BY economic growth we are referring to the rate of increase in output in the economy – the total volume of goods and services produced — over a given period. This is normally measured in terms of the gross domestic product (GDP); a measure that is by no means full-proof. The GDP measurement does not tell us much about the level of welfare, human development or equity. Thus a country with a high growth rate may paradoxically have large pockets of growing poverty and rising income inequality. Some decades ago, they used to say in Brazil that “the economy is doing well but the people are not.”
Quantitative growth also does not necessarily reflect the quality of life. Lagos may be a rich city state with relatively high growth rates, but many Lagosians feel highly stressed, given the nightmarish gridlockw, crime and deficits in social services such as water and electricity. Tokyo is a city I love very much, with infrastructures that are second to none. The trains are unfailingly on time. But the denizens live in cramped housing. Most average families are crowded into little homes that the average affluent Nigerian would regard as fitting abodes for their house helps. Mumbai, to give yet another example, is a thriving, prosperous city, but I was appalled by how unclean it was and by the shocking level of poverty and inequality.
According to a recent World Bank report, the fastest growing economies in the world in 2018 are: our own West African neighbour Ghana (8.3%); the East African country of Ethiopia (8.2%); the most populous democracy in the world, India (7.3%); our Francophone ECOWAS nation of Côte d’Ivoire (7.2%); the Horn of Africa nation of Djibouti (7.0%); followed by the Asian nations of Bhutan and Cambodia (6.9%); another Francophone ECOWAS country, Senegal, (6.9%); the East African nation of Tanzania (6.8%); the Asian colossus, China and the relatively smaller Asian nation of the Philippines, both growing at 6.7 per cent.
By contrast, the Euro land countries trail behind at 1.9%; the Latin American nation of Argentina (-0.7%); Brazil (-1.2%); and Australia (-2.8%).
The Nigerian growth story has been a rather topsy-turvy one. From impressive growth rates averaging seven per cent for a decade (2004-2014), growth has slowed down since the recession of 2015-2017. Growth even went down to -2.34 per cent in 2016 before getting back to the marginally positive figure of 1.17 per cent in 2017. The general outlook for this year was that growth might reach 2.3 per cent, but even institutions such as the IMF and the World Bank have had to revise downwards their outlook for year’s end 2018.
Why does growth matter and what are the factors that spur macroeconomic growth within nations?
In discussing growth it is essential to bear in mind that the stage of development matters. Advanced industrial nations generally tend to grow more slowly than developing and emerging economies. The reason is not far-fetched. Advanced industrial countries are mature economies with more limited growth sectors. They already possess massive assets by way of infrastructures; and key industrial sectors are already at a mature stage, with fewer opportunities for further expansion. There is also the fact that the demographics are no longer in their favour, having more ageing populations and a less energetic workforce as against nations with youth bulges such as those of Africa and Asia. By contrast, developing countries have more rudimentary infrastructures. Almost all sectors require more investments, with humungous potentials for exponential expansion. They also have young, vigorous and energetic populations ready and able to work, even if knowledge capital and vital skills are in deficit.
Ultimately, comparing, let’s say, India with the United States, may not be an entirely fair exercise because of differences in levels of development. Comparing India with China and, with, say, Indonesia would make better sense.
And growth does matter for several reasons. High-growth countries generate more wealth in the economy. This translates generally into a higher level of incomes. It also means that more capital is available for spending and investments. The overall benefits translate into more prosperity and better improvements in living standards.
Higher growth rates also mean better employment opportunities. But in countries such as ours, this advantage may not be tapped into due to shortfalls in education and training and the non-availability of well qualified personnel. Several multinational firms operating in our country, for example, complain that they have difficulty filling critical roles due to the low average quality of our graduates, many of whom lack basic literacy, numeracy and IT skills.
Growth also comes with certain critical fiscal dividends. When firms and individuals prosper it also means that the government has a wider fiscal space in which to operate. Households and firms can be taxed more and the government will have more revenue with which to expand investments and public expenditure in infrastructures and social services such as education, health and welfare.
Lastly, there is the accelerator effect of expanding growth. This has to do with the linkages between growing quantitative output and its stimulus effects on investments in key areas such as infrastructures, technology and innovation. High growth countries are in a better position to pool additional resources for investments in those sectors that will reinforce future growth, leading to a virtuous cycle of development and collective welfare.
But there is a downside to the story. Accelerated growth can sometimes spur higher levels of prices in terms of demand-pull and cost-push inflation. The central bank may be forced to raise interest rates, which may conflict with the general objectives of growth and development by raising the cost of funds and reducing money in circulation. Rapid growth can also generate negative externalities such as environmental pollution and greater extraction of depleting natural assets. It can also exacerbate social divisions where the rich get richer and the poor become poorer. The gains from growth may accrue only to the top one per cent, leaving the majority of the populace in deepening poverty and worsening socioeconomic inequalities. Ultimately, the growth that matters is the growth that is balanced in favour of inclusiveness and long-term environmental sustainability.
In our day and age, nations that want to enjoy accelerated growth must implement certain critical policies. They must first of all put a heavy emphasis on human capital. People constitute the foundation of the new wealth of nations. Countries that spend heavily in their people – in education, science and technology, innovation and skills – have better prospects of growth and social advancement. They must also get the institutions right. Property rights must be respected while the sanctity of contracts must be upheld by a judicature that is fair, just and predictable. Basic infrastructures must also be developed, particularly power, rail networks, highways, water and basic social services.
The international report chaired by Nobel laureate Mike Spence underlined the critical elements that are central to achieving sustained accelerated growth. Leadership is of the highest importance. Accelerated growth requires developmentally-minded leaders resolutely committed to promoting growth as a national objective — also able to mobilise their people to pursue those objectives with passion and dedication. Equally important is the relative openness of the economy, macroeconomic stability, low inflation, balanced public finances, market efficiency, national competitiveness, high savings and robust investments in critical sectors that reinforce high-impact growth in the long-term.
Nigeria’s current growth is actually languishing at negative level, if you consider the fact that our annual population growth rate averages 3.1 per cent when our annual growth is less than two per cent. We need our economy to grow at no less than five per cent for us to make a meaningful impact on poverty. In the current atmosphere of uncertainty and geopolitical tension and grossly uninspiring leadership, the prospects for growth have never been dimmer.
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