Beyond Oil: Wither the Nigerian Economy #Realnews2019Lecture

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Muhtar
Muhtar

By Mansur Muhtar

Your excellence, distinguished guests, ladies and gentlemen

I am honoured and privileged to be invited to this occasion – the 7th anniversary lecture of Realnews as a chairman and I’m also humbled to be sharing the podium with His Excellency John Dramani Mahama, former President of Ghana. You are most welcome sir. I’m also delighted to see the presence of people whom I respect and have regard as my role models, mentors and who have contributed tremendously to the country’s development efforts both in the private sector and in the public sector. Thank you very much.

I am making a presentation: “Beyond Oil: Wither the Nigerian Economy.” I changed it deliberately from “The End of Oil: Wither the Nigerian Economy” and I will explain the rationale behind that. But before that let me begin with a caveat and you have to forgive me because this is the standard operating procedure for our office being a multinational development bank. I have to stress that I’m delivering this in my private capacity and not as the vice president, Islamic Development Bank and the views that I’m presenting to you are not necessarily reflectively of those of the Islamic Development Bank. I hope that has not diluted the presentation, but I can assure you that I’m passionate and have full conviction in this presentation.

The outline of my presentation today is basically divided into four parts. The first part is the end of oil and I want to repeat this notion of transforming to beyond oil. In the second part, we ask the question whether oil has been a blessing or curse and essentially when you look at oil revenue growth in Nigeria, the historical perspective.

And I will move on to discuss economic diversification, providing a way out of the oil curse and finally I will look at what it takes to achieve economic diversification. So first, the end of oil, is this really the end of oil? I know that all of us have been concerned about what has been happening since we discovered oil and that it has not really helped our country. But I think going forward we need to appreciate that Nigeria is still a big player and will continue to be a big player in the international oil market.

Being the largest producer in Africa and 12 largest in the world and also we have second largest proven oil reserve in Africa as well as the largest gas reserves on the continent. So even at the present rate of exploitation, it will take at least 20 to 25 years to deplete the current reserves. And for gas, we will spend the next 100 years exploiting it.

That opportunity is there and cannot be missed. We all agree that oil is a finite resource, but I think the challenge is for us to see how we can transform it, use it to transform the economy so as to ensure equitable and sustainable economic growth. I can see here the petroleum reserves and what it means is that while our reserves are going up high significantly, oil production has declined considerably because of the challenges we have been facing.

So, the next level is to ask of the oil-fuelled growth record and what has been the experience. Sure there has been growth but that growth has been volatile and subdued. Sometime, Nigeria grew faster than any economy of the average middle income country, but I think the key point to make is that this growth has not been sufficient to make any significant dent on poverty.

Despite the growth that has been recorded, the poverty and socio-economy indicators in Nigeria has continued to be abysmal in terms of human capital indices, in terms of inequality among the highest in the world.

Looking at this record, we have to ask a question how to achieve the shift to a more robust, resilient, inclusive and sustainable growth path? What potential exists? What are the challenges? Where do we start? Who takes the lead? And I think really answering these questions is key to determining whether oil has become a blessing or a curse.

We have here some of the weaknesses of oil: economic vulnerability, weak institutions, Dutch disease, misspent resources and unrealised potential. And these are not things that are inescapable. There are some countries that have gotten out of that and make good use of their oil resources internally. So that is what we have to stress.

Even Saudi Arabia at the pick of the oil boom, said they wish they have discovered water instead of oil. So that basically shows you, but the key thing is to basically see what blessing we can learn and how can we transform this from a blessing to a curse. And in this regard, we need to think again about the way we have been doing things in the past.

We need to think and look at countries that have succeeded and see how they succeeded. And we need to think ahead of the new challenges that we will have to confront in order to move forward. Essentially, the ultimate goal is to secure more efficient and equitable use of the oil rents through better governance and social policies.

And it is also to ensure that we are able to diversify the economy. I think diversification is key and it is a means of broadening sources of growth with greater domestic linkages, shields economy from price and output volatility, reduces vulnerabilities, allows sustainability of growth against natural resources depletion, enhances employment prospects by providing expanded and wider job opportunities and facilitates a more geographically-balanced, equitable growth.

I believe that our greater potential is the people. Nigeria’s greatest asset is the people not oil, not natural resources and why do I say that, we are the most populous nation in the African continent. We are nearly 200 million persons. The seventh largest in the world, but more importantly is the population trajectory. Our population is expected to grow tremendously that by 2050, we will be over 400 million Nigerians.

This will be the third largest country after India and China in terms of population. So, historically, we think that huge increases in population will provide an opportunity for demographic dividends. What do I mean by that, the large number of young people present an opportunity for human capital. We have sizeable human resources. For Nigeria in particular, I need to stress that we all acknowledge that we have entrepreneurial and educated workforce.

We have several Nigerians in Diaspora. Think about the potential in deploying this workforce to grow the Nigerian economy. So we have to work hard to explore the demographic dividends because it is not automatic. The other blessings I have to count quickly are the agricultural sector. We talked about it a lot. We talked about the expanse of our land, we talked about the climate and we also know about the solid minerals deposit in the country.

Different minerals provide bases for growth and diversification. Again I talked about large oil reserves, natural gas, which we alluded to earlier, which we should better exploit to provide major opportunities, revenue generation and acceleration of growth. But we have enjoyed an advantageous location geographically in the continent and West Africa.

This is a key asset that tends to be neglected because it facilitates trade relations with neighbouring countries and provides easy access to markets outside the continent, European, North and South African. These are blessings that cannot be ignored. Think of all the countries that are land-locked that will depend on other countries for imports. The other question I have to ask right now is, if the potential exist, what does it take to utilise them.

Really, there are several building blocks and these are inseparable and perhaps very important. The first one here is to secure an enabling environment, which means security, law and order; good governance and capable institutions; stable, predictable economic and financial environment and investment in physical and social infrastructure is key as well as proactive support for real sector growth and then you need to mobilise huge amount of resources and effectively utilise these resources to provide the needed services.

But above all, I want to highlight the supremacy of the leadership.  We need to improve governance to achieve economic development. We all know that combating corruption is a critical challenge today.  We need to focus on reshaping values and norms of state and governance and make emphasis on honesty, integrity and service to society, performance and results-orientation, transparency and accountability.

We must also reform the civil service. Public sector capacity and institutional challenges would adversely impact policy design and implementation of change. Civil service reforms are crucial to re-professionalise the service, improve policy formulation and execution capacity as well as enhance service delivery.

Likewise we have to improve macroeconomic management and financial regulation, strengthen fiscal rule, rebuild fiscal buffers and pursue counter-cyclical fiscal policies and enhance access to financial services for productive sectors and to meet the needs of micro-enterprises and SMEs.

We have infrastructure deficit, particularly in energy sector as major constraint to growth. It hampers productivity, raises cost of doing business and undermines competitiveness and trade. Therefore, key efforts should focus on energy, transportation, and ICT infrastructure as well as improving government spending.

We must also invest in health and education sectors to unlock economic growth potentials and supporting diversification through developing a productive workforce; pay more attention to the neglected area of technical and vocational education, to impart relevant skills and bridge jobs-skills mismatch; promote science, technology and innovation to leapfrog into the fourth industrial revolution.

Then proactive measures are needed to support the real sector growth and boost agricultural production and exports. Just to identify key sectors that need to be supported. Agriculture is a major source of employment and incomes and important for poverty reduction and job creation. But it also has high growth potential, hence key to economic diversification, especially when you consider the land that needs to be cultivated.

Only 60 percent of 40 million arable land are under cultivation, low yields per hectare (20-50 percent below that of other developing countries). Then support industrialisation and the need to ensure food security. Also there are other things we need to do to ensure that agriculture improves both in terms of technological innovation and productivity improvement.

The next one is Industrialisation. It is a key component of Nigeria’s economic diversification and structural transformation, major source of productivity increase and technological innovation.

We talked about the key constraints to the sector’s growth, including inadequate power supply, high cost of inputs, high cost of doing business, infrastructure deficit, and limited access to finance. There are a lot of opportunities which we must take advantage of.

There are ambitious financing plans, which we must not ignore. Again, here we need to look carefully how we could mobilise the needed resources and finance to support economic diversification. Now boosting oil and gas revenue as I said cannot be ignored. We have to look at sources of diversifying our revenue. In essence, we need to look at non-oil sources of revenue. We cannot continue to run away from this reality that Nigeria has one of the lowest tax rates in the world and even the tax rate is not equitable. There are people who are earning huge amount of money, but are not making the payment needed.

So we need to look at ways of ensuring compliance also among other things. More importantly we need to focus on improving quality and efficiency of spending. We need to exploit domestic capital markets; sustainable and prudent public domestic borrowing; accessing multilateral and bilateral loans; enhancing foreign direct investment and portfolio flows.

Other arrangements include: Diaspora bonds, securitisation, recovery of stolen assets and curbing illicit financial flows. This will go a long way in generating the needed resources to address our developmental needs.

In putting it all together, as I said we must strive for primacy of leadership. If we are able to achieve this and drawing from the experiences of other countries, we need to have focused, credible, trustworthy and effective leadership is key to achieving economic development. And this leadership cuts across all levels.

But also leadership is not a one-person endeavour. It requires a strong team that shares common ideals; a critical mass of credible leaders (cabinet, advisers, etc), men and women of integrity, ability and track record. And the task of leadership is to provide an inspiring vision and instilling in the mindsets of Nigerians a compelling need for change, anchored on a unity of purpose.

This requires tough decisions, which really demand end to business as usual and some of these decisions may not be politically palatable. But it requires that leaders move out of their comfort zone – from transactional to transformational space. And in Nigeria, I think one of the key things that we need to do while embarking on this leadership journey is to continue to embark on trust-building measures. This is because any leader that cannot see Nigeria’s current trust-deficit in our environment arising from legacy of past leadership and misrule cannot solve our problems.

Many of the top measures that need to be taken – people raise strong opposition because these are some of the things they have heard before and where is the benefit going to. So, that again as I said the primacy of leadership is what we need. I’m not an expert in this area and I hope that our keynote speaker will be able to share some light on that in relation to development of democracy in Africa and the role of leadership. Thank you very much.

  • Excerpts of power point presentation made by Mansur Muhtar, vice president, Islamic Development Bank and former Nigerian minister of finance at the 7th Anniversary Lecture of Realnews, on November 19, 2019.

– Nov. 22, 2019 @ 20:35 GMT |

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