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Nigeria in big trouble if Tinubu fails – Prof Oyelaran-Oyeyinka - PUNCH
By Grace Edema
The Senior Special Adviser on Industrialisation to the President of the African Development Bank, Prof Oyebanji Oyelaran-Oyeyinka, tells GRACE EDEMA the reasons Nigeria has remained on a low level in industrialisation and the way out
You spoke recently on the topic ‘Resetting the Nigeria Economy: From low-level equilibrium trap to shared prosperity’, why has Nigeria remained poor?
In framing the future, it is important to understand the past and how we arrived at the present, most especially in a season of changes, external shocks like the pandemic, and food-induced inflation by a distant war, which exposed how unprepared and vulnerable we are in terms of food and health securities. Internally, we have had the most gruelling election. Yes, Nigeria’s income per capita, a measure of well-being, has on average remained the same for decades. Nigeria is classified as a Low Middle-Income Country, but it is more ‘low’ than ‘medium’ income. The World Bank analyses the economic health of each country and territory based on their Gross National Income per capita. In 2021, low income economies had GNI per capita of up to $1,085; lower middle income economies from $1,086 to $4,255; while upper middle income economies from $4,256 to $13,205. High income economies had $13,206 or more.
What are the economic implications of being at that level?
Low income countries like Nigeria with weak income per capita growth rate tend to experience economic stagnation and sporadic rather than sustainable growth, because they do not engage in increasing returns on economic activities such as industrial manufacturing, which promote economic growth. For instance, coming from a low base that should witness high growth, the growth rate of Gross Domestic Product per annum were respectively only 5.5, 13.2 and 4.6 and 1.25 per cent under the four National Development Plans. The second plan proved to be an outlier. Volatility has become an integral nature of Nigeria due to its oil dependence. Once there is a change in commodity price over which we have little control, the economy gets hit. Most upper middle income countries have developed the productive capabilities for high value added and technologically complex goods. They have market structures with significant innovation capacity that enable them to produce for domestic and export to earn foreign exchange.
Could you expatiate on the concept of Low-Income Equilibrium Trap and how it applies to Nigeria?
The idea of an economy being stuck in a poverty trap is the same as being in a low level equilibrium trap. Agrarian-based economies are mostly the ones in this situation. Advanced industrial economies escaped the poverty trap by modernising the agricultural sector and transiting into industrial manufacturing. Therefore, you will notice that Nigeria’s income per capita has remained low consistent with manufacturing’s contribution to GDP which has also remained under 10 per cent for decades. History and widespread evidence show that manufacturing is the engine of growth. The fastest growing countries in the world today are the so-called newly industrialising countries. Their progress has been on the strength of manufacturing. There is a strong positive relationship between the rate of manufacturing output and GDP growth. This has been found to be not just an ‘association’ but a causal relationship. The faster the growth of manufacturing, the faster the growth of the GDP. I have devoted my life to studying this phenomenon. A country that misses industrialisation will not escape the poverty trap.
Most Nigerian rural dwellers, in some cases, nearly 70 per cent of households, make their living from subsistence agriculture. For the most part, a greater proportion of households derive their livelihoods from subsistence farming. The sector is characterised by a high percentage of smallholder farmers – about 70 to 80 per cent – cultivating low-yield staple food crops on small plots with minimal use of inputs. These farms depend on rainwater, thus subjecting production to the vagaries of the weather. This effectively is Low-Level Equilibrium Economy Trap, a spiraling mechanism which forces people to remain poor. It is a devastatingly binding constraint that leaves the poor people no avenue to escape it. This poverty trap is reinforced by a lack of capital and credit to the people. In short, the transition from a low-income economy to a middle-income economy takes place when a traditional agricultural economy enters the early stages of industrialisation. I describe Nigeria in this way because our per capita income has remained at this stable equilibrium level resulting in low-level equilibrium trap while the rural poor keep having more children. For our economy to move into sustained growth, the rates of income growth must outpace the rate of population growth.
What should the government and other stakeholders do to get the country out of the low-level equilibrium trap?
It may sound counter-intuitive given what I am saying about the poverty trap. My proposal is that the next President (Asiwaju Bola Tinubu) must aim very high; target a minimum of seven per cent growth rate so we can double our GDP in 10 years. How? There are short-term macro-economic issues to quickly deal with, but what I will be emphasising are fundamental structural issues. To move from this low-level equilibrium means a structural shift of the economy. Typically, a country’s economy has three main sectors: agriculture, industry and manufacturing and services. Poor countries are mired in low-level agriculture unlike advanced nations with extremely modern and productive agriculture. These countries have industrialised agriculture. The Netherlands, a highly advanced industrial nation, exported over €90bn of agribusiness products in 2019.
How does Nigeria’s agricultural sector compare?
Agriculture is where Nigeria has comparative advantage but technologically it is decades behind. It is the sector with the lowest hanging fruit, but we must systematically invest in greater mechanisation, inputs such as fertilizer and at the heart of high productivity are seeds. Nigeria, with other African countries, signed the Agricultural Delivery Compact at the conference organised by the AfDB and the African Union in Dakar in January 2023. If faithfully implemented, the country can stimulate rapid growth of the agribusiness sector. This way, we re-ignite the delayed structural transformation and accelerate economic diversification in ways that lead to food security. This Compact, developed jointly with the Federal Government, will ensure resilience, economic recovery and growth and, more structurally, foster a shift from subsistence farming to modern agriculture. From our calculations, this kind of growth will lead to national food security while creating at least 12 million jobs.
As you may already know, the Special Agro-Industrial Processing Zone, a flagship programme of the AfDB adopted by the Federal Government aims to make Nigeria competitive in agriculture by promoting agro-industrialisation through value addition and export of processed agricultural commodities. The first phase of the programme is being implemented in seven states and the Federal Capital Territory. The objective is to bring economic infrastructure to areas where there is high agricultural potential and marketable surplus of production. SAPZs attract investments from private sector investors to develop value chains for selected strategic crops like wheat, rice, cassava and other crops; livestock and fisheries, to contribute to the development of rural areas, creating wealth in these areas and stemming rural-urban migration.
Nigeria has been a consumption country for many years and this issue was well analysed in one of your books, could you explain in practical terms ways Nigeria can become a nation that produces?
I see you are referencing my 2016 book titled, ‘From Consumption to Production’. Let me provide a simple illustration with the example of how a country with years of devastating conflict moved from being a begging bowl to a major player in the global value chain. Vietnam exported an estimated $348bn worth of goods around the globe in 2020, a ten-fold difference compared with Nigeria’s exports in the same year. In macroeconomic terms, Vietnam’s total exported goods represent 30 per cent of its overall Gross Domestic Product for 2020. Given Vietnam’s population of about 97 million people, its $348bn in 2020 exports translates to roughly $3,600 for every resident. In contrast, Nigeria’s total exports of around $34bn represent less than eight per cent of its GDP of $432.3bn. Why the huge difference? Nigeria’s revenue basket remains constrained due to its export revenue concentration. We depend on crude oil and few primary commodities. Nigeria records high food imports, with most processed foods coming from outside the continent. To record high economic growth rate, Nigeria should do the following: first, move away from crude oil dependence by urgently prioritising economic and trade diversification, including exploiting our vast gas resource that is being flared. Second, the country should aggressively aim for food self-sufficiency through a combination of land intensification and massive expansion of food production over the next five years. It is a matter of urgency that Nigeria reduces dependence on imports to enhance food security and develop markets for its farmers and firms that will engage in adding value both for local consumption and for exports.
Growth comes from a diversified portfolio. Contrasting Nigeria and Vietnam, although Vietnam’s export revenue these days come largely from non-oil products such as phones and electronics, which are now exported to the world. It also remains a major exporter of agricultural products. That country exported agribusiness products such as footwear and textiles totaling over $30bn. This not only equals Nigeria’s total oil revenue, but also far exceeds the less than $3bn revenue that Nigeria received from shipping out raw leather, cocoa powder, sesame, cashew, and mainly raw agricultural commodities, which would be converted into finished products and re-exported to Nigeria.
Why is the government always investing in projects that won’t yield any return or those abandoned, like the Ajaokuta Steel Company and some others?
The conception, design and implementation of complex industrial programmes have a strong relationship with the capacity of the state. The state here includes the executive, legislative and judiciary. The term ‘state capacity’ refers to the state’s ability to get things done or the capacity to implement state-initiated policies. The question you raise has to do with the nature, leadership and capacity of the Nigerian state. The state is either weak or fragile. Fragile states are also known as weak states. A state is fragile when it is incapable of meeting key needs of its citizens, especially their security and economic well-being. A strong state capacity has been strongly associated with long-term economic development. This includes the capacity to establish law and order, enforce private property rights, defend a country against external threats as well as support development by establishing a competitive market, transportation infrastructure, and mass education. So, you have your answer.
What about the Ajaokuta Steel Company?
We have not succeeded in building a strong state due to a broader lack of vision and the right leadership capable of sacrificing self-interest for public interest. When you initiate laudable industrial projects like Ajaokuta, refineries and so on, human beings must run them. The political, bureaucratic and corporate elite must agree on the vision. In poor countries, not just Nigeria, the attitude and actions of political and bureaucratic elite tend to determine the rate and direction of the country’s progress. So, the next president should sit down with the political and corporate elite and agree with them on what I term his ‘Strategic Presidential Flagship Initiatives’ to appeal on behalf of Nigerians to ring-fence them from cronyism, corruption and execute the initiatives using competent people. This is what General Park Chung-Hee did in South Korea in the 1960s.The new leadership in Nigeria needs an assurance of agreement by the elite. Our problem is not the lack of policy and plans, our challenge is the people and their purpose. Imagine the news trending in the last few days; Nigeria is groaning under lack of power supply, yet a former minister entrusted with fixing it is alleged by the Economic and Financial Crimes Commission to have stolen N340bn! The Accountant General of the Federation, who was entrusted with our money, and his collaborators allegedly stole N109bn. Somehow, like thousands of cases, it seems nobody is talking about it again. It’s not policy, it’s people.
Would you say this was the fate that befell such previous plans?
The same fate befell Nigeria’s previous efforts. The country has had a long tradition of development plans right from independence. Nigeria has gone through four national development plans in her post-independence history, followed by different Visions; V2010 and V2020, three year rolling plans between 1990 and 1998 and long-term perspective planning and so on. The Federal Government introduced an ambitious programme between 2003 and 2007 known as the National Economic Empowerment and Development Strategy, known as NEEDS. These plans have not achieved the expected results. Rather than the modern industrial economy we hoped for, there emerged a country with widespread poverty, poor infrastructural stock, massive unemployment, technological backwardness and excessive debt burden. This is classic Low-level Economic Equilibrium. It is not about plans and policies. It is about the motives, commitment and patriotic propensity of those who hold the levers of power. I do not see how else to explain our predicament.
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Is the failure due to the political system or something else?
In the case of the presidential system, what has prevailed is what is called the Spoils System, where winners take all and all others who all their lives have made sacrifices for the country become outsiders. The concept derived from the phrase ‘to the victor belong the spoils’ by New York Senator, William L. Marcy, in his reference to the victory of Andrew Jackson when he won the presidential election of 1828. Let me expand this a bit so our political leaders can interrogate this system and see how to navigate its awful negative consequences. I say this as someone who loves his country not to criticise any government. The United States and other old democracies worked hard to minimise the effects of this system over a long time. A spoils system is also known as a patronage system, which points to the practice where a political party, after winning an election, gives government jobs to its prominent operators as a reward for working towards victory, and as an incentive to keep working for the party. This is opposed to a system of awarding offices based on some measure of merit, independent of political activity. It is fair for those who run political parties to expect rewards but when a system consistently prioritises patronage over performance, it becomes self-defeating and a shooting of oneself in the foot. Those outside parties are patriots who have sacrificed for the country. The spoils system has that blind spot. It is a situation whereby the political elite assume that they own the country, its resources now and forever. The outcome of the last election manifests an awakening of the youth and others with stakes in the country. The political elite must recognise others, including the corporate and academic, who have the requisite knowledge, experience and passion for the country.
What has been the impact of that spoils system?
The spoil system is especially destructive in countries with weak political and legal institutions and where the rule of law is more the rule of ‘big men’. Where there are no rules, governance power degenerates quickly into sheer looting of the common good such as we have witnessed in cases of promising industrial projects that never worked. The spoils system commonly thrive where recourse is made to primordial affinities such as ethnicity and where tribal organisations and kingship groups find a common cause in self-enrichment. While political support will surely elicit reward, leaders must balance it with competence. I am on a platform where you find the most brilliant minds in Nigeria, mostly technocrats, elite, engineers and scientists who in the past managed refineries, power plants, and all sorts. These folks gave their lives to Nigeria, but then political elites hold power, and they find themselves at the margins of power. It is an unacceptable waste of knowledge and experience. That is what patronage does. The best of minds are never utilised. This we must reflect upon and change. The political elite assume the ‘winner-take-all’ posture, but we are sabotaging the country as those who are younger migrate to other countries where they will actualise their dreams.
You once said Nigeria should set high goals and double its GDP in a decade. How can the country achieve this?
Yes this is my proposal. Fast and sustained economic growth is the main route to raising living standards and creating decent jobs. China did so, why not Nigeria? In 1953 when the Korean War ended, the nominal GDP of Korea was $1.3bn; it grew rapidly for six to seven decades to $1.65tn in 2019. The GDP per capita rose to $32,000 from a mere $158 in 1960. In contrast, Nigeria hardly diversified its economy. The country got locked-in into petroleum export for export earnings to the detriment of value-added agriculture and manufacturing. The result is low contribution of the manufacturing sub-sector which fluctuates between five per cent and eight per cent to aggregate output in Nigeria compared with its peers in Asia. Korea’s 30 per cent in the 1990s was staggering. What is the recipe? First, economic progress comes only to producers, especially those that manufacture and add value to raw materials and export. Poverty has become the lot of our country as it is with those that always buy from others. Nigeria is in a state of stalled industrialisation. This is the root of poverty. Nigeria has experienced a structural transformation trap. After four decades of policy implementations and effective governance, China successfully lifted 770 million of its citizens out of poverty.