Multiply prosperity, not poverty, pain

Governments must be multipliers of prosperity, wealth and well-being. Conversely, they must be reducers of poverty, pain and misery. This is the purpose for which citizens of a country elect some of their members to organise the processes by which these multiplication and reduction processes can be articulated and achieved.  Unfortunately, this is not always the case. Instead, sometimes we see governments multiplying pain, poverty and misery, while prosperity and well-being are, for most people, banished.

Sometimes this is purely accidental, such as when policies produce unintended consequences. This, in turn, happens when policy designers fail to properly think through the options, the consequences, and the timing of policies, or when public programmes are implemented wrongly.

The two mathematical operations – multiplication and division- are linked to the roles of political leadership in a nation’s economic well-being or otherwise. Just as their impacts on figures are opposite to each other, so also do the operations affect the lives of citizens differently.

In Nigeria, the failure or inability of the leadership to relate this correlation to its functions has led to our current descent into poverty. It is no longer hidden; Nigerians are neck-deep in pain and hunger.

Akihiko Nishio, World Bank Vice President of Development Finance, has aptly illustrated this in a 2023 blog entitled, “In the global development math, multiplication beats division”. He illustrates how the wrong applications of these functions in finance make a difference between success and failure in alleviating the challenges that underdevelopment brings.

Nisho in his piece focuses on the power of concessional funding, which is the remit of the International Development Association. IDA, as it is generally known, is the largest source of concessional funds – those funds that come with extremely low-interest costs into developing countries. According to him, about 30 per cent of IDA’s outflows are provided as grants, with the balance in very low-interest loans.

“IDA is a critical part of the World Bank’s vision to create a world free of poverty on a livable planet. IDA’s concessional financing helps countries boost economic growth to create jobs and prosperity, overcome shocks and emergencies, and engage in effective climate action,” he says. He adds: “Leveraging concessional finance to multiply impact and reduce fragmentation adds up to a better deal for developing countries”.

My point in referencing Nishio here derives from the case he makes. IDA applies the multiplication function to funding in such a way that a small amount is made to achieve so much. That is the power of multiplication in the hands of purposeful leadership. Leaders at all levels should relate to this. If they do, the fortunes of our nation’s compatriots would experience a quantum leap. For a long time, our leaders have been engaged in the mathematical function of division of resources thus fragmenting their usefulness.

The underlying fact about funds is that they are limited in supply, just like any other economic resource. However, the tragedy is that even the little available is so fragmented through divisions or diversions by cryptic forces so much that their impact is whittled down.

In a poor country such as Nigeria, the biggest function of the government at all levels is rooted first in development finance. That function recognises that the troubles facing the citizens are foundational. The size of the public needs is such that resources must be stretched to their limits to make an impact on the problems.

Development finance is finance outside the dictates of market forces. It has to do with making funds available at rates lower than the market rates because the projects being funded do not command market prices.

Therefore, funding such projects at such high-interest costs, as we have now (the Monetary Policy of the CBN yesterday raised the MPR yet again to 27.25 per cent). Given that the MPR is simply the central bank’s lending rate to the banks, it becomes obvious that such a rate is inappropriate for many projects. The recourse to the development finance model could also be because there is a deliberate government policy to grow a particular sector perhaps because of its strategic importance in the economy at such a time.

Our governments need to imbibe the development finance mindset with a multiplication slant. A government’s philosophy on funds management must be “getting more from less,” instead of the current situation where it appears that society is getting less from more resources deployed.

This should guide the public finance processes, especially governments’ expenditure programmes. They must ensure that funds available are made to serve the interests of the greater number of Nigerians.

The concept of the multiplier effect of public spending appears to be a thing of the past in the country. This is a big dent in the public sector, which seems to be losing its function as a lever to lift the economy, especially at a time such as we are in now. The multiplier effect kicks in when public funds are spent frugally on public projects with minimal, or no leakages. We must seek a return to that approach once again now, not later.