The Nigerian economy is getting more and more unified into the global economy, however, little or nothing is being done to curb the damages associated with economic shocks that comes along with economic globalization. The year 2015 has been projected for a slow start mainly due to the recent devaluation of the Naira, oil price decline and the upcoming general election.
But is Nigeria preparing for the economic shocks that is about to befall her in the first quarter to mid-2015 until stability comes?
In early 2014, the Nigerian Gross Domestic Product (GDP) was rebased and estimated to be $80 Trillion according to the Central Bank of Nigeria (CBN), surpassing South Africa’s GDP to become Africa’s biggest economy. While this is good news and advantageous to the investors, elites and government officials, it exposes the country’s lack of ability and strategy to ensure wealth redistribution. As such fails to support the burgeon middleclass and ensure that the poor gets more to create a balance and reduce inequality and vulnerability to economic shocks. This reality was evident when local branches of Cadbury, Unilever and Heineken reported a significant decline in profit margin in early 2014. What this indicates is the growing middleclass is struggling and that Africa’s biggest economy is struggling with high economic growth coexisting alongside intensifying poverty and inequality.
The country’s chief economist of the federation Dr Ngozi Okonjo Iweala announced that Nigeria is set to embark on introducing safety nets, with focus on; ensuring the poor are predisposed to cash backup to absorb the shocks. Further, Dr Iweala proposed that Nigeria’s quality of growth needs to be more substantial to create sufficient jobs with focus on agriculture and manufacturing. What Dr Iweala failed to explain was how the country plans to make the adoption of the intended safety nets more feasible and adopted across the nation.
In reviewing global financial crisis and strategies to cope with economic shocks, what becomes apparent is that the “Asian tigers” are more volatile. They learnt from the 1995/97 economic shocks and were better able to cope with the 2007/08 crisis. The Asian “big four’s” learnt that in dealing with economic shock, good intentions was not enough. The Asian Tigers focused on suitable policies benefitting to the most vulnerable and building strong institution.
Here is what Nigeria needs to in the interim while the grandeur sustainability plan is in the works;
- Intentional Policies: In Nigeria, poverty reduction policies are often designed to benefit the elites directly and trickle-down indirectly to the middleclass and the poor. However, the sort of policy required to reduce inequality and poverty in Nigeria should be the other way round; policies with direct benefit to the target group with indirect impact to or from the elite. Intentional policies strategically positioned to ensure the poor gets more is more practicable to ensuring that Nigeria is not a giant whose majority is consistently getting poorer. Further, the devaluation of the Naira from N155 per dollar to N168 is said to provide economic gains despite the fact that the poor will experience an increase in cost of living; so far nothing has been said about increasing minimum wage to balance the shocks.
- Welfare: In times of hardship, the poor and the very fragile middleclass are more vulnerable to the shocks associated with economic challenges. Inflation, oil-price decline; which is likely to make the government cut back on fuel subsidy will in turn will result in higher cost of living. Because Nigeria lacks social services, the impact of such shocks will be immensely felt by the middleclass and the poor.
So far in Nigeria, only Ekiti, Ogun and Ondo have a welfare system; Ondo state incorporated nutrition for children (school meal) to boost access to education in the state, while the other two states have provided monthly benefits for the elderly.
Although handouts are beneficial, it is an unsustainable and unhelpful approach to deducing poverty. The Nigerian government needs to create a universal approach that goes beyond skills acquisition and selective location empowerment to focus more on a holistic approach.
The possibilities to ensure that the suggested safety nets approach by Dr Iweala creates enough jobs to accommodate the growing population is extremely low because such growth hinges on factors Nigeria is yet to address, i.e. lack of power, access to capital and fertilizers etc. In the short term, the government needs an alternative plan while working on the long term substantial goal.
- Direct Support Systems; the current global reality is such that no economy is able to create sufficient jobs, and as such, Nigeria’s aim to do this is seemingly impossible at this time. Because inequality is largely due to lack of opportunity to engage in income generating activities, a more realistic approach may be harnessing the informal sector to ensure that more and more poor people beyond the urban areas are able to earn a daily living. Nigeria needs to embark on projects that have a direct impact to support the middleclass and societies most vulnerable. For example, as opposed to investing in projects such as the “Eko Atlantic city” in Lagos state with the intent that the effect of such projects will trickles down to the poor; a non-political, non-elitist mass housing projects targeting the lower class would be more beneficial. Also the government should ensure that it is not creating more poverty by banning income generating activities without providing an alternative, i.e. banning street hawking in major urban cities as this is a major source of daily income for the poor.
- Painful Adjustment; The annual budget is usually overstretch by unnecessary spending for running bloated cabinets, bogus government official allowances and the fuel subsidy for which many have criticized to be corrupt and only beneficial to the Nigerian elites.
In conclusion, to ensure that the middleclass is able to remain afloat and more people are being lifted out of poverty, intentional polices targeting the middleclass and poor is the only option. Furthermore, harnessing the informal sector is a necessity as the economy very unlikely to create adequate jobs. Thirdly, cutting government spending seems like wishful thinking but Nigeria will not be able to ignore this painful adjustment for much longer. It is necessary to cut back on administrative cost and curb recurring expenditure and channel such funds to human development. These adjustments and changes will require that Nigeria has a development ministry at the federal level with tiers in the states and sub-level, which runs on its own budget and independent from federal government influence.
Finally, big ideas is killing Nigeria’s development, let’s start with structuring policies with direct impact and making small ideas work.