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Tag: economists

  • UK economy heading for worst year since crash, say economists

    The British economy is heading for its worst year in almost a decade amid the growing risks from no-deal Brexit, according to a leading economic forecaster.

    After official figures revealed zero growth in GDP in August, the EY Item Club said the economy would struggle to recover in the final months of the year owing to the increasing likelihood of Britain crashing out of the EU in less than six months’ time.

    The group of economists, which is the only non-government forecasting organisation to use the Treasury modelling of the economy, said it had downgraded its growth forecast for this year and next as a consequence.

    It forecast growth of 1.3% for the whole of 2018, down from a previous estimate of 1.4%. This would be the worst annual period for growth since the financial crisis. It also downgraded the outlook for the second quarter running.

    Economists have said failure to reach such a deal could significantly harm the UK economy, with the International Monetary Fund warning of “dire consequences” for growth.

    The government’s economic forecaster, the Office for Budget Responsibility, last week raised the prospect of a no-deal scenario triggering border delays, companies and consumers stockpiling food and other supplies, and aircraft being unable to fly in and out of Britain.

    The Item Club said Brexit uncertainties were influencing business investment decisions, but added that efforts to find alternative suppliers in the UK rather than the EU may lead to an increase in spending.

    It also said weaker growth in the eurozone had sapped appetite for exports, as the world economy digests the impact of US import tariffs that have already begun to drag on economic activity.

    Inflation is forecast to fall from about 2.7% to 2.3% by the end of the year, above the Bank of England’s target rate.

    Consumer spending growth is estimated to remain limited as a consequence, as UK households remain under pressure from weak wage growth and relatively high levels of inflation.

    Howard Archer, the chief economic adviser to the Item Club, said: “Heightened uncertainties in the run-up to and the aftermath of the UK’s exit could fuel business and consumer caution. This is a significant factor leading us to trim our GDP forecasts for 2018 and 2019.

    Should the UK leave the EU in March 2019 without any deal, the near-term growth outlook could be significantly weaker.”

     

    https://www.theguardian.com/business/

    Patisserie Valerie uncovers £10m secret overdrafts after ‘nightmare’

  • Nigeria can raise $500b from asset privatisation, says economists

    Nigeria can raise $500b from asset privatisation, says economists

    Economists yesterday listed ways the Federal Government can raise up to $500 billion from liberalisation and privatisation of assets and sectors within five years.

    The Chief Executive Officer (CEO), Economic Associates, Dr Ayo Teriba, made the recommendations in his lead paper presented at the first 2018 monthly seminar of the Ibadan School of Government and Public Policy (ISGPP), yesterday.

    Speaking on the topic: “Transiting from Bust to Boom: Fiscal, Financial and Infrastructure Options,” Teriba noted that rather than borrowing to fund the budget and pay other debts, the Federal Government should simply liberalise certain sectors of the economy and privatise all infrastructure to raise up to $500 billion in five years. Teriba posited that liberalisation, breaking government monopoly by licensing new entrants have worked in the telecommunication sector which confirms that it can also work in aspects of rail and road transport, health, education and sports.

    By liberalising some sectors, embracing joint ventures as done in the oil and gas sectors and partially or wholly privatising assets, government will realise the revenue needed to shore up foreign reserves, boost non-oil revenue, build more infrastructures and also widen access to finance for the Nigerian business people.

    According to him, partial privatisation and  joint ventures should also work for refineries, pipelines, power transmission and some aspects of rail, if embraced.

     

     

     

  • Why economists can’t manage economies well

    Economists claim to be concerned with promoting rapid growth, full employment and stable prices. Have they been successful in their attempts to achieve their claimed objectives? No! Economists and economics-based institutions cannot manage our economies well because of the inherent debilities of the discipline of economics. And what are the inherent debilities of economics?

    The first inherent debility of economics as an area of knowledge is its methodology. Economics like other social sciences adopted the scientific method developed for the physical and biological sciences, believing that the application of the scientific method to social science would transform economics into social physics that would provide for students of society, the excitement which natural sciences were providing for the students of the physical sciences (DeFleur, et al., 1977). By conceiving social sciences as social physics instead of social biology, social scientists, especially economists, made a fundamental error from the onset. The consequences of the methodological error are many and fundamental too. They should therefore be considered as the fundamental debilities of economists.

    The second defect of economics is that it is ahistorical and mechanistic. That is, economists’ understanding of the economy lacks a sense of history and appropriate logic. The equations (laws) of physics and mechanics adopted by economists are about time-independent responses of solids like metallic rods, springs, wires, etc. By adopting such laws, economists claim that economies behave like iron wires, spring and rods subjected to small strains and that development does not take time to achieve; development is achieved instantaneously. Economists’ theories are always timeless functions. Economists find it hard incorporating historical evidence into their analyses. Economists do not understand that nations grow and become transformed. They think that the development process is like a once-for-all game such as a football match. They pretend not to be aware that European and American cultures were not counted as the Great Medieval Civilizations (GMCs). The Chinese, Indian and Islamic cultures were the GMCs. Economists do not understand the industrialization process.

    The third debility of economics is that it is unable to distinguish between trivial growth and Competence-Building Growth (CBG). Economists measure growth as change in the Gross Domestic Product (GDP) of a nation; that is, the change in the goods and services produced in a nation in a year. Mere computation of GDP and the change in it does not describe the true economic situation in a nation. Nigeria now has   OPEC-quota of about 2.5 million barrels per day of crude petroleum. The exploration and production are done by multi-national companies. Increase in the number of barrels produced and increase in the international price of crude petroleum swell the earnings from sales of crude petroleum and the Nigerian GDP. The increase in GDP this way cannot be a true reflection of the state of Nigeria, because it has nothing to do with Nigerians. This explains why economists measure growth which has no impact on the people – growth without development. Nigerians lack the competence to explore and produce oil and gas. It is through learning that man acquires all competences. So, it is CBG that Nigeria and other African nations should promote and measure, not GDP growth.

    The fourth defect in economics is that it does not know the primary source of CBG and industrialization. Economists who advocate that African nations should provide favourable environment for inflow of foreign investment into their nations to promote growth do not understand what national economic growth entails. Hence they believe that nations get transformed through mere capital investment. However, Douglas (1948), Abramovitz (1956), Solow (1957), Gerschenkron (1966) and Ogbimi (2003), all demonstrated that capital investment is not the primary source of Competence-Building Growth (CBG) and industrialization. Economists who claim that capital investment is the most important factor of production do not know that in the Middle Ages (450-1450), land was the most important resource in England. The lord of the manor owned the land and all those who did not own land were slaves (serfs) who worked for the lord. The claim about the special role of capital in promoting economic growth came during the industrial age, following the claim by Karl Marx (1867) that the capitalist does not begin to produce till he has accumulated enough capital.

    The fifth debility of economics is that it is based on equilibrium or static analysis. This defect is a very serious one. Real growth is a transformation.  Our research activities in Obafemi Awolowo University, Ile-Ife, showed clearly that learning is the primary source of CBG. One who has learnt something new is transformed from an undesirable status into a desirable status. One who cannot read and write may learn to read and write and be transformed. So, true growth is a transformational process, not an equilibrium one as economists assume. It was through learning that agricultural/artisan European, American and Asian nations increased their knowledge, skills and competences over 2000-3000 years, achieved industrialization and became transformed.

    The sixth weakness of economics is that it does not understand the relationships among the fundamental variables of an economy, so economists’ reports on growth and inflation rates are always incorrect.  The fundamental variables in an economy are employment, productivity and inflation. The values of the three variables must be reported together to understand the true state of an economy. The results of our research show that the employment level (in quantity and quality), is the independent variable which determines the levels of productivity and inflation (the dependent variables) in an economy. The consequence of this defect in economics is that rather than increase employment so as to increase productivity and reduce inflation, economists pump money into economy and claim they are reflating an economy. Then they borrow unnecessary money (mop up excess liquidity) at high cost to society to reduce inflation.

    The seventh weakness of economics and economists is that they do not understand the production or supply side. So, they are unable to promote production. The eighth debility of economists is that they see employment only as a cost-item. They never consider the benefits those employed bring to the organization or nation. Our research results show that employment is the” blood” of an economy. Unemployment is a national loss. Economists’ lack of understanding of the relationships among employment level and levels of productivity and inflation has been the biggest obstacle to promoting economic growth in Africa during the past five decades. Economists promote retrenchment – rightsizing and downsizing, rather than promote training and employment to link the educational sector and the rest of the economy to channel the knowledge developed in educational institutions into production activities. It is impossible to use the knowledge, skills and competences possessed by an individual or group of people without employing them.

    It is clear that economics cannot serve as the intellectual basis for proper management of any economy. Sadly, economists are never prepared to learn and acquire new knowledge. African nations must adopt more robust planning teams composed of technology management experts, scientists, engineers, psychologists and others who are ready to learn.

     

    • Professor Ogbimi writes from Obafemi Awolowo University, Ile-Ife.
  • Recession: Economists express fears, hopes over new status

    Recession: Economists express fears, hopes over new status

    The economy has exited recession. But it will take some time for its effect to rub off on Nigerians’ living conditions. Many, including President Muhammadu Buhari, are cautiously excited by the development. Economists appraise the ‘out of recession’ verdict in the latest report of the National Bureau of Statics (NBS), report LUCAS AJANAKU, OKWY IROEGBU-CHIKEZIE and COLLINS NWEZE.

    The economy is out of recession, the National Bureau of Statistics (NBS) announced yesterday.

    But the NBS’ verdict is drawing reactions from various quarters. Many describe the report as evidence that the Federal Government is working hard to improve the economy.

    Others have disagreed with the verdict with reservations. They will rather wait until its effects trickle down on ordinary Nigerians. To them, it is unsafe to say the economy is out of recession when the prices of products were still out of the reach of the people.

    In its Gross Domestic Product (GDP) Report for Second Quarter 2017, released in Abuja yesterday, the NBS stated that the nation’s GDP grew by 0.55 per cent (year-on-year) in real terms in the quarter, indicating the emergence of the economy from recession.

    It also stated that the figure indicated the economy was out of recession after five consecutive quarters of contraction since the first quarter of last year.

    An economy is said to be in recession after contracting for two consecutive quarters.

    The economy slipped into its first-ever recession in three decades, last year.

    But the NBS bureau stated that the growth recorded in the quarter was 2.04 per cent higher than the rate recorded in the corresponding quarter of 2016 (–1.49 per cent).

    It stated it was higher by 1.46 per cent points from rate recorded in the preceding quarter, (revised to –0.91 per cent from – 0.52 per cent).

    Quarter on quarter, the bureau stated that real GDP growth was 3.23 per cent.

    It stated that during the quarter, aggregate GDP stood at N26, 986,005.20 million resulting in a Nominal GDP growth of 14.60 per cent.

    It stated that the growth was higher relative to growth recorded in the second quarter 2016 (3.01 per cent)

    The report also showed the economic recovery was driven by improved performance of oil, agriculture, manufacturing and trade sectors of the economy.

    It is expected that the rebound would spur local and international investors to double their investments and commitment to the local economy.

    The belief within the business sphere is that access to more foreign exchange, growth in the oil and non-oil sectors, mining and quarrying, agriculture, construction as well as the manufacturing, accounted for the exit of the economy from recession.

    The economic experts are urging the government to sustain the development, which they described as positive.

    A former Executive Director, Keystone Bank, Richard Obire, described the NBS verdict as good news that will trigger more investments from local and international investors.

    In a chat with The Nation yesterday, he said the psychology underpinning economics is that if people had a positive outlook about the economy, they are more likely to invest in such economy.

    He, however, said the growth recorded was slim and needs more hard work to be sustained. “Being out of recession gives the people positive boost that there is hope for the future and that hope will bring about more capital inflows into the economy,” he said.

    Obire said the economy, being out of recession, will lead to more investments, which in turn will trigger a rise in production and subsequently, job creation. The rise in jobs, he said, will lead to more income and subsequently, drive consumption and that consumption leads to better production because economic activities go in cycles.

    Saying the effects of the loss of jobs that occurred during the five quarters of the recession are still there, so, is the high inflation rate, he insisted that now is the time for the people and economic managers to work hard to ensure the economic indicators get better.

    Obire said: “We’re out of recession because we registered two-quarters of positive growth. But that does not mean we are out of the woods yet because we could slip back into recession if the growth indicators are not sustained.”

    According to him, the improved access to forex by manufacturers has been a boost to the economic recovery, warning that: “We can still slip back very easily. We need to liberalise policies. Let’s avoid political statements that would destabilise the economy, especially as the 2019 election approaches.”

    Managing Director, Financial Derivatives Company Limited, Bismarck Rewane, said Nigeria finally turned the economic corner into a positive growth of 0.55 per cent after five consecutive quarters of negative growth and a deep recession.

    Rewane said the challenge is that the growth is anaemic and pale compared to the population growth of 2.7 per cent.

    He, however, described as cheering that growth was driven by solid performance in oil, energy, financial services and trade.

    Surprisingly, growth in the electricity, gas & air conditioning supply sector increased from -5.04 per cent to 35.5 per cent which was spectacular, he noted but cautioned that output expansion is not enough to provide for the 14,000 births recorded daily in the country.

    The Managing Director, Cowry Assets Management Limited, Johnson Chukwu, said the NBS report gives economic managers hope as the development would stimulate investors’ confidence in the country.

    Describing the development as a morale booster for the economy, Chukwu said: “No foreign direct investors want to go into an economy that is in recession but the economy needs to grow at a higher rate. We need to ensure that inflation comes down to boost people’s purchasing power.”

    He said the Central Bank of Nigeria (CBN) should bring out tools to cut inflation while the power supply also needs to be stable for meaningful economic growth to be achieved.

    A one-time President of Chartered Institute of Bankers of Nigeria (CIBN), Mazi Okechukwu Unegbu, said although there is an improvement in forex supply, there is more to be done.

    “There is still a lot of work to be done, including the states raising their revenue base. He said the excitement over the exit from recession should not be loud because more work needs to be done to keep the economic indicators positive.

    CBN Governor Godwin Emefiele had predicted that the country will return to positive growth after about five quarters of negative growth since 2016.   According to the NBS in its Quarter 2, 2017 GDP Report, the GDP grew by 0.55 per cent (year-on-year) in real terms.

    The report shows that the GDP shrank by 0.52 per cent (year-on-year) in real terms in the first quarter, representing the fifth consecutive quarter of contraction since the first quarter of last year.

    The GDP’s growth by 0.55 percent, according to the report is 2.04 per cent higher than the rate recorded in the corresponding quarter of 2016 (–1.49 per cent) and higher by 1.46 per cent points from rate recorded in the preceding quarter, (revised to –0.91 per cent from –0.52 per cent). Thus, quarter-on-quarter, real GDP growth was 3.23 per cent.

    Emefiele had predicted on May 23 that at the end of the third quarter, Nigeria would be out of recession. He hinted the possibility of the exit based on the obvious positive economic indices such as downward trending inflation rate, improvement in the GDP growth rate.

    The CBN chief noted that negative growth rate had decelerated quite significantly, coupled with improvement in the quantum of forex going to the real sector and industrial capacities.

    In his prediction, Emefiele said: “We’ve seen positive signs in various economic sectors, I am very confident that at the end of the third quarter, we will be out of this and I still hold that position.”

    The development, coming on the heels of more stable exchange rate regime, coupled with declining inflation rate, from 16.10 per cent in June down to 16.05 per cent in July, 2017, it is believed that these factors will provide salutary macro economic conditions for growth, as anchored on current monetary policy stance of the CBN, some analysts said.

    The Director-General of Lagos Chamber of Commerce & Industry (LCCI), Mr Muda Yusuf, described the news as a welcome development signalling positive effects to the global investing committee.

    He said the exit would improve the perception of the country, especially by foreign investors, as they would no longer see Nigeria as a country with an economy in recession.

    According to him, it would also improve the status of the country as an investment destination, impact positively on investors’ confidence indicating that the end of the recession would engender.

    Yusuf further stated that the exit from recession is an indication that some of the policy actions of the government have impacted positively on the economy.

    He, however, argued that the GDP figures and the exit from the recession are not ends in itself but a means to an end.

    Yusuf said: “What ultimately matters to business is the impact on the cost of doing business, the productivity of the economic players, competitiveness of firms and the sustainability of investment.

    “At the level of the individual citizens, what matters is the welfare effect of the GDP numbers. The impact on food prices cost of healthcare, transportation cost, power supply and the purchasing power.

    ‘These are some of the ultimate outcomes that would determine whether or not the exit from recession will be celebrated.”

    He listed the improvement in oil price and oil output, improvement in liquidity in the forex market, the commitment of the government to the ease of doing business and reforms in forex policy, as some of the factors that accounted for the rebound.

    To sustain the recovery momentum and the prevailing positive outlook, he spoke of the need to ensure the reduction in a multiplicity of exchange rates, alignment of procurement policy at all level of government to support local investment and a policy that would protect domestic investors.

    He also advocated for a tax regime and interest rate policy that is investment-friendly, including a trade policy that will reduce the cost of operations across sectors.

    The Manufacturers’ Association of Nigeria (MAN) President, Dr Frank Udemba Jacobs, commended the NBS report, which he described as credible, coming from an agency statutorily equipped to undertake such study.

    He confirmed that his members have had some cherry news since February as a result of the reversed CBN forex policy which favoured manufacturers in terms of forex allocation to aid the importation of the much-needed raw materials and machinery for their manufacturing.

    He said the association will take its time to analyse its effect in the real sector.