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A Tale of Two Nations: A Case for the Study of Economics

          

The USA and Nigeria have a lot in common, the stark contrast in their present economic outcomes, notwithstanding. To a large extent, they are both conflations of diverse ethnicities. They are both home to citizens with a considerable level of ingenuity – although they differ in innovation. Agreed, the US has a mature democracy when compared to the nascent form of governance in Nigeria, however, not all of their outcomes have been solely determined by the level of advancement in their style of governance.

There is great utility in juxtaposing the prevailing mechanism by which resources are allocated in the two countries. And it seems to be the case that if we look closely, we may be able to learn a thing or two to jumpstart Nigeria's ascent to economic prosperity.

As we already know, the four scarcest resources that account for all disputes – ignoring malevolence – either between two individuals or two or more nations are time, energy, food, and money. A look at historical data has already validated the hypothesis that economic prosperity is more than likely to be determined by efficiency and less likely by the availability of unprocessed resources. For if it were a case of an abundance of resources, countries like Switzerland and Japan cannot dare to hold a candle to any of the OPEC nations.

What then is the underlying mechanism for resource allocation in the two countries i.e. Nigeria and the USA?

On average, we, Nigerians, do not allocate resources optimally: be it food, energy, money, or time.

 

FOOD

When in season, farm produce in Nigeria are undervalued and sold for a paltry sum since both the farmers and the middlemen lack the right technology for year-long preservation. So for fear of glut, they hastily dispose of the produce to available buyers who, in turn, momentarily enjoy ‘good’ deals until the harvested crops go out of season. Just about every Nigerian is accustomed to this cycle of seasonal scarcity of agricultural produce. Painfully, this under-compensation experienced by the farmers is not as alarming as the colossal waste that happens when a farm produce is in season. In Benue State, for instance, people get so inundated by mangoes during the rainy seasons that they make no effort to conserve. It has been estimated that about 60% of annual food produce in Nigeria go to waste.

On the contrary, the average American does not know the concept of seasonal farm produce. Prices are relatively stable all year round. This is made possible by their government’s conscious investment in relevant technology for food preservation. Sad to say, they churn out a disproportionate volume of agricultural produce in comparison to Nigeria while still having a much higher commitment to food preservation than we do.

 

 

ENERGY

The prevalent and alarming waste of electrical energy in Nigeria is partly a fault of the government and partly a basic instinct of a vast majority of the residents. The leadership bears responsibility for interfering with the free market pricing of electricity. Like in other sectors of the economy, such interferences are well-intentioned but are in no doubt resulting in counter-productive outcomes. There is, indeed, a roughly established price trajectory for the free market and it goes thus. When price is used to allocate any resource, the cost, over time, is very likely to go down. This is true because if sellers are uninhibited to enter a market where they can see profitability, they rush in to crash the long-run profit to zero.

For instance, in Lagos, Nigeria, between 1999 and 2010, there were a plethora of GSM payphone outlets with their characteristic yellow-coloured umbrella which had almost become part of the basic landmark for describing the streets to strangers. It was as if they had become parts of the side roads, obscured in the background. You can be sure to hear descriptions like "when you get to the bus stop, you will see a GSM lady at the beginning of the street". This common sight is no more because market competition dragged down the long-run profit and put all the smaller players out of business. Despite this displacement, the society, as a whole, came out better off as transactional cost reduced over time and also, as cheaper and cheaper phones were being sold. As an additional example, we can also recall that the cost of a mobile phone in the year 2000 is incomparable with the current price of a similar phone. This is to be expected for free market commodities or goods.

However, this cannot be said of electricity, whose price has always risen despite the unreliability of the service. Why is this the case? It is primarily because of price-control by the government of the day, and this cuts across all governments since Nigeria's independence. And as a consequence, the utilities are yet to break-even. Although, the argument being put forward is simplistic; energy industry players are pseudo-monopolists brought about by a very large initial investment cost serving as a barrier to market entry, nevertheless, the interferences by government, whenever it goes beyond mere regulation, have been widely seen to be antithetical to their intentions.

A World Bank data has reported that the cost of self-generation of electricity to Nigerians is between N88 to N130 per kWh, a cost which far outstrips the N30/kWh of grid supply. Putting it loosely, the average Nigerian pays more to generate 1kWh of electricity for themselves. For instance, when they use their electric generator at home, a 2000 naira worth of fuel will, on the average, last for 18hours. While the same 2000 naira worth of grid electric energy will last for 67 hours if they are subjected to the same load. This misnomer is bound to continue as we are yet to get a politician, bold enough to end this illogicality.

The consumer on their part, display duplicitous characteristics. In one minute, they tend to use their electric generating set in the most effective and efficient manner possible, and in the next minute, when grid supply is restored, they devolve into a wasteful economic agent who can switch on lighting points even when natural light is in abundance, and who would rather go with an inefficient incandescent light bulb over energy saving, LED ones simply because they lack the skill to levelize their cost. Quite unsurprisingly, this is the expected pattern in every instance where the cost of a resource is borne by someone else. Hands down, price remains the most efficient means of allocating resources. Sadly, we have chosen to live in a dichotomous reality in Nigeria.

As for the Americans, the converse is the case. The price is determined by the market, and the utilities have gotten so innovative, they went beyond prepaid metering mechanism (as against the predominant postpaid regime in Nigeria) to adopting time-of-use tariff which incentivizes consumption by offering to charge the consumer a much lower tariff if he/she decides to shift their energy usage to off-peak periods like midnight hours. At the risk of stating the obvious, there is a continuous effort to combat energy wastage in this country.

 

TIME

In Nigeria, no other proclivity to waste resources is more pervasive than that of time-wasting. And I believe this is at the root of all wasteful tendencies of the average Nigerian. If we can squander what in my estimation, is the most important and irreplaceable resource with such recklessness, what then is energy or food? I reckon time as a resource, to be truly unrivaled in importance, so that in fairness to all humans, God gives us an equal amount –24hours – to invest per day. The same cannot be said for energy or food or money which all have variability in their distribution, either as a consequence of geography, genetic, inheritance, or technology. But for time, no one has a head start. It serves as a leveler that affords everyone an equal chance to change their future by what they do with the present, regardless of their past.

 

To make sense of this propensity to waste time, it is plausible to assume that our climatic condition is partly responsible for this behavior. We have such a benign climate, it does not necessitate any sense of urgency. Compare that to the malignant climatic conditions of the West, and we can begin to have an idea. Their climate has made energy availability so crucial, some people who lack heat energy sources have been reported to die from cold during winter seasons.

This treacherous climate of the West plays a role in regulating the conduct of Americans. In keeping up with appointments, buses, or train schedules, the average American is left with very narrow options, so that arriving late or over-staying an appointment may prove very costly. This kind of experience is alien to the average Nigerian who has a broad spectrum of options that even official meetings are delayed to accommodate our late coming.

 

 

Another key contributor to the habit of time-wasting in Nigeria is the payment of salary over wages. People who earn wages are paid hourly, daily, or weekly, while those on salary are paid monthly. Although hypothetical, the realities seem to suggest that wage earners are more accountable with their time. When people are paid by the hour, they are gratuitously reminded that time is valuable. So, after a 6-hour job, the average American is presented with the option of either taking on another task for the remaining hours of the day to increase their earnings or fritter away these "free" hours by loafing around. The former has been the preferred option as evidenced in more and more people working two to three jobs per day.

This is hardly the case in Nigeria where the average worker is paid after 30 days. And this deceptive approach, devoid of any malice on the part of the employer, tricks the employee into thinking the pay to be huge. Nevertheless, this error is fast revealed when the total amount earned per month is divided by 30 to get the daily rate. An additional effect of not using billable hours to remunerate a vast majority of Nigerian workers is that the remaining hours of the day, after the routine nine to five cycle, can rapidly go unaccounted for. This explains the non-seriousness of most state governments and private sectors to concertedly eradicate bad and poor road networking that accounts for the most loss of man-hours in the form of commuting hours.

Aside from the many failings of leadership in Nigeria, we can see from the above arguments that there exists beneath the obvious, a fundamental issue that explains why a transformative economic change is at best out of immediate reach, and at worst a pipe dream.

 

The plot above is derived from data acquired from gapminder.com, the time series plot was made using ggplot2 packages in R. The plot gives a quick summary of this write-up.

Looking at the figure, if we choose to ignore America that has shown such exponential growth in income per person over time, on the pretext that we have to compare apples to apples, the noticeable uptick displayed by Ghana and Rwanda in the last decade, cannot be ignored. Interestingly, Rwanda was almost wiped out from the face of the earth in the 90s as indicated by the plot during the genocidal era, yet they have chosen to rise with practicable economic policies that are gradually becoming self-evident.

In conclusion, it is obvious from the foregoing that there is a general lack of knowledge of practical economics within the populace.  There is, therefore, as a starting measure, a need for advocacy groups to push for the teaching of economics as a compulsory subject in all secondary schools in Nigeria. In my days as a younger student, I was required to choose further mathematics over economics if I were to proceed as a science student. That is a terrible position to put economics in. Like mathematics and English Language, economics should be made compulsory for every student since scarcity and optimal decision making does not exclude anyone. If a resource has only one usage, then no one should care about economics. If however, it has alternative uses, we want to be sure that our choice of what to deploy the resources into is the one that returns an optimal value. In the same vein, if there is no scarcity, then why should anyone bother about economics? But being faced with scarcity, making decisions based on cost-benefit analysis is the sure way to go, and economics confers that power on us. To further extend this argument, it can be inferred that the proliferation of MBAs in recent times suggests the existence of a skill-gap in the middle-class landscape as they move to embrace free enterprise and entrepreneurship.

I recently concluded a program in economics, and it is through this lens that I could understand the growing fascination enjoyed by the likes of Ngozi Okonjo-Iweala, Charles Soludo, Wumi Iledare, and Sanusi Lamido.

 

 

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"In conclusion, it is obvious from the foregoing that there is a general lack of knowledge of practical economics within the populace.  There is, therefore, as a starting measure, a need for advocacy groups to push for the teaching of economics as a compulsory subject in all secondary schools in Nigeria." That is a good plan.

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