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OCTOBER 9, 2016 • THISDAY, THE SUNDAY NEWSPAPER
PERSPECTIVE
Made in Nigeria Policy: Cleaning the Augean Stable Tunji Olaopa
T
here is no doubt that the Buhari administration has a lot on its table; in fact, a lot more than it bargains for. And this is where sincerity kicks into the act of governance: Once we become aware of what is at stake, what then do we do? How ought we to proceed in the careful untangling of the predicament, the creative outlining of the issues, and the disciplined but relentless implementation of rigorously fashioned policies with firm directional compass which requires higher strategic intelligence to craft? Beginning in early ’60s with the implementation of the First National Development Plan of 1962 – 1968 up until his later life during the Babangida days, Professor Aboyade worked assiduously with other gifted economists and planners of his time to chart a defined development path for the country so as to be able to produce for local consumption and exports. In addition to his promotion of self-reliance and self-sustainment in his national development policy assignments and engagements, Professor Aboyade also promoted this economic development philosophy in his works. In his words: “On the basis of those reforms, the mechanism of economic growth in post-war Nigeria can then be identified as lying in the simultaneous pursuit of three basic measures as the core of a development planning model. The first prong of the operational strategy is the achievement of increased productivity per man-acre and per man-hour in agriculture and especially in the sector of food and raw material production for domestic consumption, without prejudice to continued benefits from agricultural export. This result needs to be brought about by a higher marginal physical productivity per unit of land-labour input without a fall in the revenue product. Its purpose will be not only to raise agriculture, and hence national income for higher and diversified consumption within the period, but also particularly to create a large social surplus for much needed capital formation. The second element of the growth determinant is to be found in a greater structural shift of resource use towards more manufacturing industries, guided by more disciplined considerations of social profitability. The third, but not the least important, is the powerful stimulus for growth which could come from the maximum possible expansion of petroleum production to generate some of the enormous foreign exchange and government revenue required to sustain the difficult process of reconstruction and development
in an under-developed economy that has been overstretched by a long, wasting war” (Aboyade 1971: 35-36). The concern over local content and the reform of locally generated production and consumption has therefore always been at the fore of Nigeria’s development strategies. There has been a recent hype about “Made in Nigeria”. Some christen it “Buy Nigeria to grow the Naira”. Whatever name it is given, the whole idea focuses on changing our consumption and production structure to ensure we as a people and country become more productive and less consuming economy. The general goal of which is to promote overall inclusive economic growth and development of Nigeria. This is in sync with the economic development philosophy of Professor Aboyade. It is imperative to point out that this current campaign about changing our consumption and production pattern to ensure increased local production and consumption merely reinvents old abandoned paths. Some of the previous campaigns with similar objectives and focus are: Operation Feed the Nation; Green Revolution; National Orientation Movement; Reconstruction, Reconciliation and Rehabilitation programmes of Nigeria’s post-civil war; and Mass Agency for the Mobilization of Social and Economic Reform. Unfortunately, all these campaign initiatives had no sustained dynamics. They all died off before they were able to become transformative. And so our productive dynamism, still lame and epileptic, still has to compete with a strong behavioural dynamics that have been strengthened not only by an energetic global consumerist campaign backstopped by many years of manufacturing and productive excellence elsewhere, and Nigeria’s gross policy failure that is not sufficiently formidable to counter the addictive appeal of global goods and services. Consumerism is a global ideological pattern that thrives on the weak economic base of most developing nations. So, while the citizens are always consuming, rather than saving, they are consuming foreign products and services that put a huge strain on the hard-earned foreign exchange of the country. Immediately after political independence, the Nigerian government had a very high ambition for increasing manufacturing and industrial activities in the country. This was evident by the establishment of major manufacturing firms that include the Oku Iboku and Iwopin pulp and paper mills, Kaduna, Port Harcourt and Warri petrochemical plants, Ikot Abasi aluminum smelter company, Ajaokuta and Aladja steel mills. Added to these were the several textiles, cement, tobacco, beverages, and other similar manufacturing firms across the country that were acquired
from foreign investors through the indigenization policy. More recently, the Nigerian Industrial Revolution Plan was developed as part of a bigger economic diversification strategy with the aim of resuscitating manufacturing, thus changing the structure of production and consumption for the overall good of the economy. There are several challenges militating against effective evolution of a strong manufacturing sector capable of producing the country’s manufactures needs. Infrastructure tops the chart. Several manufacturers lament the extent to which electricity infrastructure has hindered production and productivity and more so has increased cost of doing business. According to World Bank Enterprise Survey data, over 90% of manufacturers see electricity as the greatest constraint to production in the country. Many also submit that electricity accounts for over 60% of their production costs because of the use of alternative electricity supply through power generators. The challenges retarding domestic production are also legion. First, there is constraint on access to land resulting from the country’s outdated land tenure system. Second is poor public and general perception that locally produced food crops such as rice are of inferior quality. Third, limited access to credit as a result of poor funding through the financial system that prefers to fund traders rather than farmers. Fourth, poor yield as a result of absence of improved seed varieties. Fifth, weak support by the government through R&D and extension services. Sixth, government inconsistent policy signals over the years. Seventh, higher cost of locally produced food commodities as a result of high reliance on subsistent production and high funding costs. Eight, inefficient fertilizer procurement and distribution system, leading to low application. There is the factor of low level of technology which is also a major challenge. World over, technological innovations drive productivity, especially in the manufacturing sector. Such innovative technology reduces cost of production and promotes efficiency and economies of scale. Level of technological innovation is yet low in Nigeria. Hence, manufacturers are sometimes forced to adopt obsolete technology that is very difficult to apply, hard to manage and expensive to maintain. Then the factor of lending rates in Nigeria which is one of the highest in the world. Lending rates by some deposit money banks are as high as 28 – 30%. Lending at these rates is highly inimical to business development. This explains the reason for the high rate of non-performing loans in the country. The challenge of dumping of substandard
imported goods is another issue in focus. This challenge emanates from both push and pull factors. The push factor is mainly the very cheap cost of production in emerging industrial Asian countries. Through state support, low cost of capital, excellent infrastructure and low labour costs, these countries are able to produce at very relatively cheap price. Their search for market to sell their manufactures makes Nigeria attractive based on its large market. The pull factor is driven largely by the attitudinal and psychological issues where there is high penchant for anything foreign. The high appetite for foreign-made manufactures have dramatically increased manufactures imports at the expense of domestic production that are perceived to be of low quality and meant for people of lower social status. Thus, many middle income Nigerians will prefer imported commodities not minding the quality when compared to locally produced alternatives. Furthermore, because of the challenges they face in producing locally, many erstwhile local producers and prospective ones have rather resorted to trading in those commodities that they were previously producing locally. They simply travel to places like Dubai and China to import the goods, sell and make their profit while avoiding the hassles associated with manufacturing business. Generally, sustained economic growth means increase in national output and national income emanating from rising aggregate demand and aggregate supply or productive capacity. This can only occur with lower interest rates that reduce the cost of borrowing and as such encourage spending and investment, increased disposable income that promotes household consumption, increased government spending, diversified and increased net exports. Others are good quality institutions, human capital development, favourable macroeconomic policy environment, and diversification of the economic base. National and sub-national governments should focus critically examining this general framework in the specific context of the realities on ground with a view to identifying the main sources and ingredients of growth that is capable of ensuring the country produce and consume what it produces in a sustainable way.
Adeosun outcomes are what we are experiencing so painfully today. Our GDP growth was not accompanied by development, our indices showed widening inequalities and fundamental weaknesses particularly exemplified by low capital investment, high unemployment and increased import dependency. The warnings about vulnerability to oil price shock were largely ignored. Capital can either be accumulated in the form of infrastructure and projects or retained in cash reserves; sadly, Nigeria has neither. After the first line charge of corrupt diversion, based on available records, in 2015, 90 percent of Nigeria’s expenditure was on recurrent items, with only 10 percent allotted
to capital; this translates to an individual spending 90 percent of his salary on entertainment and lifestyle items, leaving only 10 percent for building or saving for the future. This underinvestment in our infrastructure has impeded our economic growth and driven us into a vicious cycle of inefficient public expenditure dominated by salaries and closely followed by debt servicing which left little or no head room for capital investment. The N165 billion monthly wage bill which translates to N1.9 trillion per annum dwarfs by a ratio of 100 to 1, the N19bn spent on roads for the entire Federation. Now I am not among those who are seeking to blame the 1.2million public servants paid by the Federal Government, they are victims themselves. Many have been recruited into agencies that government is simply unable to fund in a manner that allows them to operate optimally. A recent audit of a particular unit found 20 drivers allocated to a department that did not have a single vehicle. The lack of fulfilment of such staff is unimaginable. Our huge wage bill would be justifiable if staff were operating in much needed areas such as teaching, healthcare, midwifery, agricultural extension; at least our health and other developmental indices would be improving. However, our propensity is to create administrative staff who are not specialists in any particular area. This explosive growth of the public sector and its wage bill is a function of our failure to develop the private sector and this failure brings us squarely back to infrastructure. It would have been so easy and convenient and politically comfortable for this administration to continue in that direction. To continue to simply
borrow to meet the wage bill rather than as it appears that they are doing, to question its authenticity. To pay lip service to our infrastructural decay with a few token payments and the flagging off of unfunded projects with great fanfare. Today, the data of food price inflation, cost of living challenges and loss of confidence are reaching a crescendo, it is sorely tempting to revert to what Nigeria has always done. This administration has a different philosophy; they are intent to attack the factors that have put us in this regrettable position. The first was the pervasive corruption, the second was wastage and inefficiency and the third was failure to invest in our much needed capital, particularly infrastructure. Targeted investment in infrastructure has the potential to ensure that our agricultural and solid minerals sectors can compete, that manufacturing can be revived and that the cost of living concerns can be addressed. None of these strategies will produce quick wins and we understand the frustration and the people, but we really have no choice. There is no credible alternative that will reposition Nigeria and ensure that this never recurs. There is no strategy that will allow us to tackle our problems rather than postponing them for future generations to face. We need a strategy that will refocus and revive our economy and will restore us to growth.
Where Has the Money Gone? Wole Olaosebikan
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n every nation, taxi drivers are always fountains of knowledge, not only do they eavesdrop on the conversations of their passengers, they also have insight of the beer parlour and food vendor discourse. Arecent encounter gave me a remarkable insight into the current national debate across all strata of society. Where has the money gone? Under previous administrations, there was money, people were spending and now under this current administration it has seemingly and suddenly dried up. This is a simplistic but accurate summary of the present economic challenges but it is one that must be frontally addressed. It is impossible to explain our current predicament without an understanding of our recent economic history. Since 2005, when the historic debt forgiveness was agreed, Nigeria enjoyed a period of historically high oil prices and relatively stable output at the same time it embarked on new borrowing. Indeed, with oil as high as US$112 per barrel, supplemented by borrowed funds, the only challenge was in the famous words of General Gowon, decisions as to what to spend money on. Nigeria spent, but did not spend optimally and the GDP growth that occurred was driven not by improvements in infrastructure or productivity, but was largely accounted for by the circulation of bumper oil receipts through government spending. That circulation of oil receipts in an economy is not in itself a bad choice but the quality of such expenditure is critical in determining future outcomes. Those
––Being a paper delivered by Dr. Tunji Olaopa, the Executive Vice Chairman, Ibadan School of Government and Public Policy (ISGPP), as lead speaker at Prof. Ojetunji Aboyade 2016 Memorial Lecture organised by the Development Policy Centre (DPC) Ibadan recently
––Olaosebikan is Warri-based public affairs commentator (See concluding part on www.thisdaylive.com)