If the objectives of the different COVID-19 economic stimulus packages were a molehill, then the recent economic recession has made it a mountain.
When the President Buhari-led administration came up with the Economic Recovery Plan (ERP), its primary objective was to cushion the effect of the COVID-19 pandemic that has ravaged the global economy. As good as the ERP is, many of its stipulated goals were rather speculative, vague, and without many feasible and realistic templates towards achieving the set objective, especially as it relates to the peculiarities of the Nigerian economy.
So far, apparently, the ERP did not in any way, stop the Nigerian economy from sliding into yet another recession. Nonetheless, without making any case for the government, the recent recession was perhaps inevitable, considering how the COVID-19 pandemic has punctured the world’s powerful economies. On this premise, however, the government’s proactivity to have come up with an economic plan even before the recession is commendable; yet, what is of concern to this article is the process of implementation and to unravel why the program has not yielded much result.
As was identified in the last column, injecting money into the economy does not necessarily transcend into economic growth; neither does it comprehensively tackle economic problems. Without over-emphasizing it, one of the significant economic issues of this country borders on monetary policy. Consequently, interest rate, which is an integral part of monetary policy, plays a vital role in the circulation and distribution of wealth in any economy.
For a very long time the interest rate in Nigeria has remained above 12%, meaning that banks can only give loans with interest rate that ranges from about 16% and above, or from 20% and above to businesses. This, in any case, will ordinarily make loans inaccessible to the common man, particularly to those who do not even have the collateral to access such loans. If we cannot stabilize the interest rate and bring it down to as low as 10%, then we will continuously be experiencing the kind of inflation that we are currently into. And, very sadly, the value of Naira will keep depreciating against the dollars.
Injecting money into the economy as the government has done through several interventionist programs to cushion the economic effect of COVID-19 is an applaudable initiative. Still, then again, it does not in any way effectively activate the Small and Medium-scale Enterprises (SMEs). Why? Fundamentally, the interventionist programs were more of fiscal policies that the multiplier effects only increase production instead of consumption.
More so, the economic ratiocination of injecting money into an economy should be to create and have a chain of economic reaction, or what Prof. Claude Ake would call inter-sectorial complementarity, which makes forward and backward linkages that can serve as a catalyst for economic development. This we cannot say that any of the COVID-19 stimulus packages have done.
In creating an economic chain reaction, for instance, if Mr. A is a producer of rice and he has a warehouse where distributors come to buy from him, automatically he would have created jobs and businesses for a lot of persons. I am sure someone will open eatery around there, and transporters who carry people to the warehouse will also make some money. But if the rice farmer produces and sells directly to the Central Bank, then he has no business with the public, and his company will not create any chain of reaction.
Essentially, when there is a chain reaction in any economy, indirectly, jobs are created. One of the COVID-19 economic plans, the Economic Sustainability Plan (ESP), no doubt, has the creation of jobs and infusion of cash into the economy as its core objectives. For instance, the plan proposes creating 5 million jobs within 12 months by bringing 20,000 – 100,000 hectares of land per state into cultivation. While job creation and infusion of cash into the economy are considered the two pillars of the ESP, sadly, none of the two primary objectives seem to reinforce each other.
So, the essence of investing and injecting money into any economy is to create a chain of reaction that will benefit both the producer and the consumer. But, from the foregoing, what the COVID-19 stimulus packages have done is to perhaps finance the SMEs without any corresponding chain reaction that circulates money between producers and consumers. This, of course, inadvertently makes reduces the profit-generating capacity of those SMEs very low.
A holistic approach must be adopted to pull our economy away from the effects of the COVID-19 pandemic, and to achieve this; the interest rate has to be reduced to a level where the producer and the consumer can have the money to access what has been produced. Why this is very important is that it would allow the invincible hand of demand and supply (buying and selling) to somewhat regulates the economy, without unnecessary government intervention.