Growing up, I had the privilege of exploring the miracles of Childhood. One of these miracles was the game of bubbles… Our bubble machine comprised of a mixture of water and detergent (Omo) in a used Tomato-can, the mixture is then stirred with a pipe and air is blown through the pipe to produce the bubbles. So Adaugo stands on a pavement ready with the bubble machine while my Peers and I wait below, everyone eager to be the Champion bubble-buster! So after some jumping, banging of heads and much laughter as we chase the wind-driven bubbles, everyone goes home with a smiling face or a sore head. This was an Aba version of kids’ fun in the days of Abacha!
It is important that I state clearly that this article is not an attempt to trivialize the impact of economic bubbles and bursts, with the erosion of value it brings on Individuals, Firms and Nations. While this is true, the idea creative destruction means that the erosion of value in one part leads to the creation of value on the other. This economic phenomenon (i.e. bubbles) has been a vital tool in birthing new opportunities through innovation in developed Nations. We see the American railway bubble of the 1880s that positioned America as the center of commerce in the world, spurring innovations that led to new industries and sectors. The Dotcom bubble of 1990s was instrumental in birthing the successful Internet companies of the early 2000s. The Housing bubble that burst in 2008 resulted in a Global economic meltdown, but the houses that were built are still standing, contributing to better standards of living for the average American. The real issue here is that the eventual gains after this cycle has not been shared by countries who invested in such speculations or who lost parts of their reserves in trying to cushion the global economic meltdown caused by the bursts. In this sense, African countries due to the exogenous nature of its economy have gone home with sore heads!
In this article, I will present in a brief the current economic situation of Nigeria (focusing more on CBN’s move to improve Credit Access) and how it can move forward leveraging on capabilities it already has in new ways to unlock abundance. The choice of Nigeria is due to its Leader position in the Bank-based economies of Africa; its economy captures the different dynamics and sentiments that are represented in other African economies.
The Present Condition
While the CBN mandate on Banks designed to improve credit access and stimulate economic activity is a welcome development, it’s simply a short term strategy. The fact that this strategy heavily relies on Banks for execution makes it counter-productive. Our Bank-based economy through its fiscal and monetary policy can at best cater for 38 million people, which is the figure it has from the BVN. In essence, the data it has in judging its population purchasing power, distribution of wealth triangulates around 1/6 portion of her population. When this strategy is analyzed with regards to credit worthiness across demographics like Age, Education level, Profession… it appears more like a project designed to enrich the rich.
Initiatives like the NIBSS and the IPPIS has provided interesting data points that are helping Credit firms to deepen Credit access, yet the effect of this is marginal. The provided credit is used more in consumption rather than Asset creation, which can lead to debt crises. The cause and effect relationship of increasing credit access means Inflation is expected and perhaps some mini bubbles.
The way forward
The pace of GDP growth as it relates to population growth is a serious concern. Nigeria’s Ideal economy isn’t one that is tethered mainly on Banks, Crude Oil and the FDI’s for growth. While these are important, they’re not enough. Startup funding has been a vital first-aid to Credit access lately but most of these deals are not really structured to the best interest of Nigeria’s economy. On the other hand, our economic policies are quite restrictive as it’s designed to uphold a Bank-based economic model, thereby scaling down business impact and leaving little leverage as Founders negotiate terms… for Investors, it’s simply a question of guarding their investments in a locality where the terrain isn’t well understood.
Moving away from the Bank-based economy to a stock-based one is a very credible option but what that implies for our economy isn’t really clear. The main agenda should be on how to improve on key variables like:
- How do we deepen credit penetration beyond what we currently have?
- How do we make it sustainable beyond the scope of a political tenure, prevailing economic condition and exogenous ripples in the world economy?
- What levels of control should we put in place to ensure optimal economic performance under varying economic conditions?
I believe these variables can be well managed based on how we engage new Data Capabilities with our existing Assets. The NIRSAL MFB provides an interesting and practical approach of how we can begin this. Being able to use NIPOST offices across all LGAs in Nigeria gives the NIRSAL MFB a last-mile advantage in reaching the unbanked regions. The current structure that will see the MFBs offering flexible financial and credit services is good but can be better. My prescription is that it should be structured as a Data-first company. This proposed structure should have the CBN, the SEC and perhaps the DSN providing the required Data capabilities and financial know-how for this transition. Doing this can spur massive innovation across the value-chain:
- It can be vital in expanding the Capital market by:
- Providing a pathway for more businesses to get listed on the Stock exchange, exposing them to better credit, helping them with better business structures, improving financial responsibility and an exit option for investors.
- A clear path for farmers to list their commodities on the stock exchange, thereby giving them access to new markets.
- It can provide Data points with insights that businesses can use to make better decisions and Startups can leverage for efficient market entry. This will increase market activity, which is a boost for the economy.
- It will also give the regulators a more accurate representation of the economy and better systems of control in managing it.
As long as our economy remains vulnerable to exogenous ripples in the World economy and politics, it will be impossible to effectively control the flow of Resources in solving our critical challenges. I think it’s vital that we move away from this, while setting up systems of measure by which we can improve and consolidate on our gains. The solution I have proposed is open for debate, as I’m open to discuss them further. Thank you for reading.