Lagos points the way to an open and decentralised Nigeria

Just over a week ago, a Nigerian lawyer and dedicated tweeter, Akinyemi Ayinoluwa, re- tweeted several tweets about Lagos state. The tweets announced the launch of the state’s new Office of Overseas Affairs and Investment, also called “Lagos Global”. I was so impressed by the idea behind this initiative that I read all the tweets about it. I also read the CNBC interview with the governor’s Special Adviser on the Office of Overseas Affairs and Investment, Ademola Abass.

Two things immediately became obvious to me. The first is that, like Lagos, Nigeria should have an economic approach that is open and outward-looking, and the second is the need to decentralise the political and economic structures of this country so as to create a launch-pad for a more competitive, productive and vibrant federalism or nation-state. I will discuss these two ideas shortly, but, first, let’s look at what the “Lagos Global” initiative is about.

The starting point, of course, is the leadership behind the initiative. A country or a state is doomed if its leaders lack a vision of the future or fail to understand that governance is about delivery, about the exercise of power for the general good! Now, I think most people would agree that Lagos state has, over time, been generally well governed. From the first “action governor”, Lateef Jakande, to the subsequent “action governors”, Bola Tinubu, Babatunde Fashola and, now, Akinwumi Ambode, Lagos has had political leaders who were/are committed to developing the state.

But, for me, there is something really impressive about the current governor, Ambode. Everything is about worldviews, and his attitude to business, to wealth creation and to economic development is very positive. Most governors believe in the power of the state, and in using the levers of government as the main tools of governance. Ambode doesn’t just believe in the role of the state, he has faith in the power of the market, of business or the private sector, to generate economic growth and prosperity. There is something about his outlook – which probably stems from his professional background as an accountant – that reflects an understanding of the essential complementarity and synergy that government and business generate. He started by creating the ministry of wealth creation, separate from the traditional ministry of commerce and industry. And, now, the Office of Overseas Affairs and Investment!

This Office, or “Lagos Global”, is designed, according to its sponsors, to make Lagos “the most desirable investment destination in the world” by streamlining regulation, reducing bureaucracy and ensuring that investors who desire to invest in Lagos “enjoy a seamless and hurdle-free experience”. As Abass puts it in his CNBC interview, “All necessary interactions for investors will take place in one location. If they need land permits or any other permits at the state level or from the federal level – resident permit, customs and excise – we will be able to anchor it from one office so that investors don’t have to go around”.

Okay, given the Nigerian context, you might say all this sounds too good to be true. But assuming that the “Lagos Global” vision transcends mere rhetoric, and there is a real focus on delivery, I think Lagos state is on to something radical, something that would transform the way we see sub-national governments in Nigeria. The idea that a state government would have an Office of Overseas Affairs and Investment sends a powerful message about how the federating units of Nigeria should take their destiny in their own hands and promote their economic development. But, perhaps more importantly, it draws attention to the need to reorganise the political and economic structures of this country so as to give each of the federating units enough leverage and leeway to chart their paths to economic growth and development.

I will come back to the constitutional point later, but, first, let me address the point about economic openness. Let me put it this way. Nigeria’s dire economic situation calls for an open and outward-looking economic approach. The Sky News economics editor and columnist, Ed Conway, once said: “The funny thing about our deepest economic problems is that they often have the simplest solutions”. And I think he is right. The truth is that the solutions to Nigeria’s economic problems stare us in the face!

Everyone knows, for instance, that Nigeria’s current economic problem boils down to this: we don’t have enough foreign exchange to meet our forex needs. This is a classic demand and supply problem, and it requires either demand-side or supply-side solutions or both. Take the demand-side solution, which is aimed at reducing the demand for foreign exchange. There are two possible approaches. The first is to allow the naira to obey the law of demand and supply, which says that if the demand for a good exceeds its supply, the price of the good will rise and vice versa. Thus, given that the demand for foreign exchange exceeds its supply, assuming the naira is allowed to find its equilibrium level, its value would fall relative to, say, the dollar. Now, since a lot more naira would be needed to buy foreign currencies, which are used to pay for imports, the demand for foreign goods should fall. This is the market mechanism.

But the second demand-side solution is completely different. Here, the government intervenes and fixes the value of the naira, regardless of demand and supply. And to control the demand for forex, it tries to ban its way out of the problem. It bans or restricts the import of foreign goods. Obviously, the first approach, the flexible exchange rate approach, is fairer and transparent because demand is regulated by price and the ability to pay. But the second approach is discriminatory and non-transparent. It favours some, i.e. those who receive forex at the official rate and whose imports are not banned, and punishes others. This interventionist approach is usually controversial, and it’s a massive disincentive to economic efficiency. What’s more, it undermines the supply-side solutions.

Of course, the aim of the supply-side solutions is to increase the supply of foreign exchange. And a country can achieve this in several ways. First, you can export a lot more value-added goods and services. But in the Nigerian case, given the current low export base, that won’t happen overnight. Second, you can pray for the price of oil to pick up sharply, rising to above $100 per barrel. But wishes are not horses! Third, you can borrow from the IMF, the World Bank etc. Well, that’s not popular and increases the national debt. So, you are left with one option: pull out all the stops and aggressively attract foreign investment. Essentially, you want foreigners and others to bring foreign currencies into Nigeria. This can happen quickly, but it requires the right environment. For instance, you need to dismantle all barriers and disincentives to foreign investment: outdated laws, excessive regulation and red tape, cumbersome processes etc. The macroeconomics must also be right, in particular, your currency must be competitive; it mustn’t be over-valued or administratively fixed!

Some people, including President Buhari, oppose devaluation because, to them, Nigeria has nothing to export. Clearly, they see exports only in terms of physical products. Even if it’s only tangible goods, devaluation would boost the little manufactured exports a country has. But exports are not just shipping tangible goods abroad. When foreign visitors, tourists, business people, etc bring money into your country, it counts as exports under WTO rules. Counterintuitively, some say if you devalue the naira, foreigners will come and buy Nigerian assets cheaply. Sadly, there is no space to tackle this sophistry here. But let me say this: a country that’s open for business doesn’t think or talk that way. Go and ask the British! So, the solutions to Nigeria’s economic problems are clear. The government should be attracting foreign money into this country. Instead, it prefers exchange controls, import bans and other protectionist tools. They don’t work! Nigeria must be open and outward-looking. To mirror Lagos, it’s time for “Nigeria Global”!

Now, let’s come to the constitutional point: the need to decentralise Nigeria’s political and economic structures. I wrote about this recently on these pages, so I won’t belabour the point here. However, let me reiterate that the future of this country lies in regionalism. What Lagos state is doing with “Lagos Global” is great, and every one of the other 35 states would like to do the same. For instance, Kaduna State has just held an economic and investment summit. But, truth be told, no other state is like Lagos, the fifth largest economy in Africa, with a GDP of $136 billion. For Nigeria to achieve economic greatness, we need to replicate the Lagos success story across the country. And the only way to achieve that is through regional integration, based on the current six geo-political zones.

I applaud what the South East/South-South Professionals of Nigeria (SESSPN) are doing with their development agenda for the two regions. I like the fact that Lagos state recently joined the Odua Group and that it saw this in the context of the South West’s regional integration. Such regional efforts would be the greatest drivers of Nigeria’s structural transformation. Imagine each of the six regions combining their resources, streamlining and simplifying their business regulations, and developing coherent economic and industrialisation policies. Also imagine each of the regions competing with and emulating each other; having intra-regional economic and development cooperation strategies that seek to exploit each other’s comparative advantage, like Lagos and Kebbi states did recently when they entered into a partnership on food production. Then, finally, imagine each of six regional governments having its global strategy to help local firms export and to encourage foreign companies to invest in the region. No government has ever developed by centralising economic and political activities. Economically strong regional governments would lead to an equally strong central government: a dual federalism, as the Americans would call it!

Of course, to create this new Nigeria, we need a constitutional change that recognises the six geo-political zones as the country’s federating units, and that devolves power to the regions to enable them to harness their own resources for greater economic growth and development. “Lagos Global” is surely a great idea. It should be a template for regional integration in a decentralised Nigeria!

 

Olu Fasan