Nigeria’s finance minister, Ngozi Okonjo-Iweala, wants to dispel a myth – the familiar one that goes that Nigeria is an oil-rich country. Yes, it is ranked ninth in the world in terms of proven reserves. But compared with a country like Kuwait, which generates similar revenues of around $30bn a year from oil and where the industry is worth $13,300 per capita, Nigeria’s industry is worth just $227 per capita.
Mrs Okonjo-Iweala would also like to take issue with some of the persistently negative perceptions about Nigeria, saying that the government of President Olusegun Obasanjo has started delivering on its reform promise. More than that, she believes the world is overlooking huge opportunity and potential in Nigeria.
Perceptions of Nigeria have been shaped and hardened over decades. Meaningful commitment to reform – and real signs of progress – date back to less than 18 months ago. So it is premature to conclude that Mr Obasanjo’s government has irrefutably done enough to convince stakeholders not just of his reform intentions but also of his ability to see reform through. But the signs are encouraging.
Encouraging signs
There have been a number of highlights. First, Mrs Okonjo-Iweala’s arrival at the finance ministry has been nothing short of revolutionary. In little more than a year, she has overhauled the budget process, nearly completed the vast job of determining government’s payment arrears, taken control of the chaotic and wasteful public service payroll and driven a raft of legislation governing expenditure rules, accountability and transparency. And she has done all that at breakneck speed.
Second, the former special economic adviser to the president, Charles Soludo, wrapped up the drafting and circulation of the government’s reform and development plan and was then appointed governor of the Central Bank of Nigeria. Just one month into the job, he unveiled radical plans to shake up Nigeria’s weak and fragmented banking system, demanding that banks increase their minimum capital requirements by a multiple of more than 12.
Third, the battle against corruption is being waged with growing determination. Despite being under-resourced, the Independent Corrupt Practices And Other Related Offences Commission and the Economic and Financial Crimes Commission have made high-profile arrests and pursued sensitive investigations. The Due Process Unit, tasked with monitoring government contracts, had by mid-year saved the country N102bn ($785m) in two years by reducing fraud and inflated quotations. And Mallam Nasir El-Rufai, governor of the Federal Capital Territories, has hit back at land use and property abuses by members of the elite in the capital, Abuja.
Fourth, the government has deregulated the downstream oil sector, removing subsidies on the pump price of petroleum products. Most significantly, it has prevailed in the face of fierce opposition. With regard to privatisation, the Bureau of Public Enterprises, under the recently-appointed management of Julius Bala, turned around a critical World Bank assessment of privatisation and recently received glowing endorsement from the bank.
Fifth, the finance ministry, central bank and Debt Management Office have begun far-reaching reforms to the management of Nigeria’s external and domestic debt. Negotiation with Paris Club creditors to restructure the country’s significant external debt are almost completed. Domestic debt management is being improved which, coupled with limits on government borrowing, promise to strengthen the central bank’s functions.
The president’s plan
Such progress is real. It is testament to Mr Obasanjo’s “dream team” of reformists – a small group of highly qualified and determined technocrats who he has appointed to key roles. Their actions are shaped by the National Economic and Empowerment Development Strategy (NEEDS), the president’s articulation of the reform plan.
At its core, the strategy embodies three principal objectives: to end the culture of corruption; to create an environment conducive to private sector development, stimulating job creation and diversification of the economy; and to improve the operations and effectiveness of government.
With a population of more than 130 million, all would-be consumers and active participants in the economy, there is huge potential. Indeed, Nigeria’s heavy dependence on oil is misleading; important elements are available in abundance to diversify the economy. Some estimates suggest its other mineral resources are more valuable than oil. Although agriculture is an important employer and contributor to gross domestic product (GDP), the sector is inefficient and could produce significantly higher yields with the correct investment and know-how. The manufacturing sector contributes less than 5% of GDP and the country has not even begun to explore the possibilities of tourism and other services. Deregulation of the telecommunications sector and the explosive growth of mobile telephony is a tantalising foretaste of what Nigeria’s consumer markets could be worth.
But Nigeria is a country of startling inequality: a tiny elite of dollar billionaires juxtaposed against 70% of the population living on less than $1 a day. Economic developments, of necessity, have to be pro-poor.
Ministry is central
In these early days, all roads lead back to the finance ministry and it is perhaps telling of Mr Obasanjo’s astuteness that he has installed one his most capable reformists. Mrs Okonjo-Iweala arrived with international stature, as chairman of the World Bank’s Development Committee, and her reputation has grown in the mean time.
Her multi-pronged attack on public finances is the key to Nigeria’s future development prospects. By curbing deficit spending, she is releasing funds for investment in schools, health and infrastructure. More importantly, she is demanding better quality of spending – that is, she wants to see where and how public funds are spent.
One of her first acts was to direct the capital budget to completing unfinished projects rather than new projects. By mid-year, 46% of the capital budget had been spent. In previous years, it was not uncommon for less than one-third of the budget to be spent all year. It is little wonder that Nigeria’s infrastructure has deteriorated.
With unprecedented levels of transparency and holding all tiers of government accountable to their spending plans, Ms Okonjo-Iweala has shown a tough resolve to keep public finances in order. Significantly, she has resisted calls to spend the windfall oil revenue gain that has arisen because actual oil prices are above budgeted prices.
One of Mr Obasanjo’s challenges will be to build a core of civil servants at all levels of government who are capable and focused on delivery.
Despite the progress, scepticism – particularly outside Nigeria – persists. Since gaining independence in 1960, the country has gone through four military coups, repeated failed attempts to move to civilian rule, the Biafran war that claimed more than 1 million lives and the extraordinary corruption and tyrannical mismanagement of General Sani Abacha.
There is no doubt that Mr Obasanjo has his hands full out-manoeuvring the different vested interests and corrupt elites. Nigeria’s notorious reputation for corruption – ranked 133rd out of 134 countries by anti-corruption NGO Transparency International – was built through successive military regimes when conventional notions of law and order all but collapsed. With next to no institutional systems to prevent corruption, it flourished. The president’s challenge is to fight off the remaining corrupt elements for as long as it takes to build the necessary institutions that safeguard against graft and cronyism.
No guarantees
No-one offers a guarantee that the country will not again be derailed by a military coup or that corrupt vested interests will not seize political power, reversing economic reform. But there is resolve to avoid both of these menaces. And there is a quiet confidence that ordinary Nigerians, having endured the worst excesses of military rule, would not idly sit by and allow a military take-over.
“In 1998, Nigeria was on the brink of collapse and I believe Nigerians had a very real sense of that,” says Chief Audu Ogbeh chairman of the ruling People’s Democratic Party. “They have now had their first experience of democracy and the benefits that it brings. I doubt very much that they would be prepared to lose that again.”
Lessons have also been learned from Mr Obasanjo’s first term in office when good intentions were not backed up by good actions. During that term, the fiscal programme was aimed principally at achieving the prudent management of erratic changes in oil revenue when actual oil prices differed from budgeted prices. The authorities agreed to an informal fiscal rule under which all oil revenues in excess of a budgeted oil price of $20 a barrel would be saved across all tiers of government. But, despite agreeing to review budgets accordingly if the oil price was below $20 a barrel, no specific downward adjustments were ever agreed. On the other side, no formal mechanism was ever implemented to enforce savings in the event of the oil price exceeding $20 a barrel.
When the price did exceed $20, the excess revenue was not saved, the limit on borrowing by the federal government was missed and warrants were issued at the federal level without cash backing.
New fiscal rule
Mrs Okonjo-Iweala has formalised the oil price-based fiscal rule and her resistance to spending surplus revenues so far this year proves her commitment to the rule.
In May 2000, the government agreed with the trade unions to double public sector wages. The authorities aimed to limit their budgetary impact by eliminating fraud and overpayment. As the payroll system was manual, and personnel data had not been updated and verified in a systematic manner, there was considerable room for abuse. Under pressure from the civil service, the government rolled back an earlier decision to centralise wage payments. The lack of central oversight and control, along with widespread payments to “ghost” workers and other payroll abuses, resulted in substantial overruns on personnel costs and a much higher wage bill than budgeted.
On Ms Okonjo-Iweala’s instruction, key ministries have begun to audit their payroll. In the Federal Capital Territory, it led to the discovery of 5000 ghost workers.
During the president’s first term, the government’s structural reform agenda aimed to improve the environment for private sector-led growth. Establishing more effective sectoral regulatory frameworks – in particular for utilities – and privatising inefficient public enterprises were also seen as critical to facilitating private sector growth. But here again, progress was slow.
With a new director-general, the Bureau of Public Enterprises has accelerated the pace, winning praise from the World Bank.
In 2000, the IMF identified a lack of domestic ownership and support – both political and social – for reform, as well as institutional weakness for formulating, executing and monitoring economic policies as factors comprising reform efforts. Then, support for reforms that did not immediately bear fruit was easily undermined, given elevated expectations for dramatic social and economic improvements following the return to a more democratic society and the support of the international community – the so-called democracy dividend.
Time is of the essence
The danger for Mr Obasanjo is that he does not have time (see box: Elections 2007). His reform proposals during his first term were broadly sound; the implementation and sequencing were not. The risk he faces is that ordinary Nigerians do not make that distinction and simply conclude that his reform ideas do not work. His pressing challenge, therefore, is to ensure quick implementation so that the benefits of reform are just as quick to show.
If 18 months is a track record, then Mr Obasanjo’s reformists are doing everything he could hope for.
Nigeria’s National Economic Empowerment and Development Strategy
The National Economic Empowerment and Development Strategy (NEEDS), Nigeria’s blueprint for reform, is ground-breaking not so much for its economic prescriptions as for the way it has been shaped and how it is now being sold to ordinary Nigerians.
The strategy seldom deviates from the current orthodox approaches to structural adjustment and poverty reduction, containing the occasional reference to specific Nigerian challenges. But otherwise, it is little different from a standard IMF reform plan.
But in Nigeria, NEEDS and the IMF are seldom mentioned in the same breath and therein lies the political nous of the brains behind the strategy. The country’s reformists have realised the critical importance of Nigerians feeling a
sense of ownership over the strategy, a belief that it is home-grown, relevant and designed with Nigeria’s best interests in mind.
To this end, during the drafting of the strategy, representatives from the private sector, labour and civil society were all consulted. Ordinary Nigerians were also invited to have their say. And since finalising the strategy, it has been distributed and promoted widely.
“The value of any strategy rests largely on the degree of legitimacy and ownership built around it by the people. Such ownership and legitimacy can only emanate from the direct participation of the people in conceptualising, analysing, articulating, refining and digesting the various dimensions of the strategy,” president Olusegun Obasanjo said at time of the public consultation.
“[The NEEDS consultation process] is the first time in Nigeria that the generality of Nigerians is involved in planning their future. This is one of the hallmarks of democracy – consultation and participation of the people in decision-making,” he added.
NEEDS is a four-year poverty reduction and socio-economic development strategy, targeting poverty reduction, wealth creation, employment generation and value reorientation. It is based on measures to empower people, such as increased resources to education; measures to grow the private sector, by fostering a conducive environment; and changing the role of government.
NEEDS marks Nigeria’s first attempt to align federal economic policies and objectives with state polices, based on agreed priorities and compelling tighter co-ordination between the different tiers of government.
Elections 2007
If there is a dent in the confidence of Nigeria’s reformists that the momentum of reform is assured, it is caused by the concern for the outcome of the 2007 presidential elections. Despite the elections being more than two and a half years away, even the most optimistic reformists acknowledge that President Olusegun Obasanjo’s current four-year term affords too little time to complete the restructuring of state and economy.
The risk, they say, is that the reforms will not be irreversible by 2007 and ordinary Nigerians, having endured only the pain of reform and not yet the benefit, will vote into power a populist leader.
In the minds of many Nigerians, the 2007 election will be a showdown between two individuals: the former military leader Ibrahim Badamasi Babangida and incumbent vice-president Atiku Abubakar. So far, neither man has publicly declared his intention but there is no paucity of posturing.
Mr Babangida is remembered for his decision to annul the 1993 elections. Then military leader of Nigeria, he attracted international condemnation but his decision, and allegations of corruption and human rights abuse, have never been investigated.
As vice-president, Mr Abubakar appears the logical choice to ensure continuity of the reforms but insiders privately question his commitment to the process.
Mr Obasanjo recently dismissed suggestions that he would choose his successor, saying only that it was the responsibility of the ruling Peoples Democratic Party to put forward a candidate. He has also ordered a stop to any presidential campaigning before 2006, a move interpreted as a way of preventing any distraction from the reform programme.
One other possibility is that Mr Obasanjo remains in power for a constitution-busting third term. He has ruled it out publicly but speculation persists.
In Nigeria, in such matters, nothing is ever exactly what it seems. In a country fragmented along tribal, ethnic and religious lines, political power is shaped by patronage, with a multitude of interest groups lobbying hard and cutting deals behind the scenes. If the present level of interest in the 2007 election is an indicator, it will doubtlessly grow exponentially towards the time.
The country’s reformists are pragmatic, fast-tracking reform implementation and – more importantly – preparing legislation to entrench it. The hope, they say, is that the laws and stronger institutions that are created now will prevent a new leader from rolling back reform.
