Investors to Avoid Anarchy in Post-oil Era
Second headline: We Should Empower Subnational Governments to Drive Development, As Centralisation Strategy Has Failed, Pat Utomi is a professor of political economy and a management expert. He is a professor at the Lagos Business School, a Fellow of the Institute of Management Consultants of Nigeria, and a former presidential candidate on the platform of the African Democratic Congress. The founder of Centre for Value in Leadership, Utomi is a dedicated professional with a passion for the dignity of the human person and the spirit of enterprise. He bemoans Nigeria’s persistent near-total dependence on crude oil, despite widespread forecasts of an irreversible global decline in the consumption and value of the product. Utomi says for Nigeria to survive in the approaching post-oil era, there is an urgent need to court investors and encourage investment. He speaks with Vincent Obia. Excerpts:
On the problem with investment in Nigeria.
The biggest problem with investment in Nigeria is the oil mentality. Since the beginning of the oil economy, we have developed a political culture, which my friend, Richard A. Joseph, described in his book (Democracy and Prebendal Politics in Nigeria) as prebendal politics – just sharing the cake. We have created a class of both civil servants and politicians who believe that government is doing everybody a favour on everything, that there are some kinds of lords that you must come to. Whereas, investment is something that is desirable and good for the community because it provides jobs. That is the first goal of a politician – to try and achieve a full employment economy. That is his primary goal. But the nature of our oil politics has not made the political mind-set to reason that way. So, because of that mind-set, being the typical mind-set of a politician elsewhere in the world, everything is done to court the investor – both foreign and local – to make him feel welcome. But if you look at how Nigerian civil servants and politicians behave towards investors, the attitude is that of a tollgate, bully or somebody saying, “We know you private sector people are thieves, what are you trying to cheat us out of?” A kind of protector, Praetorian Guard.
On the dangers of the rather unfriendly attitude towards investment?
That mind-set needs to change dramatically, especially as we have come to the end of the oil age, which is the frightening thing about the current Nigerian condition – Nigerian politicians don’t actually know that we have reached the end of the oil age. Their mind-set is still the prebendal mind-set of sharing this cake that is there. I want to assure everybody that 12 years from now there would be no cake to share. The oil age is over. So we need to go back to the mind-set of the 1940s, 1950s, and early 1960s, when our politicians courted investors.
Let me give a very interesting background to this. The beginning of industrialisation in Nigeria came with self-government. The colonial government did not industrialise Nigeria, they didn’t even try it, because the purpose of colonialism was to export raw materials from here to the metropole. Perhaps, the only factories that came out of the proper colonial era were motor industries, just designed to put boards on imported chassis, molue and buses, then Nigerian Breweries, to mix water with imported stuffs. These are probably the only two factories I can think of in the real colonial era.
On self-government and industrialisation.
But with self-government, Nigerian politicians coming into office in the 1950s were anxious to expand the economy and they began to think of industry. The first industrial estate in Nigeria was then set up by the government of the Western Region, what is today the Ikeja industrial estate. Of course, in the competition between the regions, the government of the Eastern Region responded with two, Aba and Port Harcourt, and the government of the Northern Region responded with the Kakuri industrial estate in Kaduna. Bonpai in Kano emerged out of Kano’s traditional trading role as a city. That was how industrialisation began really in Nigeria.
One of the things that come from the points I have just made is that development was bottom-up from subnational governments. They were the ones driving the most for industrialisation. The prebendal politics that followed the centralisation of military rule and the availability of oil revenues – what I have often called the dangerous alchemy of soldiers and oil – created a culture where, one, the business of attracting investments became more of a centre thing, rather than subnational government based. And, secondly, it was visited with arrogance, the arrogance of, “look, this is a large economy with all the endowments, government will occupy the commanding heights of the economy and can make the investments,” which is why we have so many parastatals that were set up to manufacture, etc.
We are all witnesses to the fact that this strategy has not quite worked. To go to a new strategy, we need to do some serious thinking. We need to begin to take investors – foreign and local – very, very seriously.
On the nightmarish nature of local investment.
But what is the experience of local investors? Dealing with state governments is a nightmare. In most states of the federation, there is serious abuse of property rights. This governor approves something for you, there is election, the next governor comes, he cancels it. This creates a level of uncertainty that prevents serious investors from coming in.
I’m sure you saw the Price Water House report that Nigeria is one of the least attractive countries in terms of foreign investment, compared to small African countries like Benin, Ghana, etc. It is not by accident. It is because the attitude of state governments to investors is horrible.
On whether the attempts to take the ease of doing business initiative down to the states can drastically change the wrong mind-set towards investment at that tier of government, especially, under the current quasi-federal structure, where is no much pressure on the states to engage in productive investment.
The money from Abuja to share is about to expire. There will be no money to share from Abuja in a short period of time. That is why I am actually worried. I’m doing an opinion article on the topic, “Is Nigeria the next Haiti?” Why am I writing this piece? Because I’m frightened for Nigeria and think somebody should wake us up. In 1789 Haiti had the highest per capita income in the world. Today, Haiti is the poorest country in the Western Hemisphere. What happened that changed the fortunes of Haiti so frighteningly? By the time Haiti had the highest per capita income in the world, a man called James Watt redesigned the steam engine, and that led to the industrial revolution. With the industrial revolution, Haiti’s plantation economy reduced in value. And as the world was changing, Haiti was not changing. At first, its leaders did not realise that the world was changing until they became completely irrelevant in this new world.
My fear is that somehow, Nigeria may go the way of Haiti. That is why I am anxious to wake the country up. We went from the plantation economy to industrial revolution, to the information age, the information communications technology revolution. If Nigeria, which has been sustained by the benefits of the oil age, continues to think in terms of oil, when the world moves on from crude oil, this place could descend into anarchy. From where will the jobs come for the big bulge in population?
On what the intelligent oil producing countries have done.
We have failed to achieve what the most intelligent of the oil producing countries did, which is save their oil income and use this saving to support new investment, diversify the base of their economy. We have failed to do it, and oil is over. Norway was clever enough, Kuwait was clever, not to talk of what the Dubais of this world have done, diversify themselves away from thinking oil. We have not done that. So we need to put on our thinking caps very quickly and see what we can do. Otherwise, we could be the next Haiti.
On the feasibility of the needed change, given the seeming perpetuation of injurious and contradictory economic policies. One is the petroleum minister’s laments about the high cost of oil production and hints that Nigeria could stop production if the rising cost continues, amid huge investments of national resources into oil prospecting in the Lake Chad Basin.
I’m not about to determine how people will think. How people think is significantly a function of the quality of public debate in a country. But that is what we do very poorly, because we prefer to abuse each other rather than discuss the issues. The famous contemporary German philosopher, Jurgen Habermas, who talks about the public sphere, would be thoroughly embarrassed by the Nigerian environment in terms of public conversation, which is the soul of democracy. We don’t have think-tanks in this country. If I arrive Washington now and get into a taxi, most likely the driver would tune to the national public radio, most likely somebody from the Brooklyn institutions, Heritage or any of those foundations would be talking about issues in the politics of America. But we don’t have that in our country; we don’t have rigorous public conversation. When you try to raise issues people look at you and feel, “wetin, na only you?” because they lack the understanding that it is that conversation that helps countries shape the mind-set of the people, which then determines the kind of policy actions that we take.
The Minister of State for Petroleum Resources was right in lamenting. Our production costs are high. The way the trajectory of the oil age is going, 10 years from now, oil may be selling for something as paltry as $5 per barrel. If our cost of production is that high, there would be no point in mining the oil because you can’t justify the cost. Ease of doing business issues are very critical.
About 11 years ago, at a workshop, I talked about restructuring, not even in the sense we are talking about it now, but going all the way to the local governments. I said local governments should not just be seen as political entities. They should be seen as local development areas, where each local government area outlines what its gifts are, what God has given them capacity to produce and how they can increase the output of those things, increase the processing of those things within that same local government area, orient the local education curriculum to be focused on how you extract and increase value in those goods. Then, a cluster of local government areas can be called Z zone of development, for instance, and you build economic structures within that zone that can be the basis for industrial policy. The states then become coordinating units of these zones of development.
That becomes the basis for engaging in national economic affairs. But I don’t think anybody paid attention to those ideas.
Many of the states don’t even understand what ease of doing business is because there is hardly any business that is done at the states; they are just waiting to collect from Abuja and share, pay salaries, buy fleet of cars.
On whether the presidential ease of doing business council set up by the federal government is really getting to the root of the problem.
I applaud their effort. I think it is a very important work that they are doing. They have brought in some very good people into that arena. The Minister of Industry, Trade and Investment, Okechukwu Enelamah, has decent hands around him. We just pray for them all.
The governors from the South-south got together some years ago and created the South-south economic development group, which resulted in the BRACED Commission, which I chaired. One of the things I suggested back then was that working on this kind of broad platform, you do a factor endowment based competitive analysis to improve the ease of doing business in that region and how endowments from the region can become the basis for global competition around certain value chains. I actually invited to the first South-South Economic Summit at TINAPA in Calabar the managing director of the Monitor Company, a competitiveness consulting firm created by a group of Harvard professors. They were recently acquired by one of the large consulting firms. For years, the Monitor Company was a global leader in competitiveness analysis. I invited them to come and give a talk there, in the hope that we could begin to think in terms of an analysis of our competitiveness. Once we can show the world that we are competitive in some dimensions, local and foreign investors will just come, because part of the problem is uncertainty. When you reduce uncertainty through the structure you have built, the institution you have put in place, investors will naturally gravitate to your territory.
The Monitor Company worked with Saudi Arabia and they jumped from a hundred and something to about forty something in the global competitiveness ranking. It is possible to make a huge difference if you have committed passionate leaders.
On why the Monitor Company did not make in Nigeria the kind of impact they made in Saudi Arabia.
They were not signed on. I just invited them to give a talk at that conference.
On whether Nigerians have been deceived by APC, which campaigned and was elected on the platform of restructuring, devolution of power, true federalism and other radical ideas that many believed would transform the country, but which the administration has since jettisoned.
I think that is probably not the way to put it. In think that unfortunate events of history did not allow things to settle down as they should quickly enough. One can only hope that some reforms would take place. A very critical part of it is that the leader of the team has unfortunately not been fit. Of course, this has created the usual human things that emerge when there is a kind of vacuum or contestation for power. Whenever there is this situation, decision-making is slowed down. It is not a matter of deceit; I think it is matter circumstance.
On the on-going constitution amendment process and areas he thinks require urgent review.
It is a pity that the National Assembly did not open itself up to serious public hearing and engagement before some of the decisions they made on the constitution review process. One of the biggest challenges that we have is the challenge of ensuring that decisions are made at the level closest to the problem.
This is called the principle of subsidiarity. An arrangement where you centralise everything will always have negative consequences. It is clear from what happened to the Nigerian economy in the 50s and 60s that the country has endowments that are different in every part. I assure you that with the right kind of leadership, somebody in Sokoto can actually earn more revenue than somebody in Port Harcourt because hydrocarbons are not the only value chain from which you can make a lot of money. In fact, the oil producing countries are not the leading economies in the world. It shows that there is much more to economic growth than ability to share from oil wealth.
You take something like agriculture, and ask yourself, how come Nestle makes more money than, perhaps, all the major cocoa producing countries put together. These are the kind of questions that we need to ask. How do we change things in that regard with the nature of our constitutional arrangement or structures?
On the longstanding Central Bank of Nigeria’s monetary strategy of mopping up funds from the system through government bonds and treasury bills, which has been criticised in some quarters.
I think that the CBN obviously has a target that it is going for in terms of monetary aggregate. I don’t have the kind of information they have, to say this is right or wrong in terms of operational decisions. But the major problem, for me, was that we depended too much on just monetary policy and did not support it with strong enough fiscal policy.
On other things he wants Nigerians to know.
Our economy is in deep crisis, not caused by this person or that person. It is a combination of wrong choices that we have made over the last 25 years. To redeem it, all hands have to be on deck. We have to reduce the partisanship; it is too much. What should be driving us now is Nigeria first so that we can overcome those problems.