Arize NwobuSix major factors enable economic growth and development and prosperity in a nation. They are available resources, innovations, external influences, leadership, fiscal policy and monetary policy.
It’s important to note that these factors are not listed in any particular order.
Join our WhatsApp ChannelThe optimization of the resources of a country engender growth and prosperity. Innovations catalyze economic growth by enabling a country to gain competitive edge and be better positioned to compete in the global economy and also attract foreign investments.
External influences encompass foreign investments which are of two types, namely, foreign portfolio investments (FPIs) and foreign direct investments (FDIs).
Both are energetic inflows which rev up the economy and contribute to growth but foreign direct investments are often preferred over foreign portfolio investments.
Foreign portfolio investments also known as Hot Money are short-term speculative funds which seek quick gains in other countries.
They are volatile and impatient capital which can exit the economy impromptu and their exit is often enmasse which can destabilise markets in the host economy.
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Foreign direct investments are often preferred because they are patient capital which are loyal to the host economy.
They enable economic growth through jobs creation, human capital development, technology transfer, creation of competitive market, improved capital inflow, exchange rate stability, etc.
The leadership of a country steers the ship of state through policy formulation and enforcement of law and order.
Selfish, ineffective and irresponsible leadership leads to economic despoliation, stagnation and vicious circle of poverty.
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But selfless, effective and visionary leadership leads to productivity and positive change and virtuous circle of prosperity.
Singapore was transformed by its first Prime Minister, Lee Kuan Yew through effective and responsible leadership. He introduced economic reforms and instituted policies that promoted meritocracy, multiculturalism and anti-corruption.
Lee Kuan Yew is noted to have said that “the ultimate test of the value of a political system is whether it helps that society to establish conditions which improve the standard of living of its people.”
Governments and institutions evolve policies to achieve their target objectives. Policy is simply what government or institutions decide to do or not to do and which can make or mar.
Governments use fiscal policy to influence and fortify the economy for sustainable growth, poverty reduction and prosperity.
Central banks use monetary policy to achieve price stability and attainment of macroeconomic policy targets.
Strategic and effective alignment of fiscal and monetary policies creates synergy, stability and catalyses economic growth.
Successive governments have evolved different fiscal policies to move the needle of the economy and they have achieved some notable transformations changes but the basic structure of the economy has remained the same.
The economy is still largely mono-product with oil accounting for about 90 percent of exports, 25 percent of GDP and 80 percent of government revenue as a result of which the economy is still very vulnerable to external shocks in a globalised economy.
Drastic changes in global oil price can readily destabilise government projections and which will make the government to resort to either Ways and Means advances or external borrowings to fund budget deficits and which can contribute to inflation if they exceed necessary limits.
The previous administration of President Muhammadu Buhari has been noted to have “over-used” the Ways and Means advances in addition to accumulating foreign debts both of which were said to have grown at greater rates than the GDP and contributed to the inflationary pressure.
Dataphyte noted that the “out-gone” President Muhammadu Buhari abused the Ways and Means advances and violated the CBN Act.”
According to Dataphyte, section 38(2) of the CBN Act stipulated that “the total amount of such advances outstanding shall not at any time exceed five percent of the previous year’s actual revenue of the federal government.”
According to Dataphyte, section 38(2) of the CBN Act stipulated that “the total amount of such advances outstanding shall not at any time exceed five percent of the previous year’s actual revenue of the federal government.”
It further noted that “Buhari overshot the five percent ceiling and grew Ways and Means advances from N856billion to N23.8trillion, representing 2,635 percent in seven years.”
Analysts believe that the development contributed to inflationary pressure and President Tinubu’s removal of fuel subsidy escalated it.
But it is widely believed that the fuel subsidy removal was necessary and expedient in the circumstance but that the government should have created necessary buffer mechanisms to cushion the harsh inflationary impact of the policy on citizens.
Holistically, current inflation is driven by transportation costs, supply constraints, Insecurity, exchange rate volatility, fiscal policy and the corollary increase in money supply.
Inflation determines how a central bank regulates money supply.
The Central Bank of Nigeria( CBN) adopted a contractionary monetary policy and launched an aggressive fight against inflation and consistently increased the Monetary Policy Rate (MPR) and also adjusted other monetary policy tools including the Liquidity Ratio( LR) and Cash Reserve Ratio( CRR) of banks.
The Bank started using regular Open Market Operations( OMO) to mop up the excess liquidity from the banking system and offered Treasury Bills with three tenors and also introduced new foreign exchange laws and guidelines to address the devaluation of the naira and achieve exchange rate stability.
CBN has always been a backbone and successive Governors of the Bank have formulated monetary policies which have helped to support and stabilise the economy especially in challenging and critical times.
The Governor, Yemi Cardoso noted that the Bank had made key reforms which armed to strengthen the financial system and was resolute to ensure macroeconomic stability through sustained reforms.
Recently, Cardoso was named as the Central Bank Governor of the Year at the 2025 African Banker Awards in Abidjan, Cote d’ Ivoire.
The Award was received on behalf of the Governor, by the Adviser to the Governor on Stakeholders Engagement and Strategic Communications, Dr Nkiru Balonwu.
It was said to be in recognition of Cardoso’s leadership and “for implementing key policy measures aimed at stabilising the naira, improving transparency in the foreign exchange market and re-establishing policy credibility.”
Nwobu, a Chartered Stockbroker and Business Journalist wrote via arizenwobu@yahoo.com Tel 08033021230.
