Tag: Optimism

By Henry Boyo

The National Bureau of Statistics (NBS), reported in March this year, that Nigeria’s annual Gross Domestic output had grown by 0.82 percent by December 2017; this marginal growth rate has nonetheless, been commended generally, as a welcome reversal from the negative -1.58 percent contraction which was recorded by December 2016.

Notably, however, the related euphoria from the marginal annual growth rate, is probably lost on millions of our countrymen, who still endure severe economic and social deprivations, without any visible hope of respite.
Consequently, the relevant question, therefore, is whether the collective pangs of hunger and deepening mass poverty, which are largely driven by double digit inflation and unemployment rate above 20 percent, can be ameliorated by the positive growth rate, recently published by NBS.

This question and related issues will be examined, hereafter, in the following interrogative prose. Please read on:
Does the reported annual GDP growth of 0.82 percent for 2017 suggest that Nigeria’s economy has turned the corner, after the contraction recorded in output of goods and services between 2016-2017? Can we expect improvement in social welfare, poverty reduction and employment opportunities?

The present modest rise in GDP is primarily instigated, as in the past, by the spike in oil price, from near $30/barrel to a steady $60-70/barrel in recent times. Consequently, if crude prices further rise or remain stable above $60/barrel, the related nominal rise in GDP rate may infact exceed 10 percent as recorded in 2003 and 2004 when oil price bounced to $42.9 and $56.7/barrel respectively. However, if as usual, such higher growth rates, remain, primarily, pumped up by higher crude oil price and revenue, then, the higher growth rates recorded may, regrettably still fail to drive inclusive growth or improve mass social welfare in Nigeria.

Instructively, if GDP growth rate remains below IMF’s current projection of 2.1 percent in 2018, one will be misguided to expect any positive difference on our lives, especially, when population growth is also projected to rise simultaneously by 3 percent annually.

So, if per-chance oil price further rises and instigates double digit growth rates in GDP, is it not reasonable to expect that, employment opportunities will increase and that life will become ‘more abundant’ with increasing social equity in Nigeria?

Well, it depends, on what happens to inflation; this is not the first time that oil price has spiked favourably. In fact, oil price was exceptionally high at $140/barrel in 2008, and, yet GDP grew by just about 10 percent. Unfortunately, however, inflation also ran into double digits at 11.6 percent during the same period.

Instructively, an inflation rate of 10 percent will, invariably, wipe off 50 percent purchasing power of all income earners every five years, and impoverish everyone with static incomes; thus, pensioners particularly, and millions of other Nigerians, whose incomes are predicated on the legislated minimum wage will become very, very vulnerable.
So, do you mean that higher crude oil prices and revenue can actually make us poorer?

The answer is self evident, from a historical perspective, as explained above. Oil price may never again approach $140/barrel, but at least, we know that when, such exceptionally high price prevailed, the related bountiful dollar revenue ironically, did not, induce any significant improvement in mass social welfare and national economic development. Unfortunately, the relatively high inflation rates, which also evolved, not only severely contracted consumer demand but also instigated higher cost of borrowing to make productive investment very expensive and risky.

Furthermore, fiscal allocations values are also constantly eroded by rising inflation rates which invariably challenge full budget implementation every year.

Arguably, Nigeria inexplicably fell into the ball pack of the world’s poorest nations, ironically, even when oil prices shot up from below $10/barrel in 1999 to $140/barrel in 2008. Alarmingly, the Naira exchange rate has also, unexpectedly collapsed from less than N80=$1 with barely $4bn reserves between 1995-8 to N305-360/$1 with over $40bn reserves and still rising in 2018.

So are you saying that increasing oil price and dollar reserves, may not necessarily facilitate, the provision of, improved infrastructure for education, health, mass transportation and power?

Yes, you are right, the above realities are well amplified in our recent economic history. Higher oil prices and increasing dollar reserves have also failed to increase job opportunities or improve social welfare or National security.

So, why are we unable to translate increasing export revenue and dollar reserves to the creation of a much ‘better life’ with less inequality for our people?

Obviously, the process adopted for the infusion of our oil export revenue into the economy is actually responsible for the unexpected distortion to our reasonable expectations for increasing job opportunities and a ‘better life’. The present payments model, invariably dictates, that, although increasing income from crude oil export may actually instigate GDP growth, in statistical terms, however the “diabolical” payments system adopted for infusing dollar income from crude sales into the economy has unfortunately, continued to challenge the attainment of truly inclusive growth.

Invariably, the product of the aberration, of the forex infusion process, is vividly reflected in the oppressive eternal presence of bloated Naira surpluses which continuously feed and sustain higher rates of inflation, every time dollar allocations become substituted with Naira vouchers by CBN. So the reality seems to be that higher dollar earnings, unwittingly, increase the threat of spiraling inflation and therefore reduces the purchasing power of all incomes to deepen mass poverty! There is however, nothing to suggest that lower dollar income will be a more welcome option.
So, is there a way out of this double-digit inflation rate? How can we make life better for more Nigerians?

The simple answer is to bring down inflation to international best practice rates below 3 percent, so that all income values will also be protected, to sustain a level of consumer demand that will spur productive investment and create more jobs. Infact, best practice management of inflation is the first battlefront of any responsible Administration. It is for this reason that the CBN is constitutionally empowered to manage price stability, so that the living standards of every wage earner will always be protected.

Unfortunately CBN’s attraction to its subordinate role as the manager of Nigeria’s reserves has possibly dimmed the vision of the Apex bank from the prime object of its existence, which is price stability.

So, if inflation comes down to best practice rate below 3 percent, will the level of poverty diminish?

Yes, people’s income will command more value and the domestic stress in most households will be lessened. Furthermore, rising consumer demand will invariably attract more investment in productive enterprises, with more job opportunities.

Instructively, no rational person lends out money below the prevailing rate of inflation; in other words, the rate of borrowing is a function of the prevailing inflation rate.

Consequently, with inflation below 3 percent, CBN’s monetary policy rate, which dictates the cost of borrowing in the money market, will also plummet to make the abiding dream of manufacturers for 5 percent interest rate on loans possible. Invariably, with increasing production enterprise, more job opportunities will also be created, while government revenue from additional personal and corporate taxes will also expand.

Final question, how do you bring down inflation to best practice rate below 3 percent?

CBN should stop compounding the unforced error of persistent Naira surpluses whenever it deliberately creates more Naira, in replacement for dollar denominated allocations to the 3 tiers of government. The adoption of straightforward dollar warrants will gradually quell the threat of persistent Naira liquidity which inevitably drives inflation and pulverizes the Naira exchange rate beyond our economy’s comfort zone.

Incidentally, even if oil price revenue remains favourable, while Naira rate remains under constant pressure, another devaluation which will send Nigeria’s GDP crashing well below, $300bn down from about $450bn, just 2 years ago, will be inevitable!