Before the reforms initiated by former president Olusegun Obasanjo in 1999 gained roots, they were truncated by policy reversals embarked upon by late president Umaru Yar’Adua, setting the stage for the Transformation Agenda of the Goodluck Jonathan administration
The story of the Nigerian economy, particularly between 1999 when democracy was restored to the country and 2011 when President Goodluck Jonathan began his tenure as elected President, is like a script meant for Nollywood, the Nigerian home video industry. The reforms of the Olusegun Obasanjo adminstration, widely acclaimed as successful, had given Nigerians hope that the country would quickly transit to a developed economy based on forecasts by Goldman Sachs, a global investment banking and securities firm, that it had the potential to become one of the 20 leading economies in the world by 2020. But that hope quickly dwindled away when Umaru Yar’Adua, late, took over from Obasanjo in 2007, and systematically stopped the reforms in virtually all of the sectors of the Nigerian economy, pulling back the wheel of progress and casting a huge pall of doubts over the aspiration of Nigerians of joining the league of developed economies. Then came President Goodluck Jonathan, with the Transformation mantra, now saddled with the task of tranforming an economy once said to defy solution.
Obasanjo himself had in 1999 inherited an economy battered by long years of military rule. However, it took him almost four years to assemble experienced technocrats to salvage the economy and restore it to the path of growth and development. Soon after his re-election in 2003, president Obasanjo appointed Ngozi Okonjo-Iweala, then World Bank vice president, as finance minister, who in turn invited Chukwuma Soludo, a professor of Economics and renowned international consultant, to return home to join a crack economic team which also had Nasir el-Rufai, Federal Capital Territory, FCT, minister, Oby Ezekwesili, education minister, Dora Akunyili, director-general of the National Agency for Food, Drugs Administration and Control, NAFDAC, and Osita Ogbu, economic adviser to the president and chief executive of the National Planning Commission, NPC, as members. That economic team engineered a rapid turnaround of the economy.
By 2003 when Soludo was appointed chief executive of the NPC and economic adviser to the president, he initiated the National Economic Empowerment and Development Strategies, NEEDS, the precursor to the reforms implemented by the Obasanjo administration. It took only four years into the implementation of the reforms to revamp the economy and the signs of improvement started showing in key sectors. For instance, the real gross domestic product, GDP, growth rate averaged about 6.6 per cent on annual basis from 2004 to 2006 as against NEEDS target of 6.0 per cent during the period. Before the reforms, the GDP growth rate was less than three per cent. The overall GDP growth rate hit 8.29 per cent in 2010 before the 7.8 per cent achieved in 2011. But the trend of policy reversal which affected virtually all the sectors of the economy during the Yar’Adua administration showed in the GDP growth of 4.5 per cent in 2009. The main drivers of this GDP growth between 2004 to 2007 were non-oil sectors comprising agriculture, telecommunications, banking and services which contributed over 40 per cent of the GDP.
A key aspect of the reforms under president Obasanjo was the banking sector consolidation implemented by Soludo, who soon proved his mettle as a world-class economist within a month of assuming duty as Central Bank of Nigeria, CBN, governor in July 2004. He announced a banking sector reform agenda which mandated all banks in the country to recapitalise to the tune of N25 billion by December 31, 2005 or face liquidation. After an initial outcry against the directive, all operators complied with it and since then the banking sector has not remained the same again.
The reform led to the recapitalisation of banks to the tune of N25 billion minimum level, reducing the number of operators from 89 to 25 active and strong banks. The Soludo regime adopted the Wholesale Dutch Auction System, WDAS, for the sale of foreign exchange, which led to the convergence of the official and parallel foreign exchange rates. The naira immediately stabilised at N127 to the dollar but fell to N150 to the dollar as at 2011. As part of the reforms, the CBN introduced the Policy Monetary Rate, PMR, in place of Minimum Rediscount Rate, MRR, which it hoped would enhance responsiveness of interest rate to monetary policy measures.
Thanks to the consolidation exercise, Nigerian banks soon began to finance multi-billion-naira mega projects in the manufacturing and telecommunication sectors. One of such projects is the $150 million (N19 billion) provided by a consortium of 13 local banks to partly finance the Obajana Cement Company in Kogi State, a company owned by the Dangote Group. That new trend of mega project financing by indigenous banks would jump-start the comatose economy and an elated Aliko Dangote, president and chief executive of the Dangote Group, noted that the financing by the banks enabled his company to actualise its long-term goal of making the country sufficient in the production of cement. The banks further increased their capital base through a combination of mergers and acquisitions in a second round of consolidation which was not policy induced, thereby increasing their capacities to fund long-term projects.
The gains of the banking consolidation were yet to fully manifest before a change of guard effected at the CBN, with Lamido Sanusi taking over from Soludo in June 2009. Between 2009 and 2011, Sanusi has implemented another round of reforms which further reduced the number of banks to 19. Sanusi’s reform was anchored on four pillars: enhancing the quality of banks in the country, establishing financial stability, enabling the evolution of a healthy financial sector, and ensuring that the financial sector contributes significantly to the real economy. Thanks to the reform, today Nigeria can boast of a nimble and proactive financial system to actualise the Transformation Agenda of the present administration.
However, the CBN has been unable to tame inflation, which is considered its primary task. According to Oluwole Ibikunle, managing director, Boaz Management and Financial Strategies Limited, “inflation rate is still in double digits which should not be for reforms of two years. We are talking of stability in the system, one of the macro-economic variables of judging the success of reforms is inflation. If inflation is going down, that is positive and it would benefit the economy. But we are still on double digits which should not be.” Between 1999 and 2011 inflation rate hovered at 12 per cent to 14 per cent, levels that are said not to be good for the economy.
Between May 6, 2010 when Jonathan took over from Yar’Adua and May 29, 2011 when he was sworn in as elected President, no meaningful economic development was recorded. If anything the modest success recorded during Obasanjo’s second term in office was obliterated by policy reversals. The reversals included contracts for the National Integrated Power Project, NIPP, sale of Kaduna and Port Harcourt refineries to Blue Star Consortium, sale of NITEL to Transcorp and that of import duty waivers, which affected trade and commerce. The Yar’Adua government also reversed the sale of Ajaokuta Steel complex to foreign investors. All these happened within a space of three years that the Yar’Adua government was in place. From the time the NIPP was reversed till early 2011, the power sector was in a state of comatose. Infrastructural facilities across the country also suffered from decay, giving investors some concern.
The deterioration in the macro-economic environment is best captured by the depletion of the external reserves, which dropped from $67 billion in 2008 to $36.38 billion as at March 2011. Corruption in the entire petroleum industry, the administration of fuel subsidy as well as activities of militants in the Niger Delta, affected the earnings from crude oil, between 1999 and 2011, hence the government turned to the reserves for succour. This development prompted experts such as Onno Ruhl, country director, World Bank, Nigeria, to warn that the country must save part of its oil revenue and invest it in roads, power, education and health. Dare Ogunniyi, an economist with a Lagos-based research firm, expects government to develop the downstream sector of the petroleum industry rather than continue to lose billions of naira through importation of refined petroleum products.
Indeed, experts warn that it would be suicidal to depend solely on oil because its future is not very rosy. Global oil reserves are depleting and world powers known to purchase oil in bulk have been trying to reduce their dependence on it for several years. In this regard, it is believed that agriculture holds the greatest potential for the country.
By 2011, the outlook of the economy was far from encouraging and Nigerians were begining to agonise over the profligate provisions of the 2011 budget, which was said not to be targetted at developing the nation, given the fact that about 74 per cent of the budget was earmarked for recurrent expenditure. Unemployment became rife in the country, with the figure rising to about 14 to 16 per cent. During the 2011 presidential elections, the concern in several quarters was how to make the economy grow. But by the end of year, the National Bureau of Statistics, NBS, released statistics, which indicated that the economy grew by 7.5 per cent based on GDP in 2011, driven by key sectors such as agriculture and telecoms. But the perceived growth was not reflected in the lives of ordinary Nigerians.
It was imperative for the government to put in place policies to control inflation, industrial friendly interest rates, employment generation and a market responsive rate for the naira. Bisi Ogunjobi, a former vice president of the African Development Bank, ADB, and lead partner, McFeley Development Associates, had said that the most crucial task before the Jonathan administration was to diversify the economy.
Jonathan has promised to fix all these to revive the economy. This is believed to be his reason for going for the likes of Ngozi Okonjo-Iweala to put in place policies to control inflation, industrial friendly interest rates, employment generation and a market responsive rate for the naira. Ogunjobi, said that the most crucial task before the Jonathan administration was to diversify the economy.
As soon as the new administration of Jonathan settled down in the middle of 2011, he set about appointing an Economic Managment Team to mastermind the turnaround of the economy. The team headed by Okonjo-Iweala, in her second coming, set out to work and within a short time the result started showing. Now, there are hopes that the nation’s economy is on its way to recovery. Robert Tashima, regional editor, Oxford Business Group, OBG, announced during the launch of The Report, an investors’ guide, that Nigeria has made a shortlist of the Next 11. The Next 11 are the world’s high-potential emerging economies after the BRIC countries, which are the four world’s dominant economies. The BRIC countries are Brazil, Russia, India and China.
To Tashima, the growing GDP of 7.5 per cent as at February 2011, had positioned the country to surpass the economy of South Africa, which was the largest in the region before 2020. According to The Report, a quarterly publication of the group, the economy grows in spite of several chronic challenges like corruption, lack of dependable transport infrastructure and the increasing inflation rate.
Tashima explained that though there is a lull in the capital market, the market is still a viable place for both local and international investors to inject funds. A test case came in January 2011 when the federal government aimed to sell $500 million in bonds, which was the country’s first international debt issuance. While some experts had predicted that the offer would not perform well due to concerns about the government’s budget discipline, the offer was eventually oversubscribed. “The sale is being interpreted in Nigeria as a vote of confidence and is likely to quell concerns about government spending discipline, at least for most of the business community,” he noted.
Similarly, a team of British Broadcasting Corporation, BBC, officials gave a pass mark to the Nigerian economy in 2011. The team made up of Sean O’Hara, executive director, BBC, Stephen Sackur, presenter of Hardtalk BBC World News, Komla Dumor of the African Business Report and Bilkisu Labaran, was convinced that Nigeria had changed positively. “In business, economic and technological world, Nigeria is making waves and taking giant steps towards great development. There is no best time to declare and be proud to be a Nigerian than now,” said O’Hara. The BBC team called on President Jonathan to cash in on the favourable international image created by the April polls to provide the people with dividends of democracy. The team believes that the government must provide steady and stable power supply that would engender economic development and creation of more jobs.
Frank Nweke, director-general, Nigerian Economic Summit Group, agreed with the groups but said the private sector must play a greater role in the provision of public services through resource mobilisation and investment, either directly or through public-private partnerships, PPP. No doubt, there is a groundswell of belief on the part of President Jonathan administration that the distortions of the past can be corrected to pave the way for the transformation of the economy.
