By Chidinma Blessing Igberaese
In Economics, when the total money in circulation is high, the lower the market interest rate. This makes it less expensive for people to borrow and solve their business or individual problems. Conversely, lower money supply tends to raise market interest rates, making it difficult for people to take out loans. When it is easier to borrow money, consumption go up and as consumption goes up, spending too goes up and this mechanism increases the national GDP in the short run.
The long run impact of an increase in money supply is difficult to manage because there could be a misallocation of capital (loan) which would lead to low productive activities, speculative investment and eventually a waste (Recession). Also, when people spend more money and their demands for things increase faster than the rate of supply, the law of demand and supply would make prices of goods rise quickly because of short supply and when this happens, inflation results.
The increased rate at which loans are at disposal to any willing person in Nigeria is worrisome. Loans from commercial banks, microfinance banks, down to individual agents will be a matter of concern if such economic capital (Loan) gets into the hands of people who cannot turn it into a resourceful investment that would bring about increased productivity (GDP) in the country. Therefore, caution should adhesively be exercised and in the right direction.
1. Entrepreneurship skills: Businesses go through phases after being established from being just a business idea to becoming successful business establishments and in this line, a 3- 5 years business duration is a testing time to go through processes, struggles and success. Therefore, giving a start-up fund to new baby businesses is not enough for economic growth. Economic capital should be given to businesses that have stood the business test of time with high productivities and growth. In doing so, money supply will always match productions in the country.
2. Human capital investments: Investment in human capital development is one of the keys to development. When people are properly trained and skilled for a particular job, it is a huge plus to that society. Therefore funding and capital resources in the form of loan should be encouraged in this industry.
3. Technology: In Restow’s growth model, for any economy to attain development, it must pass through five (5) stages of growth which is from the traditional (very primitive), to the pre-condition for take-off stage (mechanized farming), to the take- off stage (industrialization stage), to the drive to maturity stage (technological innovations) to the age of high mass consumption (stage of production of durable consumable goods, expansion of textile industries, appreciable standard of living). Here it seems that technology is the next needed stage to economic development. Therefore, tech companies should be given more concern.
4. Agricultural sector: Undoubtedly, the agricultural sector provides more than 50% consumables, aside foods, they provide intermediary products used in other sectors, therefore farmers should be given adequate support just like in the oil sector.
Chidinma Blessing Igberaese writes from Lagos Nigeria. Phone: 08123883953