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xxxxxxxxxxx of Thursday, 27 May 2021

Source: Professor Tella

Nigeria: This giant must get up the grass

The present state of the Nigerian economy is not only embarrassing even to concerned people in government but also unacceptable to local and international social scientists, particularly economists, who know the ugly situation does not represent the nation’s human and non-human resources if well managed. And if security of lives and property is given serious attention and if corruption had been properly tamed over the years. Three decades ago, I saw a book entitled, “Nigeria: A Giant on the Grass”, in a university library in the United States. I picked the book and placed it on a table where I was working on my thesis but that was the last I saw of it because I never had time to read it before it was picked for the shelf, possibly by a library attendant. These days, like that three decades, there are always daily reports of negative growth in macroeconomic variables; fraud committed or attempted, killings by bandits, Boko Haram and/or kidnappers, and the like. When will there be better events to reverse these negative reports?

Experts in the areas of economy, security and fraud detection and appropriation must now come up with solutions rather than assessing or analysing what went wrong without solutions, probably the people in government could be humble enough to try such solutions. Permit me therefore to attempt solutions to economic cases within the context of what economists call Keynesian income-expenditure model, starting from consumption component.

In many emerging and developed economies, a major indicator of economic recovery is improvement in consumer spending. Consumption constitutes a big proportion in the component of gross domestic or national product and the reason is not far-fetched. Consumption depicts effective demand for goods and services which is required to grow producers’ confidence in the economy that there is market for their products. Such confidence promotes investments by the business sector which invariable culminated in reducing unemployment and consequently increasing national income. The governments do not see the wisdom in paying labour their dues such as the minimum wage or paying workers regularly. Particularly, in a country like ours that can be referred to a civil or public service economy, payment of decent salaries as and when due is of utmost importance. There are chains of attaché for every worker who constitute potential customers for producers of goods and services. Denying one person of their salary is like denying 10 people of livelihood and denying industries and farmers of effective demand for their products which invariably promotes unemployment and the urge to produce is dampened.

The velocity or the speed of exchange of money in an economy is of essence in production and turnover from sales of products. That is why, despite complaints of multiple taxes, businesses are stuck in Lagos State where consumer power is well-recognised and enhanced. Have you ever heard of Lagos State workers, for example, quarrelling over non-payment of minimum wage? The Lagos State Government pays minimum wage as soon as it is approved. If one has a dealing with Lagos public servants, one would be surprised at the level of their commitment to their job; the motivation to work extra hours and the relatively high level of productivity. It is high time we gave priority to meeting the salary needs of the low-income workers because they spend large proportion of their incomes on consumption of local goods that invariably have multiplier effects on local production, prices and incomes rather than concentrating on paying the humongous salaries of legislators and security votes, a large proportion of which ends up in the foreign exchange black market to purchase foreign currencies for acquisition of assets in Dubai, London or New York which is one of the major economic leakages that depreciate our currency massively and drive the country into the present precarious situation. It is high time we protested this avoidable injury on our economy. Those states that always fail to pay the minimum wage are likely to remain backward economically because lack of effective demand will keep industries away from them.

With multiple taxes, serious infrastructural deficits, high inflation rate, regular labour unrests and high level of insecurity, the investment environment in Nigeria is harsh to investors. Governments in the country believe that the “Ease of Doing Business” begins and ends with shortening period for business registration or provision of land at a reduced price. This thinking is akin to the notion that government has to generate higher tax revenue by increasing tax rates rather than first improving incomes of businesses and people, as well as, widening tax nets. Taxes are based on income, implying that only higher incomes will yield higher tax revenue. The country’s managers should think more of how to generate wealth or income than how to generate revenues which derive its value from volume of income. There are more factors that determine industrial location. One of the major factors that motivate location of industries is large market which does not mean the size of Kuje market, Oyingbo market or Oba market but a big population with high incomes that promote demand for industrial outputs.

Among the major factors that deter location of industries are not small market either or sporadic insecurity but sustained poverty which prevents effective demand for goods and services and lack of infrastructure, particularly power, which is necessary for cost effective production. Nigeria has the population but not the income since poverty level is around 70 per cent of the population and the power infrastructure is clearly lacking despite huge sums of local and foreign currencies presumably spent on the power project. We do complain that businesses are moving from Nigeria to Ghana because Nigeria has huge population. Information through Google shows that Ghana has more favourable industrial-support environment than Nigeria.

The population of Ghana is reportedly 30.42 million in 2019, far less than one-quarter of Nigeria’s population but the per capita income grew from $5,220 in 2018 to $5,530 in 2019 while that of Nigeria was $5,190 in 2019. Total electricity generation in Ghana was 16,213 MW hour in 2019, comprising of 37.1% hydro, 52.7% thermal and 0.2% solar while Nigeria’s installed generation capacity was 12,500 MW and only 3,500 to 5,000 MW is available to consumers! Corruption rank in Ghana decreases from 80 in 2019 to 75 in 2020 while Nigeria ranked 146 in 2019 from 144 in 2018 despite an anti-corruption campaign. When high level of insecurity of lives and property in Nigeria is added to these business-unfavourable data, it is clear that the industries moving out cannot meet their operation objectives in Nigeria. To retain industries or businesses, Nigeria needs to give more incentives than Ghana. No country develops and grows its employment and income without industrial growth. The advanced economies are also referred to as industrial countries not agricultural advanced economies. The theory of comparative advantage does not mean that countries cannot switch from comparative advantage in agriculture to industry or from primary sector to secondary sector but Nigeria, like many African countries glued itself to primary sector production. This is a wrong notion.

There is no quick fix and there is no one-man-all-inclusive recommendations. One can only make suggestions as a part of the wholistic efforts to solve the nation’s economic problems. Both monetary and fiscal policies are necessary to prop up the economy into a productive theatre. The Central Bank intervention for industries with almost N1.5 trillion is a commendable effort which needs to be further strengthened. However, the issue of transparency and accountability in intervention activities should be of top priority given the way the CBN implemented its interventions in 2010 where some banks were given foreign currencies to assist businesses but no account of how the funds was utilised till today. Interventions in textile industry, the aviation industry and others never reported positive outcomes neither did economy managers gave post-intervention assessments. This time round, the CBN should publish the business names and amounts given as intervention funds so that the public and the National Assembly are able to monitor and assess outcome of the interventions. The interventions should not be all-comers’ affair however, but for large industries producing consumer goods and small and medium scale industries which have capacity to generate more employment opportunities for Nigerians.

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