PRESENTER: UGOCHUKWU AGU University of Nigeria A Presentation at an ILO workshop, 20 September, 2011, Geneva, Switzerland ugoagu@gmail.com
• Economic Growth, Labour Market and Poverty Profile in Nigeria: Labor Market and Economic Growth in Nigeria The MDGs Goals, Unemployment and Poverty Profile in Nigeria Alternative Macroeconomic Policy towards Poverty Reduction • Macroeconomic Policy Targets in Nigeria Monetary Policy in Nigeria Fiscal Policy in Nigeria Exchange Rate Policy Capital Account Management Alternative Policy Options
Empirical Frameworks: SVAR Approach o Responses to Monetary Policy Shocks • Credit Growth Shock • Monetary Policy in Nigeria • Credit Growth Shock • Monetary Supply Shock • Exchange Rate Policy Shock • Output growth shock Policy Implication: o Achieving Decent Work and Sustained Poverty Reduction Summary
The CBN had always expressed disdain for double-digit inflation rate in the country. This has seen the apex bank’s Monetary Policy Committee (MPC) adjusting various monetary policy instruments to achieve that ambition. The MPC, which has operational independence in the setting of interest rates in the country, had increased the benchmark interest rate – the Monetary Policy Rate (MPR) - four times this year - This Day Newspaper The International Monetary Fund [IMF] has said that monetary policy in Nigeria should be geared toward lowering "stubbornly high" inflation to single digits.
Real Gr eal Growth wth Ra Rate of te of G GDP DP and and Na Nationa tional l Unemplo Unemployment yment Ra Rate te in N in Nigeria igeria 23.0 20 19 21.0 18 19.0 17 17.0 16 15.0 15 13.0 14 11.0 13 9.0 12 7.0 11 5.0 10 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Real Growth Rate of GDP National Unemployment Rate (RHS)
Risk in restrictive monetary policy The consolidation of macroeconomic stability and improvements in major economic indicator An astronomical rate of growth in the past decade Direct correlation between employment and poverty reduction (Heintz, 2005 ) Increased growth, decreased employment opportunities and increased poverty Mismatch between macroeconomic policy strategies and socio- economic development goals in Nigeria
Draw an empirical contrast between the macroeconomic policies in post-SAP era in Nigeria, which is narrowly focused on inflation targeting and real exchange stability, and the overall goal of generating productive employment and poverty reduction
Nigerian Economic Performance Oil Sector Growth (%) Non - Oil Sector Growth (%) GDP Growth(RHS) 25 10 20 9 15 8 10 7 5 6 0 5 -5 4 -10 3 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Rate of Growth of Oil and non-Oil GDP
Nigerian Economic Performance Agriculture Industry Crude PetroL & Natural Gas Manufacturing Building & Construction Wholesale & Retail Trade Services Education 45.00 40.00 35.00 Contribution to GDP (%) 30.00 25.00 20.00 15.00 10.00 5.00 0.00 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Contribution of Oil and Non-Oil Sectors of GDP
Nigeria Growing Employment Crisis National Unemployment Rates Youth Unemployment rate (15-24) 50 20 45 40 18 35 16 30 25 14 20 15 12 10 Rural Rural Rural Rural Rural Rural Rural Rural Rural Urban Urban Urban Urban Urban Urban Urban Urban Urban 10 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2000 2001 2002 2003 2004 2005 2006 2007 2008
Nigeria is one of the most youthful countries in the world About 45 percent of the country’s population is under the age of fifteen (ILO, 2010; British Council & Harvard University, 2010) Youth unemployment rates are twice as high as the national unemployment rate Nigeria faces highest rate of unemployment both in rural and urban areas and across different labor sectors
Youth Employment to Pop. Ratio by Gender Employment to population ratio, 15+, female (%) Employment to population ratio, 15+, male (%) Employment to population ratio, 15+, total (%) 80 52.7 52.6 70 52.5 60 52.4 50 52.3 40 52.2 52.1 30 52 20 51.9 10 51.8 0 51.7 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
cial Banks to SMEs MEs ommercial Banks to S 2009 2008 2007 2006 2005 2004 2003 2002 2001 Commer 2000 1999 1998 edit of C 1997 1996 Credit of 1995 1994 1993 otal Cr 1992 Total 50 45 40 35 30 25 20 15 10 5 0 % of Total Credit of commercial Banks to SME's
Volume of olume of Loa Loans ns fr from om Commer Commercial cial Banks Banks to to SME SMEs in Nigeria s in Nigeria 100000 90000 Volume of loans from Commercial Banks to SME's 80000 70000 60000 50000 40000 30000 20000 10000 0 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Inflation, consumer prices (annual %) 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 80 70 60 50 40 30 20 10 0
Fiscal Policy Targets Overall Fiscal Balance Revenue performance (as % of GDP) 50 45 1992 1994 1996 1980 1982 1984 1986 1988 1990 1998 2000 2002 2004 2006 2008 40 2.00 35 0.00 30 -2.00 25 -4.00 20 -6.00 15 -8.00 -10.00 10 -12.00 5 -14.00 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 -16.00 Oil Revenue (as % of GDP) Non-Oil Revenue (as % of GDP) -18.00
Go Gover ernment nment spen spending ding (as share of total expenditure)
2009 2008 2007 2006 2005 2004 2003 2002 Gross fixed capital formation as share of GDP (1980 - 2009) 2001 2000 Capital pital 1999 1998 1997 1996 1995 ed Ca 1994 1993 1992 oss Fixed 1991 1990 1989 1988 Gross Fix 1987 1986 1985 1984 1983 1982 1981 1980 Gr 1979 1978 1977 1976 1975 1974 1973 1972 1971 1970 5 0 40 35 30 25 20 15 10
k Y AY v t i t i t i 0 Y Dmpr, Dm2, inf, Drexr, Dcredit, Dgdp
Figure 1: Monetary Policy Rate Shock Response to Cholesky One S.D. Innovations ± 2 S.E. Response of DMPR to DMPR Response of DM2 to DMPR Response of INF to DMPR 30 6 8 4 20 4 2 10 0 0 0 -2 -4 -10 -4 -20 -6 -8 1 2 3 4 5 6 1 2 3 4 5 6 1 2 3 4 5 6 Response of DREXR to DMPR Response of DGDP to DMPR Response of DCREDIT to DMPR 4 5.0 20 2.5 2 0.0 0 10 -2.5 -2 -5.0 0 -4 -7.5 -10 -6 -10.0 1 2 3 4 5 6 1 2 3 4 5 6 1 2 3 4 5 6
This conforms to results of other researchers in developing African countries (Chukwu 2009, Abradu- Otoo et al (2003), Epstain and Heintz (2006) that monetary policy contraction chokes the developing countries economy with a long lasting effect
Figure 2: Credit Growth Shock Response to Cholesky One S.D. Innovations ± 2 S.E. Response of DCREDIT to DCREDIT Response of DMPR to DCREDIT Response of DM2 to DCREDIT 16 8 12 12 4 8 8 0 4 4 -4 0 0 -8 -4 -12 -4 1 2 3 4 5 6 1 2 3 4 5 6 1 2 3 4 5 6 Response of DGDP to DCREDIT Response of INF to DCREDIT Response of DREXR to DCREDIT 6 8 10 4 6 5 4 2 0 2 0 -5 0 -2 -10 -2 -4 -4 -15 1 2 3 4 5 6 1 2 3 4 5 6 1 2 3 4 5 6
Figure 3: Money Supply Shock Response to Cholesky One S.D. Innovations ± 2 S.E. Response of DM2 to DM2 Response of DMPR to DM2 Response of INF to DM2 20 8 12 15 4 8 10 0 4 5 -4 0 0 -8 -5 -12 -4 1 2 3 4 5 6 1 2 3 4 5 6 1 2 3 4 5 6 Response of DGDP to DM2 Response of DCREDIT to DM2 Response of DREXR to DM2 8 16 8 6 4 12 4 0 8 2 -4 4 0 -8 0 -2 -12 -4 -4 -16 1 2 3 4 5 6 1 2 3 4 5 6 1 2 3 4 5 6
Figure4: Real Exchange Rate Growth Shock Response to Cholesky One S.D. Innovations ± 2 S.E. Response of DM2 to DREXR Response of DREXR to DREXR Response of DMPR to DREXR 8 40 15 30 10 4 20 5 0 10 0 -4 0 -5 -8 -10 -10 1 2 3 4 5 6 1 2 3 4 5 6 1 2 3 4 5 6 Response of INF to DREXR Response of DCREDIT to DREXR Response of DGDP to DREXR 8 8 4 4 4 2 0 0 0 -4 -4 -2 -8 -12 -8 -4 1 2 3 4 5 6 1 2 3 4 5 6 1 2 3 4 5 6
Figure 5: Output Growth Shock Response to Cholesky One S.D. Innovations ± 2 S.E. Response of DMPR to DGDP Response of DGDP to DGDP Response of DCREDIT to DGDP 5.0 12 12 2.5 8 8 0.0 -2.5 4 4 -5.0 0 0 -7.5 -10.0 -4 -4 1 2 3 4 5 6 1 2 3 4 5 6 1 2 3 4 5 6 Response of DREXR to DGDP Response of INF to DGDP Response of DM2 to DGDP 10 6 10 4 5 8 2 6 0 0 4 -5 -2 2 -10 -4 0 -15 -6 -2 1 2 3 4 5 6 1 2 3 4 5 6 1 2 3 4 5 6
Constraints to growth Nigeria’s pattern of jobless growth The upsurge in population of young people Credit crunch and expansionary monetary policy impediments Revisiting consensus on macroeconomic policies in Nigeria
Policy Recommendations • Wisdom of Single Digit Inflation target in Nigeria? • IT is counterproductive to the goal of employment generation. • In the short term, we advocate for accommodative monetary policy stances • The big Question is- Employment Generation in Nigeria or CBN Credibility?
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