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Numbers can’t tell the whole story: A balanced approach to economic policy

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By Dr. Arowolo Ayoola

Economies are steered by the power of data. Policymakers use data-driven approaches to craft and implement reforms. However, this trend towards quantification can create limitations. While translating complex economic behaviors into mathematical models offers the promise of precision and objectivity, it can overlook the intricate realities of daily life. The recent experience of fuel subsidy removal in Nigeria illustrates how reliance on quantitative data alone can lead to outcomes that diverge significantly from intended benefits, particularly when nuanced realities of daily life are overlooked.

While comprehensive data analysis is undeniably crucial for informing sound economic policies, a solely “mathematical” approach can have limitations. This trend towards quantification in economics is often seen as a way to make policies appear more rational and efficient on paper. However, it risks overlooking the human element and the complexities of real-world implementation.

A prime example of the pitfalls of over-reliance on quantitative data in economic policy can be observed in the recent removal of fuel subsidies in Nigeria. For years, the subsidy was a significant economic burden on the nation’s finances. On paper, removing it made perfect mathematical sense—freeing up resources for other pressing needs, reducing fiscal deficits, and encouraging investment in local refining capabilities. However, the decision, while sound in a quantitative model, failed to adequately account for the broader social and economic ramifications.

The removal of the fuel subsidy, though beneficial from a fiscal perspective, led to immediate and severe consequences for the Nigerian populace. Fuel prices doubled overnight, affecting not just transportation costs but also the price of goods and services across the board. The hardship this policy introduced was profound and widespread, plunging more people into poverty and distress—a reality that the economic models failed to predict or quantify.

The quantitative data used to justify the subsidy removal did not capture the daily economic realities of the average Nigerian. Many citizens live day-to-day, with no financial buffer to absorb sudden increases in living costs. The models failed to account for the elasticity of demand in a low-income economy, where people do not have the flexibility to adjust their spending quickly.

This scenario underscores a critical oversight, where economic models often cannot quantify social resilience, community support systems, informal economic networks, and other subtleties that determine how policies play out on the ground. The real-world application of economic theories frequently clashes with the lived experiences of individuals, particularly in regions with significant economic disparities and informal economies.

The lesson from Nigeria’s subsidy removal highlights the need for a more holistic approach in economic policy-making. While data is indispensable for informed decision-making, it must be complemented by qualitative assessments that consider social and economic impacts on a human scale. Engaging with community leaders, sector-specific experts, and directly with the populace can provide insights that pure quantitative data analysis cannot.

Dr. Ayoola can be reached at arowolo.ayoola@dataleadafrica.com

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