Navigating the economic landscape: A guide for the masses
I was inspired to write this piece by the questions I was asked during a recent panel discussion on Nigeria’s economic outlook for 2017. From the interactions, it was evident that many Nigerians are genuinely confused and unsure what steps to take to improve their lives, especially in the light of the current economic difficulties.
It is important to clarify that we’ve always had high poverty rates in Nigeria. It has only been aggravated by the current economic recession. Even during the period of high economic growth, many ordinary Nigerians were left behind, because the growth was not inclusive.
The Economist magazine wrote a piece in December 2011 titled “Africa Rising” which was based on the optimism induced by the sustained increases in commodity prices and related export/ foreign exchange earnings. African economies, which are dependent on the export of crude oil, solid minerals and agricultural produce, sustained average GDP growth rates of 5.5% for nearly a decade. Notwithstanding the “economic growth” recorded by Africa during that period, a large segment of the population never benefited.
Millions of people have been excluded because, in many cases, African governments failed to provide economic windows of opportunities for the masses of their citizens through sound educational systems, vocational skills training, small business loans, etc. However, the introduction of various economic inclusion programs in response to the United Nations Sustainable Development Goals is very reassuring.
The point must be made though that millions of Africans may have also excluded themselves by their inaction and failure to acquire relevant skills. To appreciate how an individual may become included or self-excluded, it is important o understand the dynamics of economic activities and the place of economic actors.
Gross Domestic Product (GDP) is the sum of all economic activities in the economy, regardless of the concentration of economic sectors or economic actors. It doesn’t matter if 1% of economic actors account for 99% of economic output and 99% of the populace account for 1% of the GDP. This explains why macro-economic indices such as GDP growth rate are a very inappropriate measure of the economic development and welfare/well being of the people.
With UN’s Sustainable Development Goals 2030, Inclusive Growth has become a very topical issue in many developing countries, with the introduction of several programs aimed at the people at the Bottom of the Pyramid. What has been missing is a proper articulation of the individual’s role in getting him/herself included. Human beings are rational people, not objects. And governments must not assume full responsibility for their future.
Every African has a responsibility to seek to “enlist” him/herself or participate in the economic activities that ultimately lead to economic growth. To people who enlist, governments have a duty to provide support. But first, how does an individual determine where, within the economy, to enlist or participate.
Let’s use the analogy of a Pyramid to explain the economic terrain, since most people are familiar with the Egyptian Pyramids. A Pyramid is a structure with a square base, and triangular surfaces converging to a single point at the top. Now, imagine that a Pyramid has four (4) levels or floors: Ground floor, Lower Middle floor, Upper Middle floor and Top floor. Imagine further that ALL economic activities take place inside Pyramids.
Given this scenario, I postulate that there are six (6) Economic Pyramids in any country. Each Pyramid has two wings: the Domestic Wing, which is much bigger, and the Diaspora Wing, which is much smaller. Economic activities within the countries are domestic (hence Gross Domestic Product), while Africans who live abroad constitute the Diaspora wing. Gross National Product is the combination of both domestic and Diaspora economic activities.
Let’s now examine the economic activities that take place inside each of the Pyramids:
• The Trading Pyramid
What goes on here is basically buying and selling of goods. You have Retailers such as the street corner kiosks or the market stall owner operating on the Ground floor. The Wholesalers operate on the Lower Middle floor, the Major Distributors or Chains on the Upper Middle floor and the Importers on the Top floor.
• The Farming Pyramid
The economic activities here relate to agriculture. Subsistence, Smallholder Farmers operate on the Ground floor, the Smallholder Farmers with Tractor power occupy the Lower Middle floor, the Medium-sized Farmers with Tractor power occupy the Upper Middle floor, while the fully Integrated and Mechanized Farmers are on the Top floor.
• The Services Pyramid
The provision of services to people in the same or other Pyramids is the economic activity in this Pyramid. On the Ground floor are Micro-Service Providers such as barbers, hairdressers, drivers, cooks, masons, plumbers, electricians, etc, for whom the basic requirement is the handyman skills. On the Lower Middle floor, you have Service Providers such as Restaurants, Dry Cleaners, Cinemas, Auto Workshops, Hauling & Logistics firms, etc, where more advanced equipment and facilities are required, in addition to vocational or technical skills.
Operating a level higher on the Upper Middle floor are the Professional Service Providers such as Accountants, Lawyers, Medical personnel, Estate Valuers, Financial Advisers, building/construction companies, film-makers, etc. At the Top level are the Regulated Service Providers, who are licensed and regulated such as banks, telecommunications companies, broadcasting houses, airlines, etc.
• The Extractive Pyramid
The actors in this economic space extract naturally occurring minerals from the grounds. On the Ground floor are the Artisanal Miners who basically extract whatever minerals they can get in their communities, within shallow depths, using basic implements. On the next level up are the Small-Scale Miners who have the benefit of technical knowledge and a few Excavators to dig deeper into the ground.
The Medium-sized Miners occupy the Upper Middle floor. They have extensive operations involving several Excavators and very deep burrows into the ground. At the Top of this Pyramid are the Big Mining companies with long-term mining concessions and the Oil companies with Oil blocks from the governments. They have or acquire the mining or drilling technologies which enable them to go several kilometres into the ground to extract Gold, Diamond, Copper, Coal, Crude Oil, etc.
• The Manufacturing Pyramid
Processing or Value-addition takes place in this Pyramid. On the Ground floor are the One-Shop Micro-Processors such as Metal Fabricators, Furniture Makers, Bakeries, Shoemakers, etc. Small Factories with multiple-machine production lines operate on the Lower Middle floor. Such manufacturers produce items such as biscuits, floor tiles, roofing sheets, plastics, textiles, etc.
On the Upper-Middle level are the more advanced electro-mechanical producers of items such as electrical appliances, electronics, mobile devices, etc. At the very top are the Heavy-duty, high technology producers of items such as automobiles, aircrafts, high-speed trains, turbines, etc. Unfortunately, the Top two floors in this Pyramid are unoccupied in most African countries, because we do not have the technologies required to operate at those levels. Only Industrialized nations have economic activities at the Top of this Pyramid.
• The Government Pyramid
The actors in this Pyramid operate at the Ward, Council, State or National levels. They are either employed, appointed or elected. This Pyramid has the unique role of enabling the actors in Pyramids 1 to 5 and regulating their activities. The effectiveness of actors in this Pyramid in enabling the players in other Pyramids has become debatable in recent years. It would seem the actors here are more interested in enabling themselves. For instance, in Nigeria, this Pyramid consumes 70-80% of the National Budget through their Personnel Costs and Overhead Expenses, with little left to enable other Pyramids through the provision of infrastructures.
Pyramids 1 to 5 are collectively referred to as the Private Sector while Pyramid 6 is the Public Sector.
The Diaspora Wings
Economic actors in this space are Africans resident outside their countries of origin, in Europe, America, Asia and Middle East. They operate on the different floors of Pyramids 1 to 5 in their foreign countries of residence, from the Ground floor all the way to the Top level, and make significant contributions to Africa’s economic growth. For example, Diaspora Nigerians remit funds to family and friends in Nigeria in excess of $20 billion annually.
The Pyramid in which you choose to do business and the level/floor at which you operate is, generally speaking, a function of the skills, expertise, experience and network of contacts you have acquired from formal training, on-the-job training, skills upgrade, self development and social networking. People with the minimal skills tend to occupy the Ground floors of the Pyramids. As you acquire more skills, experience and network, you increase your ability to migrate vertically upwards from the Lower to the upper levels.
There is a special class of people known as Entrepreneurs who start businesses in Pyramids 1 to 5 and employ other people with the requisite skills. Unfortunately, there is little room for unskilled applicants, who are condemned to menial works such as laborers, cleaners, cart-pushers, road sweepers, hotel porters, etc.
• Olaoluwa is former MD/CEO, Bank of Industry