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Some years back I delivered a lecture on the topic “Why Nigerians are Poor”. As I prepared for this event, my thoughts went back to that lecture because the underlying themes are similar-the Nigerian economy and financial system and indeed our democracy and political systems are not working for the majority of our people. And most Nigerians are poor! The economy is not working for the poor; the rural dweller; the young and vulnerable; the senior citizens; the unemployed. Research from the strategy, business, economy and policy consultancy company I head, RTC Advisory Services Ltd based on NBS data shows that poverty rose from just 27.2% in 1980 to 46.3% by 1985, just five years later; 60% by 1995 and has progressively risen to 69% in 2010, 71.5% in 2011 and by 2014, 72%! Over the period 1980 to 2012, unemployment rose from just 6.4% to 27.4% in spite of consistent GDP growth rate averaging more than 7.5% and by 2016, 33.6% (using NBS old measure); Human Development Index (HDI) has risen only modestly between 1990 (0.411) and 2014 (0.514); and average life expectancy in spite of our enormous resources remains stuck at 52.9 years in 2015 while the equivalent figure in the developed world averages over 70 years. Why is this so and what can be done to ameliorate this situation?

First there are three critical problems with the structure of our economy-the dominance of government spending on recurrent expenses of a public service which employs only a small percentage of Nigerians; the dominance of our oil and gas sector (and until recently power) by an inefficient and corrupt public sector; and the structure of our financial sector which excludes Small, Medium and Micro Enterprises from financing and has been unable to provide mortgages and housing for the middle class. There is also a fourth problem with the structure and nature of domestic production in Nigeria-agriculture is sub-modern, dominated by small holders and insufficiently linked with domestic processing, agro-allied and manufacturing; wholesale and retail trade is largely in imported products; and the oil export is of crude, unprocessed oil without a local refining sector and no domestic value-added (meaning no domestic jobs and productivity!) The implication is that the economy has severely limited domestic linkages and much of domestic production minimally affects poverty and unemployment!

In addition, any one conversant with our pre-recession GDP sectoral growth rates will notice the pattern in which sectors with a potential for huge employment (manufacturing, solid minerals, building and construction, real estate etc.) are either very small in size or have very low growth rates, while sectors like telecommunications which are fast growing do not employ large numbers (though on the positive side with multiple domestic linkages).

The structure of government consistently spending between 60-75% of its expenditure on salaries, emoluments, pensions and overheads of about 3 million Nigerians engaged in the public sector at federal, state and local governments including political appointees, is compounded by the fact that the limited sums appropriated for capital projects and social services are subject to rampant corruption which severely diminishes the value received by ordinary Nigerians from government expenditure. This structural deficiency of what government spends its resources on and who are the real beneficiaries thereof, is worsened by another structural problem-the structure of Nigeria’s pseudo-federation with one overwhelmingly large and not surprisingly wasteful and inefficient federal governments; 36 handicapped states; and 774 almost utterly useless local governments which are now de facto area offices of the handicapped states and therefore doubly-disabled and dysfunctional. Nigeria has moved between independence in 1960 and today from three, later four strong and viable regions to a prebendal system of handouts from a federal government (which in the first place forcefully stole resources from the regions/states and now purports to handout pittances therefrom) to its now dependent states. The consequence is a shift in focus from production and development though competition to distribution and stagnation through prebendalism. The other consequence, as we have seen is the multiplication of recurrent costs of governance as resources which should otherwise have been channeled into areas of public need are expended paying and maintaining civil servants and political office holders. As an illustration, the Nigerian nation budgeted only N7billion for the capital and recurrent costs of maintaining the National Assembly in 1999 when we returned to civil rule. While the number of Senators and Members of the House of Representatives has stayed the same, their annual budget rose to as high as N150billion and is now N120billion!

Thus far, we have seen some, though not all reasons accounting for high rates of poverty, unemployment, inequality and social exclusion afflicting our nation. I have often wondered what kind of elite hopes for “peace and security” in a nation in which there are one hundred million people living in poverty? It is highly unlikely, indeed probably impossible for Nigeria to enjoy sustainable peace or law and order until we address the lop-sided economic growth that creates billionaires in units and poverty and destitution in hundreds of millions!

Another cause of endemic poverty and desperation in Nigeria is our low industrialization. Economic history suggests that nations (especially those with large populations such as ours) are unlikely to create jobs and a large middle class without industrialization-those sectors that create jobs in significant numbers (manufacturing, mining, modernized agriculture, agro-processing and agro-allied industry, construction) are all dependent on a strong industrial and technology base. There are many reasons why we haven’t been able to create sustainable industrialization with the most notorious been the abject shortfall in electricity supply. Compare Nigeria’s 4,000 MW power supply with Algeria’s 11,000MW; Egypt’s 24,000MW; South Africa’s 40,000MW; the UK’s 80,000MW; Brazil’s 100,000MW; and Germany’s 120,000MW! Nigeria’s (former?) Vision 2020 target of 40,000MW is South Africa, our main regional competitor’s current power output. According to the Jonathan government’s power sector road map, Nigeria’s per capita power consumption is 7% of Brazil and 3% of South Africa-while Brazil generates 100,000MW for 201million people and South Africa generates 40,000MW for a third of our population, Nigeria generates 4,000MW for 160million people!

There are other factors behind impaired industrialization besides power-poor transport infrastructure (road, rail, ports and air transport); constraints around money, credit and finance (especially high interest rates and high inflation); very weak public services-security, water, postal, ports, immigration, customs etc. all of which in addition to the cost of alternative power generation raise the cost of operations for our businesses and render them globally uncompetitive. Of course every expense devoted to these otherwise unnecessary spending is one taken away from what may have been deployed towards employing one additional worker, and only surviving and successful businesses can employ workers. There are also multiple taxes, charges, rates and dues, costs of regulatory overkill, absence of appropriate incentives for industrial enterprises, other costs associated with surviving a harsh investment climate and the costs of servicing corrupt officials!

Corruption has been a particularly destructive force for poverty in Nigeria and other African nations. In our case, the long term trend of rising oil prices since 1998, briefly interrupted in 2008-2009 due to global recession meant that the nation earned N60.9trillion ($380billion) from oil sales from 1999 to the second quarter of 2013. In terms of spending, the federal government expended N35.2trillion ($220billion) over the same period, with the equivalent figures for states and local governments being N25.4trillion ($158.8billion) and N10.5trillion ($65.9billion), thus the governments of Nigeria collectively spent N71.2trillion ($442billion) between 1999 and June 2013-the question is (even after discounting the sub-optimality of prevalent recurrent spending which we have already discussed) whether there is sufficient evidence of this expenditure in terms of infrastructure and services?

Let’s turn to how deficiencies in education, health and (lack of) social services have contributed towards impoverishing Nigerians! Our education system places insufficient emphasis on quality, skills and competences (often emphasizing quantity and zero costs ignoring the fact that worthless education may as well be free!); it is weak in science and technology education often mass producing ill-educated or barely literate graduates in arts and humanities; ignores the critical role of economics, management and entrepreneurship education in the context of developing nations; destroys innovation and creativity through outdated teaching methods instead of focusing on fostering the student’s own independent learning and creative thinking; and is insufficiently focused on adult, vocational and technical education. The critical issue in both education and health sectors remain unanswered questions about sustainable financing structures to guarantee both access and quality. And then we have a huge vacuum in social policy in terms of rural under-development, unemployment and disability benefits and care of senior citizens. In Northern Nigeria, the willful exclusion of millions of young people from modern education and skills is a guarantee of large scale poverty and is now our biggest threat to national security!

Finally we have recorded significant policy and implementation failures that have translated to massive poverty in the land-failure to leverage oil and gas resources to create a robust, diversified economy; failure to modernize agriculture; failure to formulate and execute a successful industrial policy; and (deliberate?) neglect of social investments and human capital especially through our treatment of education, health, rural development, urban mass transit and housing.

The evidence is irrefutable that Nigeria’s immense endowments have not benefited the vast majority of its people-more than 70% of the population is poor; over 30% are unemployed; more than 40% of the youths have no jobs; 30% of our people remain illiterate; life expectancy is just 52years; and the country exhibits poor human development with HDI of just 0.514.

Before I advocate some solutions, let me speak specifically on some contemporary issues of monetary policy which have combined to erode the quality of life of Nigerians and also the economic growth and development of the nation itself-the (mis) management of exchange rates, interest rates and inflation. Those three issues illustrate how economic managers have either by flawed policy prescriptions or sometimes policies deliberately designed to engender opportunities for rent-seeking, impoverished Nigerians. In 2015, due to oil price declines and consequent worsening of our balance of payments, foreign portfolio investors began to seek a 10% depreciation of the Naira to reflect what they thought was its fair value. These portfolio investors were investing in Nigerian government bonds(in effect funding the operations of the Federal Government) and equities on the Nigerian Stock Exchange. Even though portfolio investors were understandably at the forefront of this pressure, FDI investors shared similar sentiments. Remember that the exchange rate at this time was N200/$ and a 10% depreciation would have meant a currency value around N220/$. The “spokesman” of these portfolio investors was JP Morgan because they had included Nigeria in their bond index which those investors tracked. Well we basically told JP Morgan to go to hell and investors, both portfolio and FDI duly abandoned Nigerian markets worsening our Dollar supply scenario at a time when what we needed were alternative sources of FX. Then CBN resorted to administrative controls and rationing of FX, resulting in further effective devaluation, multiple exchange rates, racketeering and so-called “round-tripping” of scarce foreign currency, corruption, and influence peddling around the FX market. By the time, we finally began to loosen FX policy last month, we had perhaps up to ten exchange rates for different categories of buyers ranging between N197/$ for pilgrims, N315/$ at the interbank and over N500/$ in the parallel markets where most people got their dollars!

Now this wrong policy approach had implications for both inflation and interest rates! Due to CBN’s fixation with fixing exchange rates at a subsidized rate, it had to tighten money supply leading to a high monetary policy rate of 14% with other interest rates following from that high base. And of course because of rising exchange rates, inflation which had reached as low as 7.8% is today at 18.6% all of which combine to erode the purchasing power of the average Nigerian…who still has a job and an income! The morale of this story is that we must approach economic decisions rationally and not emotionally and sometimes when policy makers claim to be pursuing so-called nationalistic policy, watch carefully…they just might be enriching themselves and their friends!!!

So what are the solutions? It is obvious that our critical economic challenge is to diversify our economy away from rents from oil, into a productive economy based on manufacturing, transportation, mining, agriculture and construction, exports amongst others. Please note that Nigeria’s diversification challenge is not about GDP even though opportunities for optimising GDP abound, but it is about exports and government revenue. Nigeria is well-placed to achieve this with our large labour endowment and markets, natural location as a transportation hub, abundant solid mineral deposits, large, fertile land mass and creative and resourceful people. The required investment in infrastructure and housing if made, guarantee a booming construction sector into the long term. These sectors and activities will produce domestic jobs in large numbers and redress poverty. I believe we also need to resolve the issue of downstream petroleum sector deregulation. We need to remove all impediments to foreign and domestic investment and in particular the confusion over foreign exchange management and articulate a clear and compelling policy to re-assure investors. We hope the imminent National Economic Recovery and Growth Plan will address the policy lacunae.

It is also evident that we need budgetary reforms to focus government spending on capital expenditure. I indeed advocate an amendment to the Fiscal Responsibility Act to mandate a 60:40 capital/ recurrent ratio within the next five years; and a 70:30 ratio within the next sevento ten years! This will require drastic public sector reforms. The other supportive decision which I hope politicians, bureaucrats, and labour will allow government to take is privatisation of all the refineries. The legal and regulatory infrastructure for take-off of solid minerals is already in place- the Mines and Minerals Act 2007 and the institutions created there under. All that is missing and that should now be manifest is the political will, sector stability and global marketing to attract international investments into the sector. Mining, we must recognise, also creates jobs in large numbers.

I believe we need legal and constitutional reforms to enthrone fiscal federalism, devolution of power to sub-national entities, increase revenue allocation to States and LGs, and create a truly federal or confederal, competitive and productive economy. There are also policy actions which we have to take- investment climate reforms to improve business and economic competitiveness, focus on developing MSMEs, deepening long term savings through pensions, insurance and sovereign savings, land reform to eliminate constraints in time and cost around land transactions (including a review of the governor’s consent requirement), and actions to reduce inflation, interest rates and business operating costs. I strongly believe we also need a robust competition law and policy regime to prevent monopolies and anti-trust behaviour which increase prices, prevent economic efficiency and subvert the free enterprise and democratic system!

In our current conditions, we require aggressive social policy- it should be clear that the primary role of government is to help the poor and vulnerable. We need public education reforms, investments in public health, and creation of sustainable financing structures for both health and education.

Finally, we must continue to tackle corruption. I prefer structural rather than emotional responses to the malaise-transparent and competitive privatisation to reduce the space for public sector corruption; deregulation to minimise official discretion and procurement transparency and freedom of information. But there must also be stronger and non-partisan enforcement. We must re-define the nation’s primary national security imperative as the abolition of corruption, which in any event, is what our constitution stipulates. Our leaders must find the political will to fight corruption whether by its friends or foes.

Keynote Address delivered to Nigerian Economics Students Association (NESA), University of Lagos on March 7, 2017 under the auspices of The Liberal Forum.

Opeyemi Agbaje