The dogmas of the great past are inadequate to the stormy present. The occasion is piled high with difficulty and we must rise with the occasion. As our case is new, so we must think anew and act anew. Abraham Lincoln, December 1, 1862.
Catherine Duggan is a professor at Harvard Business School where she teaches business, government and international economy, and her research interests include economic growth in emerging markets with a focus on sub-Saharan Africa. In February 2009, Duggan published her ground breaking case study on Nigeria, titled “Nigeria: opportunity in crisis?” So it is easy to understand why the visit of the distinguished professor to Nigeria last week was of considerable interest to many.
Her 23-page case study offers perhaps one of the most compelling insights into the economic and political evolution of Nigeria and how the nation has found itself in the crossroads that it is in.
Duggan is linked to Nigeria by more than a mere academic interest and she is quick to locate her roots in the experience in Nigeria of a great auntie who lived in the middle belt of Nigeria decades ago.
At a private session organized by Capital Alliance, the leading private equity firm, this fast speaking teacher who received a doctorate from Stanford and a B.A with highest honours from Brown University, demonstrated why she is such a highly admired scholar.
Duggan who had spoken at a lecture in Abuja earlier in the week, focused on the matter of her case study at the Lagos session attended by several business executives.
To help understand the dynamics of the political and economic evolution of Nigeria, Duggan opens with two slides, each showing the real GDP per capita comparison of Nigeria and China between 1960-1980 and 1960-2007.
The first shows Nigeria at independence in 1960 with a real GDP per capital that was almost three times that of China and the second one showing how misrule and inept leadership saw China overtaking Nigeria between 1988 and 1990 with China’s GDP per capita rising to $1800 in 2006 with that of Nigeria languishing at a mere $420, about the same level it was at independence in 1960.
Writing in her case study, Duggan said, “On of the legacies of the civil war was a stronger federal government. On the eve of the war Gowon had tried to strengthen the federal government by carving the country’s existing states into 12 new ones. Ethnic groups which had been in the minority now found themselves in the majority in these new states, and supported the federal government to protect their new-found autonomy. Most significantly, Gowon divided the Eastern region into three new states, ensuring that none of the country’s large ethnic groups controlled the country’s oil production.
Gowon also reallocated the distribution of oil revenues to favour the federal government. Where oil-producing states had previously been entitled to 50% of the mineral wealth extracted from within their borders, under the country’s derivation principle, Gowon reduced this figure to 10%. He consolidated the lion’s share of the country’s revenues under the federal government’s federation account and allocated money to the states based on population and need. Oil federalism would be central themes in Nigerian politics for the next three decades.”
The professor then went on to espouse the concept of a rentier state.
According to her, “Nigeria had become a rentier state. Since the bulk of government’s revenues no longer depended on economic activity, it no longer had incentives to help create growth in the non-oil sector. Instead, it focused on distributing money as a way to consolidate its power and cement its access to the revenues coming out of the ground.
The army, civil service and public works projects became employment programmes and ways to distribute favours. Since money did not come from their pockets (by way of taxes), the Nigerian population had little idea about how much the government was spending, and fewer incentives to monitor government closely.
They also had few incentives to pay taxes to a corrupt government flush with oil money. In 2007 the Governor of the Central Bank summed the situation up thus; “the umbilical cord that ties government and the private sector in most economies…got broken. Because they were able to depend on oil revenue, governments in Nigeria did not need the private sector for revenue, and because of “government’s expansive nature, it depended very little on the private sector for job-creation.
And then came the oil curse, the Dutch disease that has blighted the creativity of the people and made certain that a country that once led in oil palm cultivation soon became a net importer of same”.
In time China rapidly surpasse Nigeria when measured by GDP per capita, lifted 300 million of its people above the poverty line and this is despite about $360bn having flowed under the bridge in Nigeria with some estimates showing that our people today are no better than their grand parents who lived in a newly independent Nigeria in 1960!
Instead of facilitating the growth of private wealth and advancement of the welfare of the people so that more wealth will accrue to government, Nigeria’s leaders over the years promoted the situation whereby revenues flowed from government to the detriment of wealth creation. It did not matter how smart or productive you were, all that counted was the connection you had to access the national treasury in one form or the other.
Elsewhere, the route to wealth is to build and grow your enterprise but not so in Nigeria where the route to wealth is anchored on a connection to government or those who hold government office.
Regardless of claims to the contrary, in Nigeria, the government does not need the people or businesses to do well given where its revenues come from, regardless of the stature of the people or their business.
This suited and perhaps still suits the narrow selfish interest of the leaders and those who help drain the national purse and on the other hand, because the people had no stake, they asked no questions nor did they fight to change the situation. So the game has inevitably go un abated.
If, as has been acknowledged, even by those in government, the private sector is a better allocator and manager of resource, it is then easy to imagine why there is so much rot in the nation’s finances, 70% of which is managed by the National oil company, NNPC which is now mired in the controversy of how it has spent trillions of public funds on bogus kerosene subsidy payments without appropriation by parliament.
Writing in its edition of February 20, 2014, the Financial Times reported, “the case for the commercialization of the Nigerian National Petroleum Corporation, the state oil company has never been so clear. Because of its position as a source typically of 70 per cent of state revenues and more than 90% of export earnings, oil and the way it is managed is central to Nigeria’s wellbeing. As things stand, the NNPC is at the centre of a rotten industry which is a barrier to growth.”
Not surprisingly therefore, after the session with Duggan, one participant said, a painful take away for me is that our leaders have not been as dumb as I had thought all along. Just that they have not directed their energies to pursuing the collective interest.
Several other participants said Nigerians can not as a people give up and become pessimistic for as bad as things may seem, there are some positives that must be built upon and one case cited is massive transformation of the telecoms sector on the back of private investment.
Said another participant, “we have to be brave and must speak out as we hold those in government accountable for the mandate we have given them.
Ours must become a nation where good is rewarded and evil punished and in this regard, we must build strong institutions including a reliable judiciary that must remain the last hope of the people.
And finally our votes must be made to count as we seek without pulling back, to dethrone this cancerous rentier system.”