Poverty in the middle of plenty

Poverty is so perverse in Nigeria that it is no longer news that millions of Nigerians live on the margins of existence, eking out barely liveable incomes on a daily basis. What is news is that over 87 million Nigerians currently live in extreme poverty and Nigeria now accounts for 11.7% of the global extremely poor, coming an embarrassing second behind India. The tragedy is that this appalling state of affairs need not be so, as Nigeria has the necessary endowments to reduce extreme poverty to zero.

Poverty is not only lack of income and productive assets, it includes deprivation, hunger, limited access to basic health and education services, discrimination and exclusion. According to Adaboya, a Ghanaian quoted in the World Bank’s voices of the poor report: “Poverty is like heat: you cannot see it, you can only feel it; so, to know poverty, you have to go through it”. Unfortunately, over 87 million Nigerians feel this heat every single day. 

Nigerians are poor because successive governments have failed to implement policies that will reduce poverty on a consistent basis. Rather than building on past poverty programs and pro-poor policies, successive governments start all over, with significant fan-fare but with little to show as the number of poor people keeps rising. 

While poverty is all over Nigeria, it is more prevalent in the north. The latest survey (2019 Poverty and Inequality in Nigeria) by the National Bureau of Statistics (NBS) reveals the magnitude of this tragedy. According to NBS, while 40.1% of Nigerians are extremely poor, 59.6% of northerners are extremely poor while only 24.3% of southerners are poor. Furthermore, as noted by the World Bank, the south has managed to nurture faster urbanization, accumulated more human capital and created more job opportunities in the last two decades than the north. The north, on the other hand, has deeper poverty, sluggish growth even during the higher growth of the 2000s and very limited access to public services. Consequently, poverty policies may need to be adapted to address the differences in challenges faced by the two regions. For example, the north will benefit more by improving agriculture, while the south will benefit more by also improving the business environment. 

The question, therefore, is what can be done to reduce poverty and ensure every Nigerian gets the opportunity to flourish? President Muhammadu Buhari has promised to lift 100 million Nigerians out of poverty within ten years. However, how this will be achieved has not been formulated into a coherent strategy along with the necessary policies and programs. Furthermore, there has been an increase in criticism of the Federal Government on security, economic management and poverty. However, as Ngozi Okonjo-Iweala noted in her book, “Reforming the Unreformable”, the State Governors have the fiscal autonomy to do what is required to reduce the prevalence of poverty in their States. The following suggestions on how to reduce poverty can be implemented by both Federal and State Governments, but the most impact will be felt if the States rise to the challenge. 

Transforming agriculture is a low hanging fruit for economic development and any meaningful reduction in poverty has to start from agricultural reform where most of the poor earn a living. The “Poverty and Inequality in Nigeria” report by the NBS confirms this, as there are more poor people in the North East (71.6%) and North West (64.8%), two regions where agriculture is dominant and still at subsistence level with low productivity per hectare. There are several reasons for poor yields and low productivity in Nigerian agriculture compared to the world average. These include: lack of adequate extension services; low quality of soil, seeds and other inputs; low application of fertiliser; low usage of irrigation; poor storage facilities that increase waste; and insecurity.Transforming agriculture for poverty reduction, requires these issues to be systematically addressed. 

For a start, the provision of extension services needs to be increased with higher number of extension workers employed per Local Government that is involved in agriculture. This can be done by the State Governments as it is within their mandate. The Federal Government on its part should invest more in research and development of better yielding seeds. There are presently twenty Research Institutes under the Federal Ministry of Agriculture involved in developing better quality seeds and other aspects of agriculture, yet yields continue to be low due to slow development and adoption of better seeds and poor funding of actual research. A possible way forward is to merge the institutes to no more than six, this will enable better collaboration, knowledge sharing and reduction in cost of administration. The cost savings and additional funds could then be allocated to research and development of better seeds and provision of the seeds to farmers at affordable prices. Finally, access to fertiliser and adoption of low-cost irrigation methods need to be improved. By increasing farmers income not only will poverty be reduced, demand will also be created for basic manufactured goods and rural services, which will in turn spur further economic growth, thereby forming a virtuous self-reinforcing loop. 

The next potential intervention for poverty reduction is to improve the provision and quality of basic education. Again, this is a low hanging fruit and an area that is within the control of the States. Improvement in the quality of basic education will impact labour productivity and improve employment prospects of young Nigerians. Data from National Bureau of Statistics shows that the poorest States have the highest level of illiteracy and out of school children. Therefore, policies that increase the number of and quality of public schools are essential in reducing illiteracy and the poverty that it sustains. In a world that is becoming very sophisticated and intertwined, a child that is denied quality basic education is almost doomed to poverty. State governors, especially in the north, need to take up this challenge. El-Rufai addressed this problem in Kaduna State in his first term and the State will surely reap the benefits. Others should learn from him.

The third and critical area that also needs improvement is capacity for the Federal and State Governments to attract investments. Investments, both public and private, have declined in the last decade relative to the 2000s. Between 2000 and 2010, investment was an average of 25.8% of GDP but was a paltry average of 16% between 2011 and 2018. At a time when Nigeria’s population is still growing fast and composed of even higher number of poor people, the country is investing even less. With this level of investment, it should come at no surprise that economic growth in the last few years has slowed considerably compared to the 2000s. And without economic growth, there can be no reduction in poverty and all the ills it portends.

To attract investments, business climate reforms are required to remove the soft problems that make Nigeria unattractive for long-term investments. These include sorting out the exchange rate regime, reducing regulatory activism by Nigerian regulators that are eager to “catch’ erring investors, eliminating multiple taxes and making it easier to acquire land and title. The Nigeria Investment Promotion Council (NIPC) should lead the process of attracting focused investments and should be strengthened immediately to carry out thisimportant function. State Governments should also strengthen their own investment agencies and mandate them to work with the NIPC to make it easier for investors to invest in Nigeria. 

The fourth intervention that could be used in fighting poverty is social protection programs. The Federal Government has already introduced a number of social protection programs aimed at providing temporary jobs, feeding school children and cash transfers to vulnerable people. These programs provide short term relief from poverty, but due to lack of funding, they are difficult to scale up to meet the needs of tens of millions of extremely poor Nigerians. Furthermore, while social protection programs have a role, especially for the aged and vulnerable, it is better and more sustainable to increase the productivity and earning capacity of people than to provide social protection. As the saying goes, give a man a fish, he eats for a day, teach a man to fish, he eats for a life time. Nevertheless, they do fill a need and State Governments can definitely do more, as most of the heavy lifting is currently being done by the Federal Government. 

Finally, the Federal Government needs to formalise its pledge to lift 100 million Nigerians out of extreme poverty, within ten years, by developing a coherent strategy on how this will be achieved. The policies and programs required to implement the strategy should also be identified and implemented. Without a coherent strategy and actions, the pledge will become just another sound bite. In addition, the Federal Government should consider consolidating its poverty intervention programs in one ministry. Presently, over fifteen ministries and agencies are involved in one poverty alleviation or empowerment program or the other. Consolidating these programs in one ministry will reduce administrative costs and will also allow a more coherent approach to poverty reduction. Reducing extreme poverty has been achieved by other countries and is within reach for Nigeria, if the Federal and State Governments rise to the challenge. Poverty reduction will even be faster if the States take more responsibility rather than continuing to shift responsibility to the Federal Government and the elusive restructuring. The States have the fiscal autonomy and know their States better and could thus develop more relevant and targeted policies and actions to lift millions within their States out of poverty. Nigerians, on our part, need to demand more from the States rather than to continue to expect miracles from the Federal Government. A better life for the poor majority is possible, but only if the States and the Federal Government rise to the challenge, before eliminating extreme poverty becomes even more formidable and out of reach.

The impossible trinity

In the last few weeks Nigerians, who have had any need for foreign exchange, have been grappling with the consequences of the Central Bank of Nigeria’s (CBN) attempt to defy the impossible trinity. As the Naira continues to tumble against major currencies, the CBN realised, as it did in the past and others before it did, it cannot defy the impossible trinity.

The impossible trinity (monetary trilemma) refers to the trade-offs, in an open economy, that the Central Bank faces in deciding its currency arrangement. The trilemma contends that, it is not possible to meet all the following three objectives simultaneously: fixed exchange rate; independent monetary policy; and free movement of capital. Only two can be achieved at the same time. The CBN prefers a fixed currency arrangement, the movement of capital is relatively free (though there are some restrictions that are not that effective), which implies monetary policy independence is lost. This means the CBN has to change its policy rates as dictated by external dynamics and cannot successfully pursue independent monetary policy. Nevertheless, the CBN tries hard to be independent. The result is the current confusion, the pressure on the Naira and the occasional violent devaluation of the Naira that has become the staple of economic management in the last four years. To achieve macroeconomic stability, that is urgently needed for economic growth, the CBN has to accept the trade-offs and make the necessary adjustments to its currency management. 

Even before the coronavirus, Nigeria’s external position and current account were worsening. At the end of 2013, Nigeria’s net exports exceeded net imports by $19.2 billion on account of high crude oil price. Consequently, the country ended 2013 with a comfortable positive current account balance of $19.2 billion and foreign reserves of $43.8 billion. Unfortunately, crude oil price began to fall from a peak of $110 per barrel in June 2014 to $52 per barrel by the end of 2014. Things only got worse in 2015 and 2016. By the end of 2015, the current account deteriorated to negative $15.4 billion, which means Nigeria imported more than it exported. This was due to the fall in crude oil exports from $76.5 billion in 2014 to $42.4 billion in 2015. The negative current account balance in 2015 was the worst on record, at that time, in absolute terms. Matters improved in 2018 on the back of increase in crude oil price to an average of $70 per barrel during the year. Unfortunately, 2019 proved to be a sign of worse things to come. As crude oil fell to an average of $64 per barrel, and economic activities returned to the pre-2016 recession, the current account came under pressure and closed 2019 with a new record negative balance of $17 billion.

Despite obvious signs of a worsening of the current account as early as end of 2018 and throughout 2019, the CBN continued with policies that were likely going to make the Naira unattractive to hold. First, the CBN directly funded the Federal Government to the tune of a record N3.27 trillion as revealed in the fourth quarter 2019 budget implementation report released by the Budget Office of the Federation. One of the consequences of direct funding of government, which is akin to printing money, is an increase in inflation and pressure on the currency. 

Second, the CBN, after record direct funding of government and consequently flooding the system with cash, then decided to restrict participation of non-banks from its open market operations. The immediate consequence was pension funds suddenly had limited options but to move to the bonds market. Rates promptly crashed, to the extent that yield on the 30-year bond is now around 6% and rates on Treasury Bills hovering around 1%. While low rates are good, given that the CBN cannot ignore external dynamics in managing interest rates as predicated by the trilemma, the Naira became unattractive, leading to its free fall. Smart investors, that were not constrained like pension funds, saw the writing on the wall and dumped their Naira assets for dollars. 

While this was unfolding, coronavirus happened and crude oil price collapsed leading to production cuts. A perfect storm for the Naira if there ever was one. As at half year 2020, the current account was negative $8.86 billion, worse than half year 2019 (negative $7.4 billion). This is despite fall in imports due to the lockdown and reduced economic activity. The CBN dallied, refusing to believe its own data, before finally allowing the official rate to move to N360 to the dollar and then to N379. The response was clearly inadequate as the Naira kept falling in the unofficial market. On 30th November, the CBN made some positive changes allowing recipients of foreign remittances through various channels, such as Western Union, to receive foreign currency or to have the funds credited to an account. Remittances have already dropped from 2019 levels, with only $9 billion remitted in half year 2020 compared to $11.8 billion by half year 2019, a 24% drop, caused by the economic impact of coronavirus. Hopefully, this change will convince Nigerians to remit through official channels. However, more needs to be done to address the significant macroeconomic challenges that are threatening to inflict long term damage to an already fragile economy.

First, the CBN has to reconsider its record financing of the Federal Government and stick to the limits in the Fiscal Responsibility Act. The consequences on inflation and the exchange rate are clear to see and negate any fiscal advantages. Instead, the Federal Government should accept it is in the middle of a revenue crisis and should consequently critically re-examine the composition of the annual budget and reduce it, by eliminating non-essentials, to a level that could be sustainably financed. The resultant lower deficit, after reducing the size of the budget, could then be financed by issuing bonds rather than by significant CBN financing. Issuing bonds will have lower impact on inflation compared to creating fiat new money by direct CBN financing. 

Second, the CBN should accept it cannot defy the impossible trinity. It has all the intellectual fire power inhouse to come up with an exchange rate system that is suitable for Nigeria but is different from what obtains today, which is clearly not working. At the risk of stating the obvious, an over-valued exchange rate is incompatible with export diversification, as Nigerian goods will be more expensive relative to other countries that have more competitive exchange rates. China, the export powerhouse, was accused of undervaluing its currency, in order to boost export. Nigeria should learn from China. Furthermore, an over-valued exchange rate is incompatible with the drive to discourage imports as imported goods are cheaper than they should be when the Naira is artificially propped up and overvalued. Finding an exchange rate system that encourages exports, discourages imports and reduces the need for violent adjustments of the rate is possible if the CBN accepts the obvious.

Third, the CBN should unify the multiple exchange rates. The current practice of supplying Bureau de Change (BDC) at N390 to the dollar, while they can sell it unofficially at N480 rather than official N392, only provides an opportunity for BDCs to enrich themselves to the detriment of end-users and the economy. The CBN should consider supplying dollars to BDCs at plus or minus 2% of prior week’s unofficial rate. This way, the arbitrage opportunity of buying at N390 to the dollar from CBN and selling at N480 will be eliminated and the Naira will immediately find its level. 

Fourth, the CBN should allow exporters of non-oil unfettered access to their foreign exchange. This will not only encourage exports but will improve liquidity. The current practice of restricting what exporters can do with their own money discourages exports, encourages under invoicing of exports and other sharp practices.  

Fifth, it is absolutely critical that the Federal and State Governments work to make Nigeria attractive for investments and to encourage exports. Nigeria desperately needs to find other sources of foreign exchange as oil can no longer provide the foreign exchange the economy needs to grow at a rate faster than population growth. The process is not easy and will take time to bear fruits but no one said leadership is easy and Nigerian policy makers need to rise to the challenge now, not later. Otherwise, Nigeria will be back to the stagnant 80s, but with potentially more devastating consequences, given the larger population of unemployed youths compared to the 80s and the advent of the internet, that makes it easier to compare Nigeria’s lack of progress with progress elsewhere and the attendant resentment and social pressures. 

This is an exceptionally challenging time for policy makers. However, the solutions to Nigeria’s problems are known as others have tried them and succeeded. Nigerian policy makers need to rise to the challenge and steer the country safely away from the perfect storm of recession, rising inflation, a collapsing Naira and a broke Federal Government.

Yes, we can

The year 2020 won’t be missed. The year began calmly enough, but by March the world realised that the coronavirus was the worst public health emergency it had faced in over a century. The virus has so far killed over 1.86 million people and devasted the world economy at a speed not thought possible even a year ago. Coronavirus and lockdown became the unlikely words of the year. China, the source of the virus, was one of the few countries that grew their economies in a year that saw the developed world on its knees. 

Nigeria was spared the devastating human toll but the economy was battered. Price of crude oil, the main source of revenues and foreign exchange, collapsed, throwing the government into fiscal chaos and leading to the worst quarterly economic contraction in decades. The ENDARS protests started peaceful but eventually unleashed pent up anger leading to massive destruction of public and private properties in Lagos. Nigerians are living through the aftermath and wondering what next?

Despite the tense atmosphere, I believe there is hope. For a start, Nigeria’s youthful population is an asset. The demographic dividend enjoyed by many countries on their way to economic success is Nigeria’s for the taking, if the right policies are implemented and required investments made. The obvious and number one investment is in basic education and vocational training. Nigeria needs to get its large number of out of school children into classrooms and it needs to improve the quality of primary education. The government does not need to do it alone. It could utilise the private sector. A radical idea is for State Government’s to introduce a voucher system for primary school education. For example, every child gets a voucher for a certain amount to cover tuition in a primary school. Parents can choose a public or private primary school to use their voucher and can make up the difference if they wish to send their child to a more expensive private primary school. Low quality primary schools will subsequently die out because they can’t attract enough students to pay their teachers.

Vocational training, both in schools and on the job, is key for increasing the productivity of the work force. Federal and State Governments can make a difference by strengthening technical schools and providing incentives for employers to take on apprentices and interns. These incentives could include cheap land, tax breaks and cheap credit.

Another radical idea, but achievable, is for the government to guarantee that anyone between 21 and 30 years is guaranteed either an education, an internship or apprenticeship or a job. This is doable, but requires collaboration between the three tiers of government and the private sector. If Nigeria can pull this off, it will be a game changer. The productivity that will be unleashed and the demand for goods and services, as a result of the jobs that will be created, could be the boost the economy badly needs to get out of its sluggishness.

The second thing going for Nigeria is that it does not lack competent and successful leaders below the age of sixty. We just need to look at the success of the banking industry and other successful businessmen such as Aliko Dangote and Abdulsamad Rabiu (both are now over sixty) to see the potential. Some will argue that running a country is different from running a business. I will argue that they are very similar. First, a good leader, whether in public service or business, needs energy, drive and capacity to craft a vision and develop a strategy to realise the vison. Second, a good leader needs to know how to get things done, by selecting a great team to execute the strategy, exercising judgement and managing the occasional crisis. The likes of Dangote, Jim Ovia, Tony Elumelu, Aig-Imoukhuede and Segun Agbaje have taken their organisations to the peak and Nigeria is the better for it. They represent the best the country has to offer. They have what it takes to run Nigeria and take it to great heights. I urge them to seize the opportunity and join the political process. Nigeria needs them before it is too late. 

The third reason why I am optimistic that Nigeria’s situation is not a lost cause is that other countries, starting from far worst positions, have achieved economic success and Nigeria can. We just need to look at China to realise what is possible. In 1980, China was poorer than Nigeria with a GDP per capita of $195 compared to Nigeria’s $874. By the end of 2019, China’s GDP per capita was $10,262, more than four times that of Nigeria. China has completely transformed itself within forty years to the extent that it is now seen as a threat by western countries. Nigeria needs to learn the right lessons from China if it wants to succeed in unleashing high economic growth and reducing poverty. It is not enough to wish to lift one hundred million Nigerians out of poverty, actions are required to back the talk. 

The fourth reason for my optimism is that it does not really take a large number of people to create the change that is required. As Margaret Mead aptly put it: “Never doubt that a small group of thoughtful, committed citizens can change the world; indeed, it’s the only thing that ever has”. President Buhari’s ascent to the highest job in the land is a testament to the fact that a small team can actually take power. The people that made Buhari were not that many, but they believed in him and were able to ride on his name recognition to create a large following, which eventually culminated in support by the political class and his rise to the top. Therefore, I am optimistic that if some of our talented private sector successes throw their hats into the political ring, they will succeed. They have the leadership and organisational skills to create the necessary coalitions for success.

My final reason for optimism is that although living day to day can be exhausting, humanity has made great strides in improving quality of life over the last hundred years. Nigeria has also achieved success despite the challenges that remain. For example, Nigeria’s GDP per capita was $93 at independence but is now $2,230.Nigeria is thus moving towards the right direction albeit at a speed that is slower than we would like. From military dictatorship at the end of the nineties, to twenty years of democracy. From petrol subsidy that gulped over $62 billion between 2006 and 2019, to a deregulated petrol regime. From a youthful population that has been asleep for so long, to one that has woken up to the need to hold leaders accountable. To the emergence of an entrepreneurial class that is willing to seize at opportunities to create wealth, Nigerians are finally waking up to the possibilities, which bodes well for the future. 

Nigerians have the capacity to drive the economy to great heights and create a prosperous and peaceful society. The pervading pessimism by opinion leaders and political opposition is, thus, not the country’s foregone destiny. Nigerians have a lot to be thankful for, while the tasks ahead are tough, they are achievable. Opinion leaders and opposition should give hope, not despair, while acknowledging the difficulties ahead. Yes, we can, with the right mindset and actions, create the Nigeria of our dreams. 

A strike too many

The ongoing strike by the Academic Staff Union of Universities (ASUU), which started in March this year, has succeeded in almost wiping out a whole academic year. Unfortunately, the Federal Government and ASUU have failed to reach an agreement, despite engaging in several meetings, to the detriment of millions of university students. 

While some of the demands by ASUU may be classed as reasonable, some are downright ridiculous. One such ridiculous demand is the insistence by ASUU to be paid through a software of their choice. It will be difficult to find any private sector employer that will be bullied into forcefully accepting such a request by employees. What is important and should be the concern of the employee is being paid, the process by which the employee’s account is credited is not the employee’s business. The Federal Government should, therefore, stand firm and not concede on this particular issue. 

The second demand by ASUU that is problematic is that of earned allowances, basically a type of overtime. Lecturers are paid earned allowances when the class size they are teaching exceeds the maximum allowed. Rather than ASUU to insist on increasing staffing levels, it prefers agitating for earned allowances. The Federal Government should consider employing more lecturers rather than paying earned allowances. This will reduce class sizes and improve the quality of teaching.

The third issue is the demand by ASUU for increase funding of universities by the Federal Government. ASUU conveniently forgets that TETFUND is part of government’s intervention in tertiary education. The Fund has the potential to grow to over N200 billion per annum depending on overall performance of the economy and profitability of firms. A review of the proposed 2021 budget reveals that Ministry Education received the second highest allocation amongst ministries in the sum of N743 billion, representing 6.33% of the budget. Only the Ministry of Defence received a higher allocation of N962 billion, representing 8.2% of the budget. Indeed, the capital allocation to Ministry of Education is higher than that of Ministry of Defence. The bulk of the defence budget (81%) is for personnel, which is due to the size of the armed forces. Furthermore, if TETFUND is added to the allocation of Ministry of Education, the allocation to education will be almost at par with that of defence. 

Therefore, it is not clear where the Federal Government will find the funds to meet ASUU demands. Which budget lines should be reduced? The usual scapegoat, deservedly, is the National Assembly (NASS). However, with a budget of N128 billion, even a 50% reduction of NASS budget will merely add about 7% to the budget of education. Contrary to what Nigerians think, most political appointees under the executive branch earn less than one million naira a month. The total allocation to their salaries, overhead and capital in the 2021 budget, under the Office of Secretary to the Government of the Federation, is N12.9 billion. State House, including salaries of civil servants, has about N19 billion allocated to it. Again, any reduction will not significantly improve allocation to education. 

What ASUU and some Nigerians have refused to accept, even when the facts are staring them in the face, is that the Federal Government simply does not have the funds to meet most of the demands of Nigerians. For example, in 2019, the Federal Government received only N4.12 trillion in revenues. Meanwhile, personnel costs, overheads and debt service during the year was N6.7 trillion. Meaning, the Federal Government had to borrow N2.59 trillion to cover personnel costs (including pension) and overheads. To put it more starkly, after paying the N2.45 trillion in debt service in 2019, only N1.67 trillion was left to run the entire government. From the foregoing figures, it is clear the Federal Government has a major revenue challenge, which only worsened in 2020, due to the collapse of price of crude oil and lower production as a result of the coronavirus pandemic. Therefore, ASUU should recalibrate its expectations, because no amount of pressure from ASUU can suddenly solve the revenue challenges facing the Federal Government. 

Instead, ASUU should work with the Federal Government to find creative ways to improve the quality of university education without breaking the bank. Nigerians clearly value quality education as they spent $6 billion sending their children to schools abroad in 2019. Therefore, improving Nigerian universities will encourage more rich Nigerians to send their children to Nigerian universities, and will have the added benefit of reducing capital flight at a time when Nigeria desperately needs to conserve foreign exchange. 

A potential solution, which ASUU and some Nigerians will probably object to, is to increase fees charged by Federal universities to a level that can generate enough funds to cover personnel costs and overheads of universities. TETFUND will then cover capital expenditure of Federal universities. The Federal Government could then create a fund that will guarantee loans from commercial banks, at 5% interest for students that need them, to cover the new fees and living expenses. Students in both public and private universities should be eligible for the loans, in order to ensure competition that will help improve quality of universities. The guarantee fund should be self-sustaining after initial funding by the Federal Government. Commercial banks will provide the loans while the government guarantees and subsidises the interest so that it is pegged at 5%, repayable over 20 years after graduation. Under the proposed arrangement, the Federal Government will no longer be responsible for salaries and other operating costs of universities, say three years after the commencement of the transition. Universities that can’t attract students or who have low ranking will have to adjust their salaries accordingly. This arrangement could potentially end the current poor standard in government owned universities, create healthy competition, end the era of strikes and closure of universities and save the country billions of dollars in foreign exchange as more rich Nigerians patronise Nigerian universities. 

By providing subsidised loans for education, qualified Nigerians who gain admission to any university, no matter their financial situation, can obtain the education they need. Furthermore, student loans will reduce the pressure on public universities, which are currently overcrowded. Meanwhile, private universities, even those with modest fees, fail to attract enough students to be sustainable. This is because of the low income of majority of Nigerians, which makes private university education beyond their reach. The proposed loan is also not onerous on students, since payable over twenty years at 5%. For example, a student can complete most four- year degree programs at the cost of N2.4 million (school fees only) in most private universities currently operating. Such a loan can be paid off with a monthly payment of approximately N19,000 after NYSC over twenty years or N30,000 over ten years. 

The Federal Government is struggling to manage its current fiscal burden that has ballooned in the last three years. Unless, something is done urgently to reign in costs, the Federal Government will be unable to pay salaries in the not distant future. ASUU and all other unions requesting for increase in salaries or higher budgetary allocations need to face this reality and work with the government to find creative solutions to fund public services.

The alternative is for the Federal Government to continue running large fiscal deficits. The impact of which include: increasing inflation; lower economic growth; balance of payment difficulties; and devaluation of the Naira. The deteriorating macroeconomic indicators then feed on themselves, prolonging the fiscal crisis and inflicting pain on Nigerians, until everything comes to a head with a massive and disorderly debt default and deleveraging. Hopefully, ASUU will see reason, recalibrate their expectations and allow universities to reopen. Innocent students have suffered enough as this is one strike too many and too long, without much progress on what matters – improving the quality of Nigerian public universities. Following the reopening of the universities, ASUU can return to the negotiating table and work with the Federal Government to find creative solutions to funding and improving universities, without placing additional financial burden on the already over stretched Federal Government that is on the verge of a fiscal crisis.

Made in Nigeria

The quest by Nigeria to transform its economy from one dominated by export of primary resources to an industrialized one, with a diversified source of foreign exchange and government revenues, began after independence in 1960. In pursuing industrialization, Nigeria adopted state-led Import Substitution Industrialization strategy in the 1960s and 1970s. The 1980s saw the implementation of Structural Adjustment Program (SAP) and the retreat of the State. The trend since the new millennium has been towards privatization of State-owned firms and Import Substitution Industrialisation, with some government support for the private sector. If wishing to diversify the economy is all it takes to achieve economic diversification, Nigeria will have been an industrial powerhouse decades ago. Alas, wishing is not enough, focused policies and interventions are required if Nigeria is to realise its ambition for a diversified economy. 

One of the enduring “stylised facts” of economic development is that structural change – the movement of labour from low productivity sectors (e.g. agriculture) into higher productivity sectors such as manufacturing – is a key driver of economic growth. Nigeria is yet to experience major structural change as agriculture and services (informal and formal) employ around 91% of Nigerians and account for 77.8% of real Gross Domestic Product (GDP) in 2019, with manufacturing accounting for only 9% of real GDP in 2019. Indeed, manufacturing as share of GDP peaked in the eighties, on the back of State led investments and has been below 10% since 2003. 

Another advantage of manufacturing is that it plays an important role in increasing the productivity of agriculture and services by creating productivity enhancing tools and inputs. Importantly, diversifying to manufacturing reduces the macroeconomic risks associated with over dependence on volatile commodities for government revenue and foreign exchange. It is for these reasons that Nigeria has been trying for decades to increase the share of manufacturing in GDP and its contribution to foreign exchange earnings with little success.

A nation can decide to influence the decisions of entrepreneurs through industrial policies, which can be achieved by either supporting or challenging them. Challenging entrepreneurs requires setting targets that entrepreneurs have to meet before they qualify to access scarce resources such as cheap credit and protected markets. Supporting them entails providing resources and access without targets. Import Substitution Industrialization strategy supports entrepreneurs without challenging the firms to improve performance and competitiveness. Washington consensus, on the other hand, challenges the firms but offers no support. A major lesson from the Asian success stories is to combine the two; incentives need to be followed by discipline, as providing either support or challenge alone often fails.

The combination of high challenge and high support takes on the challenge of integrating into the global economy. In return, it requires support such as access to subsidized credit and tax incentives for training to cope with the intense competition. Japan, Korea and recently China have implemented export led growth strategy with high support tied to exports. Another advantage of export orientation is that it forces firms to compete, which leads to increase in efficiency and innovation. The resulting better products and lower prices leads to greater market share, higher savings and increasing investments, leading to sustained economic growth. Nigeria, on the other hand, has adopted Import Substitution Industrialization (ISI) strategy, providing firms with access to the domestic market by restricting or banning imports, access to cheap credit and tax incentives not tied to exports or other metrics such as number of jobs created.

One of the disadvantages of ISI is that it leads to investments in capital intensive industries where most developing countries have no comparative advantage. This results in expensive products for the domestic market, denying the country the savings and investments required for capital accumulation and sustained growth. The lack of external competition in the ISI strategy also means firms are under no competitive pressure to improve their products and technology, leading to obsolete products. Once the economy is forced to open up, these protected industries usually collapse under the relentless pressure of foreign competitors. 

Furthermore, by looking only inward under ISI, the country forgoes the large world market for a smaller domestic market. When a country is poor, like Nigeria, the large world market provides opportunities to sell to a bigger pool of richer consumers, thereby increasing the firms’ revenues and eventually profit and investment. Nigeria is fortunate enough to have a large domestic market and by adopting external orientation, Nigerian firms will still have access to the domestic market, while benefiting from the competitive pressure exports create. 

It should be noted that sustained economic growth entails a structural transformation of the economy, from one dominated by agriculture to one by manufacturing, from a rural workforce with low productivity to an urban one employed in higher productivity jobs. This transformation is also a result of competitive pressure, which ISI tends to supress. Consequently, a number of countries that practised ISI experienced some growth initially, but it eventually petered out due to lack of competitive pressures to force firms to upgrade their technologies and products. 

Finally, and more importantly, recent experiences have shown that, notwithstanding large domestic markets (e.g. China), export orientation has delivered better results. Two African success stories in transiting from agriculture to manufacturing, Mauritius and Tunisia, also adopted export-led manufacturing growth. Perhaps, it is time for Nigeria to try the export led model.

Manufacturers usually cite lack of quality infrastructure (electricity, roads and ports), poor access to credit, high interest rates and regulatory over reach by all tiers of government as their biggest problems in scaling up production.  Recently, I experienced first-hand what it takes to start a major project as the project team was repeatedly chased away from site. It took the intervention at the highest level to get the Local Government off our backs. 

So, what policies and projects can be implemented to enable made in Nigerian products exploit the opportunities offered by the African Continental Free Trade Agreement (AfCFTA) and make them global household names?

A quick win that will help made in Nigeria goods to become more competitive is for the Central Bank of Nigeria to reconsider the current fixed exchange rate regime. There has been an increasing necessity to devalue the Naira sharply due to sudden drop in crude oil price in the last five years. Such large forced adjustments adversely impact inflation, consumption and investment. Furthermore, an over-valued exchange rate is incompatible with manufacturing export led growth and discourages Foreign Direct Investment. The Naira has to be competitive against other currencies and preferably slightly under valued for Nigerian manufactured goods to be competitive. Another advantage of a slightly under valued exchange rate is that it discourages imports of non-essentials that are also manufactured locally. Furthermore, a competitive exchange rate is more effective in reducing imports and curbing smuggling than border closure. It also costs less. Finally, a slightly under valued Naira will create the expectation of an appreciating currency in the future and not a depreciating currency. This will make the Naira more attractive to hold and less prone to speculative attacks.

Access to credit has significantly improved in the last one year and interest rates have also dropped. For example, credit to manufacturing at the end of December 2018 was N2.23 trillion representing 14.7% total banking credit. This increased to N3 trillion at the end of May 2020, an increase of 34%, and represents 16.1% of total banking credit. However, this increase needs to continue due to the recent devaluation of the Naira and considering that most manufacturers borrow to procure foreign equipment dominated in dollars. The CBN should also consider providing its cheap funding to only manufacturers that export products. 

The infrastructure gaps affecting manufacturing productivity are significant and will be impossible to fix all at once due to lack of funds and the fact that large infrastructure projects take four or more years from start to finish. Therefore, there is a need to prioritize projects. Roads leading to and inside industrial clusters and access roads to ports should be given priority. 

Electricity Transmission and distribution infrastructure in industrial clusters should be prioritized and fixed within the shortest possible time. During the day, electricity should be first provided to industries first before other commercial and residential areas. The current electricity pricing regime where manufacturers and other commercial users subsidise residential users should end. Residential consumers consume the most power in Nigeria and pay a lower tariff. In most countries of the world, the reverse happens. Nigeria should adopt this sensible approach of providing power at a lower price to industries (productive base) than to residential users. 

Large manufacturers in gas infrastructure corridors have moved to gas powered generators rather than diesel powered to meet their energy needs. Unfortunately, the price of gas to Nigerian manufacturers is very high and is presently more than twice the international price. This is another disadvantage Nigerian manufacturers can do without. The Ministry of Petroleum Resources is presently reviewing the Gas Pricing Framework and should be encouraged to provide a lower and more competitively priced gas to manufacturers. This will reduce operating costs and make Nigerian goods more competitive.

The two biggest manufacturing subsectors are food and beverages (46% of manufacturing) and textiles, apparels and footwear (22%). Nigeria needs to attract more investments in textiles, apparels and footwear for export and other labour-intensive light manufacturing (electronics, household goods, motorcycles and tricycles). Motorcycles and tricycles were the 4th biggest imports in 2019, with imports valued at N453 billion. Therefore, attempts should be made to convince major manufacturers of motorcycles and tricycles to locate a plant in Nigeria, since Nigeria is now a big market for such products. This makes more sense, given the lower level of investment to set up such plants and the huge market for cheap means of transportation in Nigeria and neighbouring countries, compared to attempting to attract Toyota or General Motors. 

Finally, the Ministry of Industry, Trade and Investment should be strengthened to enable it truly drive Nigeria’s industrialization. The private sector has to be at the heart of the industrial drive, which requires the Ministry to work with State Governments to reduce regulatory over reach by all tiers of government to the barest minimum. The next major task of the Ministry is to draft a comprehensive industrial strategy, which identifies Nigeria’s comparative advantages in manufacturing, designs industrial policies that align with export led manufacturing strategy and articulates ways to attract investments by Nigerians and foreigners into the country. Above all, the strategy must accept the necessary trade-offs and choices as Nigeria cannot develop every industrial sector at once. As argued previously, agriculture is the starting place for transforming the Nigerian economy, while dynamic export led manufacturing is the next step and will provide the required push for Nigeria to fulfil its potential for economic greatness. The hope is our leaders will seize the opportunities provided by AfCFTA, the rising cost of Chinese manufacturing as China moves up the economic ladder and the energy, resourcefulness and resilience of Nigerian entrepreneurs, to make Made in Nigeria a successful global brand.

Transforming Agriculture

President Muhammadu Buhari has made transforming agriculture a centre piece of his economic strategy. The president got it right because agriculture holds the key to Nigeria’s economic breakthrough. But is his government implementing the right policies and programs that will unleash the productivity gains that Nigeria desperately needs?

Agriculture is important because it provides the most basic and vital human need. It is also important for poverty reduction because it employs almost 50% of Nigerians, who are mainly involved in subsistence farming. Therefore, successfully transforming agriculture and increasing yields and productivity will increase the income of a large number of Nigerians, with positive impact on poverty reduction. Ultimately, success in the transformation will lead to fewer people working in agriculture as has happened in developed countries and fast growing countries like China. The excess labour moves from agriculture into the more productive manufacturing and services sectors.

The movement of workers from agriculture to manufacturing and services is supported by the increase in demand for manufactured goods and services by farmers, as a result of their higher incomes following the increase in productivity. A more productive agriculture also reduces the cost of food, which positively impacts social and political stability. Furthermore, it reduces the price of agricultural inputs required in manufacturing, thereby making made in Nigeria processed foods and beverages more internationally competitive. Finally, a more productive agriculture will provide the savings and foreign exchange required to drive the economy. 

Transforming agriculture is a low hanging fruit for economic development and yet Nigeria is unable to increase growth in agricultural output in the last five years, despite official pronouncements. China transformed its agriculture within a year of commencing reforms in 1979. The rate of growth of agricultural output increased from an annual rate of 2.9% in 1978 to an annual rate of 7.6% from 1979 to 1984. The acceleration of growth in agriculture led to increase in per capita rural income with a significant proportion of the higher income saved in banks or invested in rural enterprises. These investments and higher demand for manufactured goods and services led to share of employment in agriculture to fall from 62% in 1978 to 53% in 1985 and to 25% by 2019. Thus, within five years – 1979 to 1984 – a major transformation was well under way. Unfortunately, no such transformation has happened in Nigeria five years after Buhari became president. 

According to the National Bureau of Statistics (NBS), agriculture grew annually by an average of 4.53% between 2010 and 2014. However, it grew by only an average of 3.15% between 2015 and 2019. Data from the Food and Agriculture Organisation (FAO) corroborates the NBS data. For example, according to the FAO, rice production grew from 4.6 million tonnes in 2011 to 6 million tonnes in 2014, an increase of 30.4%. Meanwhile, it grew from 6 million at the end of 2014 to 6.8 million tonnes in 2018, an increase of 13.3%. Maize production grew from 8.88 million tonnes in 2011 to 10.1 million tonnes in 2014 an increase of 14%. However, it grew from 10.1 million at the end of 2014 to 10.2 million tonnes in 2018, an increase of only 1%. Furthermore, despite the President’s push for food self-sufficiency, Nigeria still imported over $12 billion worth of food and agricultural commodities in 2019. The import bill was $11.7 billion in 2014 and $12.5 in 2019. After a drop in 2016, probably due to scarcity of foreign exchange, imports went up in 2019. The reason for the lack of high growth, higher price of grains and increasing imports, is that the main problems affecting agriculture have not been addressed on a scale that will have the desired transformational impact. 

In 2003, in Maputo, members of the African Union pledged to increase funding to agriculture to 10% of annual government budget. Nigeria has never achieved this goal and probably never will. For example, allocation to agriculture represented 1.48% of the revised 2020 Federal budget and 1.37% of the proposed 2021 budget. However, increasing agricultural productivity is not only about increasing Federal budget. It is how the money is spent. Nigeria scores an F on how it allocates and spends money to improve agriculture. 

A careful review of the budget of Federal Ministry of Agriculture and Rural Development reveals a total lack of focus on which crops, meat and fish to prioritise and support. Indeed, the composition of the budget seems to ignore the Ministry’s prime function, which is to increase agricultural productivity. The Ministry is trying to develop 31 agricultural value chains and yields of crops and not surprising, with little success, given the fragmentation of resources. For example, Vietnam produces rice with almost thrice the yield and maize with twice the yield of Nigerian farmers. Furthermore, the Ministry spends more money on construction required by its 45 parastatals, colleges and institutes, empowerment programs and even solar installations than it does on providing extension services and research to improve yields. For example, the Nigeria Institute of Oceanography and Marine Research plans to spend N2 billion installing solar street lights in Lagos, N500 million for solar in Ogun and N150 million for solar street lights in Bayelsa. That is a total of N2.65 billion, representing 48% of the institute’s 2021 capital budget, is allocated to spending on projects totally unrelated to its core mandate and which will have minimal impact on the productivity of the economy. In fact, going through the budget of the Ministry is an exercise in utter frustration and reveals why, despite trillions of Naira going into capital expenditure, the economy is no better than it was five years ago. 

Therefore, improving agriculture needs to start with a change in the mandate of the Ministry to focus only on agriculture and a complete overhaul of the budget of the Ministry. Adding rural development made the Ministry to lose focus and spend time and resources attempting to build rural feeder roads and install street lights. Rural feeder roads should best be left to Local Governments who know where they are needed and who will use local contractors to carry out the works, making it cheaper and more impactful. The main focus of the Ministry should be on developing better yielding seeds, improving productivity and provision of extension services. Furthermore, the Ministry should focus its energy and resources on no more than five crops at a time. Rice, maize (food crops), cashew nuts, cocoa and sesame seeds (cash crops) are good candidates to start with. 

There are other reasons, apart from the above, for the poor yields and low productivity in Nigerian agriculture compared to the world average. These include: lack of adequate extension services; low quality of soil, seeds and other inputs; low application of fertiliser; low usage of irrigation; poor storage facilities that increase waste; and insecurity.

Given the proliferation of institutes, it is not surprising that there is an institute for extension services, that is the National Agriculture Extension Research Liaison Services. It is also not surprising, given the suboptimal productivity of agriculture, that the institute has an allocation of only N1.46 billion in the 2021 budget, representing less than 1% of the Ministry’s N179.6 billion 2021 budget. The Ministry’s Headquarters and other institutes under the Ministry have allocated an additional N2.3 billion to extension services, bringing the total allocation to extension services to N3.8 billion representing 2.1% of the total budget for agriculture. This is clearly inadequate, given the role played by extension services in improving yields and productivity.  

Therefore, provision of extension services needs to be expanded with higher number of extension workers allocated to each Local Government that is involved in agriculture. This should be done with active collaboration of the State Governments. For example, the Federal Government could provide funding for ten extension workers per Local Government while the State provides funding for an additional ten. Furthermore, each Local Government should have a demonstration farm of at least three hectares. The demonstration farms will be used to show farmers best farming practices in the relevant crops and will provide an opportunity for farmers to share experiences. 

There are twenty Research Institutes under the Ministry of Agriculture involved in developing better quality seeds and other aspects of agriculture, yet yields continue to be low due to slow development and adoption of better seeds and poor funding of actual research and development. A way forward is to merge the institutes to no more than six, this will enable better collaboration, knowledge sharing and reduction in cost of administration. The cost savings and additional funds should be allocated to more research and development of better seeds and provision of the seeds to farmers at affordable prices. 

Access to fertiliser has improved in the last five years, yet fertiliser application remains low, perhaps due to low income of farmers. Better extension services proposed above will show farmers the benefits of optimal utilisation of fertilizer. Federal and State Governments should work together to find ways to provide additional fertilizer to farmers without distorting incentives. 

Adoption of Irrigation is another area Nigeria lags despite availability of water resources. Development of large irrigation infrastructure is under the Federal Ministry of Water Resources. The Ministry of Water Resources should prioritize completion of current irrigation projects rather than creating new ones, leading to so many uncompleted projects, that take decades to complete. Furthermore, the two Ministries (Agriculture and Water Resources) need to collaborate more effectively to develop and promote utilisation of low-cost irrigation. Given the lack of funds and Nigeria’s low adoption of irrigation farming, low cost irrigation is the quickest way forward and has the additional benefit of immediately increasing farmers’ output. 

Some will argue that we need more mechanisation in agriculture and the use of more modern technologies. However, experience of other countries indicates that will come at a later stage. Right now, Nigeria needs to get the basics right. That is getting the small holder farmer that has a hectare or less to get more yield out of his or her land by adopting labour intensive farming methods, akin to gardening. This was the secret to unlocking agriculture in Japan, Taiwan and many others. Ultimately, getting agriculture right, is a detailed oriented hands on process and a necessary first step in transforming the economy, increasing national output and lifting millions out of poverty. Nigeria is yet to get it right and with crude oil losing its allure, the process will not get any easier. Consequently, low economic growth will continue to be our lot, until such a time when our leaders actually get down to doing whatever it takes to transform agriculture. Hopefully, they will, sooner rather than later, so that we don’t have to look back at 2020 as the beginning of a never-ending social and economic nightmare.

Reimagining Nigeria’s Economic Strategy

The economic fortunes of Nigeria have long been dependent on the price of crude oil and continue to this day to be intertwined and affected by its increasing volatility. Despite the opt repeated aspirations of the government to diversify export earnings from oil and gas, these natural resources still account for over 90% of Nigeria’s export earnings. Covid-19 has accelerated the decline of oil and Nigeria must reimagine its economic strategy, if it is to achieve its much-touted potential for economic greatness.

At independence in 1960, Nigeria’s Gross Domestic Product (GDP) per capita, that is per person, was $93. By 2019 it had climbed to $2,230, an increase of over 2000%. This does not look bad until compared to the growth of World GDP per capita or to the GDP per capita of China or even Vietnam. The GDP per capita of China in 1960 was $90, lower than that of Nigeria. By 1980, China was still behind Nigeria with a GDP per capital of $195 compared to Nigeria’s $874. China’s fortune began to change in the eighties following its economic reforms and abandonment of a planned economy. By 2019, Chinese GDP per capita had risen to $10,262, not only has it overtaken Nigeria’s, but its GDP per capital is now over four times that of Nigeria. The rise of China shows what can be achieved when the right choices are made and implemented with rigour and pragmatism devoid of ideological rigidity. 

President Muhammadu Buhari recently reiterated his commitment to lift one hundred million Nigerians out of poverty within ten years. This is indeed possible. But how will it be achieved? No details have been provided on how the government intends to achieve this and the 2021 budget submitted to the National Assembly did not indicate the specific programs that will be implemented to lift 10 million Nigerians out of poverty in 2021. The budget is the main instrument for implementing government policies and programs. Therefore, if the 2021 budget did not address how 10 million Nigerians will be lifted out of poverty in 2021, then how will this ambitious target be achieved? 

Lifting one hundred million Nigerians out of poverty within ten years is a worthy goal but it won’t happen unless actions are taken to engineer annual inclusive economic growth of 7% or more. Nigerian can learn a lot from China in this regard. China’s success in economic development began with reform of agriculture and shows that incentives matter. With the right incentives, the private sector can become the engine of growth because the State cannot achieve it alone. We only need to look at Nigeria’s recent drive to increase rice production and milling and the private sectors’ embrace of government’s interventions in this area, to appreciate the power of incentives. 

So what policies can the government implement to accelerate sustainable inclusive economic growth? First, a good strategy requires choice, trade-offs and prioritization. The government cannot do everything at once. It has to choose. Second, the government needs to create an environment that encourages high levels of investment, job creation, competition and inclusiveness. Third, a more labour demanding economic development strategy that focuses on improving agricultural yields and export-oriented manufacturing could deliver faster economic growth that is also more inclusive. Fourth, a holistic approach that requires aligning monetary, fiscal and trade policies, with development needs while appreciating the trade-offs needs to be adopted. Fifth, investments, both public and private, are absolutely critical for growth, thus, government urgently needs to find ways to increase investments. Finally, and equally important, are investments to improve the quality of public education and primary health care. 

To get agriculture right, Nigeria can learn from China and more recently Vietnam. China began its successful economic transformation by abolishing the collective system of agricultural production and allowing individuals to farm their land and sell most of their products at market price. Getting agriculture right does not mean getting more people into agriculture. What China and others before it did was to get agriculture to be more productive per hectare such that fewer people will be required to till the land. The excess rural labour no longer required in agriculture then moves into manufacturing, which is far more productive than agriculture.

Next, Nigeria has to reinvigorate manufacturing by promoting manufacturing for exports. Some believe that due to the current nationalistic resurgence, export led growth will not succeed. But let’s ask ourselves whether the world will suddenly stop buying Samsung phones, Apple Macs, Turbines by Siemens, Mercedes Benz and so on? Or will the world stop using services such as Microsoft Office, Google, Ali Baba portal, reading books published in other countries, attending foreign universities etc.? I don’t think so. So, despite the noise, no country is 100% self-sufficient and no country will ever be. Therefore, trade will continue to be essential to improving the quality of life of people across the globe. Nigeria needs to export in order to buy what it cannot produce, perhaps due to natural resources constraint (e.g. wheat) or technological constraints (e.g. commercial jets). Nigeria can no longer rely on oil and gas as its main exports to fund its imports due to the current global push to reduce reliance on fossil fuels and increasing volatility of the price of crude oil. Hence the need for export led manufacturing to take centre stage. 

Furthermore, the private sector has to be at the heart of the export led manufacturing strategy. There should be an aggressive push to encourage domestic manufacturers to increase investments and a more focused campaign to attract Foreign Direct Investment into manufacturing. The Nigeria Investment Promotion Council should lead the process and should be strengthened immediately to carry out these important functions. It could target a few manufacturers of products Nigeria has a comparative advantage (e.g. apparels and footwear; electronics; petrochemicals and allied industries) and pursue these firms to establish factories in Nigeria. Nigeria can learn from China and Morocco in establishing Special Economic Zones (not just free zones) and in attracting FDI. Nigerian importers (including foreign owned firms) should also be encouraged to manufacture in Nigeria and target exports, while meeting local demand.

For export led growth to succeed, Nigeria needs to invest a lot more in infrastructure. Nigeria’s total investments (infrastructure, machinery etc.) have collapsed from the highs of annual average of 47% investment to GDP achieved in the eighties and nineties to the lows achieved in the last and current decade of 15% investment to GDP. Due to the current debt burden of the Federal Government, innovative financing and private sector participation in infrastructure should be the way forward. Focus in the beginning should be on rail, roads and power transmission and distribution due to their impact on competitiveness. Also, project selection should not be politicised but be based on where the economy will benefit the most.

More investments in human capital (education and health) are also required. In 2019, Nigerians spent over $6 billion sending their children abroad to study. This is a huge sum and is almost three times Federal spending on education. Nigerians also spent $2.56 billion on foreign medical care in 2019. Clearly Nigerians value quality education for their children and quality healthcare for themselves. Increasing investments to improve quality of education and healthcare will not only have a direct impact on the wellbeing of Nigerians but will also lead to higher economic growth. It will also save scarce foreign exchange as richer Nigerians will divert some of their foreign spending to local schools and hospitals. 

Success also requires not only a change in strategy but reform of the civil service. The quality of the current civil service is not fit for purpose and it will not be able to implement the above policies with the level of quality and intensity required.  The reform of the civil service should ideally reduce the number of agencies and personnel, while increasing salaries in order to attract the best. The coronavirus pandemic has shown that the Federal civil service is over staffed. For nine months, the ministries functioned with less than half the staff and there was no indication of deterioration of services. To succeed, reforms should not be domiciled with the Head of the Civil Service because the civil service cannot reform itself. Furthermore, it might be advisable to start the reforms with the three most important ministries namely: Finance, Budget and National Planning, Agriculture and Industry, Trade and Investment. 

Patience, pragmatism and perseverance are also essential for success, as the journey is very long and nothing is guaranteed. Failure to act now will be very costly as the ensuing economic stagnation will lead to further insecurity, increase in poverty and hardship for the majority.It was Robert Lucas Jr., the Nobel prize winning economist, who said and I paraphrase: “Is there some action a government of India (Nigeria) could take that would lead Indian (Nigerian) economy to grow? If so, what, exactly? The consequences for human welfare involved in questions like these are simply staggering: Once one starts to think about them, it is hard to think about anything else”. Our leaders need to heed his wisdom and begin to think rigorously about questions relating to economic growth and to act decisively to solve these questions. Otherwise, Nigeria’s economy will continue to underperform and tens of millions of Nigerians will continue to live with the pain and indignity of abject poverty.

How can Nigeria reduce youth unemployment?

Nigeria recently celebrated sixty years of independence. It was a time for deep reflection on the numerous opportunities Nigerian leaders missed to improve the quality of life of the majority. Therefore, it is not surprising that the strong dissatisfaction with the quality of life and the scarcity of opportunities in Nigeria have culminated with youths taking to the streets, demanding an end to police brutality and better governance.

That the police have been a source of pain, rather than succour to Nigerians, cannot be disputed. However, contrary to popular perception, this government has since started the process of improving the performance and effectiveness of the Nigeria Police Force (NPF). First, the President approved an increase in salaries of the police in 2019, to align it with that of other security forces. This can be seen by examining the allocation to police salaries in the 2018 budget compared to the 2021 budget. In the 2018 budget, the allocation to salaries of police was N289 billion. Meanwhile, in the 2021 budget, which is currently at the National Assembly for passage, the allocation is N417 billion, that is an increase of 44%.

Second, the government commenced regular recruitment into the NPF in 2016. Prior to 2016, the last recruitment of constables into the NPF was in 2011. This created a huge vacuum as frontline junior police officers retired and others died on duty without replacement. Since 2016, the current government has approved an annual recruitment of constables. This is despite the unfortunate actions by the Police Service Commission to attempt to scuttle the already completed 2019 recruitment and to stall the 2020 recruitment, which were both approved by the President.

Third, the government passed into law the Nigeria Police Trust Fund Act, to address police funding challenges. The Fund came into effect this year and funds are allocated to it by the Federation Account Allocation Committee at their regular monthly meeting. So far this year, the Fund has received an average of N2.63 billion monthly and is on track to receive at least N30 billion in 2020. The Fund is meant to address police training and other needs that will improve its functioning. The Fund, is thus timely, and if properly utilised will help address some of the problems bedevilling the police.  

Hopefully, the leadership of the police and the government will see the current protests as a catalyst for even more deep reforms to improve the performance of the police. 

The second issue that has arisen from the protests is the frustration felt by Nigerian youths due to high youth unemployment in Nigeria. The irony is that this government has done more to address youth unemployment than any other government. Though obviously more needs to be done. First, it created the Social Investment Program (SIP) in 2016. Since inception, over one trillion Naira has been released to the program and hundreds of thousands of young Nigerians have participated in the program. To put it in context, the N400 billion allocation to the SIP in the 2021 budget is almost as high as the N417 billion allocation to cover the salaries of the entire police force in 2021.

Second, the government created the Special Public Works Program to be managed by the National Directorate of Employment. A pilot was carried out from February to April 2020 in eight States. The program targets unemployed youths between 18 and 30 years of age and has no minimum educational requirement. Following the outbreak of Covid-19, the government extended the program to all States and FCT. The program will provide three months temporary employment to 1,000 persons in each Local Government for a total of 774,000. Again, this is the first time any government is targeting the unskilled with such a massive intervention. 

Third, in the middle of the protests, the government opened the portal for application for funds under the National Youth Investment Fund. The N75 billion Fund is part of the covid-19 Economic Sustainability Plan. The Fund will provide low cost loans to businesses owned by young entrepreneurs. This is another opportunity for young entrepreneurs to obtain low cost funds of between N250,000 to N3 million to start or expand their businesses. This is in addition to the Farmermoni, Tradermoni and Marketmoni loans targeting farmers and small businesses. 

The above notwithstanding, more needs to be done to deal with the current high youth unemployment. Below are some ideas. 

The largest employer of labour in Nigeria is the private sector, which employs almost 90% of Nigerians. Therefore, interventions that can help the private sector expand and employ more are very critical to reducing unemployment. Despite strides made in improving the business climate, multiple levies and regulatory over reach are still major problems. There is also a perception that the current government is not business friendly. This needs to change. The Presidential Enabling Business Council should be empowered to deal decisively with agencies and regulators that have poor record of service delivery and those that over reach their regulatory powers, to the detriment of the economy. The State Governments on their part need to work with the Local Governments to reduce, to the barest minimum, the number of levies charged on businesses. 

The Ministry of Industry Trade and Investment and Ministry of Labour and Employment should consider engaging manufacturers and other large employers to discuss and agree on government interventions that will help create jobs. A consultative approach might yield better results as the private sector is in a better position to know what is impacting productivity of manufacturers and service providers. Following such discussions, government should aggressively implement the interventions agreed.

The Social Investment Program (SIP) has contributed to reducing youth unemployment, but it needs reform. Is the feeding program, which will gulp N139 billion in 2021, really impactful and necessary? Should such funds not be better utilised to increase the number of N-Power participants? Does the program really need to spend N19.3 billion on local transport or N7.3 billion on welfare package (for who?) or N4.4 billion on inspection and monitoring and evaluation or N3.6 billion on advertisements? That is a total of N34.6 billion on sundries. To put it in context, these sundry expenses are higher than the N29 billion allocated in the 2021 budget to Ministry of Justice including all its parastatals (NDLEA, Human Rights Commission, Council for Legal Education etc.). Reform to improve value for money is thus highly recommended. 

The government should also consider making the Special Public Works Program a permanent program. This will help address youth unemployment among the unskilled. The program can also be expanded to accommodate 2,000 participants per Local Government (LG) in 2022, with a proviso that the second 1,000 will be available to states that agree to fund another 1,000 per LG, bringing the total to 3,000 per LG and 2.32 million nationally. 

Another policy the government should consider is reducing the retirement age in the police and all security agencies to 50 for non-officers. Nigeria has a very youthful population and government should take advantage of this. Police constables and non-commissioned soldiers do the most difficult physical work in the forces. Reducing the retirement age will ensure the security forces have younger and more agile personnel on the frontlines. It will also open up immediately tens of thousands of vacancies for young Nigerians to join the forces. This will have the added benefit of making the reform of the police a lot easier as the new recruits will be exposed to the new normal and better training. 

The most important changes that will impact labour productivity and improve employment prospects of young Nigerians are polices that will improve the quality of primary, secondary and vocational education. The Federal and State Governments need to partner to improve public schools. Unless this happens, the employment opportunities and productivity of the majority of Nigerian youths will continue to be undermined due to poor quality basic education. Interventions that improve public schools are essential as the majority of Nigerian children still attend public basic schools. For example, in Kano State almost 90% of primary and secondary school students are enrolled in public schools. 

Finally, the Federal Government should consider restructuring the Industrial Training Fund in a way that encourages firms to participate in providing apprenticeship to young Nigerians in manufacturing and other trades, such as mechanical repairs, electrical installation and construction. Japan and Germany, two industrial powerhouses, incentivise such programs and have, consequently, continued to be the leaders in industrial innovation and technology. Germany also has one of the lowest youth unemployment levels in Europe, despite being the most populous western European nation. It was Greg Mills, who later co-authored a book with former President Obasanjo, who wrote in his book, “Why Africa is Poor”, that “the main reason why Africa’s people are poor is because their leaders have made this choice”. Nigerians agree and are now demanding better choices from their leaders. This is an important first step in a long process, that will hopefully lead to a better life for most Nigerians. 

NLC: Now is the time to say goodbye to subsidy

The Nigeria Labour Congress (NLC) called on its members and the public to embark on demonstrations and strike actions to protest the increase in price of petrol and electricity tariff from Monday 28 September. I call on NLC to call off the actions as this is not the time for protests but a time to come together in solidarity and support the government to prevent a health catastrophe and an economic meltdown. 

Nigeria is facing two severe challenges: Covid – 19 and collapse of oil price and crude oil production. So far, due to diligence of governments at all levels and compliance with health protocols by most Nigerians, the pandemic appears to be under control and the human toll has been low compared to most countries. However, mass gatherings could undermine the efforts and could lead to avoidable deaths and overburdening of the health system. The protests in the US at the peak of the pandemic and mass movements of people in India when the pandemic was taking hold, appear to have contributed to the increase in infections in these two worst affected countries. Nigeria must do all it can to avoid a second wave of the pandemic. I am very sure NLC does not want the death of Nigerians on its hand, which is almost inevitable if, due to mass gatherings, Covid-19 reappears with a vengeance. 

However, the economic fallout is going to be significant, painful and will unfortunately last longer. Governments at all levels were already fiscally challenged even before the pandemic. Consequently, the pandemic made the already weak situation worst. A careful review of Federation Account Allocation Committee (FAAC) distributions from 2013 to 2020 will reveal the extent of the fiscal challenge especially when the dollar values are considered. In 2013, all three tiers of government shared a total of N8.52 trillion, equivalent to $54.7 billion. Meanwhile, in 2019, that is six years later, the three tiers of government shared N7.05 trillion, equivalent to $21.62 billion. Meaning, in dollar terms, the three tiers of government received in 2019 only 40% of what they received in 2013. Indeed, 2016 and 2017 were even worse. How many people can comfortably survive a 40% reduction to their pay? Very few. This is precisely the challenge all tiers of government have been facing in the last six years: a tight fiscal space with no respite in sight. 

Meanwhile, the Federal Government still managed to spend over N1 trillion keeping the electricity sector afloat in the last four years by bridging the gap between remittances by distribution companies (DisCos) and invoices for electricity generated by generating companies. Without the support of the Federal Government the sector would have collapsed. Let’s be honest, should the Federal Government really be subsidising electricity? The benefit of electricity subsidy disproportionately favours the rich more than the poor even more than petrol subsidy. The rich consume more electricity and live in areas where the DisCos supply the most electricity. So, electricity subsidy is one policy Labour ought to oppose and not support. 

Importantly, the electricity sector has since been privatised but because tariffs were allowed to remain flat for many years, contrary to the contract signed with DisCos and GenCos, investments in the sector have stalled. Take for example the simple issue of meters, which has now become unbelievably and needlessly complicated because the sector has refused to make the investments required to ensure all consumers are metered. Leaving Nigerians frustrated with arbitrary bills and poor electricity supply, which undermines Nigerian manufacturers by reducing the competitiveness of their goods against foreign imports. Surely, NLC will prefer a strong manufacturing sector rather than a weak one. However, as long as electricity is not sorted out, made in Nigeria goods will continue to struggle to compete with foreign goods. The electricity sector can only be sorted out by a cost reflective tariff, that also allows a modest return on investment.

PPPRA recently informed the public that the government spent N8.94 trillion between 2006 and 2015 on petrol subsidy. That is a staggering $57.5 billion dollars, using the exchange rates prevailing during those years. This does not include NNPC under recovery between 2017 and 2019, which will add at least another $4.5 billion, rounding the figure to $62 billion. I suspect most Nigerians have not realised the quantum of the subsidy. To put it in context the following projects: Lagos to Kano rail; Lagos to Ibadan road; Second Niger Bridge and Abuja to Kano road will only collectively cost about $9 billion. Therefore, imagine what $62 billion can do. It can pay down the entire national external debt stock of $31.5 billion and still leave $30.5 billion to spend on other more important public infrastructure. 

One usual response from Labour is that if cost of governance is reduced, then perhaps, government can afford subsidy. Yes, if cost of governance means salaries of civil servants, then retrenching some will release funds to enable subsidy to continue. For example, in 2021, the Federal Government is forecast to spend N3.6 trillion on salaries and pensions of civil servants in MDA’s as provided in the 2021 to 2023 Medium Term Expenditure Framework submitted to the National Assembly in July. However, I suspect this is not what Labour is concerned with. Labour likely considers cost of political office holders as what should be reduced. Contrary to what Nigerians think, the political executive branch of government as represented by the Office of the Secretary to the Government of the Federation and State House, was allocated N134.41 billion in the revised 2020 budget. This is about 1.3% of the revised 2020 budget (excluding Government – owned enterprises). Salaries and pensions of civil servants, on the other hand, will consume an estimated 33.7% of the 2020 revised budget. Consequently, reducing executive pay and reducing National Assembly budget (N128 billion) by even 50% will not fund 15% of the average annual subsidy incurred between 2006 and 2015. 

Choice is a fact of life, as no country on earth has the resources to do all the projects and give its citizens all what they desire. Consequently, one of the key functions of leadership is to make choices on behalf of the citizens and prioritize how resources are allocated. The challenge associated with subsidy on consumption goods, such as petrol, is that because they are not pure public goods, expenditure on them reduces the capacity of the government to provide the pure public goods only it can provide.  Importantly, pure public goods have a far greater impact on growth and economic development for a developing country. This is because without adequate provision of pure public goods such as security, macroeconomic stability, good network of roads and rail lines and quality basic education, individuals and companies are far less productive. The cycle of poor provision of pure public goods and economic stagnation is thus perpetuated, as the government simply does not have the funds to provide these vital goods for which it is solely capable of providing because it has decided to subsidise consumption goods. 

Unfortunately, from the foregoing, Nigeria is facing difficult choices. Either government uses its resources to pay salaries, pay interest obligations and make required investments in pure pubic goods to get the economy going or it continues to subsidise consumption as demanded by Labour. If government decides to continue to subside consumption, then it will be left with little choice but to borrow to pay interest and perhaps retrench some workers in order to reduce its salary burden. These actions will ultimately lead the country into a debt trap, cause many years of low economic growth and lead to drop in per capita income on account of population growth outpacing economic growth, meaning Nigerians will become poorer and more miserable.

Therefore, I appeal to NLC to engage its own independent economists and accountants to review the Federal and State Governments fiscal situation in order to confirm the fiscal health of the various tiers of government and whether government can afford to continue to subside petrol and electricity. All the information they need is available on the websites of National Bureau of Statistics, Budget Office of the Federation and BudgIT (an independent watchdog). I am confident they will conclude that government can no longer afford to subsidise petrol and electricity and consequently will lend their support to government in this extremely fiscally challenging time. To conclude, Nigerians deserve to know the facts. Then, they can decide whether the $62 billion government spent between 2006 and 2019 on petrol subsidy is worth the bad roads, poor ports, epileptic electricity supply, non-existent national rail, weak manufacturing sector, weak economic growth and above all high unemployment and low quality of life. And, accordingly, demand that petrol and electricity subsidy should continue and happily enjoy the consequences of their choice.

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