THE NIGERIAN ECONOMY TODAY

To have a better understanding of what the economic situation of the country is, it is expedient we make reference to how it was .It is no gain saying that the Nigerian economy at the moment is witnessing a chronic downturn. Nothing seems right, everything seems to be in a mess.


It is no news that the economy was once a very good one. I could remember back in the days when my daddy would give me #20 when going to school. I would dance for joy upon receiving it for I knew nothing would stop me from eating my Bread and Beans and still have some balance left. I would enter mama Yusuf’s shop feeling like a king and order for #10 bread and #5 beans. This meal was so filling that often times I did leave the food unfinished. Gone are those good old days. The last time I tried to eat my “precious” bread and beans, I realized even #100 was not enough to buy a satisfactory quantity.

Saying Nigeria is the giant of Africa is mere reveling in the glory of the past. What do we have today? Chronic balance of payment problem, high level of inflation and unemployment (stagflation), Economic growth with ‘negative development’, corruption-in all ramifications.

I will focus on two major issues that made the “headies“ the past weeks.
a. Oil glut
b. Devaluation

PREAMBLE
In the last quarter of last year, there was report of oil glut. This is a situation where the supply of oil in the world market is more than the demand for same, thereby causing its price to fall. This is too bad for the Nigerian economy (mono economy) that depends solely on revenues from oil export, having 75% of its foreign exchange earnings from same. This means that Nigeria would earn less from the export of its oil. Diversification is a debate that has been on for a very long time, but this I am yet to see. It happens only in the papers. An average Nigerian is a frustrated individual. The reason being that the government that ought to cater for the social welfare of the citizens has neglected same. Well, much thought was not given to this. It did not even really matter to me whether or not it earns less or more. The reason being that the effect of any growth recorded is not felt by the average Nigerian. I asked myself, “how has my living standard faired over the years when there was no glut? To further justify this deduction, I borrowed words from the words of the President. He said and I quote “we record economic growth but only that the effect of the growth is yet to trickle down to the masses”. And the response I gave to this statement in one of my articles was that “it will not, and it never will” not that I was being pessimistic but I was only being realistic. The reason it will not trickle down to the downtrodden is based on this ten letter word “CORRUPTION”. A very competitive one at that, at all levels of government. This is a major bane to a better Nigeria as of today and this has to be tackled if Nigeria is to be reckoned with among the committee of nations.

Well, things felt normal regardless of the glut until I moved to purchase a notebook I had an eye on. It was a shocker when I realized that the price in less than a month from the last time I checked has increased by 50%. Given my knowledge of economic relationships, I did not see any reason it would record such an astronomical increase. There is no correlation or direct relationship between fall in oil price and demand for foreign goods. If anything, the effect ought to be deflationary and not otherwise. In the midst of my confusion, I took to Google to determine what the problem could be and it was then I realized that naira was unofficially devalued. Holy shit!!! Now, this is the bone of contention. The question is “is this a step in the right direction?” in the next few paragraphs, I would expose to us the effect of this as it applies to the Nigerian economy and would leave us to determine whether or not it was a perfect decision to make.

DEVALUATION
Devaluation is the process by which a country reduces the value of its own currency in a ‘fixed’ exchange rate system thereby making its currency weaker. To put in a more appalling way, worth less than that of others. In other words, a devaluation is a decline in the country’s standard of living. Traditionally, it is a tool by a desperate government with a poor economic policy. Venezuela, despite its oil wealth has a 22% inflation rate. The same can be said of Nigeria. Despite the oil reserve, the Nigerian economy at present records a disheartening 24% inflation level. Sometimes, countries get trapped in a dismal cycle in which high inflation causes the country’s exports to be uncompetitive, prompting a devaluation that only leads to more inflation and so on. Competitiveness is usually only restored by a decline in real wages i.e the ratio W/P falls where W represent the nominal wage and P is good(s) price. This can be achieved by having nominal wages fall while the exchange rate is unchanged or by having wages fail to adjust to the inflationary effects of a devaluation i.e W remains constant as P rises. Either way, we fall back to standard of living decline. As stated earlier, devaluation occurs in a fixed exchange rate. In more direct terms, what are the effects of a devaluation? The effects would be analyzed using Nigeria as my case study

Exports Cheaper: a devaluation of the exchange rate will make exports more competitive and appear cheaper to foreigners. This will increase demand for exports. If the government of Nigeria had this in mind before devaluing, then I must say that some salient issues were not considered before channeling this course. The effectiveness of a devaluation as a solution to balance of payment problem depends on the relative elasticities of demand and supply of imports and exports. If demand is price inelastic, then a fall in price of exports will lead to only a small rise in quantity. Therefore, the value of exports in the long run may actually fall. This is likely to happen if the revenue gotten from increase in export does not accommodate the effect of falling prices.

What type of country is Nigeria? A better way to rephrase this question is to ask whether Nigeria is a producing or a consuming economy. In the real sense of it, Nigeria does not produce anything worth exporting and therefore, there is virtually nothing to export.
Rather than producing capital goods, we devote most of our resources if not all to producing consumer goods. There is the preponderance of non-durable consumer goods and that is among the factors that limit the growth and development of my dear country. You look around today and what you see “in the words of my lecturer” is the “ubiquitousness” of small scale enterprises and almost non existing medium scale enterprises. I ask myself “What is produced by the backward and Stone Age industries in Nigeria that is worth exporting”?

I want to believe that the major reason is not to make export of our commodities cheaper and attractive in the international market but that of crude oil. One thing that the government and maybe the modern economists have failed to realize is the fact that the demand for oil in the world market is not as inelastic as it used to be. More countries are discovering oil and more countries are beginning to look at alternatives to oil but we are still capitalizing on this resource that is fast losing its importance and relevance in the aspect of revenue generation. It is so glaring to the blind and so loud even to the deaf that things have changed and why do we still think things are the way they used to be? Like the saying goes, what kind of person does things the same way and expect to see a different result?

For full review, get the pdf file for free by clicking on the link below

https://www.dropbox.com/s/8grscohiye0xmul/THE%20NIGERIAN%20ECONOMY%20TODAY.pdf?dl=0

(c) martiyu

Every educating. Fp plz abi una no want make pple score A 4 micro nd macro economics ni?

olexy4real:
very educating. Fp plz abi una no want make pple score A 4 micro nd macro economics ni?

Thanks, I hope the mods will do the needful.

Wow...well articulated

Cc:Seun
Fynestboi
Lalasticlala

Front page pls

I agree with you bro except on some points, please indulge me as i will make it very concise.

Your bread and beans analysis does not really support your case as it is only a reflection of the dynamics of price index. You will agree with me that Nigeria is an open economy that operates a flexible exchange rate regime which is highly sensitive to global pricing of goods and services. Do not forget that Naira was once at par with pounds sterling and yet we were worse off then than now.

Economic growth can never trigger negative development as you pointed out even in the face of corruption. Economic growth is a necessary condition for economic development but may not be sufficient.

You emphasized that there is no correlation or direct relationship between fall in oil price and the demand for foreign goods. This fairly contradicts your Philip's illustration of imported inflation vis - a - viz foreign made commodities and their elasticity coefficients. Of course the effect of oil glut has weakened our local currency which makes foreign made products more expensive to procure. it is this simple. I have never been an advocate of devaluation as local currencies can still adjust automatically irrespective of the degree of devaluation.

Nevertheless, your piece deserves front page any day and can stand the test of political and economic times.

APRIDE:
I agree with you bro except on some points, please indulge me as i will make it very concise.

Your bread and beans analysis does not really support your case as it is only a reflection of the dynamics of price index. You will agree with me that Nigeria is an open economy that operates a flexible exchange rate regime which is highly sensitive to global pricing of goods and services. Do not forget that Naira was once at par with pounds sterling and yet we were worse off then than now.

Economic growth can never trigger negative development as you pointed out even in the face of corruption. Economic growth is a necessary condition for economic development but may not be sufficient.

You emphasized that there is no correlation or direct relationship between fall in oil price and the demand for foreign goods. This fairly contradicts your Philip's illustration of imported inflation vis - a - viz foreign made commodities and their elasticity coefficients. Of course the effect of oil glut has weakened our local currency which makes foreign made products more expensive to procure. it is this simple. I have never been an advocate of devaluation as local currencies can still adjust automatically irrespective of the degree of devaluation.

Nevertheless, your piece deserves front page any day and can stand the test of political and economic times.

Thanks for your input... I will elucidate on those pointers

To start with, the bread and beans story was a prelude. What I hoped to bring out was the obvious fact that an amount worth so much then is worth nothing now. Inflation is a general phenomenon but a cursory look at how it has escalated over the years is sardonic.

If a comparison of the price index for that year and now is made, u would be surprised at how appalling the difference would be.

Secondly, theoretically, economic growth is a precondition to economic development. This is a priori expectation and that is the reason I quoted the text "negative development". The quote presupposed that there is more to the word than it meets the eye. To espouse that, I felt we have been recording growth overtime but as well, our development is poor and almost insignificant. Let me engage u here.

The Nigeria force in the international world is top among the list. U remember our role in the liberation of South Africa during the apartheid policy? Externally we r a great force but what do we have internally... I need not say how the sanity and sanctity of this great nation has been eroded over the past years.

Infrastructure wise, there was I time we supplied power to our neighbouring country... Was it Ghana or so... I stand to be corrected on this but what is obtained now... No or Erratic power supply.

Oh! Even sport wise cos development is an all round thing... We are very quick to remember the good old days... The days of Amokachi, Babayaro, Yekini and the likes when the super Eagles were Eagles. Yl we r growing, we are poorly developing and therefore, that quoted clause.

More so, crude oil is the major source of Nigeria Foreign exchange earnings. A fall in world oil price will directly amongst other things impact on what it is tied to. Before it can trigger inflation, other things will have to come to play.

Let's say now that earnings from oil has dropped, the ability of government to finance its expenses will also follow a downward trend. To augment this fall in earnings, government might seek external or internal means. External means will be to borrow which will further deepen external debt. The internal measures are the ones that would trigger inflation. And those measures include taxation, devaluation amongst others.

The Philips curve was what I used to explain employment level from rising inflation. Inflation I used as the exogenous or explanatory variable and employment /unemployment was taken to be the endogenous or explained variable.

Thanks bro, I really appreciate your contribution.

lots and lots of things to learn. I saved the page

cee001:
lots and lots of things to learn. I saved the page

My main man... How is preparation for the second round?
Make it a workover

Martiyu:


My main man... How is preparation for the second round?
Make it a workover

aah my Chief Economist we are pushing it here. Preparations are going on. We thank God. I really love this article. I'll take my time someday to read this article painstakingly.

Speaking of Philip's curve: it is very possible for increase in general price level(inflation) to result in no attendant decrease in unemployment. I read somewhere that the curve can shift to the right making unemployment static even at a rise in inflation. This you have stated in the article.

And the notion you debunked about more oil exploration(export)=more employment. Increase in employment in this sector will be inelastic in terms of labour as it is mostly capital intensive. And since Nigeria does not produce these machines,they import;this leads to job creation for the locals of the country from which these machines are imported as you have clearly stated.

I love the way you meticulously progressed in your analysis;from the bread and beans illustration to what have you! Although there were some terms and some clauses I could not understand clearly probably due to my level of learning.Ouch.But I still plan on going over someday,this time in a bid to understand and be able to contribute. Kudos!!!

cee001:
aah my Chief Economist we are pushing it here. Preparations are going on. We thank God. I really love this article. I'll take my time someday to read this article painstakingly.

Speaking of Philip's curve: it is very possible for increase in general price level(inflation) to result in no attendant decrease in unemployment. I read somewhere that the curve can shift to the right making unemployment static even at a rise in inflation. This you have stated in the article.

And the notion you debunked about more oil exploration(export)=more employment. Increase in employment in this sector will be inelastic in terms of labour as it is mostly capital intensive. And since Nigeria does not produce these machines,they import;this leads to job creation for the locals of the country from which these machines are imported as you have clearly stated.

I love the way you meticulously progressed in your analysis;from the bread and beans illustration to what have you! Although there were some terms and some clauses I could not understand clearly probably due to my level of learning.Ouch.But I still plan on going over someday,this time in a bid to understand and be able to contribute. Kudos!!!

Thanks bro... I wish you the very best in your pursuits