If there is any phrase or expression that would aptly describe the ongoing fiscal and economic palaver that has rocked the euro zone in the past two years. It is the influential phrase crafted by Nigeria's late musical icon; Fela Anikulapo: "â€¦Austeri, Austerity".
From Britain down to the â€˜PIGS' (Portugal, Ireland, Greece and Spain), the euro zone has known no peace since the financial crisis which enveloped the global economy in 2007. As a consequence, in Britain the coalition government of Mr Cameron has embarked on the country's most aggressive fiscal cut since early 80s at the height of â€˜Madam Thatcher's' tight fisted regime. Mr Cameron's ambition is to achieve huge cost savings and improve efficiency while offsetting his country's huge deficits. The prime minister's ambitious cuts has led to huge austerity measures where welfare cuts has been flanked by huge decline in government funding for public projects. In Greece, despite an earlier bailout of $158 billion by the EU and Mr Dominic Strauss Kahn's former IMF, the country is still in huge crisis prompting severe austerity measures which have since led to lower tax receipts and increasing deficits.
In Ireland, Portugal and Spain â€“ debts are soaring prompting the governments to embark on more stringent and aggressive austerity measures to payoff their debts and balance their growth. Given this crisis, the IMF has warned of another impending systemic crisis which could lead to an implosion of the euro zone and indeed another recession as Japan has recently slipped. Inspite of this wealth of challenges, there's something very fascinating about the workings of the euro zone and it is fact that unlike many African states, the costs of goods have not risen inappropriately or considerably as far as many market watchers are concerned.
More interesting is the rate of inflation which has not risen above 4.5% in the heat of the zone's crisis in the past year. 4.5% is a figure that might not be fascinating to European economists but for African economists, it is a propitious landmark. It is a figure that is indeed very fascinating because even in the tightest season of economic frugality or at any peace time in developing economies or African nations to be specific - there has never been an inflation rate so smart at least in the last decade (with the exception of few).
While economists would tell us that euro zone's problems were triggered by the dynamics of Germany's growth process in the past decade as well as the loss of policy options for euro zone peripheral countries. The real truth will unravel in the coming years and it is the reality that Europe and especially some part of the zone including Britain have recently thrived on rent seeking behaviours. (In economics, rent seeking derives from a country's consistent manipulative attempt to doctor the socioeconomic environment rather than growth through the addition of real values).
In Britain for example inward and outward FDI is the third largest in the world owing to scheming and economic manipulative measures called FDI attractiveness. The benefit of such huge flows on one hand is that it helps in the creation of new jobs, formulation of modern businesses and facilitation of better extraction of rents. The problem on the other hand is that it pushes forward the D â€“day. The D-day is that very inglorious day when the final bubble will burst like the Dotcom and the housing bubble burst. Europe's bubble will surely burst when Asia, Africa and other emerging economies build up the competencies that Britain and other European economies packages and sells to developing economies as services.
Britain and Europe's bubble will burst when developing economies put sanity and order into their own chaotic social and economic environment. If Sub-Saharan African states like Nigeria for example grow strong and globally competitive indigenous oil companies, refines its own crude and only ship the final product to Europe and other markets. A significant FDI flow through Europe and Britain in particular would be cut. Similarly, if Sub- Saharan African countries build competencies in high value services, technology and other key areas in industry without patronising Europe's ridiculously expensive consulting firms like Accenture and their likes. Billions of cost savings would be made each year and Europe would feel the squeeze. A remarkable blow on Europe would even be dealt if 60% of Sub-Saharan African raw materials are processed and turned into value added products at home.
The question is whether such thing would ever be possible in the near future of any Sub-Saharan African nation. Let's take Nigeria for example, since the last decade, the country has seen no consistent growth and inflation rates have been around 11% on average â€“ a rate that forms huge barrier to growth. In World rankings â€“ Nigeria is amongst those with lowest GDP per head â€“ all in spite of the fact that it is amongst the few countries with the largest surpluses as a percentage of GDP - a position which many industrialised countries like the United States, UK and many European countries are longing to reach to achieve economic balance. This is a strong indication that Nigeria and economies of is kind are not ready to challenge a sick and ailing Europe inspite of their huge financial power.
The real bone of contention here is that many of euro zone's growth over the years has been overly doctored and based on false expansion. This is not an allegation but a fact known by economists and European central banks. It is also a fact well known that negative results such as those confronted presently will definitely not be the last. Already, the IMF has warned of another impending systemic crisis which could lead to recession in some economies. However, since central banks in the euro zone and Europe generally are not sleeping, they have something in the offing and that is called policy.
Analysts are closely projecting that Europe and many challenged euro zone peripherals might use the strategy called â€˜second generation structural reforms'. "The policy basically involves the longer-term responsiveness of economies that have had their comparative advantages eroded and now see their populations stranded on the wrong side of significant global changes" (FT, June 25, 2010). A typical (SGSR) policy would include huge reforms in property rights, trade policy re-conceptualization, financial sector liberalization, exchange rates reforms and human capital training and re-retraining amongst many.
While the outcome of such long term reform might turn-out well for Europe, it would certainly mark another competitive milieu for developing nations and the likes of Nigeria. For example â€“ as part of a new monetary reform, the EU might come to an agreement to devalue the Euro far lower than Mr Bernanke and his team can play with their dollar. In such scenario (if it ever happens), Nigeria and its like can be rest assured that a big problem would emerge. Apart from the potentiality of oil income seeing a steep and permanent decline, Europe would possibly be the new cynosure for global investment and business and such development could mark a significant reversal of global investment trend and the recent focus on emerging economies.
The key message here is that Europe and many of the euro zone economies including Britain are at cross roads. Such cross road is marked by their continuous rent seeking behaviours and the loss of real value on which growth is hinged. Given the present challenges and those of the future, EU's present disposition clearly shows that it is looking forward to a real reform which would bring back comparative and competitive advantage amongst its members. Such disposition would certainly be marked by new policies, strategies and renewed focus on long-term results. Certainly, the implications of such â€˜come back' for developing economies and the Nigeria of present might be harsher than thought.
Some says it would mark an increased opportunistic regime for developing economies since Europe would need better alliance and partnership to renew its strength. Wherever the pendulum swings â€“ what is certain is that the future would not only be about comparative advantage but about competitive advantage and the sustenance of such.
Given the emergence of China and the BRICs in particular, the next 10-20 years will mark some of the most interesting and challenging for economies and policy makers around the World. What it takes struggling economies like Nigeria if it would be relevant in the future is to focus on creating real value through innovative products and high valued services by fostering a mix of service oriented and industrial economy, develop long-term partnership with emerging tigers like China, India and the rest and create a sophisticated and dynamic breed of graduates and technical youths that would lead the next generation of development and growth. From a strategy perspective product and market development would do it. (The two involves developing a set of new and valuable products from primary sources and selling them aggressively to new and different markets around the world).