Jump-Starting a Failing Economy: A Development Policy Challenge.

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Jump-Starting a Failing Economy Brandspurng A Development Policy Challenge

Development is a measurable objective construction. Approaches to development, however, are broad, dynamic, and varied. The concept of development differs in meaning to different economists and policymakers at different times. To some development policymakers, it is ‘model-based’; to others, it is historically, culturally, or locally based; for others, it is a function of laws and distribution.

Economic development strategy in our local context needs to feature all relevant approaches adapted to the Nigerian framework. Development is based on a series of progressive model-based actions, applied to specific historical and cultural considerations, and codified in the institutional and legal system.

Jump-Starting a Failing Economy Brandspurng A Development Policy Challenge

Development entails value-add by skill and knowledge. It improves on an available resource by combining technical knowledge and skill to create finished goods and services of enhanced value and desirability.

Industrialisation plays a central role in development. Paths to industrialisation and development have differed dramatically between economists and across countries. China led a radically different socialist-based industrialisation approach, different from the Indian approach to industrialisation.

Certain economic theorists believe that export-led growth based on tropical products and raw materials has the propensity to fail. They propose high tariffs on cheap imports to encourage the purchase of domestically produced goods and stimulate the local market. Other economists argue that countries can only grow through savings and investments.

They proposed that countries that wish to grow should do so by saving and investing. They encourage increasing the rate at which income is saved and invested in physical capital.

The Neoclassical economic theory proponents believe that development policy is to get people to save, identify idle funds, tax them, and reinvest the proceeds. Alternatively, policy leaders can charge high public utility rates, reinvest the money, and have it recirculated. Development for them depends on the spending of savings on reorganising physical and human capital, rather than on things already produced.

Nigerian Context

Nigeria has evolved through the ‘historical books’ of economic development. From attempts at industrialisation to import substitution shots, modifying tax systems to mop up liquidity from the population by incessant tax increases, and reinvesting them by distributing low-interest loans for entrepreneurial ventures, Nigeria appears to have had a full measure.

These have yielded minimal or no developmental values in the near past and foreseeable future. A fundamental change of approach is required. Economic development policies must shift focus from conventional western economics to localised economic realities and concepts to address development problems more successfully.

There is a flaw in assuming that all countries share some fundamental aspects. That is the danger of universalism. Nigeria should develop in its own sense, identifying which questions are central to the country and their answers.

Many western economic concepts and theories assume attitudes, institutions, and cultural phenomena that are uniquely western, and to apply these theories to the Sub-Saharan African context or even the South Asian context would be a mistake.

 Effective development policies inculcate the use of contextual adaptation. A good example is China’s growth strategy. Although the West advocated liberalised free markets and strong democratic institutions as the key to development, the Chinese Communist system and their idea of government intervention in market systems have surpassed development and growth expectations.

Institutional emphasis is crucial in developing a customised approach to development in Nigeria. One of the essential first steps towards understanding the Sub-Saharan African countries’ problems is discovering how they function and regulate their performance – an understanding of what is possible in specific contexts and an appreciation of each society’s endogenous features.

Nigeria’s peculiarity is in understanding the crucial need for industrialisation and its deep-rooted institutional problems. Pursuing industrialisation while addressing Nigeria’s institutional dysfunction is crucial for economic growth.

Industrialisation in Nigeria may take two forms. An initial adaptation of the import substitution industrialisation or identifying the economic aspects with the most linkages and giving it the ‘big push.’

Why Industrialization and How?

Historically, industrialisation is the go-to means through which countries realise economic transformation. It is the basis of endogenous economic growth.

Industrialisation offers a complete transformation of the social and economical way of life. It creates a three-part necessity – guaranteeing higher income levels, setting the stage for structural transformation of import/export patterns, and offering endogenous growth effects – higher labour productivity and GDP growth.

In Nigeria’s current economic state – import-dependent and raw material (crude) export-oriented; development requires a progression from a set of resources based on primary produce exploitation to a set of resources enhanced by the application of knowledge and skilled labour.

According to renowned Economists, Prebisch and Singer, no producer and exporter of only primary products can sustain benefits in the long run. This theory is evident in the Nigerian system.

Import Substitution Industrialisation seems most suitable for the vast unskilled labour force in Nigeria. The type of labour required to produce Import Substitution Industrialisation (ISI) goods is shallow and can absorb unproductive labour far more quickly.

Therefore, policy leaders in Nigeria should encourage the establishment of private domestic firms within the economy that produce previously imported goods. Simple industries – for producing non-durable consumer goods, clothing, toys, shoes, beverages, and similar items are usually most suitable for initialising import substitution strategy.

Policies and regulatory frameworks aimed at addressing liberalised access to a capital system, providing essential infrastructures, and delivering vocational/technical skills acquisition are critical to successful industrialisation efforts.

Previous mass industrialisation efforts in Nigeria had made a little impact because these three enumerated factors are hardly present simultaneously. The majority of the private sector, who may have access to capital, lack the technical skill to establish functional manufacturing firms. For others with crude vocational skills, opportunities to scale up and sharpen their skills were non-existent because of a lack of capital access.

For the vast majority of Nigeria’s private sector industry, manufacturing is highly unappealing because of its enormous production costs. The lack of requisite infrastructures like electricity and access road networks, to mention a few, drive production costs to uncompetitive levels compared to imported products.  Such that they become reliant on government policies to promote and protect home industries.

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It can be a challenging path to tread with the country’s level of dependency on imports. Tariffs had been the go-to remedy – infant industry tariffs, a total ban on certain imports, and other acts; but these measures only seem to engineer smuggling, revenue leakages, and inflation increases.

Therefore, it is vital to subsidise domestic firms, lower average costs of production of new enterprises by enunciating policies that will facilitate the development of much-needed infrastructure, create access to finance for entrepreneurs to establish and expand their manufacturing; then provide the same degree of promotion as a tariff for a certain transition period.

How long this transition period is to be supported depends on the complexity of the goods produced. Cynics have argued that some of these protections do not phase out due to institutional failures and corruption. However, that is a different discourse.

Sustainability?

The Import Substitution Industrialization drive was historically unsustainable in Nigeria. This is primarily because of infrastructure deficiency, uncoordinated actions and planning, and lack of execution between different institutional mandates/agencies. The dysfunction in the execution of various agency mandates also played a role in its failure.

Import Substitution Industrialisation is a process dependent on finding an exceptional, synergistic combination of new ideas, new leaders, and new institutions.

To sustain industrialisation in Nigeria, infrastructure, technical skills, and finance access play a considerable role. Effective reforms in critical infrastructure like electricity and transport systems are fundamental to the success of any industrialisation model or theory adopted. The role of development banks in creating access to finance is also crucial.

In the recent past, Nigeria has initiated many industrialisation efforts, from monetary policy decisions of lower interest rates for manufacturing to establishing a Bank of Industry specialising in funding manufacturing.

Most recent development strategies like the CBN-NIRSAL microfinance bank initiative and the Finance Act increase in taxation schemes are worthy of mention. They aim to extract money and increase the investment ratio for establishing manufacturing and factories. The NIRSAL scheme aims to identify who the ‘would-be capitalists’ are and fund their ideas for establishment or expansion.

This initiative is in line with many economists’ thinking in the mid-20-century – the Heterodox Economic Theories of Development – who propose mobilising society’s resources and placing them at the disposal of the people who can productively use them to initiate manufacturing and employ surplus labour.

However, the fundamental issues of backward institutions and informational problems blocking growth in the Nigerian context persist. Funding without the relevant infrastructure and technical skills can hardly produce export-quality finished products and create the global competitiveness we seek.

The Big Push

Like the Economists –Burke and Hirschman said, jump-starting a failing economy requires an overall rapid industrialisation framework and diversified growth. Resource limitations make it impossible to push across all sectors. Nevertheless, there must be a more significant emphasis or ‘the big push’ in specific vital sectors, which would create pressures for new investments.

The task, therefore, for current policy leaders is to identify the key sectors to prioritise. In identifying key sectors, emphasis must be on the backward and forward linkages in the domestic economy, prioritising initial investments with the most linkages. It is imperative to identify the sectors that can stimulate the most economic activities for their operation and those whose operations and products will accelerate economic gains.

With a laundry list of needed reforms, policymakers may attempt to fix all of the problems at once or start with reforms that are not crucial. Sometimes, reforms have gotten in the way of others, with reforms in one area creating unanticipated distortions in another area.

Weak institutional systems play a huge role in hindering economic systems. There is a need to consider how to reform the Nigerian institutions to bring about increased growth. Regulatory institutions should aim for high specialisation in their various fields of regulation.

Technical training, assessments, and specialisation certifications are crucial for recruiting and retaining roles in these institutions. Funding made conditional on verifiable outputs may be necessary in this regard. There is a need for total institutional restructuring to create more powerful and efficient institutional systems.

Conclusion

Only radical institutional reforms allow for development. The development expert has to internalise all cultural and institutional factors in proposing specific amendments to each institutional and regulatory framework.

Improvements in necessary infrastructural frameworks are crucial to development—paying attention not just to opportunities that already exist but those that might exist given specific interventions. There might be a need to remodel relevant policy and regulatory frameworks for investments in crucial infrastructures like electricity and the various transport networks.

Concurrent with institutional strengthening must be technical skills transfer. The manufacturing aim is to be globally competitive and to produce finished products of export-quality. The dearth of skilled workers in Nigeria’s labour force makes it imperative to focus on the educational sector, encouraging technical and vocational training investments to create a technical/industrial class. A skilled labour population will complement any industrialisation effort with a ready, affordable, and able workforce.

Therefore, there is a need to identify our country’s industrialisation niche and leverage our comparative advantage to compete globally. The government’s role will be to enable laws and policies that encourage investments, massive technical training, promote access to finance for small and medium-sized manufacturers of export-quality products, support the most promising sectors, and integrate them into the global value chain.

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