I would propose that GDP growth be driven by government spending focused on infrastructural development which can or should be financed through repatriated funds from corrupt officials, blockage of revenue leakage and stop-gap lending from multi-lateral institutions. But so that the infrastructural spend trickles down to SMEs what is done in the United States through the Small Business Administration should be adopted. Each contract would be cut up into the main contract (for example road construction) and then smaller chunks (procurement, technical services, feeding, labour contracting etc)… Another way to increase GDP growth is to introduce fiscal ease through provision of tax incentives to companies that employ more people.
Over the past 18 months, Nigeria has entered a curious little known land called Stagflation. Ominously, no one in government or even the wider public is really talking about it. Stagflation land is a natural disaster of a place where three factors intertwine, creating the perfect storm of economic devastation for a country and its citizens. This phenomenon occurs when inflation is growing, gross domestic product (GDP) is dropping and unemployment is growing, which translates to higher prices for consumables, lower productivity and increased joblessness.
Stagflation is usually created and increased by a number of factors including loose monetary policy, such as the one embarked on over the last two years by the federal government (especially during the 2015 elections) which flooded the country with naira. The large influx of funds drove up inflation by reducing the value of the monies in circulation. This conversely then led to already beleaguered businesses receiving less value for goods produced and sold, as well as needing to spend more to make fewer purchases. In response, these firms reduced their production as well as their hiring of staff to lower their operational costs, thereby creating more unemployment in a society already facing massive underemployment. Fall in productivity of companies was further exacerbated by other factors including oil price fall, leading to reduction in consumer earning power, unavailability of forex, translating to a further reduction in GDP.
As at September, 2015, GDP growth estimate for the 4th Quarter of 2015 is 2%, a significant drop from the average of 6% Nigeria has enjoyed over the last few years. Even this dismal 2% performance was driven by the improvement in power supply since the swearing in of the new government which enabled industries and artisans to be more productive. However the power supply improvement has steadily started to fall which might translate to lower GDP rates than this in the coming months.
Now what’s the best way to tackle this stagflation? The problem with stagflation is that any of the levers used to tackle one effect might trigger or worsen another, for example tightening the amount of cash in the system might lead to GDP growth slowing further etc, and thus different levers have to be used in different ways. The solution is a strong focus on GDP growth and reduction of unemployment in the short term, while ignoring the potential rise in inflation for now
Inflation increased to 9.4% in September and is projected to be 9.5% in October, continuing an upward trend. Unemployment rate as stated by the Nigerian Bureau of Statistics is 8.2%, a figure so fantastical and unbelievable that it’s widely ignored by our developmental partners and even the Nigerian government. To be honest, anyone who lives in Lagos and sees the throng of area boys and idle youth across the state would laugh at the notion that 91.8% (about 13.8m out of 14m) of youths between the ages of 18-24 in Nigeria are currently employed.
Now add to the above, dropping government revenues because of the fall in oil prices, imploding state finances (despite the fact that these same states managed to generate N2.8trillion in IGR over the last five years, over 30% of which came from Lagos), continuing though better hidden corruption, and underpayment of taxes by individuals and companies and the scariness of the current situation becomes more apparent.
In the midst of all this, there is no clear economic direction from the Federal Government at the centre! We finally got, yesterday, after six months ministers sworn in by the president. The worst thing is his obvious core focus is largely on fighting insecurity (Boko Haram, mainly) and corruption (cleaning up GEJ’s mess), less focus on the economy. However the performance of the economy affects Nigerians more than Boko Harm and corruption and should be the priority of the government alongside the other issues.
The APC government is already on the right track with its statements about a 2016 budget of N8trillion which is nearly twice the normal average federal budget. This should give a significant boost to the economy if handled properly and focused on economic growth without any avenue for corruption. Productivity should be also be improved through improvements to the electricity grid and transportation systems, while the only thing that can be done about inflation is what is already being done through the monetary constraints that the CBN is enforcing on the country.
Now what’s the best way to tackle this stagflation? The problem with stagflation is that any of the levers used to tackle one effect might trigger or worsen another, for example tightening the amount of cash in the system might lead to GDP growth slowing further etc, and thus different levers have to be used in different ways. The solution is a strong focus on GDP growth and reduction of unemployment in the short term, while ignoring the potential rise in inflation for now.
I would propose that GDP growth be driven by government spending focused on infrastructural development which can or should be financed through repatriated funds from corrupt officials, blockage of revenue leakage and stop-gap lending from multi-lateral institutions. But so that the infrastructural spend trickles down to SMEs what is done in the United States through the Small Business Administration should be adopted. Each contract would be cut up into the main contract (for example road construction) and then smaller chunks (procurement, technical services, feeding, labour contracting etc). The main contracts are publically advertised and awarded to reputable companies by the Federal Executive Council and federal ministries while the smaller bits are advertised by the SBA (in the Nigerian case, the SMEDAN) publicly, and then given out to SMEs after a proper vetting process. This serves the purpose of making the funds trickle down through the economy. Another way to increase GDP growth is to introduce fiscal ease through provision of tax incentives to companies that employ more people.
The APC government is already on the right track with its statements about a 2016 budget of N8trillion which is nearly twice the normal average federal budget. This should give a significant boost to the economy if handled properly and focused on economic growth without any avenue for corruption. Productivity should be also be improved through improvements to the electricity grid and transportation systems, while the only thing that can be done about inflation is what is already being done through the monetary constraints that the CBN is enforcing on the country.
As Bill Clinton said while looking to unseat then president George Bush in 1992, ‘it’s the economy, stupid’.
Femi Akinfolarin, a lawyer, writes from Lagos.
