Building Nigeria of Our Dreams

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Building Nigeria of Our Dreams
 

By

 

Bunmi Oni,

Chairman,

The Nigerian Economic Summit Group

 

culled from THIS DAY, January 20, 2003


We are now at the threshold in the history of our country, not only because the coming elections will be the first change of baton from one elected government to another in twenty years, but also because, more than ever before, the management of the economy requires deft and purposeful leadership. The Nigerian Economic Summit Group has been in the vanguard of policy advocacy and economic research since incorporation in 1996, and we have decided to make this statement in the interest of our fatherland. For too long we have sought to persuade our leaders to act in the interest of the Nigerian people. In the recent past we saw the damage done to the economy by the prolonged face-off between the Executive branch and the Legislature, while the important task for which they were elected receded to the back burner. Civil society will compel the next government to stay the path of the straight and narrow.

For four decades we have grappled with the desire to find the path to true economic greatness and the dawn of better quality of life for the Nigerian people, and for four decades we have muddled through and earned considerable reproach. The thirty years of military governance drove our country through unprecedented experiences of wholesale destruction of institutions, economic degradation, animosity between ethnic and religious groups and deprivation suffered by majority of the people.

If the last four years were accepted as the period to break from the military misadventure in governance, and to set the new political class on their learning curve, we must now also accept that the party is over. It is time we started the serious task of building the nation of our dreams, and do so with passion and commitment. It is time we galvanise the energy of the Nigerian people into one common endeavour to build, and to reverse the decline in their quality of life. For too long we have run our government on the basis of patronage alone, and the last four years have demonstrated the huge task of dislodging rent seekers and the mediocre who find themselves in high office or close to it without a track record of tangible achievement.

It is clear that most of the problems we face have their roots in the poor performance of the economy, and in the distorted incentive arrangements on which we have run our society. Those who seek to benefit from the crisis generated have exploited issues of ethnicity and religion to perpetuate status quo. Nigerians are a peace-loving people, but they deserve a decent standard of life. If our youths are gainfully employed, they will not be available for the street marches and communal disturbances for which their masters currently pay them the value of a meal.

As we now embark on our most testy transition ever, this is a wake up call to all who seek political office and indeed to all Nigerians. High public of fice must be left to people who have the faculty, and the genuine desire to serve the country. Above all we need only God-fearing men and women to take on the mantle from this point on - leaders who have a vision and a passion, leaders with a mission and a heart, leaders who understand the times in which we live.

Our world has changed dramatically, and the advances in other lands have continued to widen the gap between them and us. 50 years ago, it was safe to say that a nation had full control over its sovereignty, and therefore its political, environmental and economic systems. No nation, even the most powerful, has that kind of control any more. We have seen a demographic explosion, and the world population has doubled in just over forty years. Nigeria today has a population of 125 million, we think, and boasts every fifth African. If the current growth rate continues, there will be 250 million Nigerians by 2015. Recent UNDP projections also suggest that Lagos will be home to 24 million people by 2015, and will be the third largest city in the world after Tokyo and Mumbai.

We can no longer afford the marginal growth that has characterised our economy over the years. Shortly after independence in 1960, Nigeria was, by all economic indices ahead of South Korea, Malaysia, Taiwan, Singapore and Indonesia. The GDP per capita of Nigeria and Indonesia were indeed comparable in 1970. However, whereas the GDP of Nigeria has stagnated around $300 (N37,800), that of Indonesia has grown fourfold in the three decades. Indeed, Nigerians were better off in the 1970s than they are today, even though the country has earned $300 billion from oil alone in that period.

Globalisation has become the new world system, powered by the twin forces of liberalisation and technology, and laggards will find it increasingly difficult in the emerging world scenario.

Overview of the economy

Nigeria's economy has experienced varying cycles of growth, stagnation, and some development in the last forty years. The management of the economy has, however, not been backed by a sustained long- term strategy. Rather it has been characterised by:

Central planning, which led to big government and a distorted incentive structure thus crowding out the private sector, which became weak, lacking in self-confidence, and on a steep corporate governance learning curve. Public sector contribution to GDP doubled to 44 per cent in the four years to 1979.

Low growth and a crippling debt burden - $30b external and N1.3 trillion internal - that has grown from 3.4 per cent of GDP in 1970 to 86 per cent of GDP in 2002. When the debt crisis broke in 1982, Nigeria owed foreign creditors 17.1 per cent of GDP.

Low Savings/GNP ratio. At 11 per cent, it is far too low to drive investments

Budget deficits largely financed by printing money.

A large informal economy, the size of which is unknown, providing a substrate for corruption and speculation. This monster has become wild, and there is an imperative to create a counter-force in the formal economy.

Dearth of the entrepreneurial class, and a beggarly middle class

The current state of the economy

We will not go through too much detailed analysis of the past and what went wrong. These are too well known. Suffice it to say that our economic interests will not be served by small incremental improvements over a long period of time, because we do not have that time. We must seek avenues of leapfrog, but only by correcting the fundamental defects that inhibit growth, and these are:


Structure of the economy. Our economy has been based solely on exploiting natural resources, without any value added. This makes us vulnerable because we have no control on our revenue stream. Lack of value creation also makes us dependent on imports, and therefore we have no control on our costs either.

Development model. We appear to see development purely in terms of physical infrastructure, to the utter neglect of human capital development. We must change our strategic focus from merely building things to building people. Visible examples are FESTAC Village and the 1004 housing estate, which became slums in no time. We have often spoken in glowing terms about our resource endowment, and it is true. But resources by themselves will not bring about development. People must add value to them

Economic action agenda. There has never been a commitment to the pursuit of a long-term vision, and therefore no clear development path or consistent policy over an extended period.

Leadership capability and managerial competence. The obvious dearth of managerial competence in many spheres of our national life shows through in the inefficient way that resources have been harnessed and allocated. We need to groom a succession of leaders who will truly place country above self.


In the face of these problems, it is clear that government must put the economy first. Those who clamour for a sovereign national conference will do us a world of good if they address their minds to our economic emancipation. More important, however, is that leaders must not fan these calls by their inconsistent and retrogressive actions. Our obsession with sharing resources has made us bereft of ideas to rebuild.

Current issues

The real pressing issues of our time are:

Low economic growth rate: GDP growth rate consistently lagged the rate of increase in population.

A huge resource gap, and scarcity of investment resources, both foreign exchange and Naira. Oil is the only real source of foreign exchange. In 1980, Nigeria produced 2.2 million barrels of oil per day at an average price of $30/barrel. In 2002, the country produced 1.7 mbpd at an average price of $22/barrel.

The daily revenue therefore dropped from $66m in 1980 to $37m twenty years later.

Between 1980 and 2002 the population has grown tremendously, the number of university graduates has almost doubled, and the number of States and Local Governments went from 19 and 360 to 36 and 774 in 1996 respectively in the same period, with the attendant recurrent costs even in the face of declining revenues. Think about this as a young 25 year-old single man who in 1980 earned $10,000 per annum. In 2002, after marriage and three children (ages 16, 14, and 10) his salary drops to $5,600 per annum. Clearly his livelihood must be augmented from other sources. Many people have erroneously believed that revenue from oil alone is a lot. It is time to break that myth. At $25 per barrel and 2 mbpd, the annual per capita revenue from oil after deducting the cost of exploration is less than $100.

A forecast indicates that by 2007, the total Federal Government revenues at current exchange rate would be inadequate to fund recurrent expenditure, assuming today's exchange rate, an average price of $ 18/ barrel, Nigeria's OPEC quota remains low, and no change to the revenue profile.

Obviously foreign exchange earnings need to be increased rapidly to avoid the risk of further devaluation. Also the shortage of investment grade Naira is amply demonstrated by the absence of long-term money and venture capital The longest tenor available is probably 180 days money. Hot money inhibits investment.

Low production and low productivity. Low productivity is the natural result of the scarcity of investment resources, a short-term orientation and a poor track record of human capital development, and completes the vicious cycle that only produces a downward spiral.

The way forward

We present thoughts on the way forward at two levels, namely structural and economic. We cannot do things the way we have always done and expect different results.

Structural Governance

We must start by ensuring that we elect leaders who are genuinely concerned about the Nigerian people. A good quality life is our birthright, and it is the responsibility of leaders to guarantee that. Elected leaders must then submit themselves to the virtues of leadership. Our leaders must demonstrate accountability by keeping us informed on the state of the economy and other significant issues on a quarterly basis without fail. This update is not to be delegated to a Minister or Commissioner who sees his job as his master's voice. The President must do this at the national level, and Governors at the State level. Leaders must be humble enough to listen to the views of others, especially people who are not seeking favours or contracts.

The next government must start a quarterly accountability reporting. Such "State of the Union" communication must be handled at the highest levels and not delegated to a Minister or Commissioner. This practice gives the Nigerian people the opportunity to truly understand the affairs of State and assess the performance of their leaders. It also helps to institutionalize openness and accountability.

Downsize government. This is a touchy issue, but a situation where 82 per cent of the federal budget goes to pay less than 2 per cent of the population is not tenable. The result in 2002 was that Government was forced to borrow from the CBN, and to devalue the Naira to raise cash for capital projects. Government can probably do with 30 per cent of the current size, and the remainder should be separated on a just and fair basis. The Federal Government and its agencies own hundreds of prime real estate properties in Lagos and other cities, which can be sold off to meet the pension and golden handshake liabilities. Altematively, part of the pension liabilities could be paid in shares in the enterprises being privatised. The expenditure profile of the Executive and Legislature must also be dramatically cut, and waste removed. A retinue of 10 cars per Minister is a wanton waste of public funds.

A performance management mechanism must be installed in the public service, and Ministers made to respond to an agreed set of key performance indices. Productivity measurement must begin from the top.

Training and capacity building must once again become an integral part of the management of our human resources, to create a crop of technocrats capable of translating high level policy into focused action

Economic strategy

Re-visit Vision 2010 plan. The best economic blueprint this nation ever had is the Vision 2010 document. Five years after it was produced, precious little has been done to follow the recommendations in it. The exercise provided us with a longer planning horizon, and in revamping it, the original team could be expanded to bring in fresh thinking, and the time frame changed to 2020. The Vision 2020 document should then become the compass, with appropriate modifications along the way as the circumstances dictate, but only if strictly necessary.

A complete assessment of the state of public finances and priorities for the next four years. These priorities must be properly costed to ascertain the Naira and Dollar needs and the resource gap required to implement the programme. This gap may be of the order of $4 billion per annum over the 4- year period 2003 - 2007.

An economic impact assessment for all major projects. If there was an economic impact assessment for the stadium in Abuja, maybe the decision could have been different. The idea is to ensure that all major investment activities are undertaken for their economic value alone for the time being.

The Government must then follow with a programme to stabilise exchange and interest rates, further eliminate wasteful spending, deregulate the economy, swiftly privatise government assets, and target debt reduction.

Create economic clusters. Far too much energy has been dissipated on the concept of geo-political zoning and its consequences. In place of geopolitical zones, we should draw economic clusters, which cut across narrow geographical definitions or ethnic grouping. Clusters should then be supported by relevant infrastructure including research institutes, and specific incentives provided for private investors to build viable interconnected firms, and related industries. Typical clusters will be based on industry segments that will propel growth, and examples include Grain/Vegetable cluster, the Cocoa/Rubber/Oil Palm cluster, Petrochemical, Consumer electronics and ICT clusters.

c. Human Capital Development.

The development and motivation of people must be elevated to the level of strategy. Our development focus must change from building things to building people and the key actions here must include:

The restoration of education standards at all levels, to which we will need to commit 25 per cent of our budget for the construchon of classrooms, training of teachers and redesign of curriculum. An educated populace is not only aware, but will be economically productive.

The rebuilding of education will probably take the next ten years, and in that period, we could consider converting the NYSC scheme into a finishing school to compensate for the current deficiencies in the tertiary education standards. This requires extensive logistics, but will be a major investment in our future.

The rehabilitation of health care infrastructure, and a commitment of 10% of the budget to health.

Creation of social security apparatus as a safety net. This will include an overhaul of pension scheme to make it contributory for everyone in employment, revamping the public transportation systems, and housing.

d. Infrastructure

There must be a clear commitment to raise the standard of infrastructure. It is time we stop the debate about privatisation of State-owned enterprises which have continued to be a drain on the economy. The maintenance of all the public sector organisations in terms of direct grants, duty waivers, tax exemptions etc, many times exceeds the federal budget. That is not to include the wastage through corruption. Those who clamour for maintaining status quo, especially Unions, are clearly not aware of this fact. The privatisation programme must be accelerated, and the deregulation progress to grant the private sector access to key economic sectors. However the process must be transparent, and supported with the installation of active competition, and the inauguration of the Competition and Anti- trust Commission to moderate the activities of commercial ventures.

2. Economic action

Three broad action points:

e. Ventilate the economy

Increase foreign exchange drivers. A small portfolio of arrowhead forex drivers in areas of competitive advantage, e.g. Cocoa, Rubber, Palm Oil and Cotton. A focused plan in each of these areas with an appropriate subsidy structure should be designed, preferably based on deferred gratification.

The adoption of an export-led strategy for industrialisation and economic growth, which encourages high quality production and provides the backward linkages that helps create small-scale enterprises, and by implication generate employment and reduce poverty

Increase supply of investment grade Naira. A Pension reform for both public and private sectors that makes pensions contributory and mandatory, and the fund managed by a private Pension Fund Administrators. Such reform has advantages including promoting a savings culture, raising a pool of long-term money, and reducing interest rates.

f. Monetary and Fiscal Policy coordination

Low inflation is the driver for reasonable interest rates and stable Naira. Therefore the quest for low inflation must be a consuming one.

Taxation must be used as a tool not as a weapon, and we should develop the path of real VAT, not sales tax.

A Fiscal Responsibility Pact among the three tiers of government is now urgently required, to help moderate the expenditure profiles of the Federal, State and Local Governments.

g_. Redress Imbalance and drive growth.

Returning to the theme of growth, the 9th Nigerian Economic Summit identified a set of five growth drivers, namely: Security, Sector reform, Infrastructure, Job Creation, Investment Climate Growth will only be powered by investment, and we must explore the investment opportunities in these five growth areas. The Nigerian Investment Promotion Council should become more focused and accept clear objectives and targets for FDI in these key segments.

These five drivers of growth interphase with five key advantaged tracks of:

 i  Agriculture. Select and drive key economic crops, and generate seedlings for sale to farmers at cost. The full cost of seedlings plus interest is refunded to farmers after the first harvest from the crop. This deferred gratification ensures that the subsidy gets to the farmers, but also ensures that the job gets done first.

ii. Crude oil. The required investment in oil fields must be sustained, and the local content increased to a target of 40%.

iii. Gas. Nigeria has extensive Gas reserves and the articulate development of this resource will help close the resource gap discussed earlier.

iv. Manufacturing including SME sector.The principal objective is to achieve competitive industrialization, and a vibrant SME sector.

v. Solid Minerals

Conclusion

A concerted pursuit of this proposal will ensure that we turn our economy around over a relatively short period of time. The private sector commits itself to continue to partner with government in this endeavour, take a larger responsibility in the area of capacity building, and institute higher standards of corporate governance and business ethics in the conduct of its affairs. Business is resolute in standing firm against corruption, and we require public office holders to demonstrate good standards of leadership.

Finally let me reiterate that:

The economy is currently in stress, and a more innovative approach is urgently needed to save it.

The problem is simply lack of growth. Development will only occur at a sustained level of growth

Economic growth can only come through investment in the productive sector. Such investment should be targeted and negotiated for export

Investment can only occur if the macro-economic conditions are right, and the fiscal features adequate.

The targeted investment must be handled at the highest level and the finest strategies in country-tocountry economic diplomacy must be employed I thank you for your patient attention, and I will respond to a few questions.

 

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