By The Editor
The fears earlier expressed by the Central Bank of Nigeria (CBN) Governor, Mr. Godwin Emefiele, that Nigeria risks relapsing into another economic recession are not yet over. He gave the hint that this time it would be unemployment driven – consumer markets without money. Though the economy has sustained positive growth in the post-recession period, it is no more than a jobless growth.
There is a wide gap between the aggregate economic numbers and the living conditions of the average Nigerian family. Growth in a few sectors of the economy tends to obscure stagnation and declines in other sectors. Continuing job losses is reckoned to be a major front for spreading the multiplier effects of economic difficulties in the country.
The job creating capacity of the private sector has continued to weaken, as growth in the economy is failing to secure even existing jobs. This is an indication that regulatory interventions in the economy aren’t registering sufficient speed to trigger a job generating growth.
The Nigerian economy needs to run on a new growth impetus in the post-election economy to recoup from considerable pre-election downturn. This hasn’t happened one year after the elections. Policies to stem the tide of unemployment are yet to be placed in the front burner and the crowding population of jobless youth continues to grow.
Business operators speak of major investment decisions suspended because of the 2019 election due to policy uncertainty. That leaves the economy waiting on the wings of ‘wait-and see’ on which it has hung for five years. The business world is again waiting on Nigeria to rebuild confidence needed to spur the inflow of job creating investment capital.
The Economic Intelligence Unit of the Economist measured the future productive capacity of Nigeria’s economy and found a significant gross fixed investment deficiency. This means Nigeria lacks current and future investments required to propel it to an accelerated growth path. “It is incapable of providing Nigeria with the investment impetus that will have the desired multiplier effect on output,” the report said.
The nation suffered the consequences of government’s failure to act in 2016. Greater consequences can be expected this time around, as the clock continues to thick with talks but no action.
The economy may grow anywhere between the range of projections of 2.1 percent to 2.35 percent in 2020. Measured by job creating capacity, the projections still make a dismal reading, which should keep the authorities running on their toes rather than resting on their oars. The big mountain ahead of government is translating economic numbers into job creation and poverty reduction.
Economic growth forecast remains well below historic averages and this is expected to be the position over the next five years – well below the level needed to fix poverty. Being also well below the annual population growth of 2.6 percent, it means the country’s per capita income will keep declining. With burgeoning youth population unmatched by job growth, unemployment could rise further from the already historic high of 40 percent.
The monetary policy committee of the Central Bank has aptly recognised weak financial intermediation as one of the main downside risks to Nigeria’s economic outlook. The solution to this problem lies in creating conducive environment to lend and to borrow. Banks and other lenders are cautious to see positive steps that would allay the restrictive macro-economic concerns. Users of bank credit want low interest rates to produce and a promising consumer market to be able to sell.
High interest rates are seen as standing in the way of employment growth, as interest expenses gulp company revenues, erode profits or create losses, warranting continuing layoff of workers. Companies are cutting down bank borrowings in order to defend the bottom line. Dynamism in monetary policy is being called for in the changed environment of the post-election economy, robust enough to compensate for possible fiscal lapses.
Leaving the economy without a decisive headway is fostering job losses on both sides of lenders and borrowers. Practical steps are desperately needed to ease the pain of borrowers and improve the environment of business to minimize credit losses for banks. These steps are considered quite imperative to drive growth with new jobs in the post-election economy.
A lot seems to depend on what government does or fails to do now and to what extent these would shape up the operating environment. The question is whether coherent economic strategy would take the place of government’s management style that withheld responses from crucial matters in the past years. In its report on Nigeria’s economic outlook, PricewaterhouseCoopers sounded a warning. “Not only is a game changing formula now imperative; it has become inevitable”.
Reshaping the policy environment to rekindle suspended investment interests on the part of local and foreign investors is seen as a major strategy that could give Nigeria’s economy a quickening restart in the post-election period. An early change of policy attitude that stamps out uncertainty needed to have happened since and it is yet to be seen going to one after.
Galvanizing domestic and international investment is considered crucial. The immediate target of a new policy attitude is the return of foreign investment capital that fled from Nigeria before the election. The economy lost considerable momentum due to the flight of billions of dollars of foreign investment capital. The development has constrained government’s ability to fast track economic recovery and growth.
Domestic investors also need to be courted to reconsider investment programmes that were suspended under the election-induced uncertainty. A large proportion of Nigeria’s stock of money has been cordoned off the productive function. The task ahead of government is to put money back to work. In doing so, the economy can buckle up for stronger growth, employment creation, reduction of poverty and associated crimes.
Monetary policy has assumed a central role in macroeconomic policy framework in the modern economy. It has been proved to activate rapid responses that lead to the appropriate adjustments desired in the policy objective. That has made it a short cut to achieving economic and financial markets stability and an acclaimed tool for preventing wide swings in economies and markets.
Management of economic and financial crisis has resided largely within the realm of monetary policy since the last global financial crisis. For many years, monetary easing remained the main tool of the US’ monetary authorities for stimulating the economy. The UK government repelled economic recession by pumping new money through the banking system to keep producers producing and consumers consuming.
It had been expected that the experiences of the 2016 recession should have taught the authorities great lessons on the swiftness required in policymaking in the highly dynamic macroeconomic environment of the present day.