential to enable, sustain, or enhance societal living conditions’’.  It includes technical structures like roads, bridges, tunnels, water supply, electrical grids, telecommunication etc.

Among the BRICS group of countries, South Africa has been noted to experience the highest ranking in the infrastructure pillar in terms of quality of overall infrastructure, according the World Economic Forum Global Competitive Report for 2012-13. South Africa ranked 58th for its quality of infrastructure, China 69th, India, 87th, Russia, 101th and Brazil, 107th. Whither Nigeria?

Nigeria’s infrastructure deficit is estimated at US$300billion(N5.91trillion), representing 25 per cent of GDP, compared with 70 per cent recorded by other middle income countries. The deficit is a setback which demands the evolution of  workable and effective policies and strategies and political will to overcome to reduce poverty rate which stands presently at 62 per cent with almost 100 million people living on less than US$1 per day.

Next, is technological development, which imply  the scientific methods and production techniques which helps to increase productivity with limited resources. Experts posit that countries that have worked in the field of technological development grow rapidly as compared to countries that have less focus on technological development.

Technology holds the ace in any effort to transition the Nigerian  economy from stage one to stage two, the  reason the Ministry of Science and Technology is one of the most strategic ministries in the nation’s quest for sustainable growth and development. And does Nigeria have a science and technology development master plan?

Other factors for long-term growth and development include, marketable surplus of agriculture, social/political stability and elimination/ minimization of corruption. The latter is a cankerworm that has destroyed the fabric of the society and wreaked havoc on the economy.

The forthcoming CIS Annual National Workshop is a public service and a platform for solution evolution to the knotty issues of the economy. It is expected that the cream of experts at the workshop will offer valuable insights for the evolution of workable policies and solutions.

Arize Nwobu, Acs, is, Assistant Director/ Head, Research and Technical, Chartered Institute of Stockbrokers.

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