Competitiveness, not diversification, and the role of government (2)

Since my article last week, I have come across two important documents. The first is an excellent December 2015 Chatham House Report titled “Nigeria’s booming borders: The drivers and consequences of unrecorded trade” by Leena Hoffmann and Paul Melly. The second is the latest release of the Foreign Trade Statistics for the last quarter of 2015 by the National Bureau of Statistics (NBS).

I will draw on these documents to buttress the points I made last week, but first, let me reiterate those points.

First, that out of the 89 percent of Nigeria’s GDP (excluding crude oil production which accounts for about 11 percent), there are firms/industries close to contributing, in a significant manner, to Nigeria’s competitive agenda, which I described as “when the country’s exports are broad, diversified, and sustainable to meet our required imports”. Unfortunately, following the fall in oil prices, some of these industries/firms are experiencing setbacks that may take years to recover.

Hoffmann and Melly said in their report “Nigerian made goods are already competing with Chinese products across West Africa. But many of these goods are exported through informal channels”. The NBS report, which obviously does not include the informal trade described in the Chatham House Report, showed that Nigeria’s non – oil exports include vehicles and aircraft parts, prepared foodstuff, beverages, spirits, tobacco, wood articles, mica, ceramics, boilers, chemical appliances and parts thereof. Just as I argued last week, we do make things and they are internationally competitive, otherwise they would not be able to sell. The missing ingredients are scales, and the targeted supportive roles the government should play.

The second point inferred, but not explicitly discussed, is that a major reason successive governments have not been able to support the diversification of exports is because of their reliance on oil revenues. This reliance has far reaching implications for government economic behaviour than it appears. First, governments’ reliance on oil revenues deny Nigerians, and imagine it is across all tiers of government, the social contract between the governed and the government that is necessary for an all round development and stability. Second, it makes government lazy. Because political office holders and their civil servants think they do not need your taxes, they actually do not invest sufficient time, energy and thoughts on how to grow our businesses so they could collect taxes in return. Third, as a result, government runs a social service and pay social benefits that it calls salaries because the civil service largely does not generate the resources to pay its salaries.

Fourth, because all tiers of government rely on oil resources, we have not found the energy to restructure the country and the economy because we somehow think that going back to pre military era of States controlling their own resources will lead us to inequality. However, we are already equal in poverty. Development also needs some measures of competition, which is lacking in the current arrangement. The final point for the sake of this piece is that when the oil price falls, the government results to borrowing, which crowds out the private sector and leads to deficits and debts, and possibly macroeconomic instability. All these leads to the kind of problems we currently face, not because our industries are not productive and cannot improve their productivity, but because we have not organized our development.

In summary, the diagnosis I present here is underpinned by the fact that the point and channel through which weak oil prices transmits to the economy, which is government, is supposed to be the point of stability and strength. The government is supposed to be the anchor upon which the economy thrives and grow. In addition, or more appropriately, following from the descriptions above, the same failing structure then generates poor and naïve policy mindsets that sees import substitution as different from export promotion and see clear demarcations between agriculture, manufacturing and services.

And these are just few instances of how we are failing to organise and design our progress and prosperity. It matters for sustainable economic growth and development that we design the necessary framework and structure, rather than assume it will happen by chance. It is the reason why, even in developed economies, they keep changing structures and framework in response to problems. But we have problems of our own, but we keep failing to design economic policies that respond specifically to the problems, but we have become masters in dithering,

In the Chatham House Report, Hoffmann and Melly made the following arguments. In relation to the vast informal trade along the West African region, they said, “the networks that operate them and the financial flows that underpin them are, in fact, a response to the obstacles and complications that impede trading through formal, monitored channels” (meaning the obstacles and complications presented by government). And one of their recommendations, which I have mentioned before in one of my writings is that “Customs and tax administration services should be integrated in a way that transfers the official responsibility of customs revenue collection to the Federal Inland Revenue Service (FIRS) only, while the Nigeria Customs Service retains authority for the control of consignments, ensuring compliance with the law and regulations, and assessing the liability of shipments for duties and tariffs”.

In conclusion therefore, in every sector and area of our economy, formal or informal, education and health, agriculture, industry or services, the failures that you see, the impediments to growth that you see, and the potentials not fulfilled, are all a result of our failure to design the necessary political and economic framework for growth and prosperity. Of course, I could discuss the personal (greed), ethnic, and regional interests that underpin them, but that is beyond the scope of this piece. I thank you.

 

Ogho Okiti