Unstable Economy:Is Nigeria Sinking?

2 Comments » February 2nd, 2008 posted by // Categories: General Articles



The fluctuation of economic activity in Nigeria business cycle since independent era is disturbing the economic long term growth trend. The cycle involvement and shift over time between periods of relatively rapid growth of output (recovery and prosperity), and periods of relative stagnation or decline (contraction or recession) is an endangered economic crisis of great concern. These fluctuations are often measured using the real gross domestic product. Despite being named cycles, these fluctuations in economic growth and decline do not follow a purely mechanical or predictable periodic pattern. The economist refers to this menace as an economic crisis; meaning a sharp transition to a recession. The nation has observed a significant decline in economic activity spread across the economy, lasting more than a few months, with simultaneous declines in coincident measures of overall economic activity such as employment, investment, and corporate profits. We have observed sharply rising prices (inflation) as well as stagflation

 

 

 

Addressing a nation’s socio-economic problems is a Herculean task that requires an in-depth examination of the root causes of the malaise. There have been endless debates on how to tackle Nigeria ’s socio-economic challenges yet they remain unresolved. While some people are blaming external factors for the nation’s woes others, including this writer, argue that poor governance and institutional factors are the main culprits. External factors are not the cause of the unethical behavior of the leaders and the resultant economic and democratic nightmare. This paper, thus, illustrates how poor governance has combined with corruption to create a weak economy, high unemployment, inflation, poverty and rising crime and dwindling educational standards and offers a solution to Nigeria ’s socio-economic problems. One of the aims of any organization or nation is to produce good quality products and services and this is much more manifest and desirable in the present highly competitive global economy. Only organizations or nations whose products and services are of high quality could compete effectively and thrive. There are many forces facing the nation but part of the challenges facing the Nigerian economy poor governance and corruption that has prevented the present administration from tackling the infrastructural decay in the society and the resultant weak economy. The Nigerian economy is facing myriad challenges, including poor governance. Research of causes of poor governance suggests ways to institute reforms. Nigeria has undertaken some reforms but a review of the reform efforts shows, a posteriori, that the society is deeply corrupt and also lacks effective institutions and good governance for successful reforms for sustainable economic growth and development.

 

In addition, the society lacks the leaders and a government that is ready, willing, and politically motivated to address the ills in the economy. Nigerian leaders appear good at prescribing solutions to the nation’s economic problems without providing the institutions to make the society work. They make high-sounding promises without fulfilling them; and more often than not their policies are hastily put together and poorly executed. These have affected the nation’s economic performance. As Dike (July 22-28, 2006) has noted ‘the political landscape of Nigeria is littered by myriad of unreasoned policies-those that are hastily put together and poorly implemented. They do them, we hear and see them, and judge them every day. Those that are involved in such activities appear to enjoy the nation’s underdeveloped status. But, a smell that one person enjoys gives another individual a headache. Growing evidence shows that the crises bedeviling the nation’s political economy could partly be attributed to the authoritarian tendencies of the leaders. For instance, one of key problems facing the Nigerian economy today is that almost every facet of the economy it is being controlled by the President. Growing evidence shows that he is in control of the on-going privatization process and controls the petroleum industry (including pricing of its products). He controls the elections process and determines who should take part in the process and he determines who is corrupt or not. The President decides whether or to implement the national budget, and often spends public fund without seeking approval from the National Assembly. The system lacks checks and balances and the people lack the freedom to challenge the autocratic tendencies of the President.

Nigeria lacks genuine democratic system in which the electorate would participate without coercion and hold the politicians accountable for their actions. And this affects the economy in many ways. As Sen (1999) notes “unfreedoms” leave the people with little choice to exercise “their reasoned agency.” And “Freedoms are not only the primary ends of development, they are also among its primary means.” Development “requires the removal of major sources of unfreedoms” (Ibid.). Fiscal indiscipline and lack of democratic governance are some of the causes of Nigeria ’s weak economy and rising poverty. Another impediment to economic growth and development problems is ethnic and religious crises because the political leaders are hopelessly sunk into their ethnic suspicions as every section is protecting their own, instead of the nation. This undermines the democratization process, governance, national security, and economic activities.

 

Among the challenges facing the economy is that the system lacks genuine competition. A market-oriented economy is better suited for economic growth and development because genuine capitalistic economies are controlled by market forces and not by personal idiosyncrasies. The leaders of Nigeria are yet to heed the advice of Adam Smith in The Wealth of Nations (1776) that the State should not interfere in the economy. And that the law of supply and demand should be allowed to regulate the economy for the interest of everyone, and not for a privileged few, as is the case in Nigeria . Inconsistency and unsustainable policies and ‘macroeconomic imbalances’ are part of the causes of the present ‘hemorrhage’ (Eichengreen, 2004) in the economy. Any keen watcher of the political activities in Nigeria knows that every leader that comes on stage often discards previous programs. Greater part of the problem facing the nation is corruption, which contributes to poor governance and low growth (Rose-Ackerman, 2004). Unfortunately, after years of Independence Nigerians are still walking around with colonial mentality that public money belongs to the “white man” and that any person who has access to public fund should convert it into his or her personal use. Consequently, the society lacks the necessities of life that keep the citizens healthy and productive. Hospitals in Nigeria are ill-equipped and fake drugs are sold to citizens by corrupt traders (Vanguard, March 23, 2007). There is not enough food for the growing population and no stable electricity supply for domestic and business consumption (except from power generators that are too expensive for businesses and often suffocate the users).

The regulatory agencies in the society are not free from political interference to operate effectively. Without allowing them unfettered hands to regulate the economy and Nigeria ’s ‘fragile financial system’ and institute good corporate governance the economy will not gain from the “power of productivity” (Lewis, April 2004; Dike, January 31, 2006). The role of productivity in determining living standards is important for nations as it is for individuals. Productivity has a lot to do with the workers and morale. Nigerian workers must be well trained and well motivated to work productively. A nation enjoys higher standards of living if the workers can produce large quantity of goods and services for local consumption and extra for export for revenue. According to Mankiw (2001) the productivity of a society is determined by many factors including physical capital, human capital, natural resources, and technological skills and knowledge. Inadequate investment in physical capital, human capital and technological skills and knowledge hinders productivity and poverty has blossomed. Available economic indices show that about 70% of Nigerians live on less than one dollar per day (U.S. Department of State Reports on Human Rights Practice, 2005). The implication of this situation is that this many poor Nigerians will spend most their resources on feeding with little or nothing remaining to invest on the economy. Without boosting economic growth, and without empowering the people, the government’s ill-planned and hastily implemented poverty alleviation programs may not reduce poverty in the society. For the nation to achieve sustainable economic growth and development the rural communities in which the majority of the people live must be developed.

Related to education is inadequate investment in technological development. In the midst of global electronic communications revolution in which electronic information flows across national boundaries no society would succeed in building a thriving political economy without being information technology conscious. Now, information technology almost determines the nature of every human activity; with it individuals and businesses now communicate much faster now more than ever. In spite of the presence of the GSM in the society Nigeria still lags behind in the integration of information technology in its daily activities. For reasons of technology, infrastructure, and socioeconomic status many Nigerians lack access to the Internet and electronic information to make informed decision on various issues affecting the polity. One must note, however, that modern technology is not the answer to all the problems facing the Nigerian economy; it is only part of the solution. Given the magnitude of challenges facing the economy it requires serious economic medicines to the spur the ailing Nigerian economy. As noted earlier Nigerian leaders are good at listing the challenges confronting the polity without providing the means to tackle the problems. As a result Nigeria ’s socio-economic and political problems remain perpetually unresolved. Fixing Nigeria ’s ailing economy would require a holistic approach because as Rose-Ackerman (2004) notes a “dysfunctional government” is often “captured by wealthy interests.” Effective institutional reforms are the key to improving the economy because poor governance and corruption, which are related, distort socioeconomic and political activities in societies. Corruption “is an institutional system in which rights are dissolved in exchange for gifts” (Robbins, 2000). Because law enforcement policies that deal with corrupt practices may not be effective without tackling the underlying institutional problems that are the root causes of the malaise. Efforts to improve governance must go beyond mere anti-corruption campaigns; the reform efforts, if well-planned and well-implemented, could have huge benefits with less disruption.

 

Unbundling corruption in the society would not be possible without effective checks and balances to monitor people’s activities and with stiffer penalties for corrupt practices such as longer and tougher jail terms without option of fines. Nigeria operates a political system modeled after the United States where the legislative branch plays an important part in the formulation of laws and influences policy directions. But in Nigeria the executive branch has unlimited powers and literally determines who gets what, when, and how much. To transform Nigeria ’s democratic experiment into a true democracy and for the economy to prosper, there should be proper balance of power among the branches. The National Assembly and the Judiciary could only influence national decision-making process when, and if, they are independent of the influence of the presidency. The unlimited power tussles as seen from the current spate of impeachment of state governors, should be controlled through the institution of due process, because they impediment economic growth and development. One of the reasons the economy is prostate is that political activities in the society are not adding any value to the economy. Until the society destroys the authoritarian institutions that are choking the Nigeria ’s nascent ‘democracy’ domestic politics would remain authoritarian and chaotic with catalogue of human miseries. To stimulate the economy the society must fix the dilapidated social infrastructure (roads and bridges, water, etc) truly reform the power sector because these are crippling economic activities. Poor business environment negatively impacts business activities and productivity plummets. One could venture to say that Nigeria ’s economic problem is largely a productivity issue. To improve productivity the employers of labor in the society must motivate the workers for increased productivity. Nigeria seems to have the worst reward system in the world. Good governance and management are among the determinants of a nation’s productivity. Shortage of “lead-manager” – Nigeria has more of “boss-managers”-is one of the deep-rooted impediments to higher productivity in Nigeria . Managers who use good rewards system get more from workers than managers who “boss” workers (Glasser 1992).Effective reform and privatization of the power sector is critical in fixing the ailing Nigerian economy.The Guardian of November 5, 2006 noted that for the “reforms in the power sector to achieve its set objective a whopping $20 billion would have to be invested in the next 20 years.” Because of inefficiency and corruption (the leaders have stolen billions of dollars of public money) government-run organizations swallow huge sum of public money without good economic return. It requires good management (and not money alone) to turn NEPA (now PHCN) and other public corporations into viable entities that would benefit the entire society.

Good schools are important part of the solution to Nigeria ’s sociopolitical and economic problems. To enable the educational sector to produce and supply the required high level manpower and human capital for sustainable growth and development the educational system should be properly funded and reformed. The failure of the government to honor its agreement with ASUU has contributed to the unending teachers’ strike actions and the disruption of the nation’s academic calendar (Daily Trust, March 27, 2007; Vanguard, March 29, 2007). Without increased investment in human capital and creation of jobs, stable political environment; and without ensuring that the necessary factors of production are available at an affordable price, the economy will remain in shambles. Ineffective social institutions are strangling the Nigerian economy (Dike, October-December, 2003; Sachs, June 2003; Edison , June 2003; Rogoff, June 2003; Acemoglu, June 2003). No economy will grow without functional and effective institutions. To improve the economy Nigeria should invest in social infrastructures. For instance, how can the private sector function without electricity, without access to financial capital, and without good road network, and without good operating environment? For the economy to function well the environment must also support small and medium scale firms that create employment. This will help reduce the rising youth unemployment and crime rates in the society. The nation should also improve access to clean water and improve sanitation (Rijsberman 2004) and invest bountifully in information technology. Economic growth should be tied to activities in non-oil sector and agricultural productivity because resources from the oil sector alone wouldn’t grow the economy. The provision of functional institutions and necessary tools for production will improve the capacity utilization of industries and the economy. The nation’s capacity utilization is currently poor. Sadly, as Charles Soludo noted recently, “The economy operates at only 25 per cent capacity” (Daily Independent, November 6, 2006).

 

The agricultural sector has been neglected leading to scarcity of food in the society. Nigeria needs “agricultural revolution” by applying new and advanced agricultural technologies and methods both in the urban and rural areas for increased food production. Commercialization of agriculture with commercial food processing is necessary because any nation worth its name must be able to feed her citizen to enable them function in the 21st century economy. It is time for a paradigm shift to unchain the impediments to economic diversification and economic growth in the society. The economic base should be diversified with more attention given to the federal government’s ‘cassava initiative’ (Vanguard, March 25, 2007). Nigeria should restructure her revenue collection system because it has very low capacity to collect taxes from her citizens. States cannot function if they are unable to collect taxes and account for them. However, as Moore (1998) has noted if citizens are not taxed they have little or no incentive to hold the government accountable. Regulation of business activities for corrupt practices is also important. Some businesses get into corrupt practices in the society for survival because of the unfavorable economic environment. There is need to resolve the fundamental impediments facing the economy. Thus, Nigeria should institute reforms that could improve social institutions and governance, reduce corruption, increase productivity, and spur economic growth and development. How could the leaders accomplish the fundamental changes in the society? The activities of the government and its interaction with Nigerians are among the myriad challenges facing the society today. The nation’s economic managers have toyed with varied socio-economic policies to guide the economy. And the latest major policy is the National Economic Empowerment and Development Strategy (NEEDS) that appears to guide the nation’s present economic reform agenda. However, the NEEDS strategy, which focuses mainly on creating wealth and employment, reducing poverty and values re-orientation (NEEDS Document, 2004), has not achieved the objectives because of poor governance, ineffective public institutions, decayed social infrastructures, and unfavorable political environment. However, are the nation’s policies well-articulated? Real reform requires systematic policy initiatives (Rose-Ackerman (2004).The scope of the challenges facing the economic enormous and because of that Nigeria has been whirling in a vicious circle! The economy still depends on oil and political condition around the globe and crises in the oil Niger Delta affects world’s oil prices and Nigeria ’s economic fortune. There is serious need to diversify the economy by giving proper attention to the non-oil sectors of the economy. This would be impossible without good leadership and effective institutional structures because as Dike (Oct -Dec 2003) and Dike (Nov-2006) have noted institutional deficiencies are strangling the Nigerian economy.

Sustainable macroeconomic policies are important for any healthy economy. Governance challenge in Nigeria is serious. The CBN noted in its Economic Report (August 2005) that aggregate money supply grew by 39.8% during the period as against the targeted growth of 15% for Jan 2005. Like other public institutions in the society, the apex bank is not free from political interference from “above”. It has many times indicated its commitment to shoring up confidence in the Naira but it has had difficulties mopping up the excess liquidity in the system so as to tackle inflation, improve the Naira exchange rate, and to tame inflation. This is apparently because the economy still depends mostly on foreign material inputs.Nigeria cannot improve her global competitiveness with weak economy, weak currency, and poor quality products or lack of it. The official exchange rate hovers around N130/$1 as compared to N80/$1 of the late 80s! Worse still, epileptic electricity supply (this has worsened recently) is affecting economic activities in the society (BusinessDay, March 21, 2007); this renders the nation’s economic reform efforts ineffective. The general appalling state of the environment has not permitted the private sector to really invest in power generation business. The consolidation program in the banking sector has not done any magic because there are still some fraudulent activities going on in the banking sector. Good monetary policy will only correct the anomalies in the nation with the assistance of effective institutions and social infrastructures. Weak fiscal institutions (poor tax collection system, etc) are not helping the economy. Does the nation have the tools and political will to deal with the corruption challenge? Nigeria ’s privatization program has not been effective because of political interference (corruption) and poor governance – both public and corporate. As Rose-Ackerman (2004) has noted without a well-functioning government, macro-economic policy would not be effective. Institutionalized corruption is a symptom of a dysfunctional state (ibd.). The more money Nigeria makes, the weaker the economy gets and the poorer the people become. Nigeria earned about N3.8 trillion from oil exports between January and August 2006 However, the budgets of 2004, 2005 and 2006 were based on oil price of $25, $30 and $35 respectively, but the price of crude oil was $38.3 in 2004, and $55.3 in 2005, with a projected price of $ 68 in 2006 .As noted earlier, the price of crude oil is controlled by the forces in global politics. These monies have unfortunately gone down the sinkhole created by corruption. Despite the unending corruption scandals in the society the politicians are still preaching leadership accountability and transparency.

 

 

For the economy to grow the nation must invest in social institutions and build permanent institutional structures to tackle the nation’s problems as they arise. The society should invest in agriculture, health care, good network of roads, and efficient and reliable transportation system, and tame financial instability. In spite of her oil wealth Nigeria is often mired in the dark. Poor electricity supply is a serious problem. NEPA (‘never expect power always’) has transformed its name to PHCN (‘please hold candle now’) yet power supply has not improved. Specifically, the nation should improve its electricity supply without which there will be no development. The society must also invest in information technology and expose the youths to emerging technologies early in life because technology and education play vital role in any sustainable economic growth and development process. And the society should control corruption; it has been noted that rampant corruption is a sign of institutional failure. All these affect economic activities, productivity and the health of the nation. More important, to prevent further erosion of confidence in the democratization process the government should be transparent (transparency is negatively impacted by corruption and unnecessary politicization of issues). The legal system must be reformed to maintain or ensure the people’s trust in its rulings. And Nigeria should reform its decision-making process and involve the citizens in government decision making process, and improve rural development program. The political leaders should allow an increase in democratic participation in opposition, and promote good governance, improve national security and tame social crises, and tackle hunger and diseases. Nigeria is not sinking! It needs just good governance and effective institutions as the panacea to her socio-economic problems because other issues revolve around them.

 

L.Chinedu Arizona-Ogwu

Founder; Nigeria4BetterRule

Writes from Oyigbo; 08034885337

 

Opt In Image
Send Me Free Email Updates

(enter your email address below)

2 Responses to “Unstable Economy:Is Nigeria Sinking?”

  1. love says:

    very good article. quite impressive.

  2. ken says:

    this is good work, is it possible to send me the reference (bibliography) list?

Leave a Reply

Home | About | Contact | Login