Nigeria may keep trending down unless these five things happen.

The 2016 budgeting process proves once again that Nigeria at 54 is still struggling to crawl, a congenitally deformed child of socialism born after series of rape by capitalism. Africa’s largest economy’s only competitive advantage is its intensive drive to promote a rent economy that benefits very few starters with strong political connections.

It is now very common to see a Chinese business owner ordering a Nigerian policeman to slap and throw out Nigerian workers. It is also not uncommon to see the central bank — hand over deposits to banks at 1% and instruct the banks to extend same to businesses at 9% blaming the operating environment for the largess. The government places deposits in banks at near 0% and returns to borrow same at 13%.

It sometimes hurts when the Monetary Policy Committee reads out policy statements and the Monetary Policy Implementation Committee does the exact opposite and blames the fiscal authorities for every other thing.
The basic definition of the term ‘economics’ which studies human behaviours and postulates theories seems to have been turned on its head. Theories are now injected into the system and everyone blames the poor and “have nots” for not responding to theories. They intentionally refuse to carry out research to ascertain why gaps exist in Nigeria.

Agricultural products are over-priced and outrageous profit announcements seem to be the only success stories thrown into the world to attract unsuspecting investors. Interestingly, it is now commonplace to see big businesses playing in the extractive sector — with claws in the political arena — returning 59% gross profit. The business environment, ecosystem, and customers are not that important in policy formulation. Policies are directed at process and prices — not the health of sectors and cost.

The economy today is facing a series of terrible headwinds including oil price retractions, collapsing asset classes, rising inflation, a slowing economy, contracting external trade, huge underemployment and a currency crisis. The government plans include spending its way out of the economic darkness, but the bureaucratic system recommendations as contained in the line by line breakdown of the budget — seem directed at removing the roof of the house altogether to allow a moonlight effect — notwithstanding the heavy rain and lack of umbrellas.

For a country with a minimum wage significantly lower than what Sierra Leone will accept, Nigeria’s policy formulators seem to be out of touch with reality. It appears they will rather throw a massive amounts of money at problems rather than address the real issue which is cost. It gets very interesting when government begin to spend borrowed funds on over-priced and over-supplied apartments which 99% of the working households can not afford, and push the price of electricity beyond the reach of most businesses and household — regardless of whether it will make Nigeria less competitive. Nigerians with a minimum wage that can barely buy a bottle of coke after an hour of work are now expected to pay more for electricity than their American counterparts that earn $15/hour (N3000).

Company income tax rate is one of the highest in the world and collection methodology is very crude. Most Nigerian state and local governments routinely employ street urchins in their drive for revenue.

Things that need to happen to turn the corner

1. A 5-year development plan
Nigeria clearly needs a 5-year development plan, a big ideas-type document that lays out where the government and deprived population expects the industrial sectors — 187 in the private sector — to go to, remake the operating strategies to achieve these goals, lay down rules that will govern the sectors and what each ministry, agency, and department are expected to do. We need to rewrite the rule books altogether with price, cost and jobs the nominal anchor of decisions. Nigeria needs to get ambitious, decisive and innovative.

For instance, Nigeria could set an ambitious goal of remaking the meat processing industry into a $500 billion market. We will clearly need to have 8.6 billion chickens, 33.2 million cattle, 240 million turkeys, and 23 million sheep to get the industry going. To feed the animals, we will need 50 million tons of grain — which should be cheaper than what obtains in the global market, and another 45 million tons of grass. We will need 10 million hectares with tractors and harvesters to achieve that. We will also need approximately 1000 facilities to process and package the meat. We will need to train 10 million Nigerians to get the industry going.

Nigeria will need to look at the overall cost of production, set goals and rules, define standards and twist arms to get the industry working. Interestingly we have 187 economic sectors already operational in need of such goals and ambition. We need to get serious.

2. Re-denominate the Naira
Africa’s largest economy needs to remake its payment system. We urgently need to rework the Naira. The need to re-denominate the Naira and remove ambiguities is a must. While I may agree that the primary cost of inflation is strongly connected to the cost, supply, demand and volume of money, it is also imperative to look at how inflation is distributed across the population. Who gets hit the most and why?

For instance, a bag of rice that retails for N10,000 suddenly jumps to N10,500 (5% jump) due to excessive money growth or supply disruption or either way. For the retailer selling a “cup” at N50, her only option will be to increase her price at the least by N5. The poor pay 10% more as against the extra 5% the rich endures.

Nigeria needs to balance the level and even out effect in favour of the poor. We need a currency that distributes inflation evenly below the pyramid and makes raising the price on top of the pyramid near impossible. A good payment system should become the anchor of anything called change. Why not let us take out two zeros from the Naira. Even if a kobo will come out in notes, let’s get it done.

3. Infrastructure: De-emphasize Money, focus on Materials
Nigeria needs to stop attaching monetary values to programmes and focus more on resources. We obviously have resources in terms of material to undertake the biggest engineering and infrastructural development in Africa when we focus on the materials alone. It looks impossible when we attach money to it. We need to focus on the material resource part and innovatively solve the problem rather than attach money to everything.

We can build and pave 25,000km of road annually if we focus our attention on the material and human resources (500 million tons of aggregate, 16 million tons of cement, 11 million tons of bitumen, 2 million tons of steel and 800,00 workers) — but policy formulators may quickly conclude on the back of a N6 trillion budget — that 25,000km of roads which may cost N10 trillion annually may be impossible to undertake in a year.

We need to find an innovative way of getting the project off the ground without offsetting our fiscal environment. One way is the use of promissory notes, state-owned enterprises, public work initiatives among others. To replicate the American interstate road network — which spans 73,000kms — in 4 years, and is overlaid with 21 inches of compacted aggregate and 11 inches thick concrete, Nigeria will need 1.5 billion tons of aggregate, 48 million tons of cement, 35 million tons of asphalt and 6 million tons of steel. Clearly we have the material needed to build out the project under 4 years. We need to get into the ambitious mood, get innovative and get the project going. Looking for money to effect such may be near impossible. We may have to resort to unconventional ways of getting things done.

4. A shot in the arm for manufacturing
Again, Africa’s Largest economy needs to look closely at the manufacturing value chain. Clearly, the biggest challenge facing startups after the idea is building & land — both of which are overvalued. Nigeria can as well remake the sector altogether.
The textile mills that service Nigeria when our population was barely 40 million should not anchor and determine policies today. We need to think bigger.

We can build out 300,000 warehouses (600 square meters each)- using red bricks fired with the flared away natural gas and free laterite — under a national public works programme. We can rent out to manufacturers for as low as N40,000 per annum to open and encourage the sector rather than continue to throw money at the challenge. All I need to do as a fashion designer is to create a prototype design, test in few shops, get my pricing right, buy 500 sewing machines, rent the warehouse and begin massive manufacturing.

We need to ease off the risk of business failure by taking out the cost that makes decisions very difficult.

5. End Monetary Stupidity
I don’t want to delve into the macroeconomic stupidity that we have been displaying and documenting over the years. Printing N5.7 trillion to bailout some people sounds good, but who is paying? All of us, through inflation. Who pays more? The poor without bank accounts — remember my quick explanation — a bag of rice and cup of rice illustration?

If you look closely at the 187 industrial sectors, very few can return 20% gross profit. Nigerian banks blame every other thing except the greed for issuing out loans at 26%. How can you run a successful business that returns only 20% with a short term loan of 26%?
If you borrow N100 for 5 years to operate a business, you are expected to return approximately N40 every year to the bank despite having only N20. The lack of credit snowballs into a lack of capacity. That explains why gross capital formation relative to GDP is one of the world’s lowest. Low industrial capacities mean very few goods.
The few players then set price, determine what the inflation rate becomes, and ensure no other person gets the loan to compete. We need to disrupt the establishment and enshrine competition. Give 50 people loans of N500 billion at 5% each for 30 years and I’ll tell you cement won’t sell above N700.

Conclusion
Nigeria needs to set its priorities, realign resource allocation, get innovative and stop throwing stupid argument at the “working poor” and “have-not”. The economy needs to work for everybody- if not, I know where you can exchange tissue paper for money.