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Should the 2017 GDP growth rate of 0.8% induce optimism?

By Henry Boyo

THE National Bureau of Statistics (NBS), reported in March this year, that Nigeria’s annual Gross Domestic output had grown by 0.82% by December 2017; this marginal growth rate has nonetheless, been commended generally, as a welcome reversal from the negative -1.58% contraction recorded in domestic output by December 2016.

Notably, however, the related euphoria from the marginal annual growth rate, is probably lost on millions of our countrymen, who still endure severe economic and social deprivations, without any hope of respite.

Consequently, the relevant question, therefore, is whether the collective pangs of hunger and deepening mass poverty, which are largely driven by double digit inflation and unemployment rate above 20%, can be ameliorated by the positive growth rate, recorded by NBS.

This question and related issues will be examined, hereafter, in the following interrogative prose. Please read on:

Does the reported annual GDP growth of 0.82% for 2017 suggest that Nigeria’s economy has turned the corner, after the contraction recorded in output of goods and services between 2016-2017? Can we begin to expect improvement in social welfare, poverty reduction and employment opportunities?

The present modest rise in GDP is primarily instigated, as in the past, by the spike in oil price, from near $30/barrel to a steady $60-70/barrel in recent times. Consequently, if crude prices further rise or remain stable above $60/barrel, the related statistical rise in GDP rate may infact exceed 10% as recorded in  2003  and  2004  when oil price bounced to $42.9 and $56.7/barrel respectively. However, if as usual, such higher growth rates, remain primarily pumped up by higher crude oil price and revenue, then, the higher growth rates recorded may, regrettably actually fail to drive inclusive growth or improve social welfare in Nigeria.

So, if per-chance oil price further rises and instigates double digit growth rates in output, shouldn’t we then expect that, employment opportunities will increase and that life will be ‘more abundant’ and equitable in Nigeria?

Well, it depends, on what happens to inflation; this is not the first time that oil price has been very favourable. In fact, oil price was exceptionally high at $140/barrel in 2008, and, yet the GDP grew by just about 10%. Unfortunately, however, inflation also ran into double digits at 11.6% during the same period.

Instructively, an inflation rate of 10% will, invariably, wipe off 50% purchasing power of all income earners every five years, and impoverish everyone with static incomes; thus, pensioners particularly, and millions of other Nigerians, whose incomes are predicated on the legislated minimum wage will become very very vulnerable. Consequently the current inflation rate of about 15% will inevitably also increase social deprivation and inequality.

So, do you mean that higher crude oil prices and revenue can actually make us poorer?

The answer is self evident, from a historical perspective, as explained above. Oil price may never again approach $140/barrel, but at least, we know that when, such exceptionally high price prevailed, the related bountiful dollar revenue did not, ironically, induce any significant improvement in mass social welfare and national economic development. Unfortunately, the relatively high rates of inflation, which also evolved, not only severely contracted consumer demand but also instigated higher cost of borrowing to make productive investment very expensive and risky.

Arguably, Nigeria also fell into the ball pack of the world’s poorest nations, even when oil prices shot up from below $10/barrel in 1999 and rose to $140/barrel in 2008. Furthermore, the Naira exchange rate has also inexplicably collapsed from less than N80=$1 with barely $4bn reserves between 1995-8 to N305-360/$1 with over $40bn reserves and still rising in 2018.

So are you saying that increasing oil price and dollar reserves, may not necessarily facilitate, the provision of, better education and health facilities, improved transportation, power supply and social welfare benefits with rapidly increasing job opportunities and credible national security?

Yes, you are right, the above realities are well amplified in our recent economic history.

So, why are we unable to translate increasing export revenue and dollar reserves to the creation of a much ‘better life’ with less inequality for our people?

Obviously, the process adopted for the infusion of our oil export revenue into the economy is responsible for the unexpected distortion to our reasonable expectations for a ‘better life’. The present payment model, invariably suggests, that increasing income from crude export may actually instigate GDP growth, in statistical terms, but the “wrongheaded” payments system adopted for infusion of dollar revenue has unfortunately, continued to challenge the attainment of truly inclusive growth.

Invariably, the product of this aberration, in the forex infusion process, is vividly reflected in the oppressive eternal presence of bloated Naira surpluses which continuously feed and sustain higher rates of inflation, every time, dollar allocations become substituted with Naira vouchers by CBN. So the reality seems to be that higher dollar earnings unwittingly increase the threat of spiraling inflation and therefore reduces the purchasing power of all incomes to deepen mass poverty!

So, is there a way out of this double-digit inflation rate? How can we make life better for more Nigerians?

The simple answer is to bring down inflation to international best practice rates below 3%, so that income values will also be protected, across board to sustain a level of consumer demand that will spur productive investment and create more jobs. Infact best practice management of inflation is the first battlefront of any responsible Administration. It is for this reason that the CBN is constitutionally empowered to manage price stability, so that the living standards of every wage earner will be protected.

Unfortunately CBN’s attraction to a subordinate role as a monopolist supplier of forex, has possibly dimmed the vision of the Apex bank from the prime object of its existence.

So, if inflation comes down to best practice rate below 3%, will the level of poverty diminish?

Incidentally, with inflation below 3%, CBN’s monetary policy rate, which determines the cost of borrowing, will also plummet to make the abiding dream of manufacturers for 5% interest rate on loans possible. Invariably, with increased production and other economic activities, more job opportunities will also be created while government will similarly expand its revenue base from additional personal and corporate taxes.

Final question, how do you bring down inflation to best practice below 3%?

CBN should stop compounding the unforced error of persistent Naira surplus whenever it creates more Naira as payment for dollar denominated allocations to the 3 tiers of government. This simple reform will gradually quell the threat of persistent Naira liquidity which drives inflation and pulverizes the Naira exchange rate beyond the public’s comfort zone.



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