An Economy On Life Support: Time To Pull The Plug ~ By Olusegun Adeniyi
Distinguished ladies and gentlemen, please allow me to preface my presentation with one of those stories you find on the internet, although I have also permitted myself a poetic license to slightly edit – or if you like, spice – it to suit the purpose of the intervention I want to make this morning. While Pastor Poju has invited us here to share our thoughts on ‘The drivers, Enablers and obstacles to our Growth’, I am going to speak on just one major obstacle which I hope will provoke thoughts and ultimately compel action as we seek to reposition our country for peace and prosperity.
But first, the story.
Once upon a time in a faraway land, there lived a legend and a disciple. One day in their travels, they saw a hut far ahead. As they approached, they realised that it was occupied, in spite of its extremely poor appearance. In that desolate place, a man lived with his large family comprising wives, children, cousins, in-laws and other relatives. Conspicuous within the compound was a skinny cow. Since they were hungry and thirsty, the wise man and his disciple decided to stop over and they were well received.
At one point, the legend asked: “You are so many in this place and there does not seem to be much resources, how do you survive?” The head of the family replied: “It was not always like this. Once, I had only one wife, three children and a few relatives. I worked the farm and from the proceeds we could live comfortably with enough to take care of everyone’s need. My children attended good schools and we had a functioning health centre. And then one day, God blessed us with that cow. All of a sudden, we prospered beyond measure. That also meant we did not have to work the land again. The cow gives us milk, some of it we drink, and some we make into cheese while we take the extra into the city where we exchange it for other types of food. That’s how we live here, although we now have a challenge. Because the family has grown so large and the cow, already getting old, cannot produce enough to take care of our needs, we have a lot of frictions these days. But thank God, we are surviving.”
After they had spent a day, the legend thanked the man and his family for their hospitality and left. When he reached the first bend on the road, he said to his disciple: “Go back to the hut, get the cow, take her to the cliff in front of us, and push her off.”
The disciple could not believe the instruction he was being given. “I cannot do that, master! How can you be so ungrateful? The cow is all they have. If I throw it off the cliff, they will have no way to survive. Without the cow, they will all die!”
Without responding to the misgivings of his disciple, the legend repeated the order: “Go back to the hut, pick the cow and push her off the cliff.”
Though outraged by the task he was given, the disciple had no choice but to obey his master. He returned to the hut and quietly led the animal to the edge of the cliff and pushed. As was excepted, the cow fell down the cliff and died.
Distinguished ladies and gentlemen, we will come back to this story later to see how it ends. But I am sure we can all relate to it as a parody of the Nigerian condition. We can easily substitute cow with oil which has for decades kept us together as a nation. Yet, before the discovery of oil, agriculture was the mainstay of Nigeria’s economy. Not only was there food sufficiency, proceeds of cash crops like cocoa, palm oil, cotton and ground nuts were used to run a functioning state where majority of our people were gainfully employed and the social sector worked.
At that period, Nigeria’s palm oil production accounted for 43 percent of the global output while our country was also ranked among the first five largest producers of cocoa. And since we have a predominantly young audience here, let me add for their benefit that we also had the famous groundnut pyramids in the north. Meanwhile, the few universities in the country at the time could compete with their counterparts anywhere in the world and they served as research centres for agro-allied industries.
However, things began to change with the discovery of oil, which did serious damage to the organic development of the Nigerian economy. The unprecedented influx of dollars into the economy from just one product brought with it pseudo-prosperity and this problem has remained with us since then. At some point, the naira was so overvalued that it became cheaper to import even bottled water than to produce it at home. With that, a nation that was a net exporter of food started to import most of what we eat despite an abundance of arable land.
Not surprisingly, oil also distorted the political arrangement. We created a federal structure based on states and local governments that were, and still are, cost centres with little room for competition and productivity. At the end of every month, governors congregate in Abuja for the distribution of rent. From Abuja, the shares of oil proceeds are taken to the states and local governments to be spent. With all manner of bubble jobs being created at all levels of government and white elephant projects initiated not necessarily to add value to our society but in the spirit of ‘sharing the national cake’, it did not take long before things started to go downhill.
With oil money came other forms of bad behaviour as government, at all levels, started to embark on fanciful mega projects. In 2011, President Goodluck Jonathan set up an Abandoned Projects Audit Commission which in its report estimated that 11,886 Federal Government projects running into several trillions of Naira were rotting away across the country. About five years later in May 2016, the then Director-General of the Bureau of Public Procurement (BPP), Mr Emeka Eze revealed that the number of abandoned federal projects stood at 19,000. If you add the number of such projects by the states on which huge sums of money have been expended but currently lay in disuse, then you will feel sorry for our country.
Meanwhile, one of the most recurring wrong choices is the distribution of the largesse in an unproductive way, through a subsidy regime that focuses on consumption rather than production. A World Bank report released three weeks ago entitled “Nigeria Biannual Economic Update”, for instance, revealed that we spent N731 billion to subsidise petrol consumption in 2018. The calculations for the fuel subsidy, according to the report, “are based on heavily inflated fuel consumption estimates, with the severely fiscally constrained Nigerian government effectively subsidising neighbouring countries’ petrol consumption as some of the fuel is informally re-exported through the porous borders.”
The problem here is not only that we are spending a huge chunk of our national budget on the importation of a single consumption item but also that we have created perverse incentives for sharp malpractices. The Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Mr MaikantiBaru, explained last year that because of the differential in petrol prices between Nigeria and neighbouring countries, frontier stations have become a conduit for cross-border smuggling of products. With that, according to Baru, there is a thriving market for Nigerian petrol in Niger Republic, Benin Republic, Cameroon, Chad as well as Togo and Ghana, which have no direct borders with Nigeria.
Sadly, the culture of waste is not restricted to petroleum products even when it is being fed largely from oil earnings. Every year, we spend three-quarters of national budget on recurrent items that include procurement and maintenance of generating sets in government offices; fuelling of cars for public officers; renting of residential and office accommodation at scandalous prices; payments of wages for non-existing workers (ghost workers) etc. It is the same situation in practically all the states in what has over the years become another way of dubiously sharing the national cake with no development goals in mind.
With oil money, we instituted a culture of leadership without accountability. Last week, lawmakers in the Bayelsa State House of Assembly passed a bill awarding themselves jumbo life pensions to follow the precedent set by the governors many of who have since graduated to the Senate where they also collect undisclosed amounts in salaries and other emoluments asideseverance allowances every four years. As it happens to resource-dependent countries, cheap money from oil has distorted not just the structure of the economy but also that of politics and in turn accounts for the corruption that has become pervasive.
Nobody has captured this madness better than the former Central Bank of Nigeria (CBN) Governor, Prof Chukwuma Soludo, who used what is often described in social psychology as ‘The Lottery Effect’ to explain the Nigerian condition for me. Perhaps, a confession is necessary here: about three weeks ago, I took a virtual crash programme in political economy from Soludo so I can make some sense here today.
This is the way Soludo explained the Lottery Effect as it pertains to Nigeria. An otherwise hard working person suddenly wins a hefty lottery, quits his job and restructures his lifestyle and that of his family around conspicuous consumption. Without investing the lottery money, the man marries more wives who give him plenty of children, each of them with guaranteed allowance. He also centralizes decision-making in the family such that the children and other members never have the experience to take up challenges and mature in the process. With time, everybody develops a dependent/entitlement mind-set while the lottery money can no longer service the bloated lifestyle of a family that had also grown in size.
The challenge of the moment is that while the proverbial cow is still alive, the state of its health has become suspect. With the decline in oil prices in recent years, we have seen our country sliding into a spiral of economic crises. The revenue accruing to the federation account has dropped which then means there is less and less money to share among the constituent units at a time the population has exploded and the lifestyles have not changed. In many of the states, civil servants are owed salary arrears running into several months and in some cases, years. And to tell you how shameless some of our leaders can be, when one governor was recently accused of owing salaries despite collecting billions of Naira from the so-called‘Paris Club refund’, he casually responded: “I’m only owing four-month salaries.”
But now the chicken is coming home to roost. As a consequence of the downturn in oil price, many projects have been suspended and layoffs have continued in both the private and public sectors of the economy. To worsen matters, Nigeria has one of the lowest development indicators in the world relative to humongous revenue in oil receipts, graphically illustrating what is commonly described as the curse of mineral resource. By channeling income to service consumption instead of production, poverty is thus perpetuated. In the circumstance, rather than be an asset, our huge population has become a burden.
In its 2019 state of the world population report just released, the United Nations Population Fund (UNFPA) estimated that Nigeria’s population has grown progressively from 54.7 million in 1969 to 105.4 million in 1994 and 201 million today; with about 44 percent of our citizens below the age of 15. Going by figures in the 2018 UNDP Human Development Report, Nigeria is ranked 157 out of 189 countries. A newly published research by QS and the Institute of Student Employers (ISE)titled, ‘The Global Graduate Skills Gap in the 21st Century’ examined skills gap and mismatched expectations between students and employers. Out of the 140 countries surveyed, Nigeria was in the bottom ten at 135th position. Nobody should be surprised since we converted polytechnics to universities and killed technical colleges and trade centres that taught skills.
Whichever aspect of our national life we examine, it is clear for all to see that the massive inflow of rents from the oil sector has not made a positive dent on human welfare in Nigeria. Yet it has given us a sort of dependency that we can hardly wean ourselves from.
Distinguished ladies and gentlemen, before I take my seat, let us return to the story of the legend and his disciple so that we can take the lesson I want to leave with us this morning.
As the years passed by, remorse for what he had done never left the disciple who kept thinking about what would have happened to the people without their cow. When the guilt became too much to bear, he left the wise man and returned to that little shack. He wanted to find out what had happened to that family, to help them out, apologize, or somehow make amends. Upon rounding a turn on the road, he could not believe the transformation. In place of the poor shack, there was a beautiful house with trees all around and evident prosperity.
The heart of the disciple froze. What could have happened to the family? He concluded that in desperation they must have been forced to sell their land and leave. At that moment, the disciple thought the family must be begging on the street corners of some city. But determined to find out how he could reach them, he approached the house and asked a man that was passing by about the whereabouts of the family that had lived there several years before. “You’re looking at them” said the man, pointing to the people gathered around the barbecue.
Unable to believe what he was hearing, the disciple walked through the gate and took a few steps closer to the swimming pool, where he recognised the man from several years before, only that now he looked stronger and more confident while the women and the children appeared radiant. Dumbfounded, the disciple went over to the man and asked: “What happened? I was here with my master a few years ago and this was a miserable place. There was nothing. What did you do to improve your lives in such a short time?”
The man looked at the disciple, and replied with a smile: “We had a cow that kept us alive. She was all we had. But one day she fell down the cliff and died. To survive, we had to start doing other things as we developed skills we didn’t even know we had. And so, because we were forced to come up with new ways of doing things, we are now much better off than before”.
The moral, according to the writer of the story which, as I explained earlier, I have taken the liberty to embellish, is that “Sometimes, our dependency on something small and limited, is the biggest obstacle to our growth. Perhaps the best thing that could happen to us is to push our ‘cow’ off the cliff”.
Having realised that what was meant to be a blessing for the family had become a curse, the legend decided to save them from their misery by killing the cow. Left with nothing, or at least so they thought, the family must have realised that they had to adapt or die.
The quick take-away from the story is that while every adversity comes with its challenges, if properly managed, it can also serve as a positive catalyst since it is in coming to grips with difficulties that we can see our true potentials. The family had a choice to see the death of their precious cow as a stumbling block to their progress or a stepping stone to a prosperity that was within reach. They chose the latter and their fortunes changed.
While we can assume that the head of the family took charge and led the recovery efforts, it is also doubtful if anything could have changed if the others did not buy into the idea. What that means in effect is that there must have been conversations on the adjustments and sacrifices that needed to be made because there is no way they could have prospered if they had continued with the old way. This then brings me to an inescapable conclusion: As a nation, until we push the ‘cow’ that has condemned us to a life of mediocrity off the cliff, it will be difficult for us to develop. Here, I am not suggesting that we burn down our oil field. What I suggest, as most experts have done, is that we need to make the transition from oil by stopping the habit of using its earnings to fund recurrent expenditure.
While the oil boom era is gone, the challenge now is how to ensure that the Nigeria of tomorrow offers greater opportunities than today. Yes, the cow is not dead. But it is only a matter of time before it does. So, the sensible thing is for us to begin to use its earnings to build capacity for the future by investing in human capital development. There is this famous line that the real wealth of a nation is above the ground which means that human beings are the enduring wealth of nations. But our fixation is with the wealth that is beneath the ground which is based on chance and only, at best, offer ephemeral prosperity.
While I commend President Muhammadu Buhari and his administration for the investment in transport infrastructure, we must understand that the quality of our education system and healthcare delivery will determine the society we envision so we need a robust and responsive reform that can respond to the socio-economic challenges of our country. For us to navigate our way through these hard times, the example of that imaginary family and their miserable cow should teach us that difficult times often come with tremendous opportunities. But the lesson from that story also is that we cannot build a sustainable future on a defective structure.
Given how cheap oil money has helped to corrode the socio-political environment in Nigeria, it is difficult to imagine that we can muddle our way through under the current arrangement no matter the sincerity of purpose by those at the helm of affairs. As things stand, there is nothing that fuels corruption, electoral violence and disorder in Nigeria more than the cheap money from rent. That explains why a system designed essentially for consumption will not suddenly become productive without some institutional change that will require new rules of the game and some adjustments.
The reality is that we are in a situation in which what we earn as a nation mostly from oil rent is not enough to meet recurrent expenditure. With the new minimum wage, things can only get worse for many of the states and may be even the federal government that is now heavily indebted. That there will be a convulsion at some point is no longer in doubt. What will trigger it is what one may not be able to put his finger on. Therefore, it’s either we have a conversation about the future of our country in an orderly manner or it is forced upon us under circumstances in which we may have little or no control. We are already living on borrowed time.
The question now is: How do we make the requisite transition? The past, according to Soludo, offers a better guide to the future. In the First Republic, politicians understood that they had to invest in the productive capacities of their people as a foundation for future growth and prosperity. For years, successive governments have talked about diversifying the economy by increasing earnings from agriculture and agro-processing, manufacturing and service industries. To do that, we need to increase investments in physical infrastructure necessary for making life easier and improving the ease of doing business while we must save for the rainy day and the future generation. The challenge is that our focus is still on oil.
Like the family in my story whose members were in a state of delusional comfort until the disruptive change brought about by the action of the legend, the situation in our country is degenerating every day. Without a benevolent legend to nudge us out of our reverie, we need to orchestrate the necessary conversations about how to dismantle the dysfunctional system that is just not working for majority of our people. But from my reading of the situation, until we get a critical mass to the level of “constructive dissatisfaction” with the status quo, we may not have the conversation needed to trigger any change.
What will serve us in Nigeria is a total disruption of the current system and the only way that will happen is for us to begin to challenge old assumptions. I am sure if the choice were left to that family in the story, the last thing they would do was to kill the cow. Yet with that cow still alive, there was no way they would think of alternatives to their meaningless existence.
Distinguished ladies and gentlemen, this brings me to my parting shot. I am well aware that restructuring has become both an emotional word and a weapon of blackmail in our country. There are those who are fixated on the number of local governments in Kano as opposed to the number in Lagos or that some people are ‘productive’ just because oil is buried under their soil. There are also those who are obsessed about creating parity among some ethnic nationalities as well as those who, as my friend Louis Odion would say, enjoy presiding over the seating arrangement in a sinking Titanic on a perilous sea even when it should be glaring to the discerning that the current structure is unsustainable. But the restructuring that most of us advocate is not about north or south, east or west nor is it about the distribution of rent. It is about how we can harness the potential of our country for the greater good of our people.
The challenge therefore is economic but it cannot be resolved without changing the character of our political engagement. As Soludo taught me, to build a new society which will require hard work and sacrifices, we can migrate from an unconditional grants scheme to a competitive, conditional matching grants whereby oil and all natural resource rents are used exclusively for building bridges to the future. Under such arrangement, earnings from oil will serve only for capital expenditure in human and physical infrastructure. That, of course, will necessitate an amendment of the constitution to enshrine fiscal responsibility. This will entail that all federating units must, within the specified timeframe, start meeting all their recurrent expenditures from internally generated revenue.
It is instructive that in the first year of oil production in 1958, the revenues derived from the commodity accounted for less than one percent (in fact only 0.08 percent) of the total national earnings though by the time the military took over in 1966, it accounted for about nine percent. A year later, it had risen to 18.26 percent and by 1974, oil revenues accounted for about 81 percent of our earnings. By that period, the flow of cheap petrodollars had killed agriculture and led to massive rural-urban migration. The craziest year of course remains 1989/90 when oil revenues accounted for 97.24 percent of our total national earnings!
In the corporate world from where the concept of ‘restructuring’ was borrowed, the process can either be reactionary or proactive. According to a commentator, the former comes “when bankruptcy proceedings require a company to make explicit changes within a specified period” while the latter results from “when a savvy business leader recognizes a change in consumer preferences and wants to position his or her company to be a leader in tomorrow’s market”. The same principles apply to countries. In the context of Nigeria, we can argue that if we decide to restructure to make better use of our resources and the talents of our people while cutting off waste, it would be a sensible proactive choice. If on the other hand we continue along the road we are travelling, a few years down the line, the choice may no longer be ours to make and the consequences could be devastating.
Distinguished ladies and gentlemen, as I take my seat, I am well aware that the ‘cow’ is still alive. Butthen the question: For how long? More than at any period in history, we need a conversation on how to run this fractured family for the benefit of all members. In the words of Soludo, “it makes better sense to have one percent of a successful conglomerate than to own 100 per cent of a failing kingdom.”So, fellow compatriots, it is my humble submission this morning that the hour has come to push our own lean cow over the cliff.
Pastor Poju, I thank you once again for inviting me here today as I wish all Nigerians Happy Workers Day.
• Text of a presentation at the ‘Platform Nigeria’, organised by Covenant Christian Centre on 1st May, 2019 with the theme, ‘The drivers, Enablers and obstacles to our Growth’.