Recession analysts or Alice in Wonderland

WHEN, a couple of weeks previously, our monetary authorities formally announced the onset of yet another cycle of recession, the rest of the country reacted as though “recession” is the name of a heavenly body suddenly descended upon us. That collective reaction is better described as the response of a people dwelling in denial. Recession, which has become an awe- inspiring word of sorts, is a mere noun depicting lack of growth or progress in an economy. In technical speak, recession is said to be onset when an economic entity undergoes negative growth in two successive quarters. This presupposes a hitherto state of stability and, or growth for the particular economic entity. Therefore, it is incomprehensible that our monetary authorities have regaled us with tales of recessions in recent years, having regard to Nigeria’s prevailing stagflation going back to the late 1980s. It is delusional to speak of going into a recession when you are already in state of stagflation.

Again speaking technically, stagflation is said to be onset when aggregate demand ( money supply) is in excess of supply ( production of goods and services), resulting in simultaneous increase in unemployment and inflation rates. Without a shred of doubt, this definition aptly captures the Nigerian economy in the last half century or so, commencing from the petro- dollar- soaked 1970s when her revenue was virtually dependent on hydro- carbon sales, to the first decade of the 21st century when the global petroleum industry suffered unpredictable tailspins. Over this period, Nigeria’s petroleum oil daily production capacity grew from hundreds of thousands barrels to approximately three million barrels, though OPEC currently pegs her official production at a notch above two million barrels per day. Over the same period, the country’s installed petroleum refining capacity barely moved on the dial, only attaining a paltry four hundred and forty- five thousand barrels per day by 1989.

This simply means that while the Upstream of the petroleum industry, which fuels inflation because of its emphasis on rent- collection, grew in leaps and bounds, the Downstream, which stimulates growth because of its impact on production, stagnated. This is one of the valid reasons why Nigeria, a potential ten trillion- dollar economy, still struggles to attain a mere four hundred billiondollar GDP. Same reason her national currency, the naira, has persisted in a free- fall; ditto for the reason she is unresponsive to decades of experimental economic therapies. It is time we owned up to the fact that stagflation is asphyxiating the Nigerian economy. Stagflation exacts its toll on the Nigerian economy through the instrumentality of an incapacitated Downstream, which ought to produce the two critical factors of production in the economy, namely: power and energy ( petroleum products). Consequently, manufacturing, the real sector, has remained below five per cent of national GDP over the stated period. This is simply unsustainable.

In combating the above scenario successive governments have experimented with all manner of therapies, most prominent of which are: diversification from petroleum; soliciting massive investments in solid minerals; value- addition driven agriculture; tourism; etc. However, more’s the pity to observe that in spite of those sustained endeavours the unprepossessing face of stagflation still stare at us. Our seeming half- measured approach towards solving national emergencies could well be the reason for this. For example, we have so far focused on increasing aggregate demand ( money supply) in the economy sparing little or no serious thought for the supply side ( productive activities). The federal government’s sustained policy thrust to increase the Up - stream production capacity to four million per day in the foreseeable future, with no serious commitments to bringing up the Downstream installed capacity, helps to make the point. Our monetary authorities are evidently unrepentant monetarists – a regrettable disposition which Britain quickly learned under Margaret Thatcher. The British experience later resulted in the founding of a Centre of Policy Studies in the summer of 1974 in London to propagate the consequences of unbridled monetarism. At the risk of telling a tale twice, l should like to state that the only efficacious path to stemming stagflation lay in closing the gap between money supply and production. In Nigeria’s virtual mono- economy, this would translate into bridging the yawning gulf between the Upstream and the Downstream of the petroleum industry. Some creative ways have to be sought to grow the Downstream temporarily faster than the Upstream; and certainly NOT the other way about as successive federal governments have sought to do, which would invariably exacerbate stagflation. The fancy term for federal government’s preferred economic therapy is known as, “spending your way out of recession/ stagflation”. With some imagination and commitment that therapy may well succeed in a country with standard infrastructure. But in Nigeria’s extant situation any talk about spending her way out of recession/ stagflation would approximate to the delusions of Alice in Wonderland.

Sooner than later, hopefully, our monetary authorities would climb down from their high horses and, like the lead character in Lewis Carrol’s classic novel, realize that their years of academic adumbrations have been nothing but daydreaming; or better still, moments…