In a recent report entitled ‘’Development Updates on Nigeria’’, the World Bank highlighted the current challenges of the economy which include a threatening inflation rate which stood at 17.7 per cent as at May 2022, and said to be the highest in almost one year. The report noted that the inflation rate had worsened the impact of the minimum wage of N30,000.00 and would push seven million more people into poverty by the end of 2022.
It also noted that the Federal government could spend as much as N5.4 trillion this year on fuel subsidy, an amount which it said was higher than “all the resources allocated to health, education and social protection put together.” The report further projected that the net inflow from oil would drop from N2.6trillion recorded in 2021 to N1.6 trillion in 2022.
Though the report may seem gloomy and disturbing, but it is not cast in stone. The situation could be redeemed though it would take greater efforts especially by the fiscal authority which needs to be more creative to compliment and synergize the efforts of the monetary authority for a more holistic solution in the mix.
But admittedly, there are some fundamental aberrations in the economy which have continually impeded the activation and maximisation of the potentials. The economy had a good head start in the early 1960s until it contracted the ‘’Dutch Disease’’ which led to overdependence on oil and the negligence of other sectors of the economy that could have also generated growth forces.
The aberration discouraged diversification which is the bedrock of economic growth, encouraged rent-seeking and aggravated systemic corruption especially among the political class which has continued to constitute a drain on the economy as they indulged in conspicuous consumption at the expense of production.Capital that would have been channeled to into the economy as energetic inflows for production would often be diverted for state consumption. But as Demirigue-Kunt and Levine noted, the mobilisation of resources for economic growth should be the primary target of development.
The political class is a major reason why recurrent expenditure is often skewed over capital expenditure. And sometimes the Federal government would borrow for recurrent expenditure. But as the former CEO AMCON, Mustafa Chike-Obi once noted, “Recurrent expenditures should be funded by recurrent revenue.”
Besides the overdependence on oil and the burden of the political class, the introduction of the Structural Adjustment Programme (SAP) in 1984 was another factor that sent the economy on a downward spiral. SAP which was recommended by the International Monetary Fund (IMF) damaged the Nigerian economy and transformed it into a heavily import-dependent economy. It contributed to the weakening and devaluation of the naira which has continued to date. It also discouraged manufacturing with attendant loss of jobs and unemployment.
Manufacturing is a major factor for economic growth, stability and prosperity. It helps to expand trade and commerce, create significant number of jobs and brings in the much needed foreign exchange. The prosperity of a nation is tied more to manufacturing because when a country exports more than it imports, it records trade surplus which translates to wealth. Manufacturing also leads to more research and innovations.
For the Nigerian economy to operate optimally it needs a strong manufacturing base, return to agriculture and the associated value chain, effective diversification, optimisation of infrastructure, entrepreneurship and innovations and well established and creative financial markets.
The Central Bank of Nigeria (CBN) has been on the forefront to redeem and re-invent the economy through various innovative policies which supports manufacturing and agriculture, diversification and self-sufficiency. CBN has also been battling the threatening inflation.
Central banks have a phobia for inflation and use various monetary tools to control the quantity of money inflow to the economy to ensure the right quantity of money in circulation to keep the economy healthy. Recently, the Monetary Policy Committee (MPC) raised the Monetary Policy Rate (MPR) from 11.5 per cent to 13 per cent for the first time in over two years.
According to the CBN governor, Godwin Emefiele, “The sharp rise in inflation across both advanced and emerging market economies has generated growing concerns among central banks as the progressive rise in inflation driven by rising aggregate demands and wage growth has put sustainable pressure on price levels.
“Consequently, the major central banks such as the US Fed, the Bank of England , European Central Bank, and Bank of Canada have provided strong guidance of a progressive shift away from monetary policy accommodation to drive market interest rate which may ultimately impact capital flows away from emerging market economies.”
The battle against inflation can sometimes be difficult depending on the underlying factors but it is surmountable.CBN has often used the combination strategy of a tight monetary policy and strident efforts to boost the productive capacity of the economy and supply-side potential.
– Nwobu is a Lagos-based chartered stockbroker and business journalist
