Economy: Any path out of the woods?

Like the fate of flies before wanton boys, the outlook for the domestic economy is pretty hard to call at this juncture. True, a plethora of key indices are headed in the wrong direction. First, it was inflation. At 13.7 percent, the April headline count came in higher than the March measure (12.8 percent). The March count was that much higher, too, than the February count.

Concerned by rising inflation, the Central Bank of Nigeria’s Monetary Policy Committee (MPC) duly tightened monetary conditions. Not a few cads then observed that the central bank’s measures might be an inadequate response to the crisis because the main driver of domestic prices was at the cost end, and not the result of rising demand. Building up to this week’s meeting of the MPC, this argument was at the core of the main conversations.

Then, last week, the Nigerian Bureau of Statistics (NBS) released output numbers for the first quarter of this year. In the three months ending March 2016, the economy apparently shrank by 0.36 percent (year-on-year) in real terms. In the three months before that, the economy had grown by 2.47 percent — allowing a number of commentators to insist that they saw light at the end of what was turning into a very long tunnel. A multi-billion-dollar economy, and Africa’s largest to boot, was only growing slower than before. Indeed, it was growing faster, however marginally, than the population growth rate. With about 186 million people, 76.9 million of whom were economically active, the end-December 2015 growth rate still meant an abundance of opportunities.

There was barely time to re-purpose this narrative, when the numbers for unemployment for the first quarter of 2016 came out (again, last week). Yes, so according to the NBS, “the labour force population (i.e. those within the working age population willing, able and actively looking for work) increased to 78.4 million”. Immediately, the narrative around numbers which our own Dr. Panglosses love to put out brightened. The number of economically active Nigerians was up in the three months to end-March 2016 by 1.5 million: a huge labour pool, as well as a large market to sell to for businesses that are able to discern a way through the fog.

All of these, potentially, of course. For unemployment rose in the same quarter to 12.1 percent from 10.4 percent in the last quarter of 2015. Add the unemployment rate to the inflation rate, and the measure of domestic misery is up significantly. Thus, though the gods may not deign yet to kill us for their sport, we may have brewed a perfect storm for ourselves out of pure cloth.

Enter, here, the most powerful argument remaining for advocates of the Buhari government. These numbers were all to be expected. Remember the Jonathan administration? As incompetent as it may have been corrupt on an industrial scale, all it did in seven years in office was save up all these problems. To then expect the incumbent government to have solved all of it by now is to probably expect too much.

But this is to ignore the fact that the Buhari administration has been in office for almost a year now. And that in this period, it has not significantly altered much structurally in terms of how the economy is run. In the 11 years to mid-2014, the economy benefited from rising commodity prices (largely crude oil export prices), strong inflow of foreign capital, and reforms to the structure of the economy. In the two years since, the first two of these measures have tanked, leaving government with the third leg, structural reforms, as the only remaining driver of domestic output.

Unfortunately, not only has the incumbent administration failed to reform, its policies have stiffened the economy. Somehow, it would seem that even the central bank has forgotten how the “impossible trinity” works. The Buhari government has tried simultaneously to fix the exchange rate, invite foreign capital, and subordinate the central bank to the fiscal side. Of course, you can only have any two of this.

Besides by abjuring market solutions to supply-side constraints in many parts of the economy, the administration, as in the downstream oil and gas industry, has cost the economy considerable tempo. It may now be embarked on a policy reversal at the petrol pump-station, but similar worries about how much of the market this administration has appetite for, dominate discourse about the outlook for the foreign exchange market.