Buhariconomics — Economic Development! The Chinese (SEZ) and the UAE (Free Zones) Model.
President Buhari got elected primarily because of his stance on corruption. Yes, the Ascetic, prudent and vehemently anti-graft former dictator was what the Nigerian people wanted after the economically scandalous Jonathan administration. But as with all Transitions in Nigeria, everyone gets tired of the incumbent and looks, blindly, most of the time to the incoming administration for miracles. My article, “We must never forget to remember“, addresses these juvenile idiosyncrasies of Nigerians.
I agree that it is too early to say that the Buhari’s Administration is on the verge of being like his predecessors, but everybody knows that past behaviour is one of the best indicators to future behaviour. For the fact that he was in office for over 167 days, and 229 days since he won the March 28 elections, without any clear plan or strategy to advance the nation and salvage the remaining pieces of what we can call Nigeria, is not only indicative of a one man show in the making, but also an indictment of the Nigerian electorate for once again putting themselves in an untenable situation — yet again.
It is true, the Jonathan administration, putting it mildly, was economically wasteful. And that Buhari inherited an economy on the verge of a recession. But it is no excuse for the way, hitherto, President Buhari and his advisers have conducted affairs of the state, in regards to the economy, since becoming the President-elect on March 28, and after taking office on May 29.
Symptoms of an economy in downturn has pervaded the atmosphere since 2014, a year before the election. The United States, reduced its import of 1.3 Million barrels of oil daily from Nigeria to 73,000 in the first seven months of 2014, and stopped importing a drop of oil since then, the first time since 1973 — all thanks to the Bakken formation and hydraulic fracturing.
At the point of this writing the price of crude oil is $42.33 from over a $112 in 2014. So at the time the price of Oil was $112 per barrel and Nigeria’s daily export to the United was 1.3 million barrels out of a 2.08 million barrels produced daily in 2014, Nigeria was making a revenue of about $233 million daily, of which $146 million was from the United States. Now all that $233 million is gone, and the daily revenue is now about $87 million, assuming the amount of crude oil produced remains constant, and someone else buys the 1.3 million barrels once purchased by the United States.
For a country, which as at 2000, had oil contributing 14% to its GDP, 98% to its foreign exchange and 65% of government budgetary revenues; but yet, still imports most of its refined products, one would think the Nigerian electorate would consider it an issue in the election of a president; and one would also think the man who knew he was going to be president, from the time he was president-elect to the time he took office, would have a strategy to hedge the nation’s economy, which rests on the foundation of oil, against the economic catastrophe a drop in oil prices might bring. But No! That was not the case.
The President, ran on the platform of Anti-corruption, but he made a promise: no one would be prosecuted for past offences from the time he took office. This was politically expedient at the time. But he took office and reneged on his word. People should suffer for the crimes they commit, but a leader should be pragmatic and know when to do what. The economy at the time President Buhari took office needed stimulation, and purposeful economic policies not manhunts and tribunals, which the country cannot afford, and would eventually bog down the judicial system. Thank God he did not change the nation’s currency, like he did in the 80s, just to catch criminals
How is an economy going to grow in this atmosphere of fear and uncertainty? Nigeria is not going back to the days of Buharism — an anti-capitalist philosophy, with undertones of fascism — where the Nigerian people had to queue to purchase “essential commodities” (milk, sugar, soaps, etc), like an impoverished communist backwater banana republic, because of an enforced commodity prices control. Plix… We are not!!!
It is generally believed that the Tiananmen Square riots of 1989 in China was as a result of the people growing tired of an autocratic system. Evidence now shows that nothing could be further from the truth. The Tiananmen Square riots were as a result of the people becoming tired of an oppressive economically impoverished system.
People do not necessarily care about despots as long as their economic needs are met. When people have no jobs, cannot feed themselves and their families, the feeling of “nothing-to-lose” comes to the forefronts of their consciousness. The most dangerous person is the person with nothing to lose, but a person with a steady income, owns real estate, has children that are fed and sent to school is less likely to pick up a weapon to fight an absolute ruler.
The Gulf states have been rated ‘not free’ for over 5 years by the Freedom house; an organization that rates countries according to their observance of political rights and civil liberties for their populace. The media and telecommunication systems in these States are 100% government controlled. They have the strictest dress code laws, the drinking of alcohol, without a license or in a non-licensed environment and visiting sexually themed websites is a crime. These states are absolute monarchies, but there have been no uprising by the people, because their socioeconomic needs have been met. Foreigners are even willing to go and live in these states with stringent rules and unfavourable weather. For example the total population of the United Arab Emirates as at 2013 was 9.3 million, of which 1.4 million are Emirati citizens and 7.8 million are foreigners and expatriates.
This should be President Buhari’s long term strategy against the menace, called Boko Haram. Military operations can only do so much. The Scourge of militancy and terrorism in the Nigerian state would continue to be a perennial problem as long as 90% of the Nigeria population live on less than $2 a day.
Creating an environment conducive for conducting economic activities and encouraging foreign investments should be one of the cardinal mission of the Buhari administration.
More than 60% of Fortune 500 companies are incorporated in the state of Delaware, for two reasons. (1) There is a bi-partisan political consensus in Delaware to keep the Delaware corporation stature up to date, and to seek and rely on the advice of corporate law specialists on how this can be done effectively. (2) There is a specialized court, called the Court of Chancery, which has the power to rule on corporate disputes without juries. Solving the problem of prolonged litigation common to the legal system of other states.
In the business of shipping, the flag of convenience is the practice of registering a commercial ship in a sovereign nation different from that of the owners of the ship, so that the ship would fly the flag of the nation it was registered in. This is done for so many reasons. Some for tax avoidance, lax environmental laws or to reduce operating costs. The term open registry is used to describe an entity that would register a foreign owned ship. In the late 1960s, up until the late 1980s, Liberia was the largest open registry in the world for obvious reasons.
All these buttress the point that foreign businesses would always find their way to places with liberal and conducive economic policies. Nigeria should be no exception.
I therefore in this article try to paint a small part of the big picture, I believe if implemented would go a long way in liberating the Nigerian economy to something of a force to be reckoned with world over.
First, the creation of economically special zones is the way to go. I understand why till today this concept is still foreign to Keynesian — mainstream economics — practitioners, but China and the United Arab emirates surprised the world by actually making this work. China has a population of 1.4 billion and the Arabs Emirates, just a bit under 10 million; why won’t this work for the Nigerian polity?
The Free trade zones in the UAE are characterized by the following: 100% foreign ownership of the enterprise, 100% import and export tax exemptions, 100% repatriation of capital and profits, corporate tax exemptions for up to 50 years, no personal income taxes and assistance with labour recruitment, and additional support services.
Some people have wondered how a small country could transform itself from a desert backwater to the hub of commercialization in a generation, here lies the answer.
Indeed it would be a disservice on my part to exclude the fact that indeed the Nigerian state did, and is still trying to do this. But my consternation would soon be evident.
In 1992, an act for registered free zones in Nigeria came to effect. This lead to the opening of the Calabar free trade zone (CFTZ) in 2001. And in 2007 the Tinapa free zone and resort (TFZR) was established. But so far, it has all been stories of woe. As of 2008, the power supply in CFTZ has been erratic and the lack of dredging the Calabar river channel has made the cost of doing business there so high and unprofitable — defeating the very purpose of a free trade zone in the first place. As for the TFZR, the same infrastructural issues plague it, but what is worse is the fact that its legal status is still in jeopardy.
The Lekki free trade zone, about 96,000,000 hectares, in Lagos in under construction. But for country of 160 million of which 70% live below the poverty line of 1 dollar a day, its effect on the larger economy might be inconsequential. But I must say, it’s a step in the right direction, even though that was said about Tinapa in 2007.
Why don’t we approach this using the special economic zones concept, used in China? Because of our peculiarity as a state, in terms of institutionalized corruption, inadequate infrastructure, our economic zones would take a slightly different bent.
We would setup entire states as special economic zones. The SEZ would begin and end at a state with access to the sea. The Lagos-Ogun-Oyo-Kwara-Niger-Kaduna-Plateau-Nasarawa-Benue-Ebonyi-Amambra-Abia-Crossriver Axis is proposed.
Our policies would look like, but not limited to the following:
Taxes and corporate structure: 100% foreign owned, 100% import and export tax exemption, 100% repatriation of capital and profits, 100% corporate tax exemption for 50 years. No personal income tax.
Land: An agreement would be made between the government and the local chiefs, for land to be given to companies interested in developing residential, commercial and industrial areas for a period of 30 years. After which the value of the land the paid for by that company.
Power: Since we have problems with power, a framework would be designed by which companies can generate their own power, provide free electricity for the indigenes of the vicinity their plants exists and sell to the National grid at whatever price they choose. This would be an important step in dealing with our perennial power problem.
Financial services: Our banks would have a monopoly on the financial activities of these companies in Nigeria. So if any foreign company wants to use their foreign bank, they would have to liaise with a Nigerian bank, or come setup shop in Nigeria, with the intention of becoming part and parcel of our economic system.
Employment: 80% of the staff in these foreign companies would be Nigerians, with indigenes of the company’s locality given preference. (This is the only way I see it possible for the President Buhari to make good on his 4 million job promise to the Nigerian people during his electioneering). And this way the Nigerian people can learn and setup their own shops.
All these are basically macro details, but once all the ‘fine’ details can be deliberated and agreed upon, Nigeria is set to take on the world — unbridled.
The Nigerian people like trade, let’s make the environment conducive for them.