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« Ndigbo / 2007 and Echoes of the Civil War | Main | Letter to NASS on Bakassi »

August 21, 2006

Obasanjo’s Economic Program Failed: Analysis of the 2006 Index of Economic Freedom Report

Delivered at Solon Institiute’s Lecture Series Sponsored by the Peoples Mandate Party USA, August 20, 2006 by Prof. Chudi Ikwueze, Ph.D (New Yourk, USA) --- One of the indisputable lessons of economic growth and prosperity in the Twentieth Century especially coming from the way the Cold War era ended was that, to maintain long-term economic growth and prosperity, a country must embrace economic freedom. And there were ample of empirical evidence behind such a conclusion.

At one hand, the United States of America, Western Europe and Japan are usually cited as pointers to what economic freedom can result into. On the other hand, the collapse of the Soviet Union as well as countries under its influence plus the apparent redirection of China’s economic system towards the market system equally lend support to the idea that economic freedom is fundamental to achieving sustainable prosperity.

According to Beach et al.(1), economic freedom is the absence of government coercion or constraint on the production, distribution, or consumption of goods and services beyond the extent necessary for citizens to protect and maintain liberty itself.

It was in recognition of the need to develop a systematic, empirical measurement of economic freedom in countries throughout the world that, The Heritage Foundation, a Washington D.C. based think tank organization, in conjunction with the Wall Street Journal began to edit and publish Index of Economic Freedom, annually since 1995.

The Index is a weighted average of 50 independent variables designed to track ten distinct factors that have most influence on the institutional settings of economic growth and prosperity. The ten factors tracked by the Index include:


• Trade Policy
• Fiscal Burden
• Government Intervention
• Monetary Policy
• Foreign Investment
• Banking and Finance
• Wages and Prices
• Property Rights
• Regulations
• Informal Sector
The Index tracks each of the ten factors by assigning scores ranging from a scale of 1-5. Low scores are more desirable; the higher the score on a factor, the greater the level of government interference in the economy, and the less the economic freedom a country enjoys.


A country’s Index of Economic Freedom is therefore the weighted average of the combined scores of the ten factors measured. And a country’s Index can be classified under four broad categories:


Free----------------------- countries with an average overall score of 1,99 or less;
Mostly Free-------------- countries with an average overall score of 2-2,99;
Mostly Un free----------- countries with an average score of 3-3,99; and
Repressed---------------- countries with an average overall score of 4.00 or higher
Based on the above classifications, in the 2006 Index of Economic Freedom, Nigeria came at the position of 146 among the 157 countries surveyed.(2) Below are the scores recorded for Nigeria across the ten factors surveyed:

• Trade Policy 5.0
• Fiscal Burden 3.0
• Government Intervention 4.5
• Monetary Policy 4.0
• Foreign Investment 4.0
• Banking and Finance 4.0
• Wages and Prices 3.0
• Property Rights 4.0
• Regulations 4.0
• Informal Sector 4.5
Hence, the weighted average 2006 Index of Economic Freedom for Nigeria is 4.0, which ultimately classified her as a “repressed’ country.

For pundits and keen observers of the Nigeria’s economic situation, this apparent poor performances in economic freedom factors should not have come as a surprise at all. Clearly, the Index data are consistent with the observed decline in well being of Nigerians. Besides, the Index data conforms with data generated by other studies and sources over some time now(3).

The bad news however is that behind this 2006 Index data of poor performances by Nigeria lie the fate of millions of impoverished people amidst enormous wealth at the country’s disposal. To be more specific, it is noteworthy that behind the Index data lie socio-economic anomalies such as the effects of under funded education system; lack of clean portable drinkable water for an average citizen; lack of uninterrupted power supply; irregular payment of salaries to mention but a few; high level of unemployment, corruption, insecurity and so on. The answer to the question of how best the fortunes of the Nigeria nation should be turned around is contained in this 2006 Index report.


There are three unequivocal conclusions for Nigeria implicit in the 2006 Index of Economic Freedom report, which suggest the direction of growth and prosperity. They are:

• Nigeria’s economy is being mismanaged and various reliable independent sources including Nigeria’s government agencies have confirmed that;

• The main source of mismanagement of Nigeria’s economy is the continuous existence of ineffective institutional frameworks that most influence economic growth and prosperity. Thus, Nigeria has become an economically repressed country and things could get real bad if nothing is done urgently. Another way to explain what a repressed economy is to say that:

economic mismanagement is largely due to limitations placed on citizens in form of restrictive institutional frameworks, consciously or unconsciously, by successive governments; and people usually reacts to such restrictions by changing their behaviors and probably not for the best. That explains why Nigeria has continued to record declining well being for her citizens, over three decades now ;

• Nigeria must embrace economic freedom as a more assured way of achieving economic growth and prosperity. A great way to start tackling the problem is by improving the Index of Economic Freedom.

From the above, according to Index data, Nigeria’s past governments performed poorly largely because they never recognized or take the three points highlighted as serious as they should. With the 2006 Index for Nigeria rated currently at 4.0 (repressed), which represents the worse performance by Nigeria since the Index was inaugurated 12 years ago, the Obasanjo administration’s well publicized economic program have failed the people of Nigeria.

In conclusion, let it be noted that Nigeria will continue to perform poorly economically, until serious institutional restructuring begins to happen: at least, such institutional restructuring should start by incorporating changes that will ultimately improve Nigeria’s Index of Economic Freedom, in subsequent years.

______________________
REFERENCES:

1. Beach W.W, Miles M.A., 2006 Index of Economic Freedom, The Heritage Foundation, Chapter 5.

2. The survey was conducted based on data collected between second half of 2004
and first half of 2005. So the data were current as at June 30, 2005.

3. Lambsdorff J.G., Transparency International, University of Passau
See also:

i) Economist Intelligence Unit, May 26, 2004
ii) NigeriaBusinessInfo.com
iii) www.economist.com/countries

Prof. Chudi Ikwueze, is a Professor of Finance and Economics at The Pace University in New York, USA

Posted by Administrator at August 21, 2006 09:40 AM

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