I hope by now I have been able to convince you of two points: the amounts usually involved in government corruption scandals in Nigeria are inordinate, even by global standards; and the spread and magnitude of corruption is largely due to an implicit agreement between Nigerians and their government, that allows the latter to run its own oil-based “parallel universe”, fuelled by private oil companies (couldn’t resist the pun). Based on the latter point, I propose that Nigeria has three sub-economies, as follows:
a. Sub-economy #1 - oil-based, and part of documented GDP. Revenue largely from oil companies. Expenditure determined by government.
b. Sub-economy #2 - non-oil based, and also part of documented GDP. Revenue and expenditure determined by hard working Nigerians.
c. Sub-economy #3 - non-oil based, but undocumented. Similar to sub-economy #2 in terms of revenue and expenditure.
Sub-economy #1 gets the most attention in public discourse, yet at best accounts for only 15% of documented and undocumented GDP. As a nation we have become so fixated on the distribution of government revenue (read, oil revenue), to the extent that we have let it take on an importance that it may not deserve; we seem to be more interested in how this particular cake is divided, than in making all cakes bigger. And in so doing, we have also given our government a lot more credit than they deserve for our development. The truth is, our government, even if it were about to do away with corruption today, cannot finance the public goods and services we need on its own. According to the CBN, in 2009, all three tiers of government earned NGN 6,263 billion, and their aggregate expenditure was NGN 7,258 billion (the government financed the deficit largely from domestic borrowing). If you divide total government expenditure by 140 million (the figure for Nigeria's population), you get a figure of about NGN 52,000. This figure represents what each Nigerian could have gotten in 2009, had the private oil companies by-passed the three tiers of government, and shared the oil revenue due to the nation amongst all of us. It doesn't amount to much, though, does it? And your personal experience probably tells you it costs much more than NGN 4,300 a month to run one's own "local government" in Nigeria (diesel for the generator alone used to set me back about 5 times that amount).
So what do we do? Or better yet, what would I do, if I had the ability to change things? My over-arching approach would be to strengthen sub-economies 2 and 3, on a state by state basis. I would also seek to reform sub-economy 1, to enable it provide essential, foundational public goods and services (electricity, security, education and water, for example) at national and state levels. Should such a reform prove unsuccessful (wouldn't hold my breath on that one), I would bring in private businesses to provide the essential public goods and services to Nigerians for a fee, and levy a tax on sub-economy 1 (an at-source tax on oil companies) to generate revenue to subsidize payments made by Nigerians. That last bit will likely never happen!
But strengthening the truly productive sub-economies is feasible, and it makes good sense. We have a large population that needs food, clothes, fuel, housing, entertainment, etc. It is a shame that we rely on imports to satisfy some of our most basic needs (the importation of toothpicks and pencils come to mind, despite the abundance of wood in the country). Our businesses also have access to other West African markets, which have similar needs, and are likely having these needs being met more by Chinese companies, than Nigerian ones. Take Ghana, for example. China accounts for the highest percentage of imports at 17% of total, while Nigeria comes second with 12% (though I suspect some of the goods from Nigerian-based businesses are imported from China, and other countries, for onward delivery to Ghana). In Benin and Togo, China accounts for 36% of imports, while Nigeria’s imports are less than 4% of total in each (figures for Nigeria don't even register on the data source I checked - the CIA Factbook).
Sub-economy #1 gets the most attention in public discourse, yet at best accounts for only 15% of documented and undocumented GDP. As a nation we have become so fixated on the distribution of government revenue (read, oil revenue), to the extent that we have let it take on an importance that it may not deserve; we seem to be more interested in how this particular cake is divided, than in making all cakes bigger. And in so doing, we have also given our government a lot more credit than they deserve for our development. The truth is, our government, even if it were about to do away with corruption today, cannot finance the public goods and services we need on its own. According to the CBN, in 2009, all three tiers of government earned NGN 6,263 billion, and their aggregate expenditure was NGN 7,258 billion (the government financed the deficit largely from domestic borrowing). If you divide total government expenditure by 140 million (the figure for Nigeria's population), you get a figure of about NGN 52,000. This figure represents what each Nigerian could have gotten in 2009, had the private oil companies by-passed the three tiers of government, and shared the oil revenue due to the nation amongst all of us. It doesn't amount to much, though, does it? And your personal experience probably tells you it costs much more than NGN 4,300 a month to run one's own "local government" in Nigeria (diesel for the generator alone used to set me back about 5 times that amount).
So what do we do? Or better yet, what would I do, if I had the ability to change things? My over-arching approach would be to strengthen sub-economies 2 and 3, on a state by state basis. I would also seek to reform sub-economy 1, to enable it provide essential, foundational public goods and services (electricity, security, education and water, for example) at national and state levels. Should such a reform prove unsuccessful (wouldn't hold my breath on that one), I would bring in private businesses to provide the essential public goods and services to Nigerians for a fee, and levy a tax on sub-economy 1 (an at-source tax on oil companies) to generate revenue to subsidize payments made by Nigerians. That last bit will likely never happen!
But strengthening the truly productive sub-economies is feasible, and it makes good sense. We have a large population that needs food, clothes, fuel, housing, entertainment, etc. It is a shame that we rely on imports to satisfy some of our most basic needs (the importation of toothpicks and pencils come to mind, despite the abundance of wood in the country). Our businesses also have access to other West African markets, which have similar needs, and are likely having these needs being met more by Chinese companies, than Nigerian ones. Take Ghana, for example. China accounts for the highest percentage of imports at 17% of total, while Nigeria comes second with 12% (though I suspect some of the goods from Nigerian-based businesses are imported from China, and other countries, for onward delivery to Ghana). In Benin and Togo, China accounts for 36% of imports, while Nigeria’s imports are less than 4% of total in each (figures for Nigeria don't even register on the data source I checked - the CIA Factbook).
For Nigerian businesses to be strengthened to meet domestic and foreign needs, they require an enabling business environment which provides adequate infrastructure, access to capital, an educated workforce, and a functional legal system, to name a few critical requirements. The lack of these has contributed to Nigeria being ranked as number 137 (of 183 countries) in IFC’s Ease of Doing Business national rankings. These ranking are only for businesses in the formal sector, so one can imagine how much tougher it is for businesses in the grey economy (sub-economy 3), who have peculiar challenges of their own, because they are on the fringes of the formal economy. Hence they tend to be limited in their ability to raise capital, obtain insurance services, and secure other inputs that formal businesses can gain access to. The micro-finance banks were set up to address the capital needs of this sub-economy, but only time will tell what their impact has been.
A strong business sector would also help with another problem Nigeria is facing—high unemployment. According to the World Bank, 25% of Nigeria’s working age population (people between 15 and 65 years of age) are unemployed. Of the 75% that are employed, 65% are self-employed, and 10 percent are in wage employment. Of the 10% in wage employment, about half are in the public sector (recall the point made in yesterday’s post about the fact that the Federal Government alone employs over one million people). Hence even the population statistics show the relative imbalance in the sub-economies, as sub-economy #1 is unlikely to account for more than 6% of employment (including employment in the public sector, as well as direct and in-direct employment in the oil industry), while it accounts for about 15% of GDP. But I digress. Having an environment that enables private enterprise will allow businesses in the formal and informal sectors to create jobs, which will go some way in reducing the likelihood that one out of every four adults you and I meet in Nigeria will be unemployed, or worse, unemployable (more on that tomorrow).
A strong business sector would also help with another problem Nigeria is facing—high unemployment. According to the World Bank, 25% of Nigeria’s working age population (people between 15 and 65 years of age) are unemployed. Of the 75% that are employed, 65% are self-employed, and 10 percent are in wage employment. Of the 10% in wage employment, about half are in the public sector (recall the point made in yesterday’s post about the fact that the Federal Government alone employs over one million people). Hence even the population statistics show the relative imbalance in the sub-economies, as sub-economy #1 is unlikely to account for more than 6% of employment (including employment in the public sector, as well as direct and in-direct employment in the oil industry), while it accounts for about 15% of GDP. But I digress. Having an environment that enables private enterprise will allow businesses in the formal and informal sectors to create jobs, which will go some way in reducing the likelihood that one out of every four adults you and I meet in Nigeria will be unemployed, or worse, unemployable (more on that tomorrow).
In closing let me share the story of Foxconn, a story I love to tell to anyone who will listen. You may have never heard of the company before, but you have surely heard about the goods it produces – iPods and iPhones, to name just two. The Taiwan-based company was founded in 1974 with US$7,500. Its mission was to provide low-cost electronic components to what was then an emerging electronic products market – imagine what the computer industry looked like back then (more info here). Thirty-five years later, Foxconn now ranks 112th on Fortune's Global 500 list, coming out ahead of Deutsche Bank and Microsoft (you can see the 2010 rankings here). Bloomberg estimates are that the company has 1.3 million employees across all its businesses (see for yourself here). This company employs almost 5% of Ghana's population, and 1% of Nigeria's. Talk about impact! How did Foxconn do it? It saw an opportunity long before others did (this shows the importance of research, which I will discuss tomorrow), and it was within an enabling environment that allowed it to exploit said opportunity.
For Nigeria to develop, stories like Foxconn's have to become the norm, and not the exception (as is the case with the likes of Dangote, Glo and Oando, today). The only way our economy can grow and create jobs for our labour force of over 45 million people (11th largest in the world, by the way) is if more businesses succeed in adding value domestically, regionally and globally. And these businesses need an enabling environment to succeed. But don't look to the likes of Mr. Speaker to help with that; they are too busy building their retirement nest eggs, so their great-grand children's great-grand children will still be living off the interest on the capital they are stashing away today.
