Rising inflation rate and people-driven economy
The report by the National Bureau of Statistics (NBS) that interest rate had increased from 9.6 per cent in January to 11.4 per cent in February this year confirmed the fact that the state of foreign exchange in the country has serious impact on national economic, social and other variables. The rise in the rate of inflation is not about the orthodox principle where too much money chases fewer goods and services. As it were, there has not been too much money in the economy since January 2016 to chase the goods and services on the shelves.
The recorded growth in inflation rate, as even acknowledged by market men and women, came as a result of reactions of the market to the relationship between the Naira rate and the United States dollar. The market is reacting to the fact that the rate at which Naira can buy one dollar has significantly increased from about N176 to over N197 per U.S. dollar in the official foreign exchange market. The variation in the parallel market is even much higher at over N300 per U.S. dollar. It is not even a surprise that the impact of the rise has been witnessed more in food and household items – one reason Nigeria must begin to focus on food sufficiency and export of surpluses.
Nigeria, being an import-dependent country, prices in the open market are expected to rise as a result of market reaction to the exchange rate of the local currency against those of international trading partners. However, whether one buys foreign or locally made good, because all are buying from the same market and expect to replenish stock at ruling market prices, increase in prices is expected when exchange rates go against the local currency. Indeed, given the variance between the official and parallel market rates of naira to the U.S. dollar, it is fair to acknowledge that the reported rate of inflation is very moderate, having increased by only 176 basis points. There is no doubt that this rise followed the official exchange rate status. If the parallel market rate in the country was used as the basis for the measurement, the rate of increase would have been much higher.
What has happened or is happening is instructive and it is hoped that good enough lessons can be drawn from it. First, it confirms that Nigerians’ high dependence on foreign goods and services is very unhealthy for economic stability, growth and sustainability. Nigeria’s business relationships with other countries have consequences for the economy and society. Second, once again, it draws attention to the need for self-dependence and self-sufficiency, at least in food, to prevent exogenously induced economic shocks. Third, policy frameworks, irrespective of how robust they may be, can be defiled by market expectations of, and reactions by economic agents. It is, therefore, not a surprise that, despite the Central Bank of Nigeria’s price and exchange rate stabilising policies and activities, prices rose in February alone by 176 basis points, thus returning the country to double-digit inflation rate which was last witnessed in December 2012.
The Muhammadu Buhari administration, and indeed, all Nigerians, should appreciate that a major problem is at hand and join hands together not only to work against further increases in the rate of inflation but a return to single digit inflation rate. This is very important if the declining rate of economic and social progress must be decelerated for all Nigerians to find credible reasons to hope for a better tomorrow.
There are ways out, if only the government would see solving the problem as a priority and act quickly. The approach that will produce the fastest beneficial results is getting all Nigerians that should be economically active to be productive. The current very high unemployment rate in the country is unacceptable as it weighs adversely on the productive capacity of the nation. If all able-bodied Nigerians can be made to be gainfully employed and be proud in their engagements, the level of production – goods and services – and productivity will rise. Subject to the areas where the energies are directed, the country can realise enough goods and services meant for domestic market to curtail importation and exports even to earn the needed foreign exchange for the rebuilding and sustenance of the nation’s foreign reserve.
Government, in this regard, must find innovative and exciting ways to cause the vast unproductive land capital to be productive. This can be started by making it easy and highly rewarding for the populace to engage in the exploitation of land resources. As had variously been pointed out, no one can beat properly made, supervised and monitored investment in agriculture.
Unfortunately, when emphasis is laid on the importance of agriculture as a redeemer to the recessing Nigerian economy, many look back to the days of cutlasses and hoes as the operational agricultural tools and equipment. They look at peasant farming. No! What is being canvassed is contemporary, modern and hi-tech mechanised agriculture, where nothing produced is wasted and even seemingly waste outputs become the input for other valuable goods, an agricultural value chain for both raw materials and value added finished products. Nigeria should be looking at kick-starting industrialisation afresh with what it has abundantly but has sidelined over the years. With dormant and unproductive land many resourceful and idle hands that today run into several millions across the country appropriately harnessed, empowered and deployed, outstanding contributions to productivity will follow.
Government should start by developing a peoples’ economic agenda with practicable operational or implementation framework. That is, the agenda must be built around the self-determined needs of the people so that they can take ownership of ensuring realisation of the intended objectives. To attain such agenda will require a bottom-top approach beginning with all the local governments being required to come up with their economic development plans. State governments collate, fine-tune the outcomes from their local governments and produce state economic development agenda. All the states will submit their agenda to the Federal Government, which collates, fine-tunes and harmonises the issues nationwide. It is imperative that what is unique to each state is retained for the state. The harmonised position at the federal level becomes the national economic agenda. This then should be implemented, across the length and breadth of the country, under an easy-to-understand practicable framework, with in-built performance milestones, measurement criteria, monitoring and feedback systems. To make it more manageable, the agenda can be crafted to focus on short, medium and long-term deliverables.
Besides using this approach to enlist the citizens as de facto owners and drivers of the agenda, the government should recognise and address the needs of human capacity building and reorientation. It should also quickly address the recurring progress – obstructing issues of inadequate and non-functional infrastructure as well as ensure that monetary and fiscal policies have supportive handshake towards the realisation of the citizens’ economic agenda.
The outcome from such citizens developed, owned and implemented agenda, will not only enhance productivity and cause inflation rate to trend downwards, it will also impact positively on other economic and social indices, including foreign exchange rate, interest rate and unemployment rate.