25 Years On, Still a Transitional Democracy

By Dike Onwuamaeze

In his book “Democracy,” J.R. Lewis provides more insight into that enduring political genre. He held that democracy is a system of government that allows the majority of the people to exercise political control in an attempt to minister to the common life of society and to remove the dissonances that trouble it.

Lewis went on to argue that the path toward democracy has been trodden not only for the sake of the form of government that it provides, but also for the type of society it engenders, the freedom it offers to the individual society, and the way of life it upholds.

He added that it could be said the foundation of democracy is to be seen in the principle of the advancement of human potentiality; as a method of making man realise to the full his place in society.

The point often stressed by political scientists and commentators is that democracy as a system of government must exist along with democratic principles. Otherwise democracy as a theory would remain transitional and  founder if excessive emphasis is placed upon the institutions of democracy so that they are regarded as ends in themselves, without regard being paid to the principles behind the system.

According to Lewis, it is easy enough to establish a state and set up in that state institutions based on the democratic devices obtained in other countries.

But this is no guarantee of democracy. He averred that attention must be paid also to the democratic principle, the other side of the coin – the advancement of man and human dignity. Thus, one must look beyond the mere form, to the principle beyond.

Nigeria returned to democratic system of government on May 29, 1999, when it operationalised the institutions of democratic governance. These institutions are the office of an elected President as the Head of State; an elected National Assembly and state assemblies to make laws independent of the executive; an independent judiciary that has no limitation to interpret the laws of the country in accordance to the constitution of the Federal Republic of Nigeria and a multiparty political system that provides alternative political programmes and selects candidates for elections.

However, 25 years down the line it  appears Nigeria merely replaced authoritarian military regimes with an assemblage of democratic institutions without caring for its basic principles like constitutionalism, constitutional conventions, free and fair elections, observance of internal democracy in the party system, freedom of press, etc. This gives the nation’s democracy a transitional slant.

Bertrand Russell noted in his book, “The History of Western Philosophy,” that “in the absence of any guiding principle, politics becomes a naked struggle for power.”

Indeed, lack of democratic principles has reduced politics in Nigeria to a naked struggle for power, and illicit accumulation of wealth among others.

The outcome is that democratic governance in Nigeria has, in practice, become an aristocratic and oligarchic enterprise.

It had been argued by Robert Michels in his book, “Political Parties: A Sociological Study of the Oligarchical Tendencies of Modern Democracy,” that democratic external form which characterizes the life of political parties may readily veil from superficial observers the tendency toward aristocracy, or rather toward oligarchy.

His words: “We may sum up the argument by saying that in modern party life aristocracy gladly presents itself in democratic guise, whilst the substance of democracy is permeated with aristocratic elements. On the one side we have aristocracy in a democratic form, and on the other democracy with an aristocratic content.”

This, perhaps, accounts for the reason Nigeria’s 25 years of unbroken democratic governance has not been able to resolve any of the country’s thorny issues. So far, the quest for true federalism and a constitution that is truly prepared by Nigerians for themselves still remained elusive.

Moreover, 25 years of unbroken democracy has neither been able to ameliorate the country’s centrifugal forces nor give ascent to centripetal forces that would unify the country into a harmonious whole due to its failure to create value consensus among the peoples that make up the country.

In fact, the centrifugal forces has gotten bolder with the emergence of Boko Haram Islamic fundamentalist movement in the North-east; the rise of secessionist movements in the South-east like the Movement for the Sovereign State of Biafra (MOSSOP), which later gave birth to Indigenous People of Biafra (IPOB) that is calling for the realisation of the Peoples Republic of Biafra; and the growing agitation for the realisation of the Oduduwa Republic in the South-west

Moreover, under 25 years of uninterrupted democratic governance, Nigeria is sliding steadily into a Hobbesian state of nature where life is brutish, nasty and short with the evolution of banditry, kidnapping, militant movements in all parts of the country. 

Robert J. Mundt, Oladimeji Aborisade and A. Carl LeVan, who anchored Politics in Nigeria in the Pearson International Edition of “Comparative Politics Today: A World View,” observed that of all the countries considered in the book, “Nigeria might be the only one whose continued existence is currently in doubt.”

They added: “Even though Nigeria has returned to constitutional rule, that constitution will continue to be tested by Nigerians’ frustration over the failure of their potentially wealthy country to provide basic human needs, education, potable water, reliable transportation and communications, and politics free from rampant corruption.”

Yet, the alternative to democracy is authoritarianism which could even be worse.

Professor Anya O. Anya in his essay – “Business and Accountable Governance in Nigeria: The Obligations of Leadership” – said that “we must start from the recognition that the current situation is beyond the capacity of our political elite. We need to start again by instituting a new programme of national regeneration, restoration and renewal.

“So, where are the wise elders? Where are the insightful statesmen? And where are the brilliant and industrious youths who are prepared to rebuild from the foundation?” Anya asked. 

It’s imperative that Nigeria moves from the extant transitional mode to genuine democratic governance status that would incept transformational progression and provide Africa with a leadership in sync with her clout.

Nigeria: 25 Years of Economic Reforms And Impacts

Mike Idi Obadan

The return to democratic rule in Nigeria in 1999 was followed by implementation of economic reforms in various sectors by the succeeding governments to address the issues that have continued to prevent the country from realising its potentials in the sphere of inclusive growth and development. The reforms are many but due to space constraint, this piece will focus on just a few, and mostly outcomes, relating to macroeconomic and structural reforms.

The general framework for the economic reforms has somehow alternated between the market strategy and development planning. At the resumption of democratic governance in 1999, the Obasanjo government re-introduced the market approach/neo-liberal policies, which held sway during the Structural Adjustment Programme of 1988-1993. But the government later introduced policy planning (NEEDS) in its second term. The Yar’Adua/Jonathan  government seemed to have a belief in planning; it introduced the “Seven-Point Agenda” and prepared the Nigeria Vision 20: 2020 Economic Transformation Blueprint (NV 20: 2020) and its first implementation plan. Through the NV 20: 2020, Nigeria was to become one of the top 20 economies in the world by 2020, with an overarching target of at least $900 billion in GDP and per capita income of at least $4,000 per annum. Unfortunately, the Vision 20: 2020 Blueprint, although well-designed, was not implemented as expected. Indeed, not long after the First National Implementation Plan was prepared in 2010, the Goodluck Jonathan’s administration came up with the so-called Transformation Agenda, 2011 – 2015. The Buhari’s administration, in its second term, prepared the Medium-Term National Development Plan, 2021 – 2025 and the long-term Agenda 2050 Plan. But hardly were these implemented in any meaningful way. It was not surprising that the Vision 20: 2020 GDP and per capita income targets, and others were never achieved. The present administration seems to have faith in neo-liberal economic policies which it has implemented since May, 2023.

Now, to some key macroeconomic and structural reforms:  Four of the economic reforms implemented by the Obasanjo administration had the potential for tremendous positive impact on the economy: second phase of the privatisation programme, bank recapitalisation, telecommunications deregulation and liberalisation, and establishment of the Excess Crude Account (ECA). Some reforms of the succeeding governments are also briefly examined.

Privatisation of Public Enterprises

The first phase of privatisation of public enterprises (PEs) in Nigeria occurred in the context of the SAP from 1988 to 1993. The reform was implemented against the backdrop of the observed dismal performances of public enterprises in Nigeria. The first phase privatisation recorded some achievements: 55 PEs were privatised.  Perhaps, because of the numerous problems of the policy implementation, there was a lull in the privatisation activities from 1994 – 1997. However, the Obasanjo government implemented the second-round privatisation programme between 1999 and 2006, about 116 PEs were privatised in industries such as aluminum, telecommunications, petrochemical, insurance, and hotel. Besides, the Power Holding Company of Nigeria (PHCN) was unbundled into 18 companies responsible for power generation, transmission, and distribution. At present the power distribution segment has eleven private distribution companies (DISCOs).

No doubt, the case for privatisation of PEs in Nigeria had been well made. Many PEs are now in private hands. However, the performance of most of the privatised PEs in terms of quality, volume and lower prices still left much to be desired. Nigerians have not gotten the benefits of privatisation as expected by consumers. The benefits of efficiency, growth and better service have been very elusive. Some privatised enterprises are moribund, some are cannibalised while others were converted to other activities, even social activities. Other than the telecommunications sector, the net benefits of privatisation to the economy are not visible. This is the case of the controversial electricity DISCOs in the country.

Banking Sector Consolidation

As of 2004, the banking sector exhibited symptoms of ill health and systemic distress. The Central Bank of Nigeria, on July 6, 2004, responded with a Bank Recapitalisation/Consolidation programme, which required banks to increase their shareholders’ funds substantially to a minimum of N25 billion through fresh capital injection by end December 2005. The recapitalisation aimed at strengthening the banks, inspiring confidence, and enabling them to become active domestic and global players in the financial market. At the expiration of the deadline on December 31, 2005, 25 banks emerged from 75 banks out of 89 banks that existed at end-December 2004; 14 banks being insolvent, had their licences revoked by the CBN.

Overall, the bank consolidation had a positive impact on the banking sector, in particular and the economy in general: (i) It produced relatively well-capitalised banks which increased public confidence in the system; (ii) It brought greater awareness of the opportunities in the capital market; (iii) Liquidity was enhanced in the banking system and banks had greater potential to finance big-ticket transactions; etc.

 One lesson from the past recapitalisation exercise is that increased capital is a necessary but not sufficient condition for sustaining banks’ good health. This is borne out by the resurgence of symptoms of ill health in the banking sector some years after the 2004 consolidation exercise. Those symptoms triggered the regulatory actions by Governor Sanusi Lamido Sanusi. And now a new phase of bank recapitalistion has been announced by the CBN under Governor Cardoso in light of the sector’s current challenges including capital adequacy concerns. Another lesson is that good management/corporate governance is indispensable in the resolution and prevention of distress in the banking sector.

The Global System of Mobile (GSM) Communications Revolution

If one was to name just one economic reform that has had tremendous impact on economic activities and human life in Nigeria, it is what can be described as the GSM revolution. The telecommunications sector was deregulated/liberalised by the administration of President Olusegun Obasanjo in 2001 and the GSM was introduced.  Before then, the sub-sector was characterised by unsatisfactory service quality, high cost, low contribution to GDP, etc.

The number of telephone lines and teledensity were low: 200,000 telephone lines as at 1985 resulting in a teledensity of 1:440 as against the International Telecommunications Union (ITU) standard of 1:100. Following some reforms, the total number of operational lines stood at 426,500 in year 2000 (teledensity of 1:284).

Following the full deregulation of the sub-sector in March 2001, the Nigerian Communications Commission (NCC) licensed two private operators in addition to the government-owned NITEL to operate the GSM telecommunications. By end-December, 2001, about 300,000 cell phones had been rolled out, bringing the total operational telephone lines in the country to 726,500 or a teledensity of about 1:165. Since then, the telephone network in the country has grown rapidly:   end of 2018, 172.9 million active lines including 172.5 million lines in the mobile telecommunications sector; and teledensity at 1: 123.48. As at 2024, the number of telephone lines is reported to be around 220 million. The number of internet users has also increased substantially. And the major GSM operators are Mobile Telecommunications Network (MTN), Globacom, Airtel, and 9mobile in descending order of subscriber market shares.

 The impact of the growth in the mobile telephony industry has been phenomenal and it is felt in the industry itself and associated industries, creation of direct and indirect employment, and development of skills, and poverty reduction. It has provided easy, cheap and effective communication within and outside the country fostering trade and other economic activities.

Excess Crude Account

The Excess Crude Account (ECA), established by the Obasanjo’s administration in 2004,  is a very good fiscal reform instrument to address the serious challenges of lack of a meaningful saving mechanism for the country, and the phenomenon  of unstable oil revenue.  The ECA is a mechanism used to save oil revenue for the ‘rainy day.’ Although its objective is laudable, the ECA did not have a proper legal and management framework and this became its bane.

Nevertheless, the ECA was very successful with positive impact during the Obasanjo’s administration. The ECA increased from $ 5.1 billion in 2005 to over $20 billion in November 2008, representing about 38 per cent of the nation’s $53 billion external reserves in that year. This account provided the fiscal space to accommodate the shocks occasioned by the global economic/financial crisis of 2007/2008. Earlier, funds in the ECA were used to pay off Nigeria’s component of the Paris Club debt relief agreement in 2005/2006.

Clearly, the ECA served its purpose during the Obasanjo’s administration. But, thereafter, the management of the account became very poor reflecting opaqueness, continuous depletion of the savings even when crude oil prices were rising such that accumulation of savings would have been the wise thing to do. As at the time the Buhari’s administration was inaugurated in May 2015, the account had been depleted to a balance of U2.06 billion. In light of the serious macroeconomic challenges faced by the Buhari government, the ECA was further depleted and it posed a threat to exchange rate stability and other elements of macroeconomic stability. It stood at $ 473,754.57 million as of April 2024.

 However, the Sovereign Wealth Fund (SWF) that was established in 2011 through the Nigeria Sovereign Investment Authority (NSIA) (Establishment) Act, 2011 seems to have performed well with notable impact in relation to its objectives: meet budget shortfalls in the future, provide dedicated funding for development of infrastructure and keep some savings for future generations. NSIA has demonstrated positive impact through its increased focus on domestic infrastructure projects in agriculture, healthcare, and infrastructure enabling financial institutions.

GDP Rebasing

This was a major macroeconomic reform undertaken in 2014 by the Goodluck Jonathan’s administration, but with the results highly politicised/celebrated by the government as portraying achievement; the country became the largest economy in Africa, having overtaken South Africa. But this was not a sustainable achievement and the majority of the people’s pitiable living conditions did not change. And Nigeria did not compare favourably with South Africa on many other indicators. Focus should, therefore, be on how to make the economy acquire the transformational features of those economies that are in the league of the top 20, and also how to achieve broad-based and inclusive growth.

Recent Economic Reforms

Naira Redesign Policy: This policy was a monetary reform of the Buhari’s administration through the CBN, which turned out to be rather controversial and had to be suspended by the Tinubu’s administration. The expected benefits of the redesign policy derived from the laudable objectives, which included improved monetary policy transmission mechanism and its effectiveness in ensuring price stability. But its implementation turned out to be controversial because of the timing of the policy implementation, its perception as a political tool for influencing the 2023 presidential elections, limited flexibility, and the poor appreciation of the weak development of the e-payments channels, etc.

Nevertheless, most of the policy objectives were achieved: significant reduction in the volume of currency in circulation outside the banking system, promotion of financial inclusion which benefits individuals and enterprises, promotion of a cashless policy, reduction in kidnapping for ransom, among others.

But these appeared to have been diminished by the unintended consequences and negative impacts on different segments of the economy: the citizens suffered due to shortages of the new notes and collapse of the online payments infrastructure. The lessons learnt should guide future currency redesign initiatives.

The Tinubu Economic Reforms: President Tinubu, on assumption of office, rolled out a number of macroeconomic reform measures in quick succession, the first of which was the abrogation of subsidy on petrol and the deregulation of its price. It was followed by the foreign exchange market reforms, the major plank of which is the floating of the Naira in the market. These apparently happened in the context of resurrection and ascendancy of neoliberal economic policies. Then, in its bid to tackle the galloping inflation, the CBN began to implement series of monetary policy tightening measures.

The Monetary Tightening Measures of the CBN: These are Monetary Policy Rate (MPR) hikes and sharp increase in Cash Reserve Requirement (CRR). The CBN hiked the MPR by a cumulative 600 basis points to 24.75 per cent in March 2024 from 18.75 per cent in January, 2024. The CRR was also hiked from 32.5 to 45 per cent in the same period. The Loans to Deposit Ratio (LDR) was reduced from 65 to 50 per cent. Notwithstanding, headline, core and food inflation have trended upwards consistently with headline inflation standing at 33.2 per cent in March, 2024. This high inflation has compounded the situation of low and fragile growth in the country – phenomenon of stagflation. 

So far, the tight monetary policy measures have not succeeded in reducing the inflation rate. This suggests that the drivers of inflation are beyond money supply expansion. And these drivers include exchange rate depreciation, petrol subsidy removal, electricity tariff hikes, burgeoning fiscal deficits, legacy infrastructure deficits, insecurity in different parts of the country, among others. These appear not to have been accorded due recognition by the monetary and fiscal authorities. The Bank should recognise their role and the limitations of monetary policy in addressing them.

Foreign Exchange Market/Exchange Rate Reform: Until the middle of June, 2023, the CBN operated a managed float exchange rate system and it was able to maintain fairly stable exchange rates. The exchange rate stood at about N460.00/$ by the middle of June 2023. About the same time, the CBN completely floated the Naira and allowed market forces to determine the exchange rate. Consequently, the Naira depreciated sharply to about N770 to the dollar on July 21, 2023. Thereafter, the gap between the parallel market and official foreign exchange market rates began to widen because of persistent shortage of foreign exchange. Subsequent depreciation of the exchange rate put both the official and parallel market rates at between N1,500 and 1,600 to the dollar sometime in March 2024. Then, the Naira experienced what appeared to be temporary appreciation as at the second week of April 2024. Though laudable, its sustainability is not certain.

Meanwhile, the macroeconomic implications of the Naira floating have been very severe in relation to heightened economic instability, inflation upsurge, adverse impact on the real sectors and growth, and social welfare. Floating remains issue of serious concern in the country. There is thus the need to implement the free float exchange rate policy cautiously and sensibly because most of the necessary pre-conditions for a successful float are not satisfied in the country.

Fiscal Policy Reform: Petrol subsidy removal: For a very long time, from the 1970s, the federal government had fixed petroleum product prices and paid the corresponding subsidy which had constituted a huge burden on public finances. And the succeeding governments could not muster the will to remove the subsidy even though there was a good case for it. However, President Tinubu announced the removal of petrol subsidy at his inauguration on May 29, 2023, and implemented it one week later. And it has resulted in severe macroeconomic and social consequences, perhaps, because of the framework. The government deregulated petrol prices and eliminated subsidy payments under a fuel importation regime. But imported petrol prices tend to be higher in the domestic economy than the domestically refined products which are free of international transport and insurance costs, exchange rate depreciation effects, among others.

Therefore, deregulation of petrol prices needed to have been done on an appropriate framework of domestic refining of petrol, rather than importation of petroleum products. The importation framework has resulted in unpleasant macroeconomic and social consequences for enterprises, individuals, and living standards. The removal of fuel subsidy has directly and immediately impacted energy prices and the prices of goods and services across the country, as manifested through sharply increased transportation costs, increased cost of production and inflationary pressures, reduced purchasing power and living standards, and increased poverty incidence, among others.

Now, it appears that subsidy payment by government has quietly returned with the determinants of subsidy payments trending upwards sharply: price of crude oil and exchange rate. These have hiked the cost of importing refined petroleum products and increased the perception that the payment of subsidy and/or accumulation of subsidy debt may have quietly returned, running into billions of Naira per month. With this, the positive impact of the initial subsidy removal on government revenue may have diminished.

Overall impact of the Economic Reforms

The economic reforms have achieved limited overall impact but the impacts of some specific reforms are visible in some sectors. The economic growth rate showed significant improvement in the decade of the 2000s and a few years beyond (6.1 per cent in 2000 – 2009 and 6.75 per cent in 2010 – 2014). Thereafter, the growth performance dipped sharply against the backdrop of severe exogenous shocks and two recessions. But then, even the improved growth rates were very much below the economy’s potential and the expected double digit growth rates required halving the poverty rate and achieving other Millennium Development Goals (MDGs). They were also inadequate to achieve the Vision 20: 2020 targets including the GDP size of $900 billion and per capita income of $4,000 outside the GDP rebasing framework. The economy remains undiversified as the country continues to depend significantly on commodity production and exports with little value addition and few backward and forward linkages. This structural weakness has prevented the country from translating growth into commensurate employment and faster social development. And then, the macroeconomic environment has been characterised by instability, which has eroded the standards of living of Nigerians very severely.

Social indicators and the quality of life of the citizens have remained uninspiring, as reflected in increasing incidence of poverty (62.9 per cent of Nigerians were multi-dimensionally poor in 2022), inequality index (0.35 which ranks100th out of 163 countries globally), unemployment (33.3 per cent) as at Q4 2020), relatively low human development index (0.534 in 2022) and uninspiring health and other social indicators such as life expectancy at birth which stood at 55.1 years for men and 57.2 years for women in 2022 (NBS), both being far below the figure of 80 years for the industrialised countries.  And so, neither growth nor development has been inclusive. Economic growth amounts to a “winner-takes-all” for the wealthiest in the society; at the grassroots level, delivery of essential social services is poor and this is a major cause of unequal development.

In sum, although the specific objectives of some of the economic reforms were achieved with discernible impact, broadly, they have not been successful in meeting the expectations of the country and its citizens. Respectable economic development of the country has remained elusive.  The state of the Nigerian economy has continued to reflect the paradox of poverty and misery in the midst of generous human, natural and physical resources endowments.  The country is rich but the people have remained poor!

* Mike Obadan is a Professor of Economics and Chairman, Goldmark Education Academy, Benin City. He was formerly Director-General, National Centre for Economic Management and Administration, Ibadan, and former Non-Executive Director and Member of the Monetary Policy Committee, Central Bank of Nigeria.  

Democratic Governance, Competition and Fiscal Federalism: Reflections on the State of the Nation

Anya O. Anya

1. Introduction

In the millennia since human habitation was established on the earth the challenge has been how to organise the society to enhance human welfare and progress. In the process several styles and units of social organisation have been tried from clans, tribes, nation – states, kingdoms, empires and even autocracies. The challenge has been how to create a conducive atmosphere to enhance human freedom and human dignity in such a manner that will promote peaceful interaction in a conducive and cooperative humane environment. In the process of building appropriate institutions, the idea of democracy emerged. The earliest society where this form of governance was practiced was the Athenian City State where all adults, mostly men participated in reaching decisions for the harmonious management of their society.

2. Democracy and Democratic Governance

Democracy is a system of government in which state power is vested in the people or in the general population of a state. Over time the numbers of the people eligible to participate in the decision making process in the society became unwieldy and hence difficult to manage. To stream-line the process the idea of representation emerged. It became the practice to elect leaders from amongst the population in a competitive election. In a democratic society the people are important since the elected officials are really their messengers.  Over time more expansive definitions of democracy insisted that rulers must emerge through competitive election and with that came the linkage of democracy and guarantees of civil liberties and human rights. Thus the voice of the people became an inalienable desideratum in any discussion of democracy hence Abraham Lincoln’s famous definition of democracy as “the government of the people, by the people and for the people.” Beyond the voice of the people being heard democratic governance can be regarded as attempts to institutionalise the social space for the expression of the voice of the people.

Democratic institutions are important in this endeavor, especially where the voice of the people do not have the capacity to guarantee the implementation of their decisions. It becomes necessary to recognise that a classification of forms of democratic governance can be attempted on the basis of what answer they can give to the question of the rationale for creating space for the voice of the people. As has been suggested, “the institutional design of different forms of democratic governance is based simultaneously on a normative ideal of democratic legitimacy and a sociological account of the functioning of a democratic institution.  “For example questions can be raised whether the Independent National Electoral Commission (INEC) and the way it operates can represent an aggregation of the voice of the people. Further, the question can be raised whether we need a constitutional court to deal with some issues that could arise from time to time, especially on issues of democratic legitimacy. Let me illustrate.

During the last elections, the INEC informed Nigerians that a total of 93 million Nigerians registered to vote. At the presidential elections less than one third of the registered voters actually voted and discharged their franchise: that is less than 30 million out of the 93 million registered voters fulfilled their democratic obligation. Of the less than 30 million who voted, again, less than one third voted for the eventual winning candidate. In other words, in the actual elections, for every one voter who voted for the ultimate winner, two voted against him. Howbeit the votes of a minority of eligible voters installed the ultimate winner. This raises the question of democratic legitimacy because a foundational principle of the democratic ethos is the majoritarian principle which insists it is the decision of the majority that determines the ultimate winner. The question then arises in such circumstances when the winner did not win the majority of the votes cast by the majority of the voters. What is the rational and constitutional remedy?  This suggests that in such unusual circumstances, a Constitutional Court should be in place to adjudicate what is best in the national interest on the obvious democratic anomaly, of the votes of a minority over riding the votes of the majority?

3. The Challenge, The Vision and The Dilemma

Most Nigerians over 70 will admit that in their experience Nigeria has never been as disorganised, chaotic and permeated with such a high degree of normlessness as we have witnessed in recent times. Three problems stand out: insecurity, stagnating economic growth and lack of national cohesion. The overarching challenge that ties together these inter-related problems is the low quality of leadership, especially political leadership. As has been said recently, “the intricacies of managing the diverse interests of a multi-cultural Nation-State such as Nigeria require a lot of skills, tact and open mindedness. If the Nation-State should move forward Nigerians must deliberately decide to reject the promotion of self over group, group over community, community over ethnicity and religion, and ethnicity and religion over national interest. We must willingly suppress the urge to promote our personal interest and choose instead to put forward our best foot forward in order to promote our collective national interest.” The national interest must encompass a common and acceptable national purpose. Moreover, the decision makers in relation to what can constitute a genuine example of a common purpose must share a common code of values. This code of values promotes a common and acceptable vision of a desirable future. The system through which the decision makers emerge should usually apply a strict set of criteria based on merit and excellence. Hence a level playing field in which the code of values is deployed equitably across board.

The criteria that shape the selection process include the following attributes of the leader: integrity (character), competence, conviction, courage, charisma, commitment, compassion and empathy. Most often such leaders command the trust and loyalty of the followers. It should follow then that the crying need of Nigeria is clearly to find those who can build a new Nigeria on a new foundation. The emergence of a responsible and Nigeria-wide college of elders and leaders – statesmen who promote and project unity of purpose, integrity and wholesome values – a new crop of nation–builders is desirable. They should be driven by knowledge and wisdom as symbolised by an unflagging commitment to the pursuit of merit and excellence.

4. Industrial Development: Competition, Comparative and Competitive Advantage

In the first half of the 20th century it became obvious that the search for human prosperity and progress had unleashed both capitalism and science as new forces which created a new environment for social development where new ideas about society flourished. Three dominant themes, namely: economic development, socio-economic equity and political democracy dominated discussions. It was a period for the frenetic search for new ideas and new strategies and created the environment for the fermentation and propagation of new ideas and ideologies. It was a time when the new socialist ideology and other variants of the democratic ethos emerged. New policies such as central planning, import substitution and factor accumulation were considered. New variants of social organisation with new elites emerged, led by intellectuals and political leaders including business men. Other ideas on the front burner included the reorganisation of the society, which came with land reform, community development, and poverty eradication programmes such as privatisation, decentralisation and sustainable development. Some of these policy ideas impacted on the society to the extent that new economic operatives and new cadres emerged as arising from new changes in the society. The impact of these new ideas led to the realisation that people reacted to these economic and social factors merely as signals that led to changes in behavior patterns often propagated through incentives and rewards, for good behavior. Arising from this environment new cultural forces were reshaping the society. Studies of economic development in the first half of the 20th century soon observed that societies endowed with natural resources had an advantage in the pace of industrial development. This was daubed comparative advantage. When Japan and other South East Asian countries started on a fast track in their economic growth trajectory with little or no natural resource endowment it became obvious that other factors were at play. It was Michael Porter who provided new insights indicating that nations prospered despite lack of natural resources as a result of their competitive advantage anchored on higher levels of productivity based on superior knowledge, skills, investments, new insights and innovation. In other words, science and technology were critical in driving wealth creation. The idea of competitive advantage was so novel that it constituted a paradigm shift. Moreover, implicit in the idea of competitive advantage is the acceptance of the new productivity paradigm anchored on two basic beliefs:  

•       It is higher productivity that drives an economy towards greater prosperity;

•       With increasing productivity the potential for increasing wealth is limitless since it is based on ideas, skills, competition, accountability and education.

This is the fulcrum of the notion of the knowledge societies. Comparative advantage can lead countries to get stuck in exporting primary goods and raw materials such that they are trapped in low wage economies due to unfavorable terms of trade. Competitive advantage redresses the balance by insisting on maximising returns on goods and services that attract premium prices. Strategic management in such circumstances must be concerned with building, conserving and sustaining competitive advantage

5. Fiscal Federalism

Nigeria is a plural society which brings together several nationalities. It is multi-cultural and accommodates several diversities in language, values and other peculiarities of several nations brought together by the accident of history. Hence their diversities can be a source of divisive tendencies, but if well managed it can also become a source of strength and stability. Some nations have successfully managed their differences as a source of strength and these are usually federations brought together by different factors. Amongst the different areas of their co-habitation is the area of the management of finance and other resources hence the term fiscal federalism as the basis of their national life. Thus, the financial relations between units of government is the study of how competences (expenditure side) and fiscal instruments (revenue side) are allocated across different (vertical) layers in the administration, especially the system of transfer payments or grants by which a central government shares its revenue with lower levels of government. It has been noted that the theory of fiscal federalism assumes that a federal system of government can be efficient and effective at solving problem that governments face today such as

•       Just distribution of income

•       Efficient and effective allocation of resources

•       Economic stability

Economic stability and just distribution of income can be done by the federal government because of its flexibility in dealing with these problems. States and localities are not equal in their income; hence federal government intervention is needed. Allocation of resources can be done effectively by states and local governments. It has further been argued that the federal or central government should be responsible for the economic stabilisation and income redistribution while the allocation of resources should be the responsibility of state and local governments.

There should be checks and balances in the administration of the funds so that the benefits of fiscal decentralisation can be more effectively shared, for example,

•       Regional and local differences can be taken into account;

•       Lower planning and administration costs;

•       Competition among local governments favours organisation and political innovation

•       More efficient politicians as citizens have more influence.

But there are also several disadvantages in fiscal federalism, such as

•       Lack of accountability of state and local governments to constituents;

•       Lack of availability of qualified staff;

•       The possibility of people choosing where to live with implications for cost of transport;

•       Some degree of independence of the local governments from the national government;

•       Unavailability of infrastructure for public expenditure at the local level;

The relationship between levels of government can be affected by past historical events such as geographic separation, slow communication and unclear division of labour between the levels of government

6. Concluding Remarks

The Industrial Revolution inaugurated a new phase in the development of the economy and ushered in a new phase in man’s pursuit of prosperity and progress. While it took the nations of Western Europe 30 years to complete the cycle of fast track economic growth, in the new nations of South East Asia such as Singapore, Malaysia, South Korea and Taiwan it took a little more than a decade to attain double digit economic growth which is the driver of fast paced economic development. What made such fast paced growth possible was the fact that nations prosper on the basis of their competitive advantage, which is anchored on the higher levels of productivity based on knowledge, skills, investments, new insights and innovation. It became evident that science and technology were critical in driving wealth creation. With technology and increasing productivity comes the realisation that increasing wealth is limitless as seen in the knowledge societies. Additionally the higher standards of living for the citizens shapes the social, political and the moral character of the people such that democracy thrives with the consequent spread of a democratic culture which shapes the values, principles and ethos of individuals who share a common code of values. This is critical since it defines the character of the selection process for leadership. Such leaders must show integrity (character) in addition to competence, conviction, courage, charisma, commitment, compassion and empathy. The guiding principle must be to create a new crop of nation builders implacably committed to the pursuit of merit and excellence.

Democracy, Development and Economic Growth

Dr. Muda Yusuf

There is a nexus between a stable democracy and economic growth. The 25 years of uninterrupted democracy in Nigeria has earned the country some goodwill as one of the few stable democracies in Africa. This is amidst the resurgence of military coups in the parts of Africa, especially the West African sub region.  Investors are generally more at ease in a democratic environment because of the perception of lower country risk.  The supposition is that core democratic values exist to facilitate investment growth. 

Economic Growth Performance

There is a correlation between investment growth, economic growth and employment growth. However, the real impact of economic growth on the welfare of the people depends on the degree of economic inclusion. For several decades we witnessed growth without concrete development outcomes. Growth is essentially about GDP numbers, but development is more than that; it is about the welfare and well-being of the people. Strengthening the link between these two metrics is crucial for socio-economic advancement and citizens’ welfare. That is why the concept of economic inclusion is very crucial in economic management. Ultimately, governance is about the people.  Economic policies or economic reforms are not ends in themselves, but means to an end.

The Nigerian economy is the 26th largest economy globally and the biggest in Africa with a GDP of $410 billion as at 2023. But it ranked 163 in its Human Development Index by the UNDP; 114th in Global Competitiveness Ranking of the World Economic Forum, and 14th in Africa in 2022.

According to the National Bureau of Statistics (NBS), 133 million people were in multinational poverty as at 2022, which means they were experiencing deprivation in more than one dimension.  Multidimensional poverty is higher in rural areas where about 70 per cent of the people are poor compared to 42 per cent in the urban areas. The poverty situation may have worsened since then because of the spiraling inflation and implications for welfare of citizens, even amidst positive growth trajectory.  This underscores the need to focus on poverty reducing and job creating growth.

Vulnerability Risks in the Economy

Economic growth trend, measured by the performance of the Gross Domestic Product (GDP), has been relatively positive over the past 25 years, averaging about three per cent. This is good compared to growth conditions in most economies around the world. However, it remains a major worry that the economy is still structurally defective as it is highly dependent on the oil and gas sector, particularly for foreign exchange earnings, creating serious vulnerability risk. 

Productivity and Investment Climate Issues

However, there remains a major concern about private sector productivity and the welfare of the Nigerian people. The quality of the business environment remains a source of concern to investors, especially in the real sector. Weak infrastructures and institutions had adverse effects on efficiency, productivity and competitiveness of enterprises in the economy. These conditions pose a major risk to inclusiveness and job creation in the economy.

Macroeconomic Fundamentals

The dynamics of the macroeconomic environment are very critical to conversations on the economy. The key issues here are the imperative of moderating inflationary pressures, stabilising the exchange rate and boosting economic growth.

We cannot build something on nothing. We need a stable macroeconomic environment for investment to thrive and for jobs to be created.  Fiscal and monetary policy reforms are critical for the restoration of macroeconomic stability.

The major reforms of the current administration were put in place to strengthen these fundamentals.  These include the foreign exchange policy reform and oil and gas sector reform, especially the drastic reduction in the economic bleeding resulting from the petrol subsidy.

Over the past 25 years, the Naira’s exchange rate had depreciated massively.  The rate was N93 to the dollar in 1999 and currently over N1,400 in the official foreign exchange market.  This had impacted adversely on prices in the economy and contributed to worsening poverty because of the high vulnerability of the economy to external shocks resulting from high import dependence.

Headline inflation rate, year on year, was 6.6 per cent in 1999, and rose sharply to 18.9 in 2001. It is currently 33.2 per cent while food inflation was 40 per cent in March 2024.  The country’s public debt rose from N7.55 trillion in 2012 to N97.34 trillion in December 2023.

External reserves witnessed dramatic growth since 1999. It was $5.4 billion in 1999 and $34.11billion in March 2024,

Context of Current Economic Issues

It is important to give some context to the current economic reforms. The current administration is contending with a legacy of weak macroeconomic fundamentals – currency volatility, high fiscal deficit, low revenue, unsustainable debt levels, rising debt service to revenue ratio, declining reserves and weak investors’ confidence. There were also global headwinds resulting from the Russian Ukraine war and tight global monetary conditions. And now we have the Israel and the Palestinian war, the scope of which is still unfolding.

The evidence of the deteriorating macroeconomic conditions did not fully manifest before the exit of the previous administration.  But the reality was that the economy was already in a floundering mode. 

The current reforms were designed to correct the legacy of economic distortions and deteriorating macroeconomic fundamentals.  Regrettably, however, the reforms had come with enormous pains, especially with regards to the spike in energy costs, acceleration of headline inflation to 33.7 per cent in April 2024, while food inflation has risen to 40.5%; and surge in transportation cost. But I should quickly add that these reforms were necessary to pull the economy back from the brink.  Some of the legacy issues were as follows:

i.      Ways and means financing of the federal government operations grew from N2.5 trillion in 2015, to N30.7 trillion in May 2023.  This was a jump of over 1000 per cent.  This was an issue because this mode of financing deficit is highly inflationary.

ii.     The national debt surged form N12.1 trillion in 2015 to N87.4 trillion in July 2023, and increase of over 600 per cent

iii.    Foreign direct investment [FDI] contracted by $190 million in 2022, indicating a reversal of FDI investment flows.

iv.    Oil output plunged to 1.2 mbd in 2022, amid persistent output disruptions and the inability to meet the country’s OPEC quota

v.     Outstanding forex obligations and backlog rose to over $7 billion.

vi.    Money supply grew from N19 trillion in May 2015 to N55.5 trillion in May 2023, an increase of 192 per cent. Whereas the growth in real GDP was 8.7 per cent over the period, underlying the role of money supply growth as a major driver of inflation.

vii.   In the 2023 Sustainable Development Role [SDG] Index, Nigeria was ranked 146 out of 166 countries globally on account of the limited progress towards achieving the SDG milestones.

These were a few of the fundamental factors that underpinned the current economic reforms. Although the reform process has been hurting, the reality is that there are limited options.  However, the government could do more to alleviate the pains, especially among the vulnerable segments of the society as well as ease the burden on businesses.

Tax reform is a major component of fiscal consolidation agenda of the current government. The reform is expected to ensure efficiency in tax administration, reduce tax evasion and tax avoidance and eliminate multiple taxations. The fuel subsidy removal and foreign exchange policy reforms are critical steps in achieving fiscal consolidation. Other measures necessary are

•   Unlock more income from revenue generating agencies through enhanced efficiency of their operations.

•   Initiate budget reforms to ensure fiscal and spending discipline.  Ensure value for money in government expenditure and procurement.

•   Commit to reduction in the cost of governance.

Review of the Key Reforms 

Fuel Subsidy Removal

This reform measure had benefited the economy in the following ways:

•   Huge savings in government revenue.  The FAAC allocation was almost double what it used to be.

•   Reduced smuggling of petroleum products.

•    Eradicated the inherent corruption in fuel subsidy.

•    Reduced domestic consumption from about 65 million litres daily to less than 40 million litres

•   Outlook for private investment in the downstream is much brighter.

•   Conservation of foreign exchange as less fuel is imported.

•    Bigger Investment opportunities in the petroleum refineries and related industries.

•   Opportunities in renewable energy investment.

•   Opportunities for private sector importation of petroleum products.

•   Better focus by investors and households on energy efficiency.

•   New opportunities in the use of CNG, LPG in transportation.

However, we should acknowledge the challenges that followed the fuel subsidy removal.

•   The increase in PMS price was a huge shock to the economy, investors and the citizens on the back of escalation of energy cost.

•   Triggered intense inflationary pressures.

•    Profound adverse impact on the welfare of the citizens – food prices, transportation costs.

•   Poverty level increased, Middle class disappearing.

•    Profit margins of many businesses have been considerably eroded due to high operating costs which are not transferable to consumers.

Real Sector Performance

Manufacturing business is perhaps the most challenging in the economy today. The trend has grave implications for the economy.

Despite the numerous policies and measures that have been articulated by successive governments, manufacturing contribution to GDP remains less than 10 per cent on average over this period. The sector has remained largely import dependent which has made it very vulnerable to external shocks. Productivity is also weak because of structural issues.

These features create competitiveness challenges for the sector. Many manufacturing firms have low local value addition, weak backward integration, inadequate forward integration, and low job creation potentials. All of these weakened the impact of the sector on the economy and the development process.

These shortcomings underscore the need to accelerate the development core, heavy industries to support the light manufacturing investments.  These core industries include iron and steel, petrochemicals, gas infrastructure development, petroleum refineries, aluminum smelter industries, pulp and paper industries, among others.  Investments in these sectors need enormous government support from both fiscal and monetary policy perspectives because they are heavy lifting undertakings.

If the power sector reform delivers the desired outcome, the fortune of the sector would definitely improve. The manufacturing intervention fund had some positive impact on the few firms that benefited. It was a restructuring and refinancing facility which gave a significant relief to the firms and enhanced their cash flow. But the fund was evidently inadequate.

The Bank of Industry also played a remarkable role in funding industries; but the beneficiaries were few compared to the financing gap that exists in the industrial sector. Meanwhile, credit remains a major challenge for manufacturing enterprise. Access to credit is difficult and cost of credit is outrageous. The problem is particularly acute for the small and medium manufacturing enterprises.

Deepening the Financial System

It is imperative to deepen the financial intermediation role of the deposit money banks, which is their primary role in an economy.  This responsibility entails the mobilisation of financial resources from the surplus end of the economy, to the deficit segment of the economy.  Financial conditions remain very tight for the private sector amid challenges of access and cost of credit. The aggressive monetary tightening stance of the monetary authorities is not helping matters.

The core function of the banking industry is financial intermediation. A situation where non-banking activities are crowding out the financial intermediation functions of the deposit money banks is detrimental to the growth of the economy.

The spread between deposit and lending rates in the Nigerian banking system is too high.  It is a reflection of the inherent inefficiencies in the banking system.

In Nigeria, the spread is over 20 per cent, one of the highest globally. The average for sub-Sahara countries is 10 per cent and global average is about 6.6 per cent. The large spread is detrimental to investment growth and disincentive to savings.

Recommendations for Boosting Real Sector’s Performance

•   There should be a framework to manage volatility in forex market.

•   Peg the customs duty exchange rate at between 800-1000/$ to make the international trade environment more predictable and lower inflationary pressures.

•   Put an end to dollarisation of gas used by manufacturers.

•    Give concessional import duty on intermediate products used in the food and beverage sector.

•   Reinvigorate the development finance institutions to provide concessionary financing.

•   Step up internal security to deepen the linkages between the agriculture sector and the food and beverage sector.

•   Deliberate policies to promote the leveraging of our agricultural sector to boost productivity.

•   We need to see more aggressive investment in upstream heavy industries to support the manufacturing sector and reduce the importation of intermediate products and raw materials.  These core industries include iron and steel, oil refineries, gas and petrochemicals, pulp and paper industries, aluminum smelter industry. These are heavy lifting that require enormous government support.

•   Recognise the limits of market forces in the management of the economy.  It is important to recognize the reality of market failures and have a strategy of state intervention to manage it.  No economy is managed entirely on free market principles because of the reality of market imperfections.

• Dr. Muda Yusuf  is Director/CEO, Centre for the Promotion of Private Enterprises (CPPE)

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