By Nick Agule
Let me illustrate what happens when Quantitative Easing is managed well and when it is mismanaged as follows: 1. If QE is used rightly, it is a veritable economic management tool that jumpstarts comatose economies back to life. So, let us say our economy produces 1,000 yams and money supply is N100,000, all the money will buy all the yams at N100 per tuber. Now, if the government adopts QE and prints N900,000 so that money supply is now N1 million and uses the money to boost the agricultural sector by clearing the land, buying farm equipment and building processing plants, there will be a sharp rise in output to 20,000 yams. N1m will buy 20,000 yams at N50 per yam so price has crashed (inflation tamed) and jobs created because the workforce that will produce 20,000 yams will be more than the one that produced 1,000 yams! This is the beauty of QE when used for economic growth!
However and tragically too, if QE is mismanaged, it spells a death sentence to an economy. Nigeria is mismanaging QE by distributing it to the three tiers/arms of government. These governments are neither buying back bonds nor bailing out industries. The money is not committed to infrastructure either. Instead, the money is used for consumption with a huge chunk looted into the private pockets of those with access to the treasury. This portends danger to the Nigerian economy because the scenario above is reversed in the case of the Nigerian economy.
Let us say that our economy produces 1,000 yams. Money supply was N100,000. All the money used in buying all the yams, a tuber of yam will cost N100. Let us say that through QE, money supply has increased to N1,000,000 without an increase in the quantity of yams produced, it means a tuber of yam will cost N1,000. As government continues to print money without commensurate increase in output of goods/services, prices will continue to rise until one day you will need a bag to carry the money to buy a tuber of yam! This is what happened to Robert Mugabe’s Zimbabwe’s currency where at a point one needed 35 million Zim dollars to buy a loaf of bread! And the shops were even empty as no goods were being produced! This is where Nigeria is heading if the government continues on the trajectory they are on right now of printing money without boosting output. Already, the impact of the mismanagement of QE is showing with Nigeria’s annual inflation reported to have climbed to a more than four-year high in March 2021, rising 82 basis points from a month earlier to 18.17%. Notably, food inflation rose to 22.95% which is making it increasingly impossible for families to feed their children!
Constructive criticism is the one that comes with viable suggested solutions. When individuals or organisations are struggling financially, there are two ways open to them to drive out of the economic jam! First is to reduce cost and second is to increase revenue. This is like a double dose of vaccine to give government a fighting chance against infection of financial troubles. Therefore, the following are the top five suggested economic management tools that are available to the Nigerian government to adopt to jumpstart the economy:
Reduction in cost of governance. The Nigerian government must take an immediate action to reduce the cost of governance. The Orosanye Committee which turned in an 800-page report with far-reaching recommendations on how government will reduce the cost of governance must be immediately given full implementation. The committee recommended the MDAs that should be scrapped, those to be merged and those to become self-funding, thereby freeing funds for the much-needed capital projects across the country. The committee also recommended the discontinuance of government funding of professional bodies and councils. Government expenditure on things like sponsorship of pilgrimages must also be stopped immediately. The salaries of legislators, ministers and other top functionaries of government must be scaled down as with their convoys and other pecks of office. Government must implement full e-government to cut down on costs of travels, printing etc. Efficiencies in procurement activity must be generated to obtain best value for the least cost etc.
Taxation of the rich. Nigeria is a country where the billionaires don’t pay taxes. All the market women, okada riders, farmers, artisans etc are made to pay taxes daily. Employees who are captured under PAYE also pay taxes monthly. The billionaires with private jets are paying little or nothing. The Federal Government at the highest level must summon all the billionaires in Nigeria to a meeting in the Villa and ask them nicely to go and pay their taxes else there will be enforcement action. This step alone which only requires an investment of 30 minutes of the President’s time will shore up Nigeria’s revenue by at least N5tn!
Stop the $1.5 billion PH refinery repair. Government must stop immediately the planned rehabilitation of the Port Harcourt refinery with a sum of $1.5 billion. Knowing that its projects are never delivered within budget, this rehabilitation may end up costing Nigeria $3-5 billion! The refinery can be sold as scrap for $1 (one dollar) to allow the buyers to bring in $1.5 billion to repair it. Government must then convert the $1.5 billion into N570 billion (at N380/$) and invest the full money into agriculture in all the 774 LGs in Nigeria. N570 billion is N736 million for each of the 774 LGs in Nigeria. If government sinks N736 million into agriculture in every LG in Nigeria, so much food and cash crops will be produced; there will be plenty of jobs for the teeming youths too. Thus, the economy will be jumpstarted and begin to grow astronomically as an output based economy and not QE which is like steroids!
Power. It is a shame that Nigeria as a nation well-endowed with one of the world’s richest deposits of gas reserves, takes pains to produce the gas and then sets the gas on fire instead of harnessing it for electricity generation. Qatar, a country with 2.8 million people, is generating 8,500 MW of electricity and Nigeria, a country with 200 million people, is generating only 4,000 MW of electricity. The minimum electricity generation required to support the Nigerian economy is 100,000 MW! Thus, the huge power supply gap in Nigeria can never jumpstart the economy no matter the economic policies we put in place and no matter the qualification/experience of the economic managers we appoint. QE will not help an economy that is this abysmally poorly powered with electricity! The Federal Government must immediately read the Riot Act to the oil companies to stop flaring Nigeria’s gas else they must shut down oil production. Government must also take immediate steps to fully privatise the power sector to allow for investments to boost power supply and close the electricity gap!
Rail. No economy will do well with the poor transport infrastructure that is obtained in Nigeria. The roads are not motorable but most importantly there is no rail transport in Nigeria. There is no reason not to have all the 36 capitals connected by rail today just for a start! The FG must take immediate steps to fully privatise the rail sector to allow investments to build and operate rail transport to link all the cities, towns and villages in Nigeria. This will be a huge boost to the economy by making the movement of goods and people less cumbersome and far cheaper across the nation. It will also create millions of well paying and sustainable jobs for the teeming population of our unemployed youths.
If the Federal Government follows the suggested solutions, the Nigerian economy will begin to experience astronomical growth and this will be real growth and not steroids which QE is. But if the government continues on the trajectory of printing money (QE) without output backed, we will be sure on the road to Zimbabwe and a catastrophic end to our economy. This must be avoided at all costs!
Concluded