A FRAGILE STATE WITH A FAILING
ECONOMY:
Making progressive change work for Nigeria
CHUKWUMA CHARLES SOLUDO,
CFR
APC Governors’ lecture series: August 25, 2016
Outline I: INTRODUCTION
*Prof. Chukwuma Charles Soludo II:
CONTEXT 1:
GLOBAL ECONOMY AND THE GREAT UNRAVELING III: CONTEXT 2: NIGERIAN ECONOMY:
OPPORTUNITY AND THREAT OF THE OLD ECONOMY
IV: TOWARDS A PROGRESSIVE RESPONSE:
APC STATES/GOVERNORS AS BEACONS OF CHANGE??
V: CONCLUSION: COMMUNICATING CHANGE
AND BUILDING COALITIONS FOR SUSTAINABLE CHANGE! INTRODUCTION…… Assigned Topic
“Building the Economy of States: Challenge of Developing Inclusive and
Sustainable Growth”. Has been focus of policy since 1962! Still ‘the issue’
today! Expectation? We can’t write a “blueprint” in a lecture. Only broad
pillars possible, while a “dedicated Team” sits to iron out the “Details”.
Dealing with Twin Shocks: Oil/economic and political— Response depends on
whether interpreted as “temporary” or “permanent” shocks; Denial versus
Reality? Our Thesis: “Growth in Nigeria/states won’t be inclusive if we don’t
break the dynasties of poverty and maximize States’ and Nigeria’s comparative
and competitive advantages.
It won’t be sustainable if Nigeria is not secured
and politically sustainable; deal with the demographics and environment as well
as loosen the stranglehold of Abuja on the states”. Focus: “A Fragile State
with a Failing Economy: Making Progressive Change Work for Nigeria” As first
Lecture since the inauguration of APC Government, May 2015? FOCUS: META-LEVEL
ARCHITECTURE: NO STATE CAN DEVELOP SUSTAINABLY IF THE OVERALL GOVERNANCE AND
ECONOMY ARE IN CRISIS A creative destruction process is underway, and we need
to get the fundamentals right, first: then meso, macro and micro level issues
can follow simultaneously * AIM TO RAISE SOME GENERAL QUESTIONS/ISSUES THAT
MUST UNDERPINE SEARCH FOR INCLUSIVE AND SUSTAINABLE ECONOMY—- NOT TO WRITE ‘BLUE
PRINT’ FOR SPECIFIC STATES Given resource base of each state (human and
material), we can brainstorm on state-specific programs to cope and compete in
the evolving ‘new economy’…. No prize for governing at a time of twin crisis:
But there also lies the Opportunity for Statesmanship! My commiserations and
congratulations! I see collapse of oil price as Great Opportunity and Blessing
for Nigeria…. DESPITE ALL ODDS, I STILL SEE HOPE AND GREATNESS AHEAD,
PROVIDED……. II: CONTEXT 1: GLOBAL ECONOMY AND THE GREAT UNRAVELLING??: THE
BURST might BE HERE FOR A WHILE… Global Economy stuck in a “low-speed lane” and
economies running out of instruments to jumpstart rapid growth– liquidity trap
and limited fiscal space due to debt overhang China is re-balancing: excess rural
labour drying up, and wages rising; from investment-driven growth to domestic
consumption: Cooling-off mode! Opportunity? Chinese Flying Geese! European
Union under pressure; the US struggling to maintain economic and military
hegemony; Emerging markets unravelling; Many primary commodity economies
imploding; etc…. Commodity super-cycle is over: primary commodity price
collapse (including oil and solid minerals) Unprecedented inequality and youth
unemployment Waves of anti-globalization and anti-immigration Terrorism and
violence becoming a “new normal” globally Opportunity? Swaths of huge but cheap
finance abroad; large market for Export-Oriented Industrialization; Technology
to leap-frog; etc. ii: context 2: Nigerian economy: Unravelling or Opportunity?
Nigeria as a Fragile State (the Failed/Fragile State Index)? FRAMEWORK FOR NEW
BEGINNING Ranked 54th in 2005; and deteriorated to 14th (2010-2012); 17th
(2014); and 14th in 2015 and now 13th in 2016 out of 178 countries. Very High
Alert: 1. Somalia; 2. South Sudan; 3. Central African Republic; 4. Sudan; 5.
Yemen; 6. Syria; 7. Chad; 8. Congo, D.R. High Alert: 9. Afghanistan; 10. Haiti;
11. Iraq; 12. Guinea; 13. Nigeria; 14. Pakistan; 15. Burundi; 16. Zimbabwe;
etc, etc. Variables in the computation of Fragile State Index (U.S. Fund for
Peace) Uneven Economic development; 2. Poverty and economic decline; 3.
Demographic pressure; 4. Group grievance; 5. Refugees and IDPs; 6. Human flight
and brain drain; 7. State legitimacy; 8. Public services; 9. Human rights and
rule of law; 10. Security apparatus; 11. Factionalized Elite; 12. External
Intervention. Economy unravelling vs opportunity?? Fragile State: (a “Hostage
Economy”– Hakeem Baba-Ahmed) — With widespread “localized trapped economies”–
encaged by terrorism, kidnapping, militancy, violence and desertification. —
Agitations for self-determination; and elite discord. FAILING ECONOMY? ** Oil
price shock, and burst of rentier, consumption-based,
dysfunctionally-diversified economy (by-passed competitive industrialization)……….
GDP compression from about $575 bn to about $296 bn (almost 50%); back to 2nd
position in Africa after South Africa; technically in RECESSION! Per capita
income down from about $3,100 to about $1,582 ***** Per capita income growing
NEGATIVELY as population growth rate higher than GDP growth Nominal and Real
Wage compression: Nigerian workers badly hit Unemployment especially youth,
Poverty, and Inflation soaring— compare to APC promises?? Capital market still
in coma with trillions of Naira in asset loss – critical barometer Nominal
Exchange rate on free-fall with crude capital controls – A moving target? FGN
budget in US$ as smallest in recent years $15- 19bn depending on exchange rate
and about 5% of GDP— or approx. $80 per capita! ** Recurrent Exp. = 107% of
total FGN revenue? *** More than 100% of Capital expenditure is borrowed
AGGREGATE REVENUE IMPLODES: IMPORT COMPRESSION AND FALLING CUSTOMS REVENUE;
INCOME TAXES FALL —- Fiscal Pressure; Rising DEBT and Contingent Liabilities
PUBLIC SECTOR EMPLOYEES (States) OWED MONTHS OF SALARY……Fiscal Viability of
States? STRUCTURAL COMPLICATIONS??? 1) Demographics and
Migration/urbanization??? Preparing for 400m population by 2050 (433 per sq.km
or 722 per sq.km for land unencumbered by desertification and erosion).
Currently, 213 per sq.km (India 404; US 33; China 143). Pressures on land and
water; urbanization rate one of the highest in the world; ageing pop without
social protection; youthful pop with little education/skills: JOBS??? 2)
Desertification, terrorism and violence; and North-South Migration—-
Desertification = 0.6km per annum (350,000 ha per annum): in 100 years, about
60km southwards and increasing. 55 million people in 11 states under serious
threat (Adamawa; Bauchi; Borno; Gombe; Katsina; Jigawa; Kano; Kebbi; Sokoto;
Yobe; Zamfara) and these account for 40% of Nigeria’s land: These are also the
POOREST States in Nigeria. Crop yields in these states drop by 20%; and
estimated $5.1bn lost in these economies per annum Search for new grazing land
and tensions over land; Deadly erosion especially in the South East North-South
Migration escalating: implications for citizenship questions and pressures on
land? STRUCTURAL COMPLICATIONS 3. Low Savings –Low Investment Trap (Paradox of
huge capital flight in context of capital scarcity): *** Foreign savings to
fill the gap or innovative (forced) domestic long-term savings 4. Extreme
(spatial and individual) concentration of wealth and inequality and POVERTY 5.
Paradox: Huge excess capacity vs low absorption capacity 6. Huge Infrastructure
deficit especially transport and power 7. Weak Institutions, pervasive
corruption, and low value-for-money in public expenditure 8. Very low
productivity and innovation 9. Acute skill shortages: Extensive schooling with
little education and skills 10. Paucity of long-term finance for development
11. Unsustainable twin deficits— fiscal and current account 12. Broken TRUST
between Leadership-Citizenship (Taxation vs provision of services) Necessity as
mother of invention? Finally, an OPPORTUNITY to actualize the 54 year-old
aspiration (since 1962 Dev Plan) for diversified and sustainable economy!
Opportunity to escape the OIL CURSE and RENTIER, consumption economy towards
PRODUCTION. Huge Growth Reserves: Abundant cheap labour; Huge reserves of
natural gas, oil?, solid minerals; fallow arable land; extensive coastal land,
high pop density for globally competitive manufacturing; Diaspora resources;
More diversified market economy with some “shock absorbers”; cheap international
finance; Huge elbow room for tax revenues— can increase from less than 5% to
more than 20% of GDP: one of most under-taxed in the world! States can learn
from each other! We have been through this road before (see Shagari and Buhari
1—1981-85). SUCCESS depends on whether oil shock is understood as temporary or
permanent shock—-hence whether short-term demand management or long-term
structural adjustment Fundamental Threat is Democracy with short-term electoral
cycles and hence pressure for “short-term” populist, albeit palliative response
vs desired long-term but potentially painful adjustment. Potential conflict
between what the people “want” today vs what they “need” tomorrow! A TIME OF
CRISIS BRINGS OUT THE BEST OF LEADERSHIP! IV: Towards a “progressive response”…
blame game plus trial and error coping strategy Phase ONE: Seems to Assume
shock is temporary; literally waiting for oil price to recover: POLICY REGIME?
More of the same +short-term DD management 330 Working days (Mon-Friday): May
29, 2015 – Aug. 2016 (35.22% of effective working days until Dec. 2018) KEY
PERFORMANCE? Fight against corruption and Boko Haram, and Treasury Single
Account? 2016 FGN Budget signals more of the same, with tinkering at the
margins; bail-outs, borrowing, et Exchange rate and crude capital controls:
Confusing trial-and-error of tried and failed neo-socialist command and control
policy regime of 1960s- mid 1980s. As predicted, quantities (employment and
output collapse)! Capital market comatose; capital flight with vengeance,
private investment pulse, inflation soars, and twin deficits exacerbate.
Economy in Recession compared to APC 10% Growth; 3 million jobs p.a. Delayed,
incoherent (dysfunctional), and incomplete adjustment exerting great toll on
the economy OUTCOMES SO FAR (especially in 2016) SELF-INFLICTED by acts of
omission and commission Nigeria would have avoided a recession: One year enough
for blaming fall in oil prices; after that blame our failures: “The fault, dear
Brutus, is not in our stars but in ourselves”– Shakespeare– Julius Caesar.
Extended coping strategy: “Emergency economic stabilization bill 2016”….If
true? A positive step forward: Akin to Shagari’s “Economic Stabilization
(Austerity measures) Act 1982?? But must be seen as only “First Step”. Problems
beyond short-term Demand management! Premise of the Bill (if true?): Economic
recession caused by insufficiency of aggregate demand; but recession is largely
supply-side, structurally, and policy- induced? Focus so far? Stabilization
plus reflation (basic pump-priming): The basis is faulty, and could become race
to the bottom. Transition to a Nigerian economy without oil cannot be
sustainable by merely pumping money into the system— clapping with one hand!
Where is the Agenda for Supply-side/structural transformation? “Confidence
grows at the rate that a coconut tree grows, but falls at the rate of a
coconut”: Investors don’t act like switch pumps. TOWARDS A “PROGRESSIVE”
RESPONSE…. Delivering the promised ‘change’ towards a Nigeria without oil??? IT
IS ‘CHANGE’ WITH A DEADLINE (No Second Chance to Create a first impression,
BUT…) Sept 2016- Dec 2018 –607 working days; Jan – May 29, 2019 is lame duck
season! TWO MORE ANNUAL BUDGETS before next electioneering! ECONOMY NOW STUCK
ON A “SLIPPERY MUDDY LANE” WITH A FRAGILE STATE WHAT ARE THE ‘7 IROKO TREES’
THAT APC WILL SHOW NIGERIANS ON ITS PERFORMANCE SCORE-CARD BY JANUARY 2019??–
OUT OF THE BOX IDEAS FOR UNUSUAL TIMES? APC: Moving from an Election-winning
coalition to a Governing Team (in control of FGN, and 23 out of 36 states, NO
EXCUSES!) CHALLENGE? First time a govt in Nigeria will be required to
“structurally transform” but without external ‘conditionalities’. Can we have
the discipline to self-regulate and make the hard choices— especially with next
elections in mind? Big Ideas to steer the economy to the next level?– Need agg
public sector spending of 15-20% of GDP; unconventional
monetary-fiscal-exchange rate-financial regime; structural and institutional
changes; infrastructure boom; unleashing the States; etc: In short, where is
the APC’s ‘New Deal’ for Nigeria? APC governors as the “force of change’? ABUJA
AS ‘FORCE OF CHANGE’ was for the old, oil-based, distributional system. For a
PRODUCTIVE ECONOMY, Change must occur from BELOW, but ABUJA must unchain the
stranglehold APC GOVERNORS AS A LOBBYING GROUP FOR CHANGE AND SOUNDING BOARD
FOR FGN???—- Two Hands to Clap: COORDINATE! COORDINATE!! HOW DO WE RECOGNIZE AN
APC STATE WHEN WE SEE ONE? (Compare to NPN and UPN states in 2nd Republic):
What are the “Common Core” that define APC states? APC AGENDA FOR BREAKING THE
DYNASTIES OF POVERTY: ADDRESSING BOTH EQUALITY OF OUTCOMES AND MORE SO,
EQUALITY OF OPPORTUNITY—- especially accessible and qualitative education and
health! Exporting Human Capital as Sustainable Agenda for Job Creation??? Where
is the Agenda? WHAT IS APC’S POLICY ON ‘POPULATION MODERATION’ VS POVERTY
REDUCTION?? Dealing with Desertification/Erosion Power of Collective Action? If
23 States under APC are ‘progressive’, Nigeria in aggregate will be
‘progressive’. If 23 APC Governors agree, you can literally change the
Constitution of Nigeria: Don’t repeat the mistake of the PDP—whereby
‘Opposition’ was largely from within. NEED FOR INSTITUTIONALIZED THINK-TANK??
Can’t drive sustained, productive change on ad-hoc, ‘as the spirit directs’
basis. It needs COORDINATED THOUGHT PROCESS AND PROGRAMMING!—A BIG BRAIN BOX!
APC policy war room or PGF secretariat? Pressing the Re-Set Button: APC
Manifesto Vs the Change Nigeria Needs?? Transforming “Progressivism” from just
a Name or Slogan, into an ideology/executable Agenda for ‘transformational
change’?? (Experiment: Quiz for 5 leaders of APC per state on what APC offers
to Nigeria— result will be greatest comic relief of the century!) Still nostalgia
about the UPN, NPN, PRP days— with clarity about ‘Vision for Nigeria’ and HOW
to get there! Take another look at APC Manifesto on the Website: Compare to
Actual programmes? POLITICS ALWAYS TRUMPS ECONOMICS, although Sound Economics
is Excellent Politics: Sustainable Change is impossible without POLITICAL
TRANSFORMATION OF NIGERIA! — No successful transformation to a “productive and
competitive economy” with META-Level institutions designed for ‘distribution
and consumption’ Where is the APC’s Political Agenda for Competitive Federalism
via fundamental Constitutional Change, including fiscal federalism—taxation
powers, rights over natural resources, wage setting, fiscal responsibility,
etc—- breaking from unitary-federalism of uniform standards to multi-speed
federalism with only minimum standards? A coherent agenda is possible whereby
after transitional 5- 10 years, every penny from mineral resources would be
devoted 100% to build bridges to the future— infrastructure and education plus
Fund for Future! In the new Federal Structure, we could transit from current
Federation Account sharing to a matching grants scheme from FGN— in a more
transparent and accountable manner; there are just too many change ideas to
debate Too many of existing laws are inconsistent with a regime for competitive
production; new ones needed! Operationally, the Secretariat or Policy War Room
must be fully funded to, among other things: A. Discover and disseminate global
best practices on accountable governance and shared growth; B. Peer Learning:
Collect, collate, and study different approaches of different states on
different deliverables and budgets (e.g. short-term coping strategies with
fiscal shocks and restructuring, school feeding program; public works programme
for employment; environmental sustainability; urban renewal, etc) and provide
comparative information. All politics is local but innovative ideas can have
universal applicability or adaptability. Subsequent meetings of PGF (perhaps a
day before or after NEC), to deliberate on “evidence-based” presentations of
best practices in the states and elsewhere?? C. Peer Review Mechanism
Secretariat to work with PGF to define and agree on measurable “common core”
standards and programmes for all APC States. Undertake periodic peer review
(confidential in-house, peer review evaluations) D: Statistics and Baseline??
How do you measure performance? If you can’t measure it, you can’t improve it!
What is your baseline data? What are you trying to improve?—- GDP growth in
your state, employment, poverty, inequality, manufacturing-based jobs,
indicators of ease of doing business (See BECANS III for example). Transiting
to Diversified Economy, led by mass, export-oriented Industrialization With
high pop density, highest urbanization rate, abundant natural resources,
orchestrating mass industrial revolution remains the KEY to a future economy
without oil (correct the dysfunctional diversification of the past: natural
resource dependence on solid minerals and agriculture not sustainable in the long-term).
Where is the APC Industrialization masterplan? OR, Adoption of existing one?
(Merely getting infrastructure and prices right won’t automatically ignite
industrialization: it requires intensive case study approaches—- Dangote or our
big banks did not just happen: deliberate efforts were set to “create them”.
How does Nigeria strategically position itself to harness the Chinese Flying
Geese for mass industrialization? What is the APC’s stand on EU-ACP Economic
Partnership for Africa and other TPAs? What is the APC’s agenda for Funding
industrialization and transformation– borrowing or leveraging or what?? So far,
much of what one reads about the Sectoral Strategies appear largely More of the
Same— just tinkering at the margins here and there. There is huge and serious
work to be done: HOW WE ADDRESS IT DEPENDS ON WHETHER WE APPRECIATE THE STATE
OF EMERGENCY OR WHETHER WE BELIEVE THINGS WILL SOON RETURN TO ‘NORMAL’.
Conclusion: Communicating Change And Building Coalition to sustain it So far, a
Mis-communication of the Change: Strategy is ‘backward-leaning’— blame PDP;
blame oil price; blame corruption: Nigerians elected APC to sort out their
problems. Assumption is that “things will soon return to normal”…… maybe they
won’t! APC Govt to come clean with Nigerians: the old Nigeria with free rents
no longer exists, and explain the road to a more sustainable Nigeria….
Nigerians waiting for a costed program with a deadline! “Be the Change you want
to see”: “By their fruits, we shall know them”… Preach ‘change’ and tightening
of belts but ….. (Patronize ‘Made in Nigeria’ but they see the cars, dresses,
shoes, etc;) *** WHICH COALITIONS FOR SUSTAINABLE CHANGE ARE YOU BUILDING OR
WILL IT BE A FLUKE? *** WHAT INSTITUTIONALIZED MECHANISMS FOR BUDGET
COORDINATION BETWEEN FGN AND PGF? Generational Challenge: “Each generation
must, out of relative obscurity discover its mission, fulfil it or betray it”—
Frantz Fanon: Can APC truly make ‘progressive change’ work for Nigeria??
History beckons! The clock is ticking!
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