Over the weekend, the National Bureau of Statistics (NBS) released the inflation figure of December, the year-on-year inflation stood at 18.55 %. This means that between December 2015 and December 2016, the average prices of goods and services in increased by 18.55%.
This depressing statistic got me thinking and examining the quality of choices the Nigerian government has been making so far with regards the economic recession.
You see when an economy enters a recession, it needs money, loads of it, to get the economy going again. But the problem is that during a recession, productivity of firms decline and people lose jobs .The implication of this is that both businesses and individuals spend less.Worse still, the future uncertainties that accompany a recession forces people to spend even less as they prefer to save.
It is at times like this that the need for government intervention in an economy becomes very necessary as they have tools at their disposal that can provide the necessary boost that the economy needs. One of such tools is known as Fiscal policy.
Fiscal policy is the means by which a government adjusts its spending levels and tax rates to monitor and influence a nation’s economy. Government intervenes in the economy primarily via two means: taxes and government expenditure. So if they feel that people are spending less, they can cut taxes in the hopes that peoples disposable (that is income left after saving) income will increase. The idea is that this disposable income would be spent on consumption, leading to a rise in demand for goods and services, thereby boosting economic activity. On the other hand the government can decide to increase its own expenditure by spending on infrastructure and such like in the hopes that all of these expenditure would stimulate economic activity.
In Nigeria’s case, because of the dependence on oil, we have a very weak tax base and also weak tax compliance mechanisms so that makes the first option not quite viable. The second option seems more likely but the government is broke now, so they have to borrow. This explains why the current administration has attempted to borrow from several institutions albeit unsuccessfully. They attempted to borrow from the World Bank but were unsuccessful as they were unwilling to commit to the requisite reforms. The President also presented a massive $30 billion borrrowing plan to the Senate but it was turned down.
I suppose that due to the failure of these borrowing plans, they decided to intervene directly in the creation of jobs through the N-Power programme. The President’s N-power programme is set to employ 200,000 graduates and this number is set to be increased to 500,000 . They will be employed in the 36 states and the FCT for a period of two years and will be paid 30,000 Naira monthly. According to Budgit, this will cost 144 billion naira over 2 years and if this number is increased to the proposed figure of 500,000 , the total cost of the programme can amount to 300 billion Naira in 3 years.
On the surface, this looks like a really good thing, 200,000 graduates are going to be employed!!hurray! ! But before we get ahead of ourselves, let us do some thinking. Imagine if this 300 billion Naira was invested in firms in say the agriculture industry, think for a second what the multiplier effect would be on the entire economy. Agricultural companies need to buy machines to operate; raw materials from farmers and also pay for financial services. The implication of this is that investment in the agriculture industry will also lead to a boost in economic activity for farmers, machine manufacturers and the providers of financial services.
In my opinion, spending such a huge sum of money on activities that projects such as N-power which have little bearing on economic activity rather on activities that can directly stimulate economic activities is a waste of our national resources. Government expenditure is a zero-sum game meaning that any 144 billion naira spent on the N-power programme cannot be spent on say agriculture. Given how hard pressed we are for funds, government needs to be prudent in their expenditure and ensure that funds are only invested in projects or programmes that can yield the highest possible returns on the economy.