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LAGOS, NIGERIA.     Tuesday, April 08 2003

 

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Nigeria: Economic challenges going forward
By Ngozi Okonjo-Iweala

THE great development economist and 1998 Nobel prize winner, Amartya Sen, in his book Development as Freedom defined development as consisting of the lifting or removal of various types of "unfreedoms" that leave people with little choice and opportunity in their lives.

He defined these unfreedoms as "poverty as well as tyranny, poor economic opportunities as well as systematic social deprivation, neglect of public facilities as well as intolerance or overactivity of repressive states." Removing these unfreedoms creates in his words "rights and opportunities" that help advance the general capacity of a person and allow them to advance their economic and social well being.

It seems to me that Nigerians suffer from many "unfreedoms," and what they want or desire is to be free from the unfreedom of fear for their security, unfreedom of hunger, disease, and unemployment; unfreedom of the tyranny and bribery imposed by corrupt public officials, unfreedom of anxiety about their children's' education, and unfreedom of poor access to water, electricity, decent, affordable transportation and other basic infrastructure that citizens take for granted elsewhere. Getting rid of these unfreedoms will constitute true development in Nigeria, and my focus on how to get there is the face of possible opportunities for action.

So what does such a process of development require?

What is fundamentally needed to begin to deconstruct such unfreedoms and unleash a true process of change? It seems to me that the answer is the collective will to do it and then the leadership to bring this will to action.

Ladies and gentlemen, leadership is at the heart of Nigeria's development challenge, not exchange rates, interest rates or the availability of long term credit. Leadership is an issue that I have been increasingly highlighting, not only in relation to Nigeria's development, but also to that of most Africa countries. When you have leaders that are committed, and have a vision for the country, the state, local government, agency or private company they are responsible for, then you have a basis for hope. When such leaders understand the genuine development challenges with which their people are confronted, and are willing to listen, open to new ideas, and make the necessary trade-offs, then there begins to be a basis for solutions. And when they are honest, transparent, willing to lead by example, and to build like-minded teams interested in excellence and accomplishment for the people, then there is a fighting chance that implementation will happen, and facts on the ground begin to change.

It is crystal clear to me that for the Nigerian economy to perform going forward, for people to feel the impact of the removal of unfreedoms, there must be this basic platform of good leadership. There is nothing wrong with the Nigerian economy that cannot be fixed. There is nothing intrinsically wrong with the country or its peoples that cannot be straightened out.

In fact, there are many things right. Nigeria is a country of exuberance, hope, and optimism - that is why it is such a delight to me to come home each time! As the World Bank's private sector assessment notes, "Nigeria has been a poorly managed country with a great source of wealth. That means that properly managed, it can look at solutions that are not open to other countries." But for this to happen, you need leaders and the kind of leadership I just referred to. Over time, the Nigeria we all know and love has been perverted to a country that celebrates ignorance, elevates greed and excess, and rewards dishonesty in its leaders. It is a country where the chorus of the titled undeserving drowns out the voice of the titleless and hardworking. So, whatever new or old team is voted in must pass this test of leadership if the economy and society are to be put on a better footing.

In particular, with regard to leadership on the economy, it will be important to have a team that understands the linkages and interrelationships between fiscal and monetary policy, and between the macro and micro economy - a leadership team that works together like a team and co-ordinates economic policy decisions. This has to happen not only at the federal level, but also at the state level and between the federal, state and local levels.

Then, there is the issue of followership. Leaders have followers and those followers can make a material difference in the way they are led - first by electing the right people, but if they fail to do so, by making their voices heard when their leaders do the wrong thing. It amazes me that in a country as vibrant, with as many educated people as Nigeria, citizens tolerate such bad behaviour from their leaders. Time and time again, people know that a leader or leaders are corrupt, violent, manipulative, and self-serving, yet they heap accolades on them and encourage them to go right on with their bad behaviour. Open any newspaper in Nigeria today, and you will see these accolades, placed by many, lauding the titled undeserving. Believe me, I am not inciting people, nor preaching revolution. I am just saying that we shall not be able to make progress in this country unless followers also change their behaviour, accept their responsibility, and begin to make their voices heard in public and private against wrongdoing.

So, if we get good leaders, and responsible followers, what should they be looking at to make the economy move?

As I have said in previous fora, the Nigerian economy has all the characteristic of a post-conflict economy or an economy in low-grade conflict. Virtually every sector is in difficulty, everything needs to be done, and social and economic indicators do not look promising. Education is a shambles, quantity and quality-wise, health systems and health infrastructure are of poor quality, basic infrastructure is severely degraded or non-existent in many areas, and there is limited access to the basics of light, clean water and passable roads; the productive sectors - agriculture and manufacturing - are suffering and, in essence, the structure of the Nigerian economy has changed little if at all in the past three decades since oil became the dominant sector.

In these circumstances, the temptation is to move on all fronts. Yet, precisely because of the post-conflict nature of the country, capacity is limited and institutions too weak to enable pursuit of a successful implementation strategy on all fronts. The first task then is to be selective on what issues are to be tackled and how and to manage expectations of the public on how much can be accomplished within the given time frame.

The Obasanjo administration has made some progress in some areas of the economy, and whilst collectively, ordinary people are sceptical because they do not yet feel much of the impact, there is a foundation to build on in some of those areas. On maintaining a stable macroeconomic environment, there have been successes and reversals.

In privatisation, despite its ups and downs, there is a record of achievement - in the divestiture of oil marketing companies, banks, cement plants, hotels, assembly plants and other manufacturing and industrial enterprises. Despite the NITEL debacle, there is the burgeoning telecommunications wireless sector with over 800,000 lines - 300,000 of them sold recently - many more landlines than NITEL has been able to install in all its history. Competitive markets and good regulatory frameworks have been developed in some of these areas. A huge agenda remains in the privatisation of the large public enterprises, and this agenda will need to be vigorously pursued if any dent is to be made in improving economic performance. There has been some progress in vetting capital expenditures through the "due process" mechanism and in beginning the important reform of public procurement. The foundations have been built for better management of external and domestic debt - this is Nigeria's most important financial portfolio - its $28 bill plus external debt and $10 bill domestic debt. But there are areas where work has hardly begun or a great deal of support and strengthening will be needed to make progress.

So how does one become selective and have an impact in such an environment? In my view, there are three areas of focus that are essential to provide the basis for sound economic and social performance going forward, and I would put these in my cluster:

  • of the selectivity folder. These areas are: ensuring security, fighting corruption and promoting the rule of law, and maintaining macroeconomic stability,

  • focus is rebuilding old and creating new infrastructure,

  • focus on education, health, and agriculture. To these, I add two new areas that merit attention, because they are forward looking and represent emerging areas in the global environment. These are: focusing on financial services linked to the Diaspora, and developing human resources as export for specified services in the developed countries. I'll touch on each of these in turn.

    Ensuring security: A recent assessment of Nigeria by the Economists' Intelligence Unit notes that between May 1999 and December 2000, an estimated 10,000 people died in various incidents of ethnic, communal and religious violence. This is as many people as die in some countries actually in conflict. Surveys of Nigerian citizens or businesses often rank security, and high crime rates especially in Lagos, as one of the key challenges to a normal social and economic life in the country and an important business expense. It is clear that security is a key, if not the key, economic challenge going forward, because if citizens do not feel safe and businesses are worried about physical security, then participating in or promoting economic activity will be extremely difficult.

    In addition to the already prevalent forms of strife and violence, violence linked to politics and political assassinations have of recent, become de rigueur. A recent travel alert by World Cue - a travel security service used by the World Bank - warns, "Ethnic violence is rampant in Nigeria, and often coupled with political or religious intolerance." It, therefore, asks travelers to exercise caution and take all kinds of precautions whilst in Nigeria, including avoiding discussion of ethnic, religious or political issues.

    Against this backdrop, it is sometimes surreal to hear Nigerian leaders talk about attracting foreign investment or Nigerians talk about tourism. Nigeria will remain a tough sell for both foreign and domestic investors (with the possible exception of those in the oil and gas sector) as long as its reputation for ethnic and religious strife and other types of crime and insecurity remains.

    This means the country's incoming leadership must accord the topmost priority to security issues. Whilst efforts have begun under the present administration, more attention has to be paid to the professionalisation of Nigeria's police at all levels - this means hiring more qualified police (Nigeria has one of the lowest ratios of police to citizens, paying them well, and offering continuous training, national recognition for good work and other incentives. It also means being ruthless with dismissals and discipline for any deviating from professional behaviour.

    Fighting corruption and promoting the Rule of Law

    I don't need to dwell on the issue of corruption and the need to fight it since this is probably one of the most repeated admonitors to Nigerian policymakers from its citizens and from others who follow the country's progress or lack thereof from abroad. You are all probably familiar with the 10 per cent, 100 per cent story of corruption comparing Nigeria and East Asia.

    In an article in the February 13 Sunday Observer, that is a terrible indictment of Africa and its leaders, Paul Harris writes of the contempt in which African countries are held due to the issue of corruption. He writes that Europe, South America and Asia all suffer from corruption, but in these parts of the world, corruption does not stop the progress of development. In Africa he says corruption is so endemic that it halts development, and can even send it into reverse.

    It is clear that at several junctures in Nigeria's history, corruption has sent development into reverse. Nigeria has been ranking at the bottom or second to the bottom in the IT corruption index for a few years now. Coupled with the pervasive "419" scams this contributes to a continued poor image for the country. The hopes and high expectations for a decisive crackdown that were born at the beginning of the present administration have not been borne out.

    Whilst a beginning was made in creating some useful institutions such as the anti-corruption commission, and whilst a few cases are being brought to book, a survey of the private sector undertaken for the recent WBG private sector assessment indicates that "the new thrust of government (on corruption) does not appear to have changed the reality on the ground for most businesses where corruption remains a fact of life."

    For ordinary citizens, the spectre of policymakers and legislators, whose reputation is already known in this regard, coming back time and again in positions of power and influence, in fact being rewarded as it were with such positions, breeds cynicism about the country's leadership, and entrenches rent seeking behaviour in the fabric of they country. Numerous studies by reputable organisations, IT, independent think tanks, and the international financial institutions shows clearly that corruption, particularly the entrenched variety that we have here, has enormous social and economic costs. It distorts incentives, diverts attention away from productive investments, and undermines excellence and hard work. In the words of the private sector assessment, " corruption has a direct effect on Nigeria's private sector in that it makes participation in corrupt practices some of the most lucrative forms of business. It fosters non-productive pursuits such as brokering contracts, providing middlemen services in the diversion of funds, and developing uncompetitive firms in construction and other services that rely on patronage in winning contracts rather than their capacity to perform, cost effectiveness and efficiency."

    The assessment goes on to say that those administrative procedures most susceptible to corruption are also listed as major obstacles to doing business in Nigeria. These include customs, obtaining investment incentives, administration of taxes, obtaining duty exemptions, and government regulation.

    I am convinced that until corruption is firmly dealt with, Nigeria's attempts to diversify the economy away from oil will be thwarted.

    What do I mean by firmly dealt with? Since we all know that this phenomenon is firmly dug in and will take time to eradicate. I mean that there should be some early visible prosecutions of those found guilty of corruption. I mean that no individuals whose hands are known to be truly sullied should be appointed to any responsible public office nor should they be allowed to be in any important decision making or brokerage posts in the legislature.

    Does this rule out many of our well known citizens? Maybe, but there are many others qualified and available to replace them. In this regard, the legislative will need to redo its homework on its recent anti-corruption legislation which risks becoming a piece of paper without teeth. It would be wonderful, in order to give credence to such firmness or determination to deal with corruption, if our partners and friends abroad could reciprocate by overcoming their hypocrisy and repatriate the ill gotten gains of corruption squirreled away in their countries. I am sure that a significant percentage of the estimated $40 bil in corrupt funds from LDCs hiding in developed countries comes from Nigeria and would have an impact if repatriated here. Such an action would also send a signal for the future that there are fewer and fewer places for such money to hide.

    Let me turn now to legal and judicial systems and the rule of law. A month ago, Nigeria hosted the first All Africa Conference on Legal and Judicial systems bringing together virtually all of the judicial and legal luminaries on the continent. These distinguished men and women came together in recognition of the weak state of the judiciary on the continent and the absence of the rule of law in many countries. They recognised that if the private sector is to act as the engine of growth in our countries, there must be a strengthened legal framework, and a strong more independent judiciary, and they were willing to do something about it in concert with private sector partners and the international financial institutions.

    Nigeria's legal and judicial system and its judges and lawyers used to be highly regarded and sought after all over the continent. That has changed. Business now regards the system as a drag, and most Nigerians regard many of the judges and magistrates as corrupt. Part of the problem is, of course, underfunding as elsewhere in the economy. From salaries to training, to legal texts and libraries, the legal system needs support. The private sector can play a role through foundations or other means to set up public-private partnerships in support of training for the bar association, for court clerks and paralegals, in support of law libraries in a way that avoids charges of conflict of interest etc. What we need is a legal system that is functional and assures a legal playing field for all. In addition, as globalisation takes hold and expands, we need lawyers and judges comfortable with non-traditional areas such as intellectual property rights, WTO rules and regulations, and the ramifications of increasing trade in services.

    Macroeconomic stability

    Maintaining a viable and stable macroeconomic framework is a sine qua non for growth and poverty reduction, and I want to focus on the importance of this for the medium term rather than on short-term challenges. I have yet to learn of any country that was able to grow in a sustainable manner without a stable macroeconomic framework. If Nigeria is to meet the millennium development goals of halving poverty by 2015, projections show that it will need to grow at a target rate of 7-8 per cent annum or better, and such a performance cannot be achieved without conducive and consistent macro policies providing a foundation for sound sectoral policies and increased competitiveness of the economy. Consistency of macroeconomic policies is one of the premiere economic challenges that a new team will face. Nigerian policy makers have never been very good at policy consistency, but we have had periods of a stable macroeconomic framework, so we know it can be done.

    In this regard, there are a couple of challenges. On the fiscal policy front, one challenge is managing better the volatile or boom and bust patterns of public expenditures that accompany the boom and bust cycles of oil prices. While this is an issue for most developing countries that are heavily dependent on commodities, Nigeria seems to have a somewhat more difficult time managing its way through these cycles than the average fuel and non-fuel exporter, judging by several indicators such as trends in the inflation rate, the fiscal deficit, real GDP growth rates where Nigeria has performed somewhat worse (see the charts from IMF world economic outlook 2002 for fuel and non-fuel exporters and Nigeria). When oil prices are high as at present, policy makers and legislators sanction an expansionary fiscal policy that leads to unsustainably high public spending.

    Yet, the quality of the spending both in terms of investments and recurrent expenditures is substandard. Nigerians get very little out of all the spending that is supposedly done. There is little visible on the ground and what there is tends to deteriorate quickly.

    On the investment side, efficiency is low as indicated by Nigeria's very poor Incremental Capital output ratios (ICORs).

    On the recurrent cost side, most spending is directed towards salary costs with little left to fund maintenance or other operating costs so that you have the phenomenon of classrooms with teachers without chalk, blackboards or books, hospitals with no medicines, and ministries or agencies with no money for fuel or for maintaining their vehicles.

    On the monetary policy side, a key issue is that the conduct of monetary policy has often not been well co-ordinated with that of fiscal policy. This has been the case in the recent past where expansionary fiscal policies were accommodated by monetary policy with a detrimental impact on inflation, the exchange rate, and real interest rates all of them key rates that the business community is most interested in. The corrective recent tightening of monetary policy along with the introduction of the Dutch Auction System for foreign exchange has helped improve the situation in the short term. The new economic team will need better dialogue, and better understanding of the interrelationships of all the macro variables and thus better co-ordination and conduct of fiscal and monetary policies in the medium term.

    An important, in fact crucial aspect of the conduct of Macro policy going forward is the behaviour and spending pattern of states and local governments - Nigeria's decentralised government entities. The recent supreme court ruling on derivation and other revenue sharing issues have given the states unprecedented access to resources and, together with the local governments, they now control more than 40 per cent of total revenues. Such power should also come with greater responsibility and accountability for the resources on the part of these decentralised entities and their leaders. There is evidence that many states and local governments have been spending unsustainably making the conduct of fiscal policy much more difficult for the Federal Government. Like at the federal level, it is not clear that the quality of this spending is resulting in much improved access to services by state and local government citizens nor in a better income for the poor people. In fact, there is probably a great deal of diversion of resources - I have no proof, but every one I meet seems to know a local government chairman or chairwoman from there area who seems to have built a rather large number of houses and bought several high powered cars since they came to office. On a more serious note, it is clear that the state and local governments have to be made to understand the impact of their spending patterns on overall fiscal policy and some tighter mechanism for economic policy co-ordination between at least the state and federal levels needs to be put in place. In particular, it is time to sound the alarm bell on the fiscal posture of the states as this could trigger macroeconomic instability at the country level.

  • Okonjo-Iweala is the vice president/corporate secretary, World Bank Group.

 

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