By Adisa Adeleye

MANY people often wonder why Nigeria is still being considered a poor country in spite of the abundance of human, material and mineral resources.  Some still regard the abundance of oil as a curse rather than an economic advantage.  The “Nigeria Question” is predicated in the enigma of deepening poverty in the midst of plenty.

Many media columnists often repeat themselves on how Nigeria could become a great country, politically stable and economically prosperous. The lack of innovation by the political leadership has made analysts to behave like parrots only with nothing substantial to comment upon except the old story of bombing, armed robberies and growing unemployment in the country.

Some commentators have even suggested that what is needed is mass employment even if the structure of the country is deficient and leadership, poor.

It is glorifying that President Goodluck Jonathan has set up a powerful economic team to see that his Economic Transformation Agenda comes out successfully.  This Agenda is presumably based on Mass employment and macro-economic stability.

President Jonathan

We are talking about that economy which is based on growth and stability of prices.  The aim is to produce a situation where the national income is growing at a faster rate and level of inflation is reduced to a minimum.  In the real economic world, faster growth and stability of prices are rarely achieved without many sacrifices.

Some even believe that the price of growth is adjustment in prices to encourage further investments.  Some economically developed nations have adopted policies of growth which recognizes increases in prices of commodities in the short term.

Many nations after the economic depression of the 1930s and the advent of Keynesian revolution, have adopted means of increasing industrial output through constructive policies that would stimulate effective demand.  In a case of a dormant economy, the necessary action would be to increase the supply of money which would raise national income and stimulate effective demand.

The expectation is that the industry would respond to increase in the demand for its products by engaging more hands to meet the rising demand.  It may be possible that before adjustment is made, prices of some commodities might rise briefly but in the medium term when industrial capacity is fully utilized, rising prices would abate as the increasing supply of commodities (output) would meet increase in demand.

In a situation of large unemployment with idle men and plants, it is necessary and desirable for a responsible government to inject funds into the economy through a process of budget deficit.  The idea is to put more money into the hands of those whose propensity to consume local products is very high.

The assumption here is that the local manufacturing plants carry large unused capacity and have laid off workers because of shortage of demand for their products.  In its simplistic form, increase in the supply of funds should stimulate investments through lower interest rates.  But the effect of lower interest rates in a depression is minimal if the spirit of pessimism is common in the business circle.

In the Nigerian example where many factories have closed and where many manufacturing factories have relocated because of serious economic dislocation, unemployment has become a major issue in the country.

As I have stated before in this column, in a situation of high rate of unemployment, such serious problem could best be solved by encouraging governments, business enterprises and households to be spendthrifts as much as possible because, other things being equal, the more prodigal and spendthrifts the household, the higher will be the level of national income and employment.  As it is being recognized, unemployment for any length of time could be very sad and soul destroying.

It has been observed that prolonged unemployment, especially amongst our graduates has served as an invitation to crime, social imbalance and great instability in the country. It has also caused sadness and upheavals in the homes.

I have also stated in this column that if the Federal Government wants to eradicate unemployment and achieve a policy of full employment, it has no other option than to vary the volume of aggregate expenditure.  If the Government spends more than its income, there would be a net increase in the demand for resources.

If total spending is high, the level of output is bound to be high and the level of employment will also be high.  Thus, a policy of budget deficit, if well managed would create a higher rate of real income and a higher level of employment and development.

I have also argued many times in this column that in order to achieve full employment, government should interfere through fiscal and monetary measures attempt to stimulate effective demand by increasing consumption and investment of individuals and companies when the economy is regarded as dormant.

It would also consider generous investment allowances and lower income and profit taxes as desirable incentive.  It must be admitted that judging by the country‘s past experience, a policy of budget deficits might not be the true answer to economic expansion if greater allocation is directed towards recurrent and wasteful expenditure. The federal Government should take a look at its bloated wages, salaries and unjustified allowances to public officials and political office holders whose number has become unnecessarily large.

The problem of the Federal Government economic transformation agenda and its emphasis on curing unemployment problems through expansionist program may be fruitless through intransigence from the Central Bank and its conservative Banking Policy.  The Central Bank in its tough Monetary Policy has been frustrating economic expansion and growth because of fear of Inflation associated with government fiscal policy of increasing expenditure on wages salaries and allowances.

It must be admitted that the fear of continuous rises in prices could be a terrible scourge of the economy.

If not properly checked and monitored, prices could go out of hand and make naira worthless as a store of value or object of transaction. However, the fear of Central Bank, howbeit genuine, should not be mortal.  As the saying goes, ‘Cowards die many times before their death‘.

The futility of Tightened Monetary Policy as a cure for Inflation has been admitted by the Central Bank itself.  By the time higher interest rates have achieved price stability; economic growth would have reached its lowest level, giving rise to a depression.  In such a case, lower interest rates might no longer be relevant to stimulate the economy.

Another tool of economic growth is the sensible manipulation of the exchange rates.  It would not be a sensible policy for an import dependent nation like Nigeria, with very weak industrial base, to subject its currency to further devaluation.

With due respect to the ‘classical‘ economists of the Central Bank, and the disturbing stance of the Monetary Policy Committee; devaluation would not promote employment and economic growth in the country.  Neither would a further tightening of the Monetary Policy encourage employment and prosperity in a struggling and weak economy.