After the rain comes the sun. And by extension, after the sun comes to the rain. Economists have always believed in the boom and bust cycle, sometimes as a routine behavior of economies, but sometimes due to the external factors, such as wars, diseases, epidemics, pandemics, or on the flip side, discoveries of new medicines, new technologies, new resources and so on.
There are economists who swear by the regularity of boom and busts. They are often scoffed at by those who beat their chests that certainty can be guaranteed, especially when everything is on the up-and-up. Prominent among the opposers of the boom-and-bust chasers are believers inefficient markets, who contest that all the information available in a market have been reflected in the price of goods. These are the same people who advocate for the self-regulation of markets and who often paint regulation – governments – as the problem.
Reminds one of Ronald Reagan in the roaring 80s, who said ‘Government is not the solution to our problem; government is the problem!’ On the other side of the sea, Margaret Thatcher decimated the unions and deregulated UK banks, turning London into the cash cow, and the UK into a financial hub… even as inequality increased. The paradox is that when the externalities hit the markets and throw everything out of kilter, the same government is wheeled in to bail capitalists out with taxpayers’ monies.
This is also the case, even when the irrational exuberance of the markets (reference Robert Shiller), is the reason behind a downturn (bust). Joseph Stiglitz. George Akerlof and Michael Spence famously bagged the 2001 Nobel Prize in economics for their Economics of Information, wherein they proved that information asymmetry is the reality – some people always have more information about the markets than others, hence there is nothing like market efficiency.
I hope the above paragraph has established that whether by the impetus or stimuli of external factors including Acts of God, the usual exploitation of market information asymmetry, or irrational exuberance, the law of gravity is enforced in the global economy – what goes up, must come down. We may extend that law to say that oftentimes, what comes down, also goes up… especially where the fundamentals still hold. In the current situation, a pandemic has hit the world.
. Every economy shut down in the year 2020 – a year of so much hope and expectations turned into a nightmare year. As I type, the vestiges of fear still remain. Many people and many economies have upped and continued their lives, but many are still wary. India is experiencing some variant that is getting the world to be cautious all over again. Global travel has not quite recovered. Companies that have been holding on with their last breaths are also giving up.
But there is hope around the corner. A boom is coming. I wish I could announce the same with as much finality and an eventuality as “WINTER IS COMING” was announced in the Game of Throne series. As someone who has been in the vanguard of encouraging people to be strong and positive through this pandemic, it gives me great joy to announce with certainty, that a boom is coming. The point is, who is ready? Is Nigeria ready? This is akin to surfing the wave. No one is sure how long the boom will last and what pattern it will take. It’s as much as we can do, to just tell the world, that a boom is surely coming.
Or has it come already? China’s economy is reported to have grown by 18% in Q1 2021. That is a serious country, where they have put a lot of thought into their macroeconomy. We can try too. Of course, if all we can do is work in lockstep with the predictions of the IMF that our economy will grow at say 2.5%, that means we will miss the boom. Below is the projected rate of growth, prost-covid for some developed economies around the world:
If the USA is expected to grow its economy by 6.5% this year, and France and Britain will grow at over 5%, why should Nigeria, a toddler economy with so much catching up to do, grow by 2%?! Now is the time to dream for ourselves and unshackle from the hypnotism of these multilateral agencies who dictate the destiny of our nation with so much precision.
What are the fundamentals that guarantee that a boom will come after a bust in this instance?
- Human beings are still very much around.
- Human needs are still very much the same.
- The downturn – pandemic – has changed some things but not fundamentally altered the world
Why is there likely to be a boom?
- Human beings are waiting to heave a sigh of relief
- Human beings will try and catch up on lost fun
- There is likely going to be a lot of exuberant spending what with the way people experienced the death of many of their loved ones. The ‘life is short’ syndrome will take hold.
- Governments are back in play. As we can see, governments have had to bail out everyone and even hardcore capitalists accepted government assistance and forbearance without blinking an eyelid. The government will continue to spend more for some time to come.
- The government will be even more efficient – even in countries where they hadn’t been in the past. This means more liquidity in the right places.
- Businesses must try and recover lost grounds, hence the business will happen at a frenetic pace and all boats will be lifted by a rising tide.
Let me reference The Economist magazine a little on this. In the current edition, an article around the same subject stated that:
“The cholera pandemic of the early 1830s hit France hard. It wiped out nearly 3% of Parisians in a month, and hospitals were overwhelmed by patients whose ailments doctors could not explain. The end of the plague prompted an economic revival, with France following Britain into an industrial revolution. American GDP figures released yesterday show it is nearly back to its pre-covid level. Economists are thinking through what the coming upturn will look like—and are looking to history for inspiration… Previous post-pandemic booms hold a number of lessons. The first is that although people are keen to get out and spend once the threat of infection passes, some uncertainty lingers. The second is that the structure of the economy undergoes a revolution. Automation rises and people become more entrepreneurial. The last is that political instability tends to rise, as those who have suffered during a pandemic seek redress.”
It does matter still what a country is producing and selling, and to whom. Nigeria cannot as yet compete with her mainstay; crude oil, which has now become a liability to average Nigeria. When crude oil price falls, government finances collapse entirely and a devaluation of currency happens – increasing inflation and poverty levels. When crude oil prices rise, government complains of petrol subsidies, increases fuel prices, and inflation and poverty levels also climb. If all we have is crude oil, we are already out of the market and the boom will pass Nigeria by.
But we can think inwards and cause ourselves to work harder. We can concentrate on domestic consumption and keep the money within the family. This is the time to remind the proponents of market forces and deregulation how they also benefited from the Keynesian largess of the recent past. We can justify some fiscal functionality for now, and use our little resources to reboot our economy – including leveraging our currency. In order to be part of the coming boom, however, we have to start being strategic immediately.
We need to pull the country together. A country at war with itself will only be a victim even as the rest of the world steps on it as a ladder to get to the next level. If we cannot benefit from the boom through trade on an international level, can we look at what can be done at the African level with AfCFTA? And if that is also tough, can we seize the moment to build local resilience and cooperation? This is not the time for cut-and-paste policies. If the NCDC has been recording an average of 35 new infections per day, and zero deaths, it makes no sense to again lock down the economy and kill off struggling businesses. Nigeria is an SME country, with a lot of businesses built around people and entertainment. That is our reality for now. Except you are bringing up something revolutionary and new, it is silly to kill what we have.
It is by far more important at this epoch, for the Nigerian government to invest in vaccines rather than scout for freebies. Not enough Nigerians who want the vaccines have received even the first dose. With this slow run rate, Nigeria will be excluded from the coming boom and that is not acceptable at all.
This is the time to think, think, think!