Finance Minister, Ngozi Okonjo-Iweala
According to a research report released by Nigeria’s leading investment bank, Renaissance Capital, and entitled Reforming the Unreformable, the former World Bank chief spells out four solutions policy makers and economists must adopt in order to surpass the challenge.
Below is an abridged excerpt from the report:
The need to create jobs is the most important problem confronting the Nigerian economy now and for years to come, especially for the increasing numbers of youths entering the job market. Studies show that as much as a quarter of Nigeria ’ s working age population aged 15 – 65 years is not in the labor force (Treichel 2010, p. 19). Fully 70 percent of Nigeria ’ s 160 million people are 30 years of age or younger, and there is evidence of rising unemployment among youth (Treichel 2010, p. 23). If Nigeria could create the needed number of jobs, it could turn this demographic dividend of a young working-age population into a development dividend.
To do this, Nigeria must build a strong economic foundation by focusing on the following four things.
Strengthening the Macroeconomic Framework Since 2007, Nigeria has been fiscally lax, sometimes running deficits in excess of 3 percent of GDP and directing most of these resources to salaries out of other ever-increasing recurrent expenditures (now 74 percent of the federal budget), with little left for capital expenditures. There is a great need to put the fiscal house in order, particularly to increase resources available for investment. In this context, the ever-rising levels of domestic debt, though not yet a threat, should be watched. In addition, in view of the continued dependence on oil, management of volatility through application of the Oil Price-based Fiscal Rule and prudent operation of the new Sovereign Wealth Fund will be important to ensuring fiscal stability and prudence. All this should be accompanied by appropriate monetary and exchange-rate policies conducive to economic diversification.
Improving the Investment Climate Nigeria ’ s rank of 133 out of 183 countries surveyed in the World Bank ’ s Doing Business report 2012 is evidence of how difficult it is to invest and to grow businesses there — the very actions that are needed to create jobs. 4 Nigeria has been slipping in the rankings, going from 120 in 2009 to 133 in the latest survey. On some of the most critical business indicators, Nigeria performs badly. It ranks 180 in registering property, 84 in dealing with construction permits, 149 in trading across borders, 138 in paying taxes, and 116 in starting a business. Nigeria badly needs to pursue reform of its investment climate in order to become more attractive to domestic and foreign investors.
Fighting Corruption Corruption in Nigeria remains a serious problem, both in perception and in reality. Progress was made during the reform program in improving transparency, in building anti-corruption institutions, and in checking impunity among the corrupt elite. The vast majority of Nigerians are honest and hard-working citizens; only a tiny minority gives the country a bad name. Fighting corruption must remain a centerpiece of efforts to grow and develop Nigeria ’ s economy. At the onset of the second Obasanjo administration, in 2003, when we began the reforms, Nigeria had one of the worst Transparency International (TI) corruption perception index scores, ranking of 132 out of 133 countries assessed. 5 By the end of the reform program, in 2007, Nigeria ranked 147 out of 179 countries assessed. In 2010, Nigeria ’ s score was 2.4, with a ranking of 134 out of 178 countries. Though there has been some improvement by this one measure, Nigeria is still in the wrong neighborhood as far as the rankings are concerned. To make further gains on the anti-corruption front, specific impediments that encourage rent-seeking behavior must be identified and dealt with.
One good way to fight corruption is to work on the investment climate. Reducing requirements for business and property registration and for trade transactions, including improving the Customs Service, will lead to reduced corruption, with measurable
effects on business development and job creation.
Improving the transparency of the oil accounts and the transparency of government finances at both federal and state levels are other areas for action. The private sector in Nigeria itself is not immune to corruption. Continued actions to clean up and strengthen the banking sector and sanitize capital markets will be crucial.
Action against impunity must continue. Cynicism about the fight against is greatest when allegations of corrupt acts on the part of the elite are not investigated with any vigor or even investigated at all. That is why it is important to bring credibility to the effort with specific actions and measurable results.
Efforts need to be intensified at the international level to recover the billions of dollars
of Nigeria ’ s stolen assets lying in the banks of developed countries. Though there has been progress since 2005, there is still a long way to go. Some developed countries continue to use unhelpful laws and legal procedures to prevent their banks from returning assets. It is unfortunate that developed countries have been aggressive in exerting pressure on perceived tax havens to return the proceeds of their citizens ’ tax evasion but are not willing to press jurisdictions harboring stolen assets to return those assets to developing countries. Nigeria must make this issue an integral part of its fight against corruption to recover these monies so they can be used to fund poverty-reducing projects, and to send a message of “ no impunity ” to those who would spirit corruptly acquired assets abroad.
Completing Structural Reforms The unfinished deregulation, liberalization, and privatization agenda for several sectors must be completed. Deregulating the downstream petroleum sector and phasing out of the huge US$13 billion in subsidies to the price of petroleum products should be top priorities. The mechanism for administering the subsidies has proven imperfect and subject to fraud and corruption. The subsidies are poorly targeted and are a burden to the treasury. They benefit the upper classes disproportionately relative to the poor.
Phase-out should be accompanied with a sound safety net program to cushion the impact on poor people and build trust with the population. Education and communication with the public on this issue is paramount. Action by government to fully phase out the subsidy in January 2012 was courageous and the right thing to do but had all the hallmarks of déjà vu in implementation. This is why the experience was particularly painful for me.
Deregulation will also serve as an incentive for private-sector investment in petroleum refining. Nigeria refines only a small fraction of the refined products that it consumes per day. The rest is imported. It is sad that citizens of a country that is a leading exporter of oil and gas often have to queue up to buy gasoline. Passage of a cogent Petroleum Industry Bill will provide the framework needed to guide the development of the industry.
Equally important is completion of ongoing work on unbundling of power-sector assets, their privatization, and liberalization of the sector. This should be accompanied by strengthening of the regulatory framework to protect consumer interests and to maintain a proper balance of interests between electric power consumers and operators.
It will also be important to complete the work on port concessions and focus on needed investments by both government and the private sector to make the ports efficient and cost effective. This should be accompanied by trade and customs reforms. The ports are rife with corruption, and Nigeria is falling behind in the competitiveness of its ports relative to those in neighboring countries. If these reforms are not completed soon, Nigeria will lose an even larger amount of its trade to neighboring countries.
Civil-service reform is another difficult unfinished agenda. More than streamlining is needed. Capacity must be built, and rules that provide no incentives to top performers or to those with specialized skills must be scrapped.
In the financial sector, ongoing work to sanitize and strengthen the banking sector and to restore confidence in capital markets must be completed. Continued attention is critical to building capacity and strengthening financial-sector regulators to enable them to perform their functions properly.
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