There is also an urgent need for measures to improve access to credit, especially for economic actors lower down the ladder.
The COVID-19 pandemic has had extensive consequences on economies around the world. The contractions suffered by the global economy as countries sought to contain the spread of SARS-Cov-2 – the virus behind the pandemic – have been catastrophic. However, a couple of years after the world arguably put the worst of the pandemic behind it, economies continue to present debilitating side-effects.
Supply chain conniptions associated with pandemic-induced lockdowns continue to drive shortages in the manufacturing sector. Investment in new capacity by businesses compensating for these shortages have, in turn, driven surfeit in sectors where companies now appear more vulnerable to market risks than they did at the height of the pandemic. As spending patterns favour contact-based transactions, the allocation of resources within economies – from manufacturing and remote fulfilment to services – have added new pressures.
While, for still undetermined reasons, Africa came off the pandemic’s health scare far better than the initial prognosis, economies here are faring worse than elsewhere. Nowhere is this new economic challenge more evident than the cost-of-living crisis besetting large population segments on the continent.
Domestic prices have risen relentlessly across the continent’s major economies – Senegal, Sudan, Kenya, South Africa, Ghana, Nigeria – even as elevated unemployment levels, especially among the youth exacerbate the impact of diminished spending capacity among the populace.
It is tempting to implicate the declining productivity across these economies for the rise in living costs. This is especially so as, once again, they appear left behind in the design and implementation of the new technologies undergirding the global energy transition. Nevertheless, they have all been here before. Worsening insecurity may have accelerated rural-urban migration from a drift to a swarm, as indeed continuing energy poverty has upset the growth of industrial capacity. The region has struggled to find answers to these pre-existing comorbidities.
In Nigeria, the misery index – the sum of the seasonally adjusted unemployment rate and annual inflation – is at previously unseen levels. If consumers are not spending because inflation – at 24.08 per cent on an annual basis in July – continues to put holes in their wallets, businesses, no longer able to sell their services and goods, have stopped investing either in maintaining current capacity or in building new ones. Anecdotal evidence suggests that for most companies with a foreign provenance, the options are between retrenching current operations and exiting the economy.
Inevitably, the burden of resolution falls on the government. Across economies – Brazil, Chile, the Eurozone, Hungary, New Zealand, Norway, Peru, Poland, the United Kingdom, the US and South Korea – we have seen central banks raise interest rates aggressively to keep a lid on rising prices. At the same time as the Central Bank of Nigeria was printing money in breach of its own enabling statutes, to feed the Federal Government’s addiction to public borrowing.
Clearly, the unproductive use to which the resulting debt burden was deployed implicates our abysmal economic management choices in the current cost of living crisis. Therefore, it was only fair that the Tinubu government’s first acts in office were designed to address the more obvious distortions to the economy’s operations. Alas, these steps seem to have deepened the cost of living crunch.
Yet, as we count the additional costs to the poor and vulnerable segments of our population from higher petrol prices and the rising exchange rate of the naira, it helps to bear in mind that besides the devastating effects of COVID-19, and our poor economic management choices, the current crisis has been fuelled by inattention to the implications of a ravaging climate crisis, insecurity – particularly in rural areas, the preponderance of fake news and resulting crisis of information, which have all come together to form a cocktail of destabilising factors in the country. This portmanteau of adverse conditions makes rational economic planning and execution challenging. It also represents a massive hurdle for any attempt to improve our social organisation.
If we must go past these hurdles, the tunnel-vision responses that were the hallmark of the eight years of the Buhari administration just will not do. The Tinubu administration will need to engineer an appropriate temperament for democracy across the economy. To the extent that democracy is about increasing the vistas of choices open to the electorate, PREMIUM TIMES’ preference is for reasonable and pragmatic market-based solutions to the panoply of economic challenges facing the country.
This does not preclude the design and implementation of support arrangements that will make both post-harvest storage and pre-processing of agricultural commodities possible and easier. There is also an urgent need for measures to improve access to credit, especially for economic actors lower down the ladder. If the Buhari administration taught any lesson in this regard, it is on how not to proceed down this path. PREMIUM TIMES would rather that interventions, including subsidies, be administered in a manner that are transparent and responsive to market signals.