The Route to the Change we Seek
Depending on how we - as a country - go about it, year 2016 and perhaps the next two years present Nigeria’s most opportune years to attain its long awaited greatness. But again that depends very much on this administration’s perception of the future of Nigeria and their approach to optimizing the opportunities of these two/three years. First, destiny seems to have presented us an opportunity in removing the supposed curse of oil (as we often say). Oil has been the culprit in the innate corruption that has hitherto been the bane of our long years of underdevelopment. To a very considerable extent, it appears that we have been exorcised of this demon. Second, this administration - somehow and in a comparative sense - shows strong determination to deal with corruption. Nevertheless, even the freedom from corruption is but a necessary and not sufficient condition for the gigantic and speedy growth and development that will make us experience the prosperity that we hope for. Before now, the national economic strategy reclines on the opportunities provided by our oil earnings to develop Nigeria. That seems to have been a lost hope at least for now.
The challenge of moving forward from this seeming impasse has thrown-up a pantheon of online ‘economists’ and ‘economic analysts’ with attendant array of solutions. The primary object premised on the best ways to replace oil not only as the main source of foreign exchange and revenue to government but to give faster speed to quantum growth and economic prosperity for all. In the proposed 2016 budget we saw how the present government sees the future. We are also aware of the fiscal formula so far in place to answer this puzzle. Of course, the moderately expansionary fiscal plan effort attracted enormous barrage of criticisms ranging from the correctness of its design to how it was allegedly withdrawn from the national assembly.
The necessity of economic diversification to reduce Nigeria’s dependence on oil as a prospective pillar of economic prosperity is one that is no longer debated. What appears to be the contention is the ‘how to proceed’. Over the years and with the change chant of the last election, Nigerians appears to be defiant in saying that “we want a highly prosperous country”. Over these years, Nigeria also set targets for its self in this regards. At the last count, we had envisioned our country as one of the top twenty countries of the world by the year 2020. That target has not changed even though the momentum around it has waned because - I guess - our economy managers are scared of the high likelihood of missing it once again. To me, it is that wish that Nigerians were calling for when they were asking for change. It could not have been any other kind of change but one which makes us truly prosperous beyond the so-called strong GDP statistics.
Prosperous countries such as the top twenty countries of the world that we desire to belong to its league are distinguished by their strong per capita output, strong human development index and strong indexes of freedom. The first - per capita GDP - is determined by the robustness/value-adding capacity of their economic activities. The second one gauges the quality of this output-generating capacity and asks such questions such as how many of its citizens are really healthy; What capacity does the country have in order to continue to keep large numbers of its citizens healthy and out of poverty? What percentage of its citizens belong to the middle class? What percentage of its citizens are outrightly poor? How many of its citizens are unemployed and what kind of prospects exist for the employment of large numbers of the citizens? How many of their citizens are literate and what capacity exists for high quality education of its citizens on a continuous basis? and so on. The third condition - freedom - is really too critical for the achievement of the other two. Freedom here would be about the authentic existence of the rule of law (both in its letters and spirit), protection of private property rights, protection of the lives of its citizens, ensuring that contracts are kept and that justice can truly be obtained and so on. It is the veritable existence of the last one that ensures that investors are adequately attracted to participated in the economy on a sustainable basis. These define the prosperous country and that is the change that we are probably asking for.
As they say, “better soup na money make am”. And here is the foundations of this discussion: (a) The proposed 2016 budget may have indicated a general tendency in its moderate expansion towards infrastructure development, increased spending and growth but its size might not be strong enough to orchestrate stronger diversification out of oil. Stronger diversification out of oil implies a strong non-oil per capita GDP comparable to those of the top 20 or 25 economies of the world; (b) a major route to achieving this size of output would require the massive attraction of private investments into virtually all sectors of the economy of which infrastructure is critical but; (c) private investors are most likely to come into Nigeria at that scale when certain necessary requirements bothering on the rule of law, and basic infrastructure are adequately in place.
What it means is that in the sequencing of its capital projects priority attention ought to have been given to massive reforms that should enthrone and sustain the rule of law: the country’s justice system - the judiciary, the police, the prisons etc -, reform of the civil service with supportive infrastructure for productivity monitoring and evaluation, adequate security spending for military training to manage insurrections such as Boko Haram and other militants. Nigerian society ranks atop in the index of lawlessness if such exists. Nigeria, is a society where contracts are in many instances not kept. Nigeria is a country where the trust we have in our court system seem not to exceed 50%. For instance, in Nigeria a richer man will always have higher chances of obtaining justice (or injustice) made in their favour; or outrightly killed altogether and so on. Which good investor will be happy to stake his wealth in an environment laced with these characteristics. In any case even though some of these undesirable features may still obtain in other countries considered prosperous/developed, they - the undesirable features - are usually not at pronounced levels. Therefore it is without debate that it is the abundant presence of these undesirable conditions that has precisely kept private investors away for all the years that we flourished with oil. A few seeming exceptions to this that critics may cite have the following colourations: (a) the investments have extremely and comparatively short payback periods arranged - as if it were the market - through unpatriotic government officials; (b) are trading and portfolio investments that offers easy exits with minimal losses within months. On the whole, what this means is that for us to begin to experience investors that happily share our risks as a country, we have to aggressively embark on these reforms. In fact, many Nigerians have so much money to invest but will not do so on account of these known facts.
Similar to the proposed justice and civil service reforms which private investments will not finance for us, are some strategic infrastructure such as roads that connects economic regions and other rural economic nerve centres which may not be attractive to investors. Investors will ideally be interested in investing in infrastructure that offers quantifiable profit returns. A lot of basic infrastructure that in turn opens up the nerve centres of economic prosperity do not offer immediate and quantifiable profit attraction to private investors. For instance some critical roads connecting major rural food depots may not be profitably tolled and as such will offer zero or no attraction to investors who will have to wait until they are opened up. Having said that again, let me restate that there is however nothing that says that in the absence of these suggested precursors that private investments will not be substantially attracted. Of course more of them will be in the portfolio, speculative and trading areas that enable them to exit if they need to do that.
The result is that we may have relief and some seemingly strong growth but without development. This is not what Nigerians asked for. The quantum and sustainable speed of investment inflows matter. Why should more investors who have heard/read of how corrupt Nigeria is and how Boko Haram (which the media has placed to be at par with ISIS) is ravaging the whole of Nigeria, and how justice cannot be guaranteed in Nigeria become more interested in investing in Nigeria now that the attractiveness of oil has waned than they were in the past? This is where the challenge lies: the illusions of “foreign investment” inflows. Many have blamed Buhari for appropriating modestly expansive spending for infrastructure which they believe that private investors should have been easily involved to finance. Impliedly, the proposed budget supposedly loaded with high foreign borrowing component of its financing shouldn’t be so as foreign investors are on hand to take over some of those activities. We forgot that we have been waiting for these investors even in those infrastructure areas even while the oil pumps were pumping at good dollar rates. As such I disagree with that line of suggestion. The desiderata for attracting foreign investors must be put in place if we are dreaming of real development that provides massive employment, income and prosperity generally. That is what makes Buhari and his anti corruption crusade divine ordained. But the tactics of this crusade must change and give way for massive reforms as already pointed out if it has to support a quantum leap going forward.
But where will the money for such reforms come from? But we know that foreign investors will not finance our justice system reform, our police and prison reform, the quelling of Boko Haram and similar insurrections. Foreign investors will not finance critical infrastructure that do not present immediate profit opportunities. The option left for us to address these preliminaries is to borrow and get the system working as it should in the first instance. The capital expenditure proposal in the 2016 budget is therefore heavily under-estimated considering the challenge of strong growth, massive employment and aggressive enlargement of the country’s middle class. At least twice the current budget size would have been a good start to accommodate massive reforms and their associated infrastructure as suggested and should have more correctly signaled to investors that we are committed to the protection of their investments as well as the lives and properties of those who will come along with it. Twice the current size is still within the debt absorptive capacity of the economy especially given that the quality of investments of the borrowed funds in reforms are such which should ordinarily lead to stronger diversification and output through the attendant private sector investment inflow. Another opportunity is that this regime has so far shown a body language that may ensure that the funds are not diverted but may be reasonably utilized for the reforms as appropriated.
Did I hear somebody say that it will push us into a debt crisis? The answer is no, on the contrary it surely holds the key to gargantuan and speedy productivity growth which will return the debt-to-GDP ratio to levels that may even be much lower than what we currently have. Expanded output and productive diversification will make debt servicing requirements reasonably manageable or even less consequential. This suggested debt needs to be contracted one-off in order to ensure that this background for sustainably attracting private investments are in place. Of course, we expect that good complementary policies on the exchange rate also needs to be in place as well. Reflecting a fair value of the naira in the foreign exchange market as well as a market framework that continuously ensures that this is in operation needs be put in place. A depreciation of the naira is therefore inevitable if this is to start today. In the end, we shall all be better for it. It should turn out/up a stronger and more prosperous Nigeria. It should offer us the change we desire. Nigeria at this stage does not necessarily need a moderately expansionary budget. It has to be radically expansionary and largely focused on ensuring that the desiderata for private investments are in place.