Nigeria prints change: the road to Zimbabwe (2)


Continued from last Tuesday

Let me illustrate what happens when quantitative easing is well managed and when it is poorly managed as follows: 1. If QE is used correctly, it is a real tool of economic management that stimulates economies. comatose. So let’s say our economy produces 1000 yams and the money supply is 100,000 N, all the money will buy all the yams at 100 N per tuber. Now if the government passes QE and prints N900,000 so that the money supply is now N1 million and uses the money to boost the agricultural sector by clearing land, buying farm equipment and building processing factories. , there will be a sharp increase in production. to 20,000 yams. N1m will buy 20,000 yams from N50 per yam so the price has collapsed (inflation tamed) and jobs created because the workforce that will produce 20,000 yams will be more than that which will produce 1,000 yams! That’s the beauty of QE when used for economic growth!

However, and tragically too, if QE is mismanaged, it means a death sentence for an economy. Nigeria mismanages QE by distributing it to all three levels / branches of government. These governments do not buy bonds or bail out industries. The money is also not committed to the infrastructure. Instead, the money is used for consumption with a huge part looted from the private pockets of those with access to the treasure. This portends a danger to the Nigerian economy as the above scenario is reversed in the case of the Nigerian economy.

Let’s say our economy produces 1,000 yams. The money supply was 100,000 naira. All the money used to buy all the yams, one yam tuber will cost N100. Let’s say thanks to QE the money supply increased to N1,000,000 with no increase in the amount of yams produced, it means that a yam tuber will cost N1,000N. As the government continues to print money. money without a proportional increase in the production of goods / services, prices will continue to rise until one day you need a bag to carry the money to buy a yam tuber! This is what happened to the Zimbabwean currency of Robert Mugabe where it took at one time 35 million zim dollars to buy a loaf of bread! And the stores were even empty because no goods were produced! This is where Nigeria is heading if the government continues on the path it is currently on to print money without increasing production. Already, the impact of poor QE management is manifesting itself with Nigeria’s annual inflation reportedly peaking more than four years in March 2021, increasing by 82 basis points from the previous month to 18.17% . Notably, food inflation has risen to 22.95%, making it increasingly impossible for families to feed their children!

Constructive criticism is that which accompanies viable proposed solutions. When individuals or organizations experience financial difficulties, there are two ways they can get out of the economic quagmire! The first is to reduce costs and the second is to increase income. It’s like a double dose of vaccine to give the government a chance to fight infection with financial problems. Therefore, here are the top five suggested economic management tools that the Nigerian government can adopt to jumpstart the economy:

  1. Reduced cost of governance. The Nigerian government must take immediate action to reduce the cost of governance. The Orosanye committee, which produced an 800-page report with far-reaching recommendations on how government will reduce the cost of governance, must be fully implemented immediately. The committee recommended which MDAs should be abandoned, which should be merged and which are self-financing, freeing up funds for much-needed capital projects across the country. The committee also recommended the elimination of government funding for professional orders and councils. Government spending on things like sponsorship of pilgrimages must also be stopped immediately. The salaries of legislators, ministers and other senior government officials must be reduced, as for their convoys and other pecks. The government should implement full e-government to reduce the costs of travel, printing, etc. Efficiency gains in procurement activities must be generated to obtain the best value for money at the lowest cost, etc.
  2. Taxation of the rich. Nigeria is a country where billionaires pay no taxes. All the traders, okada riders, farmers, artisans, etc. are forced to pay taxes daily. Employees who are caught under PAYE also pay taxes monthly. Billionaires with private jets pay little or nothing. The federal government at the highest level must summon all of Nigeria’s billionaires to a meeting at the Villa and gently ask them to go pay their taxes or coercive action will be taken. This step alone which only requires a 30 minute investment of the President’s time will consolidate Nigeria’s income of at least N5tn!
  3. Stop the $ 1.5 billion PH refinery repair. The government must immediately stop the planned rehabilitation of the Port Harcourt refinery with an amount of $ 1.5 billion. Knowing that its projects are never delivered within budget, this rehabilitation could end up costing Nigeria $ 3-5 billion! The refinery can be sold as scrap for $ 1 (one dollar) to allow buyers to bring in $ 1.5 billion to fix it. The government must then convert the $ 1.5 billion into 570 billion naira (at 380 naira / $) and invest all the money in agriculture in the 774 local communities of Nigeria. 570 billion naira is equivalent to 736 million naira for each of the 774 local governments in Nigeria. If the government invests 736 million naira in agriculture in every LG in Nigeria, as many food and cash crops will be produced; there will also be plenty of jobs for teeming youth. So the economy will be revived and start to grow astronomically as a production based economy and not QE which is like steroids!
  4. Power. It is a shame that Nigeria, as a nation well endowed with one of the richest gas fields in the world, takes care to produce the gas and then ignites the gas instead of tapping it for power generation. Qatar, a country of 2.8 million people, produces 8,500 MW of electricity and Nigeria, a country of 200 million people, produces only 4,000 MW of electricity. The minimum electricity production required to support the Nigerian economy is 100,000 MW! Thus, Nigeria’s huge power supply deficit will never be able to revive the economy, no matter what economic policies we put in place and no matter what qualifications / experience of the economic managers we appoint. QE will not help an economy so poorly supplied with electricity! The federal government must immediately read the riot law to the oil companies to stop burning Nigerian gas or they must stop oil production. The government must also take immediate steps to completely privatize the electricity sector to allow investments to boost electricity supply and close the electricity deficit!
  5. Rail. No economy will fare well with the poor transport infrastructure that is obtained in Nigeria. The roads are not passable but above all there is no rail transport in Nigeria. There is no reason not to have all 36 capitals linked by rail today just for a start! The FG must take immediate steps to completely privatize the rail sector to allow investment to build and operate rail transport to connect all towns, cities and towns in Nigeria. It will be a huge boost to the economy by making the movement of goods and people less cumbersome and much cheaper across the country. It will also create millions of well-paying and sustainable jobs for the teeming population of our unemployed youth.

If the federal government follows the suggested solutions, the Nigerian economy will start to experience astronomical growth and it will be real growth and not steroids like QE. But if the government continues on the money printing (QE) trajectory without sustained production, we will be sure on the road to Zimbabwe and the catastrophic end of our economy. This should be avoided at all costs!


This article first appeared in www.nationalaccordnewspaper


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