Setting Agenda – What Jonathan Must Focus On to Move the Economy Forward

Omoh Gabriel

27 May 2011

Nigeria’s economic potential is well known. The country’s considerable resource endowment and coastal location ordinarily should allow the emergence of a strong growth pole for sub-Saharan Africa.

Over the years, Nigeria has realised very little of this potential. Instead, its history has been marked by economic stagnation and associated with declining welfare and social instability.

Over the last few years, however, policy makers have said that Nigeria has been experiencing a growth turn-around and conditions seem right for launching onto a path of sustained and rapid growth. President Goodluck Jonathan seems anxious to seize this opportunity to begin to build a diversified economy able to provide jobs and improved welfare for Nigerians. Although the economy was said to be growing, it has not been translated into putting food on the table of many Nigerians. It was a growth without development.

Jonathan’s transformation agenda: Concerned by this development after the election and its politicking around the place, the President at a meeting with the organised private sector, May 23, unveiled his transformation agenda for the economy, saying he will be at the driving seat of the implementation as the chairman of the National Economic team. Yes, it is time for Mr. President to think economy, speak economy, dream economy and act on the economy.

He said there would be a comprehensive review of import subsidies and waivers granted to companies, adding that only companies expanding domestic production and creating jobs would be considered for such incentives. Renowned Professor of Economics, Prof. Jeffrey Sachs, has identified rural integration, urban integration, infrastructure and family planning as the critical factors to the transformation of the nation’s economy and its emergence as one of the top twenty economies in the world. The problem that needed to be tackled is the duality of the nation’s economy.

Duality of the economy: The duality between the formal and informal sectors is an important factor in the lack of competitiveness of the non-oil sector. In each of the major sectors of the non-oil economy, there is a sharp divide between a small number of highly productive, internationally competitive producers and a very large number of small producers/service providers with low productivity.

The duality of the economy results in a lack of dynamism and competition. A very high proportion of firms are long-established businesses. As in the rest of the world, the longer established a Nigerian firm is the less dynamic it becomes in terms of growing output and employment. Addressing the duality of the economy is, therefore, vital for strengthening and sustaining job creation.

As he enters into the next phase of his administration, the President must realise that consistent with the high level of informality and low productivity in the economy, job creation is insufficient: only an estimated 5-10 per cent of the estimated six million new entrants into the labour market find jobs and wages are low. Youth unemployment 15-29 years is estimated at about 60 per cent.

Further research is needed to ascertain whether labour laws strike the right balance between the incentive provided to employers to increase employment by increasing the flexibility to hire and fire and reducing personal benefits on the one hand, and the rights of workers on the other.

The President should also realise that the tenure which ends Sunday faced with the stack economic reality had set up an economic crisis management committee headed by the President Umaru Yar’Adua himself. The committee was to coordinate a new economic framework, did not achieve much. So the President heading the economic management team is not new but what Nigerians expect is result and positive action on the economic front.

Devt challenges

Nigeria today faces two fundamental development challenges that are common to natural resource dependent economies. These are managing the macro-economy to build and maintain strong competitiveness of the non-oil sector in the face of considerable external inflows from oil; addressing the culture of rent seeking and corruption created by access to “easy” oil rents which reduces incentives to create wealth that can be taxed. Dependence on oil rents as opposed to taxation reduces government accountability and, therefore, undermines the effectiveness of political and economic institutions.

Nigeria has historically been less successful than other resource dependent economies in addressing these challenges. This government must address this issue of rent seeking squarely. For the country to advance its economy raising productivity and efficiency at the firm level and also across the economy, including through shifting, the structure of production towards higher valued added activities, should be at the heart of the President’s strategy in moving the economy forward. This cannot be achieved without a stronger human capital base and improved use of technology.

Across the globe, knowledge economy has put nations in higher pedestal than natural resources endowment. The President needs top develop long-term strategies urgently in both areas to guide action. This would mean that government has to kick-start preparation of a long term plan for education.

Most immediate constraints

Research report suggests that the most immediate constraints that need to be addressed in order to move the economy forward include infrastructure, notably power and roads, and the business environment, in that order. Enhancing access to finance will also allow the economy’s considerable resources to be intermediated more effectively for private sector growth. Policy action in each area will have to pay special attention to the challenge of helping Nigerian firms make the transition from informality to the formal sector.

While the domestic market is relatively large, it is small compared with even small European economies like that of Belgium. Nigeria cannot rely on the domestic market alone to sustain rapid growth over the long term and will need to access regional and global markets as well. Nevertheless, domestic trade needs to and indeed can be used more effectively than in the past to promote firm efficiency and productivity and provide a platform for the emergence of firms able to compete in global markets. In the short and medium term, domestic and regional trade can be important drivers of growth and can help to build the economy.

Actions to improve the functioning of domestic markets will therefore also be an important part of the growth agenda.

The numerous special programmes to support specific areas of activity need to be consistent with the long term objective of strengthening the productivity and competitiveness of the economy. They need to be based on the analysis of the costs and benefits of different options and built on transparency and accountability for results.

Way forward: The President could, therefore, strategically focus his attention on first relieving the constraints to specific high potential growth areas (specific value chains and growth poles). In addition, in some areas, policies need to be fine-tuned to ensure that they enhance productivity. In other areas, new measures are needed for greater impact. Several of the areas of action are under the purview of the Federal Government but considerable action is also needed at the level of the states. Greater coordination and collaboration is, therefore, required between the federal and state governments in the context of a framework through which reforms can achieve growth.

Improving access to long term finance, will also be important to ensuring that Nigeria’s considerable oil resources are intermediated more effectively in support of non-oil growth. The focus in these areas would need to be first on early wins through successful pilots for competitiveness improvements in selected high potential value chains and high growth areas.

On agriculture

In agriculture, which represents 23 per cent of GDP, declining yields is a major policy challenge. Productivity has declined for both commercial and food crops in Nigeria over the last 20 years. For commercial crops, production levels have fallen as well. In contrast, production levels of food crops have increased substantially and Nigeria has overcome the extreme import dependence for basic foodstuffs which occurred in the 1980s.

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