For those of you who have never had the pleasure of hearing the Nigerian Finance Minister, Dr Ngozi Okonjo-Iweala speak, you have certainly missed a treat. As the former head of the World Bank and with a raft of accolades from Time and Forbes as well as a highly regarded series of books and publications on global economics, she is truly an inspirational story for Africa’s potential, but it is her vision for Nigeria and sub-Saharan Africa which I wish to discuss in this article.
On the 19th of June 2013, Dr Ngozi Okonjo-Iweala gave a speech at the IISS in London where she expanded on the phrase by the current Head of the World Bank, namely “Securing Development”. I have attached the link to the text from that speech here if you would like to read, but for this article I want to look at the issues and solutions for Nigeria that were highlighted in her speech and my further reading to see if I can boldly suggest any further ideas for consideration.
First and foremost it is important to highlight the incredible range of challenges facing Nigeria and to avoid creating a vast list I will draw attention to those that should be seen as core issues:
- Unemployment (and underemployment),
- Poor infrastructure (particularly in respect of Energy),
- Poor Governance (specifically corruption),
- Demographics (namely young with a high birth rate) and,
- Education (or rather appropriate linkages between skills taught and skills required).
In respect of unemployment, as Dr Okonjo-Iweala highlighted in her talk, unemployment in Nigeria currently stands at 23.9% as a national average, with that figure even higher in certain states and almost certainly higher during the non-agricultural months of the year. Almost inherently linked to this however are the issues of demographics and education, with poor governance and infrastructure providing a further inhibitor to improvements in this space.
Furthermore, according to Dr Okonjo-Iweala, the African continent has the lowest average age of anywhere in the world, with over 70% being below 25, though the figure in Nigeria is marginally higher at 63% under 25. Combine this with a high fertility rate and it is very clear to see that the educational institutions and the employment market have to work extraordinarily hard even to maintain the current status quo, let alone achieve improvements.
Of course linked to all these challenges is the “Resource Curse” and in Nigeria this has been of particular significance due to its status as the largest producer of oil in Africa and 6th largest worldwide producer (According to NNPC). The problem here was aptly termed and summarised by Dr Okonjo-Iweala as the story of “Jobless Growth”, where the state may derive significant wealth from resources, but it does not lead to significant employment and more specifically because it has little effect on employment, the wealth is concentrated to a smaller band of people.
In fact the story of growing inequality in Nigeria is closely linked the story of poor historic governance, where the reliance on kinship and networking has been the key to accessing the patronage which the Nigerian state can offer. This in turn has made foreign investment more difficult and less attractive which in turn has harmed the development of the Nigerian economy, particularly in respect of developing the nation’s infrastructure.
The Solutions and the Opportunities:
Now of course many of these current weaknesses are in fact potential opportunities for Nigeria’s development. A large, young population who are not highly skilled provides an environment to develop lower skilled manufacturing and textiles which underpinned the growth and development of Asia’s “Tiger Economies” and would play a key role in helping to develop the infrastructure and manufacturing base in Nigeria to “Secure Development”.
Large natural resources also provide the opportunity to develop much of the country’s infrastructure and reduce inequality, such as the Bolsa Famille projects in Brazil or the Social Security system in Norway. They can also help to even improve governance if they lead to higher basic wages which may dis-incentivise corrupt activities, a model practised in Singapore.
So what is Nigeria doing to address these problems as well as maximise on these opportunities and furthermore are their methods the correct ones?
At the core of Dr Dr Okonjo-Iweala’s speech was the lack of access to finance which all of Sub-Saharan Africa struggles from, even in her country of reference, Nigeria. To address this she outlined that Nigeria is currently following the following strategies:
- The creation of a Nigerian Development bank (assisted by Brazil and others),
- The Privatisation of the Nigerian Power Market,
- De-regulating the structures around creating private oil refineries,
- Publishing in the papers where state revenues from oil are being spent,
- A large housing campaign to boost home ownership and stimulate new jobs,
- Developing raw material exports further, such as milling rice and refining Oil so that they can “Add Value” to the products and maximise their returns,
- Creating linked apprenticeships and training programmes to get people working in industry and learning the skills they need and,
- The creation of a significant entrepreneur fund for anyone with a business idea, where candidates are trained in business and if successful will receive large state grants to start their business.
Now while this list of ideas are very impressive and (to coin a questioner from the IISS) appear to come from “The World Bank playbook”, they appear to be glossing over the most fundamental areas of concern to accessing finance: Transparency and the Rule of Law.
In China today we are already seeing the damage that a lack of transparency can have on market confidence and frankly it’s not hard to understand why investors don’t like not knowing the reasons why decisions are made and why a lack of confidence in the validity of economic data, reduces the incentive to invest.
Furthermore, Africa as well as Latin America has a long historic legacy of amending the rule of law when the need for populist policies has arisen which has in turn led to frequent nationalisations of foreign assets, discriminatory policies against foreigners and currency controls which make it harder for investors to realize the returns on projects to their shareholders.
All of this therefore would lead me to make the following suggestions to help Nigeria succeed in its current strategies and to “Secure its Development”.
- Use a combination of performance related pay increases within the Public Sector, with a review of government expenditure to be audited by an external 3rd party (or group of 3rd parties) and made publicly available.
- Improve the security of foreign investor’s assets by reducing the degree of protectionism involved in purchasing Insurance in Nigeria, and by agreeing to allow International Arbitration on any major project whose life spans over a period of 10 years.
In the first instance, a greater domestic and international confidence in State institutions is critical to the future development of Nigeria. Thus, by combining a “Carrot & Stick” methodology to the Public Sector, which simultaneously generates confidence from the general public (due to 3rd party presence) and undermines criticisms of the audit by Trade Unions (by increasing pay), Nigeria will be able to further enhance its Public Sector image and create a better partner for International Organisations and Businesses to work with.
In the second argument, the current Insurance framework in sub-Saharan Africa (and Nigeria is no different), sees the remittances of Insurance Premium out of the respective country as lost investment, thus the country tries to arbitrarily force a proportion of each risk (and therefore Insurance Premium) to be retained locally.
Excluding the fact that most Insurance companies in Nigeria cannot afford to pay the higher end of claims in full even when they happen, this is a disaster for Foreign Investment because not only does it add an additional cost burden to investing in projects, but it also complicates the process of actually having a claim paid. In short if financial products which are designed to help facilitate Risk Mitigation cannot be effectively utilised in Nigeria, then many investors (Particularly low-risk funds such as pensions) will be unable to invest.
So those are my humble suggestions to Dr Okonjo-Iweala and even if, as I strongly suspect, my idea’s do not become government policy (one can only try right?) then I still wish Nigeria the best of luck with its latest reforms. As a country with aspirations to take on a leadership role for Africa and the wider International community, we could all do with a strong successful Nigeria at the heart of Africa.