Nigeria’s economy has underperformed since independence in 1960, with short term strategies, and its affairs dominated by strong men against weak institutions.
Professor Pat Utomi, an economic expert, is losing sleep over this state of affairs. He faults the $510 billion tag on the rebased gross domestic product (GDP), saying there is no use for economic growth that is not realistic in terms of the living condition of the people.
Prof. Pat Utomi
Economic growth is not about rising unemployment, hardship, falling standards of education at all levels, and a sharp drop in earning power. These do not define a growing economy; they negate it, he argued.
According to him, the economic, political and social situation may not improve until the leaders realise the need to build strong institutions instead of strong men celebrated as champions.
“When U.S. President Barack Obama said in Accra, Ghana during his first African visit that what Nigeria and the rest of Africa need are strong institutions and not strong men, he made such a powerful point. Unfortunately, the story of Nigeria is that of too many strong men, but very weak institutions,” Utomi lamented.
“We don’t have institutional memory; we keep repeating the same mistakes. That is why the economy has been regressive, one step forward two steps backward. This is one of the frightening conditions we need to address as a nation.”
The government and regulators of the different sectors of the economy have not helped matters, he said. “What they have helped to do in the name of reforms, either past or present, is to scare away hundreds of investors by frightening inconsistency in policy thrust. Nations do not develop through policy somersaults.”
All sectors of the economy are performing below expectation except in areas not regulated by the government and where individual investors can do their businesses without molestation by regulators, he noted.
In this excerpt of an interview with Assistant Business Editor, Kelechi Mgboji, Utomi also advised incoming Central Bank of Nigeria (CBN) Governor, Godwin Emefiele, on issues to tackle.
The role of institutions in economic development
My academic life over the past 20 years is in the area of institutions and economic performance. The study I am currently involved in is of the World Bank. It is looking at reforms in Nigeria with a number of American scholars and Nigerians. But generally, the area that I have done most of my academic work is on institutions and economic performance.
One of the things that come out very clearly is that the big part of the trouble with Nigeria is that we have weak institutions, so that when you make policy changes that would ordinarily move things forward, you can get a bump that shows you are really moving forward but suddenly there is a reversal because the weak institutions cannot carry it.
We have a recursive economy that takes two steps forward and four steps backward. The problem with weak institutions is that they evolve, I don’t think they are decreed into existence; they evolve out of the contending engagements of the interested parties in an area.
For instance, if people take advantage because their friend is a minister, and then your minister friend is removed, you completely fall out and just have no access to any progress. The new people with their friend as minister will now be making progress even when it is clear to everybody that the best thing is to have a level playing field where anybody can anticipate.
Because you can anticipate, you can make a long term commitment in investment and so on and so forth.
This is what the country has suffered from for too long, the environment of uncertainty because of weak institutions, which Obama made a very strong point about, even though it is a point I have been repeating over the past years.
Strong institutions, not strong men
A certain number of activities and actions will lead to that happening. Let’s return to central banking for example to illustrate this issue. The people who appointed (Lamido) Sanusi knowing that the guy has a strongman tendency, obviously were not trying to build institutions.
Those are the kinds of things you pay attention to: who are the people going to build institutional capacity rather than focus on themselves as lone rangers or champions?
What is the role of civil societies, bankers’ committee, trade associations, chambers of commerce? These can help in building strong institutions by taking an informed stand on topical issues in society and the economy. This is how strong institutions emerge.
But the problem with the country is that there are so many people in business who are too frightened to speak the truth. That is the difference between Nigeria and Mauritius for instance where the chamber of commerce is stronger than the parliament.
At the same time, if we don’t tighten the drain on foreign exchange, something may happen.
Task before Emefiele
The biggest challenge I am praying and hoping that Godwin Emefiele can manage is that there is a lot of undoing, and damage done by Sanusi that will require courage to redress. The levels of abuse by Sanusi are unbelievable. Nigerians will eventually hear all of them. I know many of such abuses. And when Nigerians hear all of them, they will be shocked.
Second, he has to refocus CBN on the business of central banking. Right now, the CBN has become school development officer of Nigeria, donating money to every secondary school and university out of the whims of political orientation of his predecessor. The CBN has to know that this is wrong.
It is unfortunate that Sanusi had created the impression that Nigerian bankers are all crooks. Emefiele has to try and change that impression because confidence is the essence of banking. If you tell the world that all your bankers are criminals, how will they deal with crooks?
Also, it is important that he ends the over regulation of banks which is stifling the industry. Banks cannot breathe without thinking of the CBN. The general mood in the industry is that banking has been made so onerous with so many regulations.
You turn here it is the CBN, you turn the other way it is the CBN. The strategies of banks are constrained. So Emefiele has to find a way of returning banks to their glory when banking was exciting and wealth was being created.
Defence of naira
The problem is that unfortunately we are entering into election year when ordinarily, the Central Bank will want to defend the naira. But it is not a wise thing to continue to defend the currency without the sense of a limit.
If you defend so much, we get the experience that we had in 1980s when they defended and defended. Eventually when the naira crashed, the trauma was too much for investors to bear.
There are a lot of uncertainties concerning the environment. That uncertainty is leading to capital flight. It often happens that towards elections many people are usually afraid of what the outcome will be. They begin to take positions outside of the currency to protect themselves abroad. That is a challenge obviously that puts pressure on the local currency.
Implications of devalued naira on the economy
It depends on what you are doing. If you are on the frontier, you won’t feel the impact. You walk out quite better. But if you are import dependent, obviously the cost of your goods will go up significantly in the local market, and your market share and size will take a hit.
Official statistics on GDP
With statistics, you can reach any conclusion you want. I don’t think that it is correct to say that GDP growth in Nigeria at this point in time is probably one of the strongest in the world. But what does growth in GDP mean when people are all unemployed, all in depression?
I begin to understand that you may want to look at a number of factors because these things have been debated over back in the 1970s and early 1980s when there was a need to reappraise what was really development.
Japan, emerging at that time as a strong economic power, tried to persuade the World Bank to reappraise some of these things. It led to a study which was published in 1995 and which basically led to a rethinking of what development means and what was happening in the newly industrialising countries of Asia.
The point really is that if you don’t think about the real indicators, you may be having so-called growth without development. And who cares about growth when there is no real development in people’s lives?
Areas of reforms of interest
If you look at the banking industry for instance, the best talents have been destroyed. About 200 quality banks have been ruined over the past 20 years for real and imagined offences, many of them more imagined than real as a result of excessive focus on power and strongman, self-driven egomania syndrome.
Human beings just crushed them so that they could get what they want. Some of what they called banking reforms was just a stealing of other people’s strategy. They are open robbery and all of that.
Where there are problems, instead of going a methodic way of correcting them and moving forward, the abuse of power led to the crippling of institutions and persons. You will find that as we go back to late Sani Abacha era reforms in the banking industry, the best players were hounded and put out of the industry on propped up charges.
Today the evidence is clear that most of them did absolutely nothing wrong – banks that were supposed to be so insolvent like Alpha Merchant Bank. Enough monies were eventually found in Alpha Bank’s coffers.
In fact, Alpha was supposed to be one the most notorious cases but today it is well known that enough money was found in the bank enough to pay not only the depositors but also pay dividends to shareholders.
The people who carried out the reforms and the persecutors of other people, the Abachas and co, we know today what they did. Most of those professional bankers did not do even one millionth of what the Abacha people did; that is if they did anything at all. Because we know that some did absolutely nothing at all.
Now if we learnt a lesson, built up institutional memory from one of those experiences, if there is something wrong in the system, we would clean it out, save the system and keep moving.
We can clean it out and move on without the abuse of power and crippling of the opportunities of others and some of the things that people will find tomorrow that those who did those things did much worse.
When they started publishing news of those who borrowed and demonising them, it is such an uncivilised conduct to reveal such commercial transactions to the public to create the impression that if you borrow money from the banks, you are a criminal. Borrowing follows a process and if your processes are right there is nothing wrong with it.
Around the world people who borrow money are taking risks to create wealth in the economy as long as there are no moral hazards identified. In fact, money can be lost and businesses can fail. The truth of the matter is that greater percentage of businesses fail. But we have allowed a gullible public to believe that anybody who borrowed money from a bank is a criminal.
What that can do is that tomorrow, decent people will be afraid to borrow money from the banks because they don’t want to wake up one day and be called criminals. Those who will borrow money are only the crooks who intend from day one never to do anything with the money. This scenario is even much worse for any economy.
That is part of the truth people have not thought through. Everybody plays to the gallery because we are a very gullible society.