How our policies and laws discourage investment
In the run up to the 2019 elections, we are currently seeing a repeat of the “awada keri keri”, “girin gori”, and “shenanigans” that we saw four years ago. As I wrote few weeks ago, its “Shaku Shaku” season, following on its predecessor of four yours ago – “Shoki”. In the meantime, while we await the full conclusion to the response by PDP, nPDP, rAPC e.tc. to the choreography started by the All Progressive Congress (APC), mere mortals like us must continue to think and share ideas.
On Wednesday last week, we had a very interesting “town hall” discussion on twitter. The initiative was by my very good friend Dr. Abimbola Agboluaje, and he managed to assemble excellent thought leaders to share their thoughts on the path from poverty to wealth, with focus on the factors that continue to keep us poor. If you missed it, you can still follow the discussion on the threads #TFLPolicyTownHall and #PovertyToWealth. As a panelist, my focus was to try and point out our failure in doing the little or critical things that have serious and long-term implications for investment, growth and jobs.
The areas I focused on were law, security and the predictability of policies.
I argued that very few people understand how critical business decisions are hinged on legal measures and framework. When the laws guiding investment generally, or in certain sectors are appropriate, and interpreted in the same manner for all, it provides a level playing field that helps drive investment, generates growth that leads to job creation, and of course poverty reduction. Today, our law is more shaken than ever before, in the context of the modern challenges that is supposed to deal with, but especially in the context of its interpretation.
Indeed, at least two things are generally wrong with our laws and how they are implemented and interpreted. In today’s Nigeria, while it used to be a pretense, it is now generally accepted that might is right. What this means is that the law is now generally disregarded, and its just a matter of who has the greater might. That was the essence of the message to farmers recently by Femi Adesina, the media adviser and spokesman to Mr. President. By justifying the violent attacks on farming communities by herdsmen, Adesina practically argued that might is right. What is often missing is that it’s not only the farmers that heard those words, the investors we are seeking from foreign countries also hear them, and they react accordingly. Of course, the might referred to here is not only physical, but also wealth and influence.
The second point is delayed justice. The wheel of justice in Nigeria is perhaps the slowest in the world. And that is even when it comes, which is rare. The implications for investment are huge. The uncertainty provided by delayed justice gives the protagonist the impression that it can get away with might is right, and gives no protection to those who seek to play by the rules. In the end, these parameters act as interference and lower investment in the long run, drive up the costs of investment, and destroy existing investment. By lowering the rate of investment and driving up the costs, it not only lowers the rate of return on investment but also keep productivity very low. Consequently, incomes are low, and poverty reduction slow.
From a security point of view, the challenges include herdsmen, Boko haram, kidnapping, armed robbery, cultism etc, and they are rising. They have serious implications for investment, both domestic and foreign. Foreign investors see Nigeria as a homogenous country when it comes to security. This means that there is a huge correlation between Boko Haram, and the recent escalation of crisis in the North Central and investment plans in Lagos and the rest of the West that are without any significant crisis.
In the context, FDI is lackluster, while portfolio flows are doing well, and will continue to do so as long as oil prices are going up. FDI requires the risk analysis of whether Nigeria will enter a civil war, but portfolio flows do not. So, while those in government make noise about attracting investment, and spill out fundamentals on the basis of population, investors are looking at the escalating security situations and the rise in conflicts.
On policy predictability, there are two elements that are important. One is that we do not make many policies and reforms to reflect changing global dynamics. Most of the existing policies have largely become irrelevant due to changes in the last two decades. A good example is the land use act, and the never-concluding petroleum industry bill. The other point is that, when we do, we bungle them. And sometimes, when we get them right, we change them often. In the end, we leave investors wondering what’s wrong with us. PIB is not so much a bad, but a non-existent law. For so many years now, no tangible investment in the oil and gas industry as the world waits for changes to our laws that never came. For so many years, we have known that the Land Use Act is awful, but we have not changed it. This leaves investors handicapped.
And generally, when we make changes to our policies, its often remarkable how they are changed and compromised at the implementation stage. A variant of this is that, in many cases, policy deliberations are sometimes secretive until they become policy. Policy makers rarely seek enough consultations. But it is naïve to think these are errors; they are often deliberate because planned policy changes are often for the benefit of a select group people. A look at the power sector reform process shows that it has been stalled at least twice now. The MYTO process is currently stalled, and it no surprise that the entire value chain is in serious debt crisis. Meanwhile, in the last four years, Egypt has expanded their power supply by about 50%. And the crown jewel of unpredictable public policy is the yearly ritual christened national budget – Haphazard, unpredictable, unworkable, and compromised.
In closing, it is important to note that virtually the whole world started poor. So, each developed country at a point found a way to be rich. We can also. But we must harness ideas, be prudent, disciplined and consistent. And it starts with policies and ideas that help to build an internally and externally competitive, and productive economy and not ones that continue to entrench narrow interests.
I thank you.
Ogho Okiti