Although I am not a theorist, I will start this piece by reminding us that this is the right time to sensitize our leaders and the people on the current changes taking place in Africa on various fronts: political, economic, social and the huge untapped potential which is in the offing for those who dare and are visionary adequate to avail of. In fact, it should be seen as a period of sober reflection on the economic triumphs over the bountiful potentials available to Nigeria over 50 years ago and still counting.
As economists across the globe puts it, Nigeria had not fared well enough compared to its ready wealth and opportunities; this also relates to the African continent as a whole. Now, read this: in 2008, Africa’s GDP stood at a mere USD 1.6 trillion. Although not encouraging when compared to Brazil’s USD1.692 trillion, the McKinsey Global Institute in their economic report on Africa told us it is set to expand to USD 2.6 trillion in 2020, i.e. an increase of 62.5%. Could this be the economic renaissance we have all been waiting for? What are the impetuses put in place to achieve these speculations?
The Renaissance economy has interesting insights for today’s economies with regards to the effects of government taxation and borrowing on savings behaviour and wealth accumulation. One can surely gauge the opportunities that Nigeria holds in store. Added to this, it is to be noted that Nigeria’s growth over the past decade is not exclusively the result of a oil boom (as there had been other available resources of wealth creation) or the redistribution of wealth, but those of the strives by individual private investors utilising the higher commodity and raw material prices as well as recent government actions to end political conflicts, improved macroeconomic conditions and a far better business climate which together have helped to spur growth across businesses and the public sectors. Although growth is seen to be stable in recent times, government politics, sectarian crisis, the Niger-Delta unrest, civil strikes and other events could disrupt growth and hamper the chances of meeting the Vision 2020 economic dream.
On the road to transformation over the years, a variety of reforms in Nigeria have led to improved and struggling business environment irrespective of high costs of power and energy, a more predictable institutional environment and a wake of economic liberalization that is aimed to further “opening up” of the economy to foreign capital and investments. However, such a renaissance must receive the commitment of the rich class for it to be successful. As experienced in Florence in Italy, Florentine citizens tended to restrict their attire to basic local fabrics produced within the region even though luxury textiles were a mainstay of their thriving economy; Florentine men, no matter how wealthy, donned the tunics and caps of middle-class merchants. In keeping with the city’s taste for republican humility, even Florentine women rarely dressed in the rich brocades and damasks used by noblewomen in Italian duchies or principalities.
It will be fair to say that Nigeria’s economy during this rebirth could make the possibility of the vision 2020 come true; this of course, will mean a diligent support for the local economy: tourism, textile, metalwork, pharmaceuticals, glass and ceramics, agriculture, handmade and homemade perfumes and toiletries, local sculpture, woodwork and chemistry. One could be puzzled on why I made this postulate; it is quite simple, I belief that the economy is the machinery that control the growth of any nation. Adam Smith in his book, An Inquiry into the Wealth of Nations, described the economy as a directory. He described the basic mechanisms and principles of a self-governing system — in this instance, a market economy — and his work has been the business “holy book” for great economists ever since. What is more? Prices and wages act as a guiding directory in a properly functioning market economy. When people want more of a particular good or service, or want it more, they bid up the price for it. As such, a concentration on local economy produce will bring about self sufficiency and improved foreign exchange earnings for the local currency.
During the renaissance however, risks are outweighed by the benefits; what is needed is careful legislation. For instance, there is a risk that private providers will “skim off” the most profitable clients and cease to serve certain unprofitable groups of consumers or geographical areas. Yet such concerns could be addressed through regulation and by universal service obligations in contracts, or in the licensing, to prevent such a situation from occurring. Although Nigeria had taken a brighter step in actualizing the achievement of a true liberalization of the economy through deregulation and the reformation of the financial sector, the continuous rise in inflation and unemployment pose a threat towards meeting this objective; moreover, we could be assured of the estimated average annual GDP growth of 7.0% in 2010-2014 to provide alternative avenue to curtail unemployment threat and empower individual entrepreneurs to earn the needed incomes that would compliments the economy’s effort at ensuring self-sustenance during the renaissance period.
The era of Florence’s renaissance witnessed rich economic developments, several public finance experiments, such as new taxation systems, interest rates alterations and government borrowing undertaken by the Florentine government to raise its revenues. As part of the drive, Nigeria’s huge public borrowings had allayed fears of possible inflation that could mar the initiatives; a rise in the interest rates was eminent to check this excess. However, economic experience showed that the rise in interest rates alone may not be just suitable for oil producing country that expects oil demand to rise from an estimated 376,000b/d in 2009 to 493,000b/d in 2014, yet, had spent $1.34billion on importation of refined petroleum products within the first quarter of 2011 alone.
The country’s inflation rate which stood at 11.11% last month appears to have enjoyed a continuous support from increase by government spending. This no doubt had made the Naira to suffer a marginal depreciation at the foreign exchange market in the last three weeks exchanging for N152.85 and N156 in the official and parallel market respectively. As a practical matter, high interest rate discourages borrowing and spending by both individuals and businesses, and puts a damper on economic growth. Business reacts much the same, putting off capital spending that is not absolutely essential; as spending slows, so too does the rate of economic growth. Even though low or slow spending is characterised in this era, individuals and business may see savings as discouraging because of unfavourable deposit rates provided by the commercial banks that enjoys a far better rate in government’s treasury bills.
Although a low interest rate may overheat the economy and bring about high prices and inflation, individuals and businesses feel more inclined to borrow which give retail and capital spending and help the economy to grow. However, rising prices could be put in check through ensuring stable prices of commodities, high employment, improve oil refining to avert cost of oil subsidy, creating sustainable macroeconomic plans and economic liberalization, and the adoption of a plausible social market model that runs in tandem with our economic wealth. Across the globe, study had shown that raising interest rates could derail the economic recovery while achieving the goal of getting inflation under control; as such, the central bank must tread carefully to avoid upsetting the delicate balance between economic growth and inflation control through its monetary policies.
Identifying a true economic renaissance may require more proactive steps than adopting theories. It re
quires the adoption of, and the fair understanding of economic variables that would complement the nations surviving democracy through consolidating the market economy. More so, what makes a market economy “good”, far more efficient than government command and control, could ever be at immediately making the detailed adjustments of a million-and-one changing conditions which keep most people and resources usefully engaged at their best or near-best uses. While hoping on a true economic re-birth, the leaders approach in governance could attest the actualization of the vision or its impossibility.
Salim Salihu Muhammed