By Iliyasu Gadu
“IF you know the strengths and weaknesses of your enemy as well as you know yours, you need not fear the results of a thousand battles with him”
Sun Tzu, ancient Chinese military philosopher and strategist.
When an economy experiences persistent inflation, falling purchasing power, job losses and unemployment, plummeting industrial production and export, currency and exchange rate fluctuations all consecutively over a period of three quarters within a year, economists describe the phenomena as economic recession. From the quarterly reports of the National Bureau of Statistics over the past one year, the Nigerian economy having shown these negative economic signs from the last quarter of 2015 to the end of the second quarter of 2016, has been in recession. Subsequent reports from the Bureau on the performance of the economy have neither recorded any positive improvement nor indicated that the economy will recover sufficiently from these negative tendencies to lead us to expect a positive turnaround any time soon. Indeed, the most recent reports from the National Bureau of Statistics indicate that the economy has shrunk by 1.5%. The Naira has been on a free fall losing its exchange rate and value by 1000%.
There are different opinions on the genesis of this development. If you believe the view of the Buhari administration, it was as a result of the sixteen profligate years of the People’s Democratic Party’s, rule, especially the later six years of President Goodluck Jonathan, when our economic fortunes which had grown exponentially from high oil prices, were frittered away by mindless expenditure, in an unprecedented bazaar of looting of the national treasury. The other side of the argument mainly from the opposition has it that although the economy had shrunk largely on account of falling oil prices internationally, the fundamentals of the economy, however, was still sound and needed a realistic mix of pragmatic economic policies to shore up confidence in order to attract much needed local and foreign investors to kick start the process of economic recovery. The Buhari administration with its dogmatic, command style economic policies scares away foreign and local investors, thereby depriving the economy of the much desired impetus for recovery, so say the purveyors of this view.
On a comparative scale, the recession we are going through is not akin to the type found in an integrated industrial economy, which is subject to the periodic boom and cycles of industrial expansion and contraction, determined by local demand and supply, exports, investment capital inflows and outflows, provision of services and economies of scale and synergy running through the entire value chain of the economy.
Our recession such as it is, is a consequence of falling international oil prices, which is the single major source of our foreign earnings and which drives the economy. In the period of high oil prices which results in high earnings from oil exports, the economy records a boom seen in import-driven expansion and growth in the service sectors fuelled by easy availability of foreign exchange. This creates the illusion of economic growth. But when oil prices, which is the mainstay of the economy, began to fall, a corresponding regression in the very sectors of the economy which hitherto had led us to believe was growing becomes evident such as we are experiencing now.
In essence, the argument of the Buhari administration which put the blame squarely on the sixteen years of PDP administration for squandering the opportunities presented by high oil prices in profligate spending instead of investing in developing and growing the economy was right. But, having come to this conclusion, the Buhari administration, however, seems suspiciously content to continue to latch onto this lamentation as a straw; perhaps to cover up its lack or inability to provide the way forward for an economy that lies prostrate and in desperate need of a second economic wind. By the same token, the view that the country needed a quick mix of economic policies that would attract local and foreign investors to close the ever increasing gap in the economy is at once disingenuous and mischievous judging from our past experience with these prescriptions which to date have not yielded anything positive to the economic fortunes of this country.
It is my view that both the arguments of the Buhari administration and the opposition on the recession we are currently facing while being essentially correct, suffer one fundamental deficiency; they both offer us little or no light on the how and why of our present desperate economic straits and more importantly, what we need to do to turn around the situation to place the country on the path to long term economic development and growth.
The first point of departure must necessarily be to interrogate the happenings in the international oil market, which is the mainstay of our economy and whose tumbling prices have been generally cited as being responsible for our current economic misfortunes. In this regard, the inevitable question to ask is how and what factors caused the fall in international oil prices and why did Nigeria become entangled in its wake? Was it a happenstance determined by the independent interaction of market forces of demand and supply as claimed by some people?
Or is there more to it that we need to know in order to batten down our hatches in the search for our current and future economic salvation as a country? It all started in 2008 when a big financial bubble burst in the United States of America with the collapse of the country’s mortgage financial institutions.
It became clear to American regulators that the collapse of the mortgage subsector threatened to drag the big, venerable American banking conglomerates which had lent so much money and were thus dangerously exposed.
To the men and women who were charged with the task of getting to the root of the issue, one clear unmistakable fact emerged; that the crises in the American mortgage sub-sector threatened to spiral into a 1930s type systemic collapse of the entire American financial system which in turn was bound to affect the American economy with drastic unimaginable consequences.
To be continued tomorrow
Gadu writes from Lagos