Leap-frogging the Nigerian economy

culled from Vanguard, December 21, 2003
I HAD withheld this article prepared since February 2003 from publication due to disenchantment and virtual loss of hope in Nigeria and a creeping individualism. But we cannot give up on our nation or on ourselves no matter the gloom. If we do, what do we - people of my generation - bequeath to our children and their children? We will continue to contribute our widow’s mite.

The growth of the Nigerian economy remains slow, uninspiring, and unimpressive, and the prognosis is unlikely to be much different over the next four years if some things are not done differently despite the sincere, clear and infectious optimism of both President Olusegun Obasanjo, his former chief economic adviser, Dr. Magnus Kpakol, and the president’s current economic team. This view point may not be much different from that of many others, including Mr. Bunmi Oni, president of Nigeria Economic Summit as reflected in "Building Nigeria of our Dreams" (Hallmark, February 5, 2003 page 14) or that of Professor Anya O. Anya, director-general of Nigeria Economic Summit in "Economic Infrastructure and National Development" (Business Day, Tuesday, February 25, 2003 page 32). This economy cannot proceed complacently as it is going now. New radical thinking and measures need to come in.

It is quite true that it is possible to be doing some inappropriate things most effectively in any endeavour and in consequence, the desired speedy forward movement will not occur since wrong moves inevitably yield wrong results. Quite obviously, apart from the decisive and praise worthy intervention in the infrastructure since 1999, little else has been done to jump-start, kick-start or leap-frog the stagnant economy and ensure the desirable annual real growth trajectory of 10 per cent or close to it or by the next two years, as direly needed by our nation to begin to appreciably relieve the burden of grinding poverty in our land in the shortest possible time. Rather, our government aims at between five per cent and seven per cent annual growth in four years. We keep hearing of damages of military rule being repaired ad infinitum, ad nauseam. Lately, we also hear of another 10 years to make life more abundant for Nigerians. Recently, President Olusegun Obasanjo’s administration indeed struck the correct rhythm and recipe for rapid economic growth by zeroing-in his economic policies mainly on agriculture, manufacturing, minerals development, crude oil, liquefied natural gas and enhanced exports promotion (Federal Government Economic Recovery Programme 2003-2007, Vanguard, October 23, 2002 pages 19-20). The emerging National Economic Empowerment and Development Strategy (NEEDS) seems essentially a rehash of the earlier programme.

There are, however, stark contradictions between intentions and actions in President Obasanjo’s economic policies. We are aware that the Israelites during their enslavement in Egypt were at a point compelled by Pharaoh to make brick without straw, a tall order indeed!!! It appears that from the content of the Federal Government economic policies and implementation, so far, Nigerians may require to make brick without straw between 2003 as indeed being done right now. Economic growth feeds on economic investments and rapid economic growth demands among other inputs massive economic investments. The budget for 2003 as presented to the National Assembly by the Federal Government in which agriculture received N9.84 billion and solid minerals development N3.058 billion (out of a capital budget of N256.36 billion), rather paltry allocations by any standard and definition, surely condemn our economic growth to a slow- track, snail-like progression with incremental improvements that will be most unsuitable to the dire Nigerian situation and, indeed, unfair to our people. Economic growth without economic investment is a dead-end scenario.

Development finance

To date, the Bank of Industry (BOI) and the agriculture bank (Nigerian Agricultural, Cooperative and Rural Development Bank Limited - NACRDB) are still poorly funded and unable to offer the "Marshall Plan" support to manufacturing and agricultural development. As recently as October 2002, both Chief John Odeyemi (president of the Lagos Chamber of Commerce and Industry in "Bank of Industry yet to get N50 billion" published in The Comet, October 1, 2002, page 23) and the managing director of Bank of Industry (BOI), Dr. Lawrence Osa-Afiana (The Guardian, October 29, 2002, page 23 headlined "BOI set to commence disbursements to firms, says Osa-Afiana") have complained of the dearth of funds to meet and fulfill the purpose of the Bank of Industry. A survey of industrialists reported by This Day of December 24, 2002, titled "Industrialists call for adequate funding of Bank of Industry", speaks for itself.

Not many presidential candidates in the April 19, 2003 presidential election gave us detailed economic manifestos that are yet better or more concrete than Obasanjo’s 2003-2007 blueprint. Tunji Bello pointedly and succinctly described the dismal picture in his "All power no ideas" article in This Day of February 3, 2003. Obasanjo’s 2003-2007 economic blueprint itself and indeed, the emerging National Economic Empowerment and Development Strategy (NEEDS) may seem on the surface appropriate and well-thought out but it has no Marshall Plan investment content or explicit intentions in that regard to leap-frog economic growth in Nigeria by the next two years at 10 per cent annual real growth of gross domestic from the 3.6 per cent for 2002 if the official figure is to be believed rather than the IMF/World bank economic contraction of 0.9 per cent in 2002. The lack of Marshall Plan type of investment by the government in our economy explains why Obasanjo’s blueprint very inappropriately envisages a sub-optimal seven per cent annual growth rate of the economy in four years rather than a daunting but achievable near-10 per cent growth of the economy in two years when buoyed by a Marshal Plan and a determined motivational leadership of our nation which, indeed, has an economic emergency on its hands now.

Ideology

The main problem in all these is the seeming ideological naivety being exhibited by our president and his economic team. President Obasanjo needs to reconsider his ideological viewpoint and colour, and his economic team should follow suit or should be changed once again in the new dispensation. President George Bush had to clean out his economic team recently due to abysmal performance. President Obasanjo now appears too neo-liberal in a fringe capitalist economy, a developing economy like Nigeria, and has now appointed a slightly neo-liberal but admirable and eminent World Bank top-shot as Minister of Finance and a very respectable but die-hard neo-liberal as Chief Economic Adviser while the Central Bank governor by definition manages the monetary situation with keen eye on interest rate, exchange rate and inflation rate.

Perhaps, for balance, Chief Audu Ogbeh, chairman of PDP should be coopted into the president’s economic team since he appears a basically neo-Keynesian thinker and a deeply patriotic and honest individual who never shies away from describing the appalling economic situation as it is, and offering well- thought out suggestions. The private sector which according to Professor Samuel Aluko is non-existent (The Sun, March 8, 2003 page 31) is being touted and hyped to supply massive investment in Nigeria when stock exchange (market) capitalization to date is mere eight billion dollars ($ 8 billion) or just 18 per cent of gross domestic product and with a dormant savings culture compared to an all-out, comprehensively and comfortably capitalist economy like United States of America with stock exchange capitalization of $9.9 trillion in 2002 (down from $14.7 trillion of January 2001) or still about 100 per cent of United States gross domestic product (USA GDP was $10.6 trillion in March 2003) Foreign investment will continue to flow into Nigeria particularly into the captive oil/gas sector but not sufficiently into the non-oil sector (manufacturing, agriculture, solid minerals etc) where the secure future of our economy and rapid economic growth actually reside.

General Obasanjo of 1976/1979 was deliberately neo-Keynesian in managing the economy and succeeded. His government invested substantially in the economy and buoyed the productive sector. Now President Obasanjo of 1999-2003 has dumped his time-tested and successful neo-Keynesian economic mould and acquired the deadly IMF/World Bank neo-liberal doctrine which best suits the industrialized and massively exporting economies with large reserves of investible capital in their stock market like United States of America, for instance.

The all-out pursuit of International Monetary Fund (IMF) doctrinaire neo-liberal economics only spells doom for pre-industrial developing economies in Africa, Latin America and elsewhere and recent changes of neo-liberal governments in Latin America particularly in Brazil, Chile, and most recently Argentina and Bolivia attest to this. The damaging effects of doctrinaire neo-liberal economics as already seen in Nigeria and elsewhere include vastly devalued national currencies, badly devalued living standards, social and economic insecurity and upsurge of crime due to massive unemployment and poverty, killer poisoning of industrial and agricultural development particularly by unsustainably high interest rate, deterioration of currency, exchange rate and the destruction of the purchasing power of the people. And contradictorily enough, there may be a possibly bourgeoning external reserve carefully eyed and targeted by the IMF/ World Bank duo for payment of external debts to the global capitalist bastions rather than for domestic social and economic development of developing nations.

Debts (external or internal) once incurred should be paid, of course, or negotiated, but debt payment is best achieved in a sufficiently productive economy. Doubtless, top economists like Professors Kenneth Galbraith, Samuel Aluko and Joseph Stiglitz, on balance, remain more relevant to any developing economy than Nobel laureate Milton Friedman and the IMF/ World Bank neo-liberal monetarist school of thought. The Nigerian economy needs both indigenous and foreign investments to grow rapidly. Local investment capacity in the private sector of our economy is limited as indicated by the current stock market capitalization ($8 billion) and weak savings culture and needs to be bolstered by government investment through a Marshall Plan if we desire appropriate and rapid economic growth and development. There have been recent suggestions for the government to float investment development stock to supplement the capital market as sources of long- term low-interest investment capital. No doubt, the development stock option is desirable but it will be inadequate on its own to perform a "Marshall Plan" role needed to leap-frog our economy. It could be complementary, however. Further taxation by government in an economy lacking investment and which requires lower taxation is antithetical to economic growth. Instead of increased taxation as the Federal Government seems intent on to finance its economic programme, broadening the taxation base without increasing taxation should be a preferred option.

Indirect taxation of all types like through higher fuel prices etc, are all antithetical to economic growth in a chronically depressed economy like our own as it transfers resources from the individual (corporate or personal) to government which in this country and anywhere else has an unsavoury record in the use of funds. Besides, mindless increases in fuel prices ravages the entire economy with price inflation in all sectors deriving from an ill-timed and precipitous deregulation in the milieu of local supply and distribution inadequacies and an ever- depreciating national currency and ravaged, non-functional refineries. Since the national currency was deregulated in the 80s and 90s in the milieu of foreign currency supply limitations, has the naira exchange rate ever appreciated? Of course, not.

Deregulating the downstream petroleum sector is similar to the deregulation of the naira exchange rate as both petroleum (and derivatives) and the flairs are both universal goods used by almost everyone in Nigeria unlike telecommunication and aviation which are elitist and are used by very few.

Marshall plan and new deal

The major suggestion here is for an aggressive government support to the productive sector comparable to what the United States of America offered to the debased European economies after the Second World War. The Nigerian economy of today is devastated economy, indeed a post-war, post nuclear-disaster economy as very aptly described by Professor Pat Utomi in "Nigeria Is a Failed Project" (Guardian, December 29, 2002 page 41. The suggestion here is also simulative of a new deal for the Nigeria economy, the type Franklin Delano Roosevelt as President of the United States of America had initiated to decisively cure the devastating great depression that had laid to waste vast sectors of the American economy and subjected the American people to unspeakable squalor between 1929 and 1932 (Americans actually scavenged the dust bins and garbage heaps for food). We need to make imaginative and bold use of our external reserve to service our Marshall Plan funding rather than continue to use external reserves to fund recurrent expenditure and for imports of unnecessary consumption items and sundry uses as occurred recently. My article "Prospects of the Nigerian Economy "in This Day, Monday, July 2, 2001 pages 32-33 highlighted this view point.

Of our current $7.5 billion external reserve, we can deploy about $4.5 billion to fund our own Marshall Plan such that agriculture, manufacturing (small, medium and large scale) and solid minerals development receive special funding to boost the non-oil sector and attract local and foreign investment more rapidly into such activated non-oil sector. By the Executive and the National Assembly cooperation, Bank of Industry could be empowered with $1 billion and the Nigerian Agricultural, Cooperative and Rural Development Bank Limited (NACRDB) etc with $1 billion (including special funding of National Directorate of Employment Doma-type integrated training farming scheme of Doma Local Government in Nasarawa State to be replicated in all of Nigeria’s 774 local government areas) and $0.5 billion to solid minerals development funding and another $1 billion to social infrastructure, education and health and security and $1 billion to physical infrastructure (electricity, refineries, roads and water). Even if the country has to limp on for a short while on an external reserve of only $3 billion as we fire massive economic growth with some $4.5 billion special funding of the productive sector, economic and social, we can as well endure this situation as an investment in the future of the country to attain an economy in which foreign exchange outflow will be reduced significantly in a massively productive economic with agriculture feeding raw materials to the manufacturing sector and limiting disbursement of foreign exchange on imports of manufacturing raw materials. South Africa whose economy is more than four times our own (GDP in 2002 in South Africa is $170 billion and Nigeria $40.6 billion) has maintained only $6 billion external reserve for years now.

It is absolutely defeatist and over-cautious for our Federal Government to shy away from Marshall Plan-type investment into the productive real sector because of the fear of corruption, mismanagement or misapplication of the government special funds. Recently, President Obasanjo reportedly used mismanagement as an excuse to reject the request by Governor Donald Duke of Cross River State for the Federal Government to provide long-term investible funds of $1 billion to support the productive reel sector of the economy (The Guardian, July 9, 2002 page 23 titled "Duke seeks $1 billion fund for financing industrial sector" and "why FG invests little in agriculture says Obasanjo" This Day, March 30, 2003 page 3). Similar requests were made by Governor Lucky lgbinedion of Edo State not long ago and Mr. Charles Ugwuh, president of the Manufacturers Association of Nigeria (MAN), particularly repeated this (MAN decries poor state of economy - New Age, February, 28, 2003 page 1-2).
In fairness to President Obasanjo, his view that most Nigerians can hardly be trusted with government funds, whether in the public sector or the private sector is, indeed, unassailable. But as the Yoruba would say omo toni iya ohun koni sun ohun papa koni foju kan orun" which literally translates that "the child wishing to deprive the mother of sleep will himself not sleep." Thus, stiff conditions can be attached to loans given out by the investment finance institutions out of government special funding and defaults or mismanagement or embezzlement be harshly handled indeed.
All loans should be fully collateralized by existing and intended assets of the borrow companies and beneficiaries and the existing assets of their directors and possibly selected prime shareholders. Private sector organisations like MAN, Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), National Association of Small Scale Industrialists (NASSI) and others like National Economic Intelligence Committee (NIEC) should be involved in the process of loan disbursement and guaranteeing refund of loans. Criminal mismanagement of loans and the perpetrators should be referred to the Anti-Corruption Commission as economic saboteurs.

If our government will, indeed, wake up now and become less neo-liberal and assume leadership in our disadvantaged fringe capitalist economy and boost investment in the economy with government taking the lead and initiative (by releasing targetted quantum investment finance only but leaving management of the funds entirely to the private sector) and the private sector both local and foreign taking a cue from such government booster investment, it is to be expected that agricultural, manufacturing and solid minerals production will dramatically increase, consumption of locally produced good will increase (aided by the comprehensive prohibition of non-essential imports or imposition of absolutely discriminatory tariff wall on non-essential imports).

Surplus local production

Exports of surplus local production of comparative advantage will be boosted by deliberate government and private sector export promotion action, foreign exchange inflows will increase from non-oil exports and our currency exchange rate that is equilibrating and stabilizing, at an unacceptably high rate will begin to appreciate against foreign currencies.

The appreciation of our currency exchange rate may not necessarily hurt exports since the economies of scale obtained from increased domestic production for local consumption and production for massive exports coupled with accelerated infrastructural improvements (electricity, telecomcnunication, fuel supply, water, road etc will conceivably bring unit cost of local production down such that the appreciating currency could have beneficial socio-economic effects in the domestic economy without necessarily dampening the exports-drive abroad.

It is indisputable that a boosted funding of the Bank of Industry and the Agricultural Bank (NACRDB) as well as funding solid minerals exploitation at low interest rate (six-eight per cent per annum) which is decisively lower than the prevailing money market rate and on long time basis will shield the productive real sector (non-oil sector) from the crippling disincentive of relatively high interest rate prevailing in the economy (20 per cent-22 per cent per annum).

Growing the economy by close to 10 per cent per annum: Certainly, boosting the economy with $4.5 billion directed at the productive rest sector by government on its own will not grow the economy at an additional six per cent annually to attain targeted 10 per cent annual growth. Probably it will add one per cent or two per cent to our current GDP growth rate assuming a micro economic 10 per cent to 20 per cent rate of return on capital investment in the real sector of our economy. This brings us to an annual GDP growth of just six per cent. Hence we need much more foreign investment into our productive sector of some $5 billion to $10 billion annually (including inflows of indigenously owned foreign exchange from abroad out of the quantum $170 billion which has been estimated as the external holdings of Nigerians) to add another two per cent to four per cent annual growth to our current GDP growth rate, if our privatization programme can really succeed, particularly for NITEL and aspects of NEPA, refineries, etc. With active competition from other economic players permitted by law and price, quality and anti-monopoly monitoring regulating agencies established, then productivity in the economy itself will improve aided by infrastructural improvements to which $1 billion had been recommended in this article and this can give additional one one per cent to two per cent to our GDP growth rate.

Thus, even though it is indeed a Herculean task to grow our economy by about 10 per cent annually in the next two years, it is achievable through a combination of a Marshall Plan investment aided by a surfeit of foreign investments into the agricultural, manufacturing and solid minerals sectors (including foreign exchange inflows of indigenous sources), successful privatization programme to gear up our lackluster productivity culture, massive infrastructure to gear up our lackluster productivity culture, massive infrastructural improvements and focused investments in education, health and security with political stability. Quite much, even if not all, of these can be achieved over the next 24 months and we will certainly bequite close to an annual 10 per cent real growth in GDP by end 2005.

How do Nigerians benefits

What will the average Nigerian stand to benefit from all these? A lot, indeed, and not the least of these benefits is that an appreciating currency, which can be achieved without an undue escalation of non-essential imports (as local production can now meet local consumption conveniently at reasonable and affordable prices) means a boost of the absurdly depreciated purchasing power of the average Nigerian. This is one way the mumbo-jumbo of economic management and economic growth in the nation translates into reality in the purses of the average Nigerian. Nigerians can now buy and achieve more with the naira in their pocket. Money will have more value and not the worthless currency of today. For example, before December 2001, nine South African rands exchanged for a United States dollar (US$) but by December 2001, 14 South African rands equaled a U.S. Dollar which became 10 rands to US$ by June 2002 and 8.55 rands per US $ by February 2003 and is even lower now.

This South African example of currency exchange rate management in which the depreciation of the South African rand was completely reversed should indicate that the Nigerian Government has a duty not to rest on its oars with merely stabilizing the naira exchange rate at the highly devalued N130/N140 per US$ (and which the IMF and some doomsday bourgeois neo-liberal economists want further devalued) but adopt bold Marshall Plan measures over the next two years along side much stricter monitoring of foreign exchange allocations and disbursements to stunningly boost production in the real sector, boost employment of idle labour force, boost local consumption, boost exports aggressively and boost the purchasing power of the now largely helpless and hapless Nigerians

If appropriate steps are adopted by the federal administration, N60/N70 could exchange for a United States $ by December 2005 (i.e 50 per cent appreciation of the naira within 26 months). Afterall, South Africa rand appreciated from14 rands per US$ to 8.55 rands per US$ within 14 months or 40 per cent appreciation without undue damage to their exports capacity.

•Omole is coordinator, Think Tank (Household of Ideas)