Backward-bending economic policies for Nigeria

There is what economists refer to as a backward-bending supply curve. It is a situation in which the labour is satisfied with what he earns as real wage and prefers leisure to more work and earnings. That is, higher wages would lead to a fall in labour supply. Though at the initial stage, higher wages lead to higher hours of work until labour finds that he is satisfied with what is earned and the hours worked decline. In economics textbooks, an interesting graph is used to explain the phenomenon.  You may want to check it out!

However, backward-bending here refers to another unorthodox Nigerian phenomenon. We have a backward-bending annual budget and a backward-bending palliative policy or economics of tokenism. Both can be described in Yoruba as “orita ko ye mi mo” policy, which means “a junction of confusion” policy.

The 2024 Annual Budget of the Federal Government was approved within the required time frame and assented to by President Bola Tinubu, implying that the budget was ready for implementation therefrom. After the first quarter of 2024, the economic managers realised that the 2023 budget was partly implemented and would require almost nine months to complete its implementation!

In preparing a new year’s budget, for instance, consideration will normally be given to the state of implementation of the current budget and include budget items that may not be completed into the succeeding year’s budget. Did the 2024 budget preparation not consider this? A country also has to consider the current state of economic affairs of its trading partners in preparing its budget and this is a dynamic situation. Are our trading partners still where they were in 2023? What was or were in the 2023 budget that could delay the implementation of the approved 2024 budget or be treated in a 2024 supplementary budget? When will the implementation of the 2024 budget commence?

The President was reported to have said that his government is again in the business of palliatives. The government will give out N1 trillion as palliatives for consumption and production. According to The PUNCH report, N540 billion in grants will be given to about 3.7 million families, N10 billion will be allocated for CNG buses for each state and the Federal Capital Territory and N155 billion will be spent on assorted food. All this spending will result in N1 trillion.

The Federal Government, since it came on board over a year ago, has been extending palliatives to the people through states. If the palliatives had worked, hunger would be less by now but it continues to grow. The palliatives have turned some people into beggars and lazy entities, just as it has turned some agents of implementation of palliatives into billionaires. If the government has taken time to undertake a review of the impacts of the palliatives, it will be clear that it has not and cannot achieve the objective of medium to long-term economic relief. After this palliative, another palliative exercise will follow.

Palliatives will not help our industries to grow but will create employment in other countries at the expense of our economy. Although the current measures can involve production, particularly in agriculture if properly and transparently implemented, sadly that will not be the case. How many of the state governors actually implemented the earlier palliative measures? We cannot point at ten of them.

Some promised transportation, distribution of foodstuff, etc., which remained unfulfilled to date. The funds were diverted to personal use and the purchase of foreign currencies, putting pressure on the naira. Where monies were disbursed, did it get to the appropriate people? Are there records of the beneficiaries generated during the exercise? It was a business of enriching political stalwarts and agents, not the people as expected. The N540 billion grants will also not be given to 3.7 million families by those charged to implement the grant distribution.

The purchase of buses for distribution is a good idea but why CNG buses? Do we produce such buses in this country? We have firms producing petrol and diesel engine vehicles and those are the ones to be encouraged to generate employment. The international idea of encouraging the use of gas has serious demerits for developing oil-producing countries. It will not only render our refineries and mode of production of fuel useless but make petrol production irrelevant and insignificant with the resultant very low price for crude oil in the international market.

Developing countries will be technology-dependent as most of these countries cannot produce gas. They will depend on advanced economies to help produce and supply gas as a commodity and gas-dependent vehicles as well as generators as physical products. It will worsen unemployment in developing countries with the attendant high cost of living and deepening poverty. The converse will be the case in advanced economies. If buses are to be purchased in palliative care, they should be buses produced in Nigeria, though they may be complemented with imported buses in the short term. This will generate employment in the vehicle assembly sub-sector, and there will be less pressure on the external reserve and exchange rate since a huge quantity of imported vehicles will result in such pressure.

Encouraging employment generation and paying workers living wages is a better policy option than distributing money for consumption. If the N540 billion grants are used as subsidy for agricultural farming and agro-allied businesses, it will go a long way to reducing the current hardship people are going through. In giving the grants to the businesses, there will be an understanding of the expected outcomes from the grants. Each business, through its association, will sign a memorandum of understanding to increase its output by an agreed percentage so that there is a measurable output to be able to benefit in future subsidy regimes.

The governors, through whom the Federal Government will be carrying out the palliative measures, will be required to present verifiable reports quarterly. One of the governors was reported to have said he would allocate lands to the state legislators for farming! Are they going to combine legislative activities with farming or he is giving out land for putting up their mansions? It is one of the ways by which politicians settle themselves at the expense of good governance. There are unemployed youths who can be engaged in farming activities through state ministries of Agriculture and Cooperatives.

There are agricultural research institutes in need of funding to produce improved seeds and farm production inputs and in which outcomes are measurable. The country should not engage in the importation of seeds or farm inputs that can produce only once and produce seedless fruits and crops. The agricultural research institutes in this country used to produce a variety of inputs from maize to rice, cocoa, and a variety of fruits. They are presently suffering from underfunding, and this is the time to wake them up to multiply their outputs because many of the outputs come out in the short run to meet the planting seasons.

The focus of the government should be on production in the short-, medium- and long run because funding consumption will lead to inflation when there is a shortage of goods in the market. The importation of food and other consumer goods can also not be an option, not only because it puts stress on the country’s reserves and exchange rate but because it also kills domestic production.

Some studies have shown that on average in Nigeria, for every income earner, there are five dependents because we run an extended family system. It is therefore imperative to note that when employment is generated and labour is well-remunerated, the consumption-palliatives would naturally be possible. That also brings us to the issue of unnecessarily prolonging the negotiations of minimum wage or salary. The real value of the current salaries of workers is very low because of the high cost of living occasioned by the subsidy removal policy and merging of exchange rates. This made it impossible for workers to share their salaries with other members of their extended family as a safety net. It is time to finalise and pay workers living wages that are commensurate with the current level of inflation. The suffering is much, and the President has acknowledged this many times and should take action on a new minimum wage.