By FELIX OLOYEDE
The International Monetary Fund’s (IMF) recent advice that countries must explore quantitative easing option to reduce the impact of COVID-19 on their economies should not be an option Nigeria and other African countries should consider, because of its inflationary effect of printing currencies, Mr Kayode Omoregie, Senior Fellow, Finance and Strategy, Lagos Business School, has advised.
He argued that while rich counties may have more leeway with quantitative easing, it is not a viable option for African countries with huge trade deficits and lean export potential, because of the dual impact on inflation and devaluation.
He also noted that Nigeria and most African countries have higher tendencies of experiencing a W-shaped or L-shaped economic recovery from the slump caused by the coronavirus pandemic.
A W-shaped economic recovery occurs when a country recovers from a recession, dips again before eventually stabilizing, while an L-shaped economic situation is where a country remains in a recession for a long time.
while analyzing the recommendation from a recently organised webinar by the IMF, the don maintained that Africa and Nigeria continue to remain a very vulnerable economy given widespread systemic infrastructure, economic and social dislocations.
Omoregie disagreed with IMF’s position that capital will flow to countries that COVID-19 has not battered, saying, “Capital will always flow to areas, regions where it can be better managed, provides a good return at a reasonable risk level. While Western countries have been “battered” by the pandemic, these economies have far greater resilience and a systemic capacity to innovate and adapt to challenges faster than Africa has demonstrated in the past and is projected to demonstrate in the future, given the existing capacities that support innovation.”
He argued that though some capital will continue to flow into Africa, the Western world is not likely to lose out to Africa in the market for capital allocation, because it is still struggling with endemic corruption and insecurity, which investors are wearied of.
“China will, of course, continue to be a major source of capital flows into Africa. The question is at what cost to institutional development, rule of law and social justice and corruption. China is not likely to encourage Africa to make any meaningful and progressive changes in these areas. All they want is a piece of the African pie,” he said.
Reacting to the IMF’s view that emotional and economic backlash against China is expected, the LBS don claimed Africa’s dependency on imports from Chinese dominated supply chain is strongly entrenched and is not going to disappear anytime soon.
“The argument can be made that even before the pandemic, Africa should be looking at developing its capacity for self-sufficiency and value additive export-oriented industrialization, while meeting local needs. We can only hope that the ravages of the COVID-19 on global value chain will help us realise the urgency and importance of diversification and some level of self-sufficiency as a survival imperative,” he asserted.
Omoregie posited that a strategic focus on cost management across the entire business value chain will be required to protect good costs since processes and activities drive costs; management needs to review the processes and activities of the business to eliminate redundancies, improve efficiencies and reducing operating costs.
“Governments (especially Nigeria) should focus on creating conditions that would encourage foreign investments if they are to drive growth post-COVID-19. Eliminating wasteful subsidies, appropriate Exchange rate pricing, corruption and investment in infrastructure and institution of business enabling policies are critical,” he noted.