The private sector remains the best path to prosperity globally, as can be seen in the stark differences in outcomes between the economic policies of South Korea and North Korea or Chile and Venezuela.
The forthcoming presidential elections present a choice to Nigerians of either continuing with a private sector-led economic expansion or going backwards to big government, an unproductive public sector and the slowdown of reforms that are currently taking place that should have been enacted decades ago.
The presidential candidate of the All Progressive Congress (APC), General Muhammadu Buhari, gave inkling into his thoughts on economic management last week during a town hall meeting in Kano.
Buhari complained about the lack of a national carrier (Nigerian Airways), and suggested that due to Nigeria’s current level of development, he would rather that privatisation be slowed down or halted while the government should be made to play a bigger role in managing the economy.
I am afraid that such an argument lacks merit given the abysmal history of failure of the public sector in Nigeria (recall NITEL and NEPA). Public ownership of companies often encourages the misallocation of scarce resources.
In most cases globally (for example, the U.S. Postal Service is insolvent and needs bailing out), public company staff strength is usually over-bloated, productivity low, and efficiency and innovation near zero.
Anyone aspiring to be at the helm of Nigeria’s economy needs to understand the challenges the nation faces in a changing global environment.
The next 5-10 years will be the age of disruption by technology (as the U.S. shale boom is showing us); while old dinosaurs like big oil will gradually fade away.
Productivity growth will mean that the middle class will be stretched while many of the new jobs created will be high-end skilled specialist jobs and low-end services jobs.
To compete in this future, Nigeria does not need more government-owned enterprises but instead should be investing in funding research, education and healthcare.
Historical data shows us the folly of increasing government’s role in the Nigerian economy. In 1980 the size of the Nigerian economy, measured by nominal GDP, was equivalent to $64.2 billion. By the year 2000, after 20 years of disastrous military rule that included a nearly 2-year stint by Buhari, the size of the economy had plummeted by 38 percent to $46.3 billion, despite a near doubling in population, according to World Bank data.
It is no surprise that this period (1980-2000) coincided with the largest emigration of Nigerian professionals ever, with disastrous consequences for the economy.
While the governments of the time had to deal with plunging oil prices, the contraction of the economy was accelerated by bad policies. The private sector was muzzled; government determined what was to be imported by labelling some products essential commodity; Nigerians queued up in long lines for goods at the stores, while a few connected individuals cleaned up like bandits.
Today, the government of the day is also facing the challenge of falling oil prices and a currency adjusting versus the dollar. However, Nigeria’s economy will still expand by average of 4 percent in 2015, while sensible policies are attracting private capital to the agriculture value chain, the power sector, refining and petrochemicals, ICT/broadband, hotels and services, as well as some infrastructure such as the Lekki Port and 2nd Niger Bridge toll road.
A Sovereign Wealth Fund (SWF) that should have been established 30 years ago was finally set up in 2011 (with $1.5 billion in seed capital) which should safeguard future oil earnings, even if it means the FG going it alone in terms of future funding.
Inflation is currently in single digits as robust agric production helps to stem food inflation; total debt as a percentage of GDP is below 30 percent, while the current account and budget deficits will print well below the 3 percent mark this year despite slumping oil prices. Meanwhile, Nigeria’s poverty rate has actually fallen to 30 percent in 2013, from over 60 percent in 2010 (World Bank data). The private sector thrives when the macro space is stable enough for them to deploy capital long term.
The trouble with the economics of the APC presidential candidate is the stunning lack of details on how proposed social and populist programmes will be funded. While this writer feels no personal ill-feeling towards Buhari, there is a concern about the economic rhetoric that is beginning to remind one of another ex-military man preaching change that, however, ended badly for his country.
Venezuela’s Hugo Chavez was a former paratrooper who led a failed 1992 coup but was elected as president six years later in 1998.
Chavez’s socialist policies were dedicated to changing the country’s political system, which he viewed as corrupt and impervious to growing social problems. He nationalized more than 1,000 companies or their assets and began to pour money into social programmes. He also froze gasoline and electricity tariffs by installing currency controls and price ceilings on basic goods such as corn meal, beef and milk.
His nationalization drive that would give the state majority control of almost every industry has sparked shortages of basic goods such as toilet paper and inflation of more than 60 percent. Today, Venezuela is an economic basket case. This is a path Nigeria must not embark upon.