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TRICKLE-DOWN ECONOMICS
�HOW MUCH LONGER BEFORE GAINS OF REFORM REACH THE GRASSROOTS?

�Reaganomics Nigerian Style

or those who care to remember, an arcane economic ideology was studiously pursued during the presidency of Ronald Reagan. In a nutshell, it espouses that if government offers incentives to the upper class � tax cuts, better operating environment etc, they would create jobs and the benefits will ultimately �trickle down� to the middle and lower classes. That became known as � Reaganomics�. Verdict is still pending as to whether that neo-conservative economic philosophy had the desired impact on American society during the 1980s. Ironically, this theory is still alive and somehow being replayed in Nigeria�s economic arena, albeit on a subtle scale.

Critical analysis of the reform agenda in Nigeria will clearly reveal the same top-down approach to policy implementation. Granted that key steps like privatization, right-sizing, banking reform, due process and debt relief are quite salutary and geared toward building stable platform. The plain truth however is that, benefits of current reform measures (some of which amounts to nothing but wealth re-distribution), so far are accruing to the high echelon of society.

�Comprador Bourgeoisie
That concept contrasts sharply with the �Clintonian� formula (meaning President Bill Clinton), which targeted the mainstream population, resulting in the longest economic expansion in US history. In some developing countries and especially Africa/Nigeria, the elites; nay military leaders, politicians, tribal lords/feudalists and corporate moguls have historically prospered not in tandem, but at the expense of greater society. In political-economy parlance they are called �Comprador Bourgeoisie� or �Rentier Class�.

Unlike in most advanced societies where the ethos of free market and democratic capitalism have allowed average citizens to afford basic amenities, aspire to better standard of living and prosper, the story has been quite different in Nigeria despite the free market-orientation of successive administrations since independence.

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It is obvious that in Nigeria, overwhelming majority of the populace live on the edge. Life expectancy has dwindled remarkably over the last two decades. Unemployment, quality of life and food consumption has continuously deteriorated, while a privileged few treat themselves to the spoils of oil wealth. According to official World Bank statistics, Nigeria still remains at the lowest rung in terms of human development even amongst developing countries despite abundant natural wealth. Recent report ranks it in the low quintile of most favorable business climates. You then wonder how long (if ever) before the gains of current economic reform penetrates to the grassroots. There is indeed an emergent reform challenge, given the spate of violence erupting around the country.

�Dividends of Democracy
To be fair, over the past 6 years since the return to democratic governance progress has been registered both in the political and economic fronts. The rot and steady decline has somewhat been mitigated. Free speech (sometime very violently), battle against corruption, fiscal discipline and rebounding international image of Nigeria are some dividends of democracy. However, it remains to be seen when these gains will translate to improved life for the populace.

In the last several months the country has witnessed two hostage crises in The Niger Delta, while in February there was renewed widespread killing of innocent people resulting from angst over defamatory cartoons of prophet Mohamed. It doesn't take a rocket scientist to realize that these incessant outbursts are a direct consequence of prolonged deprivation, social tension, and hopelessness, especially amongst the youth that constitute majority of the population. These are tell-tale signs that effort to address poverty and improve living conditions in the short run is not delivering desired results.

The problem cuts across all demographic strata, but the most vulnerable segment remain the rural population and urban poor who have little or no means of subsistence. Appraise government policy measures deeper and you would quickly discern the mismatch with the realities of Nigeria today. In an environment of low capital formation, high interest rate and dilapidated educational infrastructure, any emphasizes on job-creation, without attention to skills acquisition, broad-based ownership of the means of production (no matter how minimal) or access to capital will always fall short of expectation.

�Galvanizing The Grassroots
While rationalization/monetization of public sector benefits and elimination of fuel subsidy might help curb excessive government expenditure, not providing adequate alternatives or appropriately deploying the savings to cushion the impact on the already impoverished citizenry is recipe for disaster. Empirical evidence suggests that, 65% of the population still live in rural areas and engaged in subsistence agriculture or self-employed peasants in the informal sector. The choice is between creating meaningful employment in the formal sector, which is a tall order under current circumstances, or supporting self-help activities to generate sustainable livelihood.

The government has been the largest employer so as it shed jobs; the private sector will be hard-pressed to keep pace with creating new employment opportunities, thereby worsening an already tight labor market. Expanding the micro-finance market rapidly will be one way to reach the new army of unemployed and rural dwellers.

Reforms at the macro scale, say in the banking industry will definitely have far-reaching consequences, but that depends on the ability of financial decision makers, to expand lending and spur productivity in the formal sector. The government can not (and should never) exclusively rely on the financial sector reform as a singular tool for generating immediate employment. It must intervene aggressively and in a smart way to create opportunities and stimulate wealth creation within the underclass. Against that backdrop, you can't help but applaud the CBN for transforming from a lame duck policy institution to an instrument for influencing the course of economic progress.

A coherent strategy for tackling perennial socio-economic problems in Nigeria should be an inclusive �bottom-up� approach. Pent-up frustration amongst ordinary citizens is cause for concern that might well jeopardize recent gains. At the most uneventful hour, Nigeria could experience �gate-crashes� to its benign renaissance � people who have been neglected and left out in the cold � makes sense to pay attention to their plight now.

The importance of private sector led reform can't be overemphasized, but the government must take decisive action in uplifting the cross-section of society from the clutches of penury as soon as possible. Without necessarily meddling in business, the government should engender equal playing field in the market place not just within the formal sector. It has to actively stimulate grassroots productivity. Experience of emerging markets in Latin America and Asia show a road map of how the informal sector could be co-opted in national development effort.

Fortunately there exist the prerequisite at the moment to embark on such lofty mission. Some policy frameworks are already in place. Accumulated foreign reserves, improving enabling environment and regulatory reforms in the financial market, Small and Medium Enterprise (SME) financing, Agriculture Credit Guarantee program, micro-finance scheme etc under the auspices of home-grown National Economic Empowerment and Development Strategy (NEEDS) are essential ingredients. Additionally, affordable housing finance and consumer credit should be pillars of empowerment. Let me reiterate that, $18 billion debt relief, BB- sovereign credit rating or $28 billion foreign reserve in the immediate term mean little to the common man unless the financial gains are made to reach down in form of concrete benefits.

�Prerequisites
Nigeria stands at a cross road where the measures put in place today would define its future destiny and growth path over for the next 2-3 decades. Franklin D. Roosevelt type of great society reform package or homegrown Marshall plan for Nigeria will be very timely. It is quite realistic to recommend that Nigeria earmarks $5,0 billion of its foreign reserve for this purpose. Even after paying-off the foreign debt, Nigeria will still be left with substantial amount of money to sustain its current account status, support the currency market and tuck away some nest-egg for future generation. That is if subsequent governments don't steal it. Hypothetically, the $5,0 billion development fund could be deployed as follows:

1. Utilize $2,0 billion for infrastructure and power generation, to boost capacity to 10,000 � 20,000 megawatts over the next 5 years, electrify the rural areas and rehabilitate decaying road network and bridges nationwide.

2. Utilize $1,8 billion to create a Fannie Mea (US Federal National Mortgage Association) type housing fund to stimulate secondary mortgage market in Nigeria, guarantee home loans for low to middle income families and buy such mortgage notes from primary mortgage institutions (PMI).

3. Utilize $1,2 billion to fund agro and micro lending schemes, underwrite and guarantee loans to genuine micro businesses and mechanized farming organizations.

4. Utilize the $1,0 - $1,5 billion savings in debt service payment to target the lowest population segment and offer them social benefits that could translate into improved life-quality � basic education, primary health care, low cost housing subsidy, rural infrastructure etc.

�Critical Mission
Initiate a rapid business stimulation package, which will see the elimination of unnecessary barriers to business activities and simplification of business registration and licensing at all levels. Decrease registration fee to the barest minimum for micro and small and medium enterprises. Institute a mass non-discriminatory loan scheme with low interest rate and issue 5 year tax-breaks to all new businesses.

Every entrepreneur that can provide an acceptable proof of identity with verifiable address or surety and well-laid out business plan should get a 50,000 to 500,000 Naira loan with a 3-5 year moratorium, underwritten by the government. Based on achieved success this amount could be augmented over time. Serious public works scheme or protracted action will galvanize economic activity and keep the populace busy, offer much needed relief and give hope for the future.

Effective policies should be more diverse and endogenous, while focus needs to be on sectors that have been ignored due to dominance of oil/gas industry. The long-term multiplier effect of such measures on Gross Domestic Product (GDP) will be phenomenal. Fortunately we have the UN Millennium development goal as a good performance benchmark to measure progress. It seeks to cut by 50% the number of poor people living on $1 a day by 2015. In Nigeria between 65-75% of the population fall into that category. Either this is done soon or the nascent democracy will remain standing on a fragile foundation.

Chamberlain is the Founder & President of New Era Capital Corp. and MyCompleteFinance.com, a New York based financial services group. He was previously a Financial Advisor in the Global Private Client Group, of Merrill Lynch.