Vision 2020 (3)

on   /   in Sobowale On Business 12:00 am   /   Comments

By Dele Sobowale

Furthermore, we are already aware of the provisions of the 2013 budget. The totals are not much different from the aggregates for the last three to four years; which yielded 6.5-7.5% GDP growth. The Federal government itself had projected growth of 5-6% for the next year – figure which the World Bank and the International Monetary Fund, IMF regard as ambitious.

However, even if we accept the Federal government’s projections, we are faced with another year during which another shortfall looms. By the end of next year, we will have six years left to achieve $424 billion; and that is the minimum requirement. Unfortunately, reaching $424 billion will still not propel us to top 20. Indonesia and those other nations from 39 to 20 would not stop growing.

A lot more can be derived from these graphs but time being a constraint permit me to stop here.

POWER GENERATION AND SUPPLY

Every economy runs on power – that means power generated and supplied. Nigeria is no exception. In order not to discourage my listeners too much, I would limit the comparison to two countries – Nigeria and South Africa.

COUNTRY              RANK       POWER SUPPLY

South Africa           30             45,000M

Nigeria                     41                4,000MW*

The Nigerian power supply situation needs to be explained. Whereas over 90% of power generated and supplied in South Africa is by public institutions and very cheap, the reverse is the case in Nigeria. In fact nobody knows how much power is generated in Nigeria because close to 90% is privately generated and very expensive.

electricity

File photo

The graph below demonstrates our predicament. Before 1999, public power generation in Nigeria was just under 4000MW. Today, we are still struggling to get it up to 5,000MW.

Meanwhile, there has been a very interesting development. South Africa has embarked on an expansion programme designed to increase by 25% its power generation and supply. That addition alone will add more power than we generate in this country.

In fact, at the moment, the largest power plant in South Africa generates 4,400MW – which exceeds what all our power plants deliver. There is no nation ranked above 30 which generates less than 50,000MW. To close the power gap, we would need to add 8,000MW per annum for the next seven years.

Again, let me leave it to each of my listeners to decide if, given our track record, that is realistic.

WHERE IS THE CONCRETE PLAN?

Since the end of the Second World War, only a few nations had grown their GDP by double digits for ten years or more. Among the few were the defunct Union of Soviet Socialist Republics, USSR, Japan and China in recent years. The approach adopted by each nation was unique but there were some similarities in strategy.

The first was rapid development of human capital, efficiency in the use of materials and zero tolerance for corruption. Of the three, Japan had the least raw materials endowment, yet from nothing, it rose to become the second largest economy until recently when it fell behind China.

The secret to Japan’s success could be summarised as follows. The Japanese economy could not afford to waste anything. It delivered the right number of engineers and other skilled workers, at the right time for the needs of society as planned. Within ten years after the defeat during the war, Japan had higher literacy than the United States of America and most countries in Europe.

Stalinist USSR carried planning to the limit, sometimes to inhuman limits. Those of us who were fortunate to study Soviet Economic Planning procedures would remember that the Input-Output Table was a Soviet economic planning tool. Everything was included in the five year and ten year plans.

How many new kilometers of roads and rail lines, housing units, trucks and automobiles, as well as, classrooms were to be added; how many additional hectares of land to be brought into cultivation to produce food and the direction the development of human capital will take to meet social, economic and political needs.

Everything was quantified and somebody was held responsible for achieving set targets; failure meant at least a trip to Siberia or, at worst, death by firing squad. The economy grew from the ruins of World War II to become the second largest and one of the most technologically advanced in less than twenty-five years – of sweat, tears and blood.

That sort of tight planning made it possible for the USSR, a technologically inferior nation to send the first astronaut to space before the United States and to spark what later became the Space Race and the exploration of other planets.

But, eventually, even the USSR discovered that there were limits to growth, even in a nation under the iron grip of a dictator. After almost two decades of double digit growth, the nation slid into single digit and the break-up of the USSR has left Russia, the dominant country in the former union, growing at about 5-6% per annum. Japan, today, is struggling to grow at 2% per annum.

The reasons are not hard to discover. Indeed, one principle of economics provides some of the clue. It is called the Principle of Diminishing Returns. Baldly stated, it warns economic policymakers that as we add resources to produce results we eventually reach a point when additional inputs don’t yield proportional returns.

Among the most important variables in the economic plans are markets. For instance, a nation whose rapid growth depends on exports might soon find those markets saturated and unable to absorb more products. When that occurs, the rate of growth slows down considerably.

Sometimes, the nations which once imported the nation’s products might start manufacturing their own, or its increasing wealth might make its products more expensive and less competitive, Japan is in exactly that situation now. Years of rapid growth brought unprecedented prosperity but it also brought imitation and competition.

Today, South Korea and China, once among Japan’s largest markets, now export to Japan and compete with the Land of the Rising Sun in international markets like Nigeria where KIA, HYUNDAI now actively compete with TOYOTA and HONDA in cars. SAMSUNG and LG have driven PANASONIC out of the television and refrigerator markets.

Thus, even if the nation achieves the growth rate needed to reach the top twenty, it will eventually attract competition and the position might be difficult to hold for long. Most people don’t even remember that Britain was once the largest economy. The position was lost after the Second World War to the United States.

As mentioned earlier, the USSR was in the second position until it broke up and Japan rose to the second position. Now China is number two and might become the largest economy by 2050. Brazil, which was not one of the top twenty in 1990 is now about to push Germany out of the fourth position.

The nations dropping from lofty heights do so, not because they want to, but because economic competitiveness is not something which a nation can completely control and because increasing affluence makes it difficult to grow at the rapid rates which brought the nation to its top position in the first place.

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