The era of the norm of waiting for the government to find money to sort out the economy is over. While a shift towards decentralization is politically appealing, the perceived economic gains are likely to be illusionary. To move the economic needle, emphasis must be on greater private sector involvement in the management of large parts of the economy (most sectors outside of basic education, primary healthcare, and defense). The big policy reforms required are a mix of privatization, liberalization, and commercialization of large sectors of the economy.
Firstly, growth is unlocked when capital (private or public) and management expertise is deployed towards expanding the capacity of a sector to deliver more goods and services to either Nigerians or the rest of the world. Given the perennial limited resource constraints facing Nigeria’s government due to a low tax base, a function of underlying economic structure (little to do about tax evasion or avoidance), the big growth outcomes (read telecoms) occurred when government gave up its strategy of investing puny amounts in a sector and allowed private capital (foreign and/or local) and their focus for making money to do the heavy lifting. With adequate regulation as in the telecoms case, the gains can astronomical and focal sectors quickly become net positive for tax and employment as the telecommunications sector is now a large contributor to tax receipts and employer of labour.
Secondly, Nigeria’s most abundant resource is low-skilled labour which as was the case with China (and unlike India which had a higher share of educated citizens) is more suited for industrialization vs. a services dominated economy. However, Nigeria’s present economic structure is dominated by capital intensive sectors with limited requirements for low-skilled labour.
A progression to a services-led economy will lead to the exclusion of a large segment of society which has long-term implications for social unrest. Accordingly, the policy can and should look to re-focus economic activities towards the absorption of the large mass of low-skilled labour to place economic growth on a more sustainable footing. This path obviously runs through agriculture and manufacturing. This does not mean taking the eye off services, as a friend would say, you can run and chew gum at the same time. It just means we know where the strategic imperative lies.
Thirdly, Nigeria’s external sector is highly vulnerable to oil price shocks which propagate themselves across the economy in reduced consumption and trading activity and inflation. Solving this problem entails ensuring food independence across selected tubers and grains, to a large extent, and given Nigeria’s oil resources, energy independence to a lesser extent.
To use the language of differential calculus, these two are necessary conditions, a sufficient condition for sustainably sorting external sector vulnerabilities requires not just food and energy independence but significant ramp-up in non-oil manufacturing exports to which potential exists. While scope exists for increased service exports given Nigeria’s financial and growing technology sector, boosting non-manufacturing exports requires over the near term a focused industrial policy targeting competitive key agro-allied and low-valued manufacturing products.
Given the last item, a key goal of economic policy should be towards raising the competitiveness of Nigeria’s non-oil exports which will require significant investment in infrastructure (power and transport) to lower production costs, improved security within Nigeria’s borders, lower capital costs, and let’s say an ‘appropriately aligned’ real exchange rate that seeks to exploit the geographic realities of being surrounded by CFA.
Reform Ideas:
§ Privatization & Liberalization of Nigeria’s logistics sector (rail, road, ports, airports & post): if the 2000s are to be characterized by reforms of telecommunications and the 2010s as the era of power sector reforms, then the natural progression is to decisively address big bang reforms to Nigeria’s logistics and transportation sector. Policy focus must be daring and ambitious with a drive to ensure to the extent the permissible frictionless movement of goods and services between the various parts of Nigeria using the most efficient means possible.
§ Private financed Infrastructure delivery and management but public ownership: The FGN is clearly at the limits of fiscal abilities and realistically, increasing fiscal support for infrastructure delivery will translate to unsustainable public debt levels. Rather than pushing leverage to unsustainable levels for projects where there is a weak political will to impose cost-reflective tolls, the FGN should simply package these projects into dedicated private infrastructure funds which retain public ownership but provide long-term concession arrangements. Target the big Nigerian infrastructure projects: rail, ports, key arterial roads, and bridges.
§ A food-centric industrial and trade policy: As noted earlier, fixing Nigeria’s external account vulnerabilities entails ensuring food independence. Addressing this entails a more targeted attempt at raising aggregate output and yields on key food crops (grain, tuber), animal products (milk, meat, poultry, fish) interspersed with selected cash crops (such as cashew for example) to provide the right blend. Alongside, work on infrastructure, the policy should focus on driving large scale commercial investing alongside well-designed community out-grower programs for target commodities. Gains from here are crucial towards driving down food prices.
Given the downward outlook for oil prices (due to the secular shift called climate change), the outlook for Nigeria’s oil sector is bleak. As such Nigeria will need to find a credible solution to the external account imbalance problem that dogged growth between the 1980s – 1990s and since 2016. Given our population size and high youth population, Nigeria needs a new plan for growth. As in the early 2000s, this requires another big push towards cultivating private capital into underserved sectors to move the wheel of growth onto a new plane.
The subtext for this piece is drawn from a book of a similar title by Ben Bernanke which chronicles the logic behind his decision at the peak of the global financial crisis to act ignoring the armchair idealists. Seizing the urgency of the times requires the adoption of bold reforms that will attract and inject private capital with the promise of efficient management into dormant sectors of the economy with government taking the backseat of regulation.
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