Prosperity economics of inclusiveness
Prosperity economics of inclusiveness is founded on a virtuous cycle of shared growth, security, and corporate and democratic governance. The immediate economic objective of inclusive prosperity is to address the growing insecurity, widespread unemployment and pervasive inequality in Nigeria. As noted in the RIP, academic economic research has found that long spells of unemployment can permanently lower both workers’ earnings and potential GDP. The high unemployment rate of 24 per cent and over 50 per cent among the youth as well as low productivity may explain the gap between the actual GDP growth rates of 6.5 per cent and 7 per cent since 2009, half the targeted GDP growth rate of 13.8 per cent in Vision 2020. Celebrating the current growth rate of 7 per cent as high may encourage complacency at a time when the gap between the targets needs to be closed.
Unemployment needs fiscal stimulus
Government interventions on both the aggregate demand and supply side can make a difference with such levels of high unemployment. As Bradford DeLong and Lawrence Summers have argued in ‘Fiscal Stimulus in a Depressed Economy, “If fiscal interventions can affect long-term aggregate supply, the costs of fiscal stimulus are much lower than previously thought…. That there are no long-term costs to doing nothing to increase demand is also wrong.” We note how the US President Obama responded with fiscal stimulus, and the US central bank with monetary stimulus, during the great financial crisis. The proactive and counter-cyclical responses explain the more robust economic growth and reduction of the unemployment rate by half to 5 per cent in the USA, compared to the economic malaise with the high unemployment rate in the Eurozone, especially in Greece and Spain.
The alarming unemployment crisis in Nigeria demands immediate shock therapy with intensive and acute care. Fiscal and monetary policies can help in the short-to-medium term. Pro-cyclical fiscal and monetary measures should be replaced with counter-cyclical measures, as the former would worsen the unemployment situation. Moreover, the current monetary and fiscal arrangements, which have been called into question under Boyonomics, need to be examined and addressed. In Nigeria, the current unemployment situation calls for a responsible fiscal stimulus package to stimulate both aggregate supply and demand, especially of the poor and majority of Nigerians; the 99 per cent will spend more to uplift the domestic economy than the less than 1 per cent few elites that spend more on foreign goods and services.
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Our high unemployment and insecurity are intertwined and require immediate scaling up of public sector investments in social safety nets, conditional cash transfers, public works and other public goods employing direct labour and can be stimulative across sectors, especially agriculture and manufacturing which are more labour-intensive, and raise aggregate demand. Such public sector investments are not impossible as fiscal leakages from corruption, over-bloated high recurrent expenditure, and untapped revenue sources at both the federal and state levels are plugged. Further, the 2015 budget ratio of about 9 out of 10 in favour of recurrent expenditures needs to be tilted towards capital expenditure; prosperous economies in East Asia had up to 40 per cent of the budget in capital expenditures. For one, the rationales for N150 billion for the National Assembly and items including new presidential jets in the 2015 budget are difficult to understand, especially when austerity measures are being imposed on poor Nigerians. In addition, critical public sector reforms are needed in key areas: long-term fiscal sustainability at all levels of government, corruption, and democratic governance. It also requires freeing the government from narrow corporate interests with a network of patronage and opaque system fuelling rent-seeking opportunities and corrupting our democratic system with unrestricted campaign finance.
Full-employment monetary policy
Besides public investments and fiscal rationalization, another immediate step to support the objective of employment generation and job creation deals with monetary policy. The central bank needs to pursue full-employment and welfare-oriented monetary policy objectives, which include lowering the high monetary policy rates of 13 per cent, aimed essentially at foreign portfolio investors, with their capital feast and famine cycles. In its ‘Nigeria’s Article 4 Consultation’ document of April 2014, the IMF notes that “the current policy stance poses a concern about longer-term inclusive growth: while inflation has come down from 12.5 per cent at the beginning for 2012 to 8 per cent at end-2013, lending rates remained unchanged reflecting no changes in the monetary policy rate established by the CBN, so that the maximum real cost of borrowing has increased from 10 per cent to 17 per cent, amplifying barriers to the growth of SMEs that have no access to the equity market”. It is difficult for businesses, especially SMEs and manufacturers, to afford and grow businesses and employ more people with lending rates now more than 20 per cent.
As I have argued in the article on ‘Monetary Policy at Crossroads’ in the Guardian of November 2014, “While the mantra of monetarism has helped with price stability as defined by the CBN, the hawks within the MPC still do not believe that high unemployment rate is the number-one economic evil today. With the high rate of unemployment and jobless growth, it is safe to state that the economy is already below its potential output; and added to it are the potential recessionary gaps from realized and emerging shocks. In this context, the marginal social benefits of reducing unemployment from a high of 24 per cent outweigh the marginal social cost of inflation, which is still below defined target.” Other leading economists including Kenneth Rogoff, a former chief economist of the IMF and one of the early proponents of inflation targeting in the 1980s, recently noted that excessive emphasis on low inflation targets can be counterproductive in the aftermath of severe shocks such as the Nigerian economy is currently witnessing.
Telecommunication revolution
Beyond the immediate fiscal and monetary policy measures to support job creation, each government or regime needs a signature economic success with scalable impacts on inclusive, shared, sustained prosperity. We note that the majority of federal and inter-state roads were constructed or planned during the regime of General Yakubu Gowon, which made road transportation an important economic signature achievement of that administration. In this context, what economic programmes have worked in the last 16 years of our democracy that we can tap on as a success story for inclusive prosperity? In the case of President Obasanjo, the revolution in the telecommunication sector is a remarkable and notable success that fits this bill. Nobody will argue that mobile phones increased a hundred-fold from less than 1 million sets to over 130 million sets now.
Agriculture revolution
What is currently working and may fit the same inclusive, shared, sustained prosperity? The reforms in the agriculture sector are very promising for inclusive prosperity with potential scalable positive impacts on domestic food production, food security and hunger reduction, food imports reduction, and employment generation. Agriculture stands a chance of being President Jonathan’s economic signature achievement with lasting impacts on inclusive prosperity. It is estimated that 10 million farmers now have access to subsidized fertilizers and seeds through the innovative electronic wallet system. Most other activities being currently touted as laudable achievements including YOUWIN, SURE-P, social safety nets, and industrial plans remain as vapourware, inputs and are at very embryonic stages. For example, YOUWIN has created only 1,200 entrepreneurs in a country with over 50 per cent of unemployed youths. Let us get more serious. What are the cost-benefit analyses of some of these programmes already being planned or implemented? Are they scalable?
Temitope Oshikoya
