Supply-side policy — practice question

Overview of changes in the Nigerian economy Nigeria fact file (2017) Government spending: $19.5bn Tax revenue: $12.9bn Balance of trade in goods: $10.4bn Imports of goods: $32.7bn Nigeria makes a wide mix of products, including delivery vehicles, footwear, machines, maize and office equipment. Even so, its export earnings are still strongly tied to oil. The government is aiming to stimulate a rise in the production and export of other products. To do this, it applies a variety of policy tools, including changes to taxation and government spending, for example by subsidising training for construction workers. If training is effective, job prospects and wages can rise. The government wants to improve Nigeria’s macroeconomic performance and lift living standards. Table 1.1 gives data on living standards in Nigeria and Ethiopia in 2017. Table 1.1 Selected data on living standards in Nigeria and Ethiopia in 2017 Country: Nigeria, GDP per head ($): 5900, Life expectancy at birth (years): 59, Average years spent at school: 9, % of children aged under 5 who are underweight: 31.5 Country: Ethiopia, GDP per head ($): 2200, Life expectancy at birth (years): 63, Average years spent at school: 8, % of children aged under 5 who are underweight: 23.6 Investment in Nigeria has been increasing only gradually. Some firms are put off spending on capital goods because interest rates are relatively high, corporation tax is high and the economy is uncertain. Nigeria’s population is rising rapidly. The birth rate is high and the death rate is falling, although there is net emigration. Nigeria’s population was 191 million in 2017 and is forecast to reach 402 million by 2050. A bigger population will bring both opportunities and problems. It will influence the level of demand in the economy, may damage the environment and will require more food. In 2016, the Nigerian government raised the tariff on imported rice to encourage a rise in its own rice production. Nigeria is Africa’s largest rice producer, but it is also the continent’s biggest importer. In 2018, Nigeria imported almost 50% of the rice it consumed. Nigerian farmers produce less rice for each unit of land used than Asian farmers, and production costs for Nigerian farmers are high.