Economic Diversification and Return on Investment

Economic Diversification and Return on Investment

There are so many generalizations we make every day, some without even thinking about the implications of doing so. For instance, “There are three major tribes in Nigeria”. This is one of such broad categorizations we see happening on a daily basis. This may or may not be hinged on the idea that population matters more than anything else.  Is it wrong then to make such assertions? It’s difficult to say but one thing that stands out is the fact that those generalizations are based on approximations or rounding offs, and these approximations are mostly based on population. In reality, there are over 400 different ethnic nationalities within Nigeria.

So, some of these rough approximations are swallowing up a significant portion of the populace by merely looking at just the ones with the highest numbers.

I would like to have a look at how some of these generalised approximations have been done, and then contemplate further on how truly it should be done.

Economic Approximations

If the economy of a state or locality is been looked upon from the population point of view, what happens to the minorities?

Of course we all want the living standards of the majority of the people in the population to improve, still we need to find out how best to do that .

Many would argue that taking care of the business engagements of those in the majority benefits the whole population better than the few. But this isn’t always the case in economic matters, as there are cases where this could even be detrimental to the progress of those with more numbers.

The Critical Questions

The real question to be asked should be this – which economic engagement yields most of the revenue and has more return on investment (ROI) to the state? There is no guarantee that what the majority of the population are currently engaged in will yield more revenue when compared with what a more productive segment might achieve .

Another important question that needs to be asked is this –  will investing in the current economic activities of the majority benefit them more than investment in something else, perhaps done by the minority?

If 90% of the revenue of a state or cooperation comes from 10% of the population or department, which deserves more investment?

If the survival of the whole population is hinged on the economic activities of the few,  say that the monies invested in healthcare, education, provision of basic amenities are all derived from the activities of the minority, then for continued improved existence, the activities of the minority should be taken as a priority.

In order words, for the economic survival of the whole, the fiscal majority is more important than the  majority by population, and this is where investment should be focused on .

If for instance a farmer who owns 10 tractors with 9 of them having a combined output less than the 10th, Which of the machines should more money be spent on for maintenance?  If the farmer is interested in improved productivity, he should invest his energy and resources on the tractor with the highest output.

It’s difficult to argue about the efficacy of this using semantics, but in numbers the results are obvious.

A typical example is this. If the ratio of the productivities of activities A and B is 1:9, investing equal resources will result in activity B yielding 9times the result of activity A.  As the ratio of the resources invested in them shifts and increases towards B, the more the return on investment increases. In fact, it increases more when the more productive activity is invested in more, than when they are invested in equally.  It’s almost like the biblical story where talents were taken away from the one who has few and given to the one who has more.

Despite the efforts of the Federal Government to diversify the economy away from oil, oil still accounts for about 92% of our national earnings as at 2017. The figures may be shrinking now considering recent investments in the non oil sector,  still this calls for critical examination .

Considering the limited availability of resources, would it be more profitable to invest more national resources in oil related ventures or agriculture?

Which has more return on investment?

The answer is simple!  It would benefit Nigeria more if they invest in oil and gas related businesses than in agriculture. This is not trying to and will not downplay the relevance of agriculture and food sufficiency in our economy.  It is only stating the obvious based on measurable return on investment.

Put Your Money Where Your Mouth Is

There is nothing wrong in being a mono economy. We have seen the gulf Arab nations do it effectively.  It will benefit the country more if they invest in building refineries or legalizing modular refining than spending the same amount of resources on say, tourism or agriculture. This doesn’t attempt to reduce the value of these ventures mentioned , rather it is a mere comparison based on numbers.

If most of the revenue generated by a government, say Lagos State, is from the sea port, why can’t the Apapa road be fixed once and for all. Why can’t policies  that can increase port traffic be made?

If it is from the taxation of firms and individuals, why can’t an enabling environment be created for more taxable firms and individuals to come in by say providing localized power supply for industrial clusters? 

In summary, investment should be directed to ventures with the highest return on investment. 

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