Introduction
In 2015 as part of resolution 70/1, the United Nations general assembly agreed by 2030 to transform the world by achieving 17 sustainable development goals. The goals in question range from ending poverty globally to sourcing partnerships for the goals. The table below provides a descriptive view of all 17 goals.
In this article I will attempt to provide some insights where Nigeria is on attaining SDG 8 and 16, which specifically sets out to ensure decent work and economic growth, as well as promote peace, justice and strong institutions.
It is axiomatic that diversifying an economy and an increase in the per capita income of citizens go hand in glove at least until income levels reach the neighborhood of just under US$10,000. Subsequently, sectoral growth tends to lead economies. Typically, and history has proven this to be the case, diversification is mainly threatened in countries with the lowest income levels and primarily commodities and or mineral dominated. In Nigeria, economic diversification is unavoidably linked with the structural transformation of the economy and greater impetus must be aimed at attaining higher levels of productivity which inevitably will result in the movement of economic resources between sectors of the economy.
One of the six characteristics of economic growth as opined by the Nobel Laureate Simon Kuznets is a high rate of structural transformation within an economy. In other words, a shift from agricultural to nonagricultural sectors, and from industry to services. To be sure, this experience has mainly been shared in advanced economies. Nevertheless, it provides some insights on where Nigeria is and where she needs to go.
Not too long ago circa 2006, global crude oil prices hovered above $100 a barrel before bottoming out below $30. Since this period, oil dependent countries like Nigeria have had to do some soul searching as a nation because during this time leading up to the recession that commenced in August of 2016, Nigeria witnessed an increase and continue to do so, in unemployment and underemployment primarily amongst the youth which make up a greater proportion of the population. According to the National Bureau of Statistics, unemployment and underemployment figures stood at 52.2% in December of 2017.
Since exiting the recession in the 2nd quarter of 2017 after 5 consecutive quarters of contraction the Federal Government through the Central Bank of Nigeria made some noteworthy attempt in their effort to aid in diversifying the economy away from crude oil through the Agricultural Anchor Borrowers Program. So far, the data revealed that the Agriculture sector has grown marginally at 3.5% of gross domestic product (GDP). However, in 2018 we witnessed a contraction by 1.33%. This economist firmly believes that perhaps a lag in the data coupled with the farmer/herdsman clashes has prohibited more growth. It was further reported by the NBS that year on year Q1 2018 GDP (+1.95% YoY) was an oil-led growth (+14.8% YoY).
There is no gainsaying that Nigeria is out of the recession without the common person on the street having some comfort in their ability to gain employment and by extension, take care of their family. However, it is also important to note that Nigeria’s exit from the recession was primarily driven by the continuous increase in the price of crude oil which currently hovers around $67 a barrel and the ongoing effort of the Federal Governments drive towards diversification through Agriculture. So, although crude production per barrel has declined below the 2 million barrels per day, the price per barrel has dramatically increased giving greater impetus once again to the sector.
In developing and diversifying any economy institutions cannot be overemphasized. In contemporary times, there have been empirical cross-country studies that have been conducted and provides enduring support on the importance of institutions in predicting and supporting the level of development as well as diversification globally (Hall and Jones, 1999; Acemoglu, Johnson and Robinson, 2001).
To provide further clarity, the protection of property rights, effective law enforcement, and
efficient bureaucracies to name a few, together with a broad range of norms and civic mores, are without a doubt strongly correlated to long-run economic performance and sustainability. To that effect, the aim of this paper is to explain the importance of institutions in the development cum diversification of the Nigerian economy. The rest of the article is structured thus: section 2 examines stylized facts on the judiciary in Nigeria, while section 3 reviews the financial sector as a catalyst in diversifying the economy; Section 4 discusses decent work and the minimum wage in Nigeria; Section 5 concludes with recommendations.
Stylized facts on the Nigerian Judiciary
“Institutions are the rules of the game in a society. The humanly devised constraints that shape human interaction. They structure incentives in human exchange, whether political, social or economic” (North, 1990 p 4). Simply put, institutions matter! From conceptualizing and enforcing a contract, the rule of law, protecting the people as well as property rights, checks and balances in government bureaucracies, and fair play in the financial markets.
Rodrik, Subramanian and Trebbi (2002) examined the role of institutions in determining the differing levels in income amongst the worlds most developed economy vis a vis the worlds least developed. In their magnum opus, their study revealed that institutional determinants significantly ranked higher. Again, this finding is not new given that Adam Smith in his seminal work “The Wealth of Nations” stressed on the importance of a strong justice system, private property rights, and the rule of law in the drive for economic development.
In the Nigerian context, the judiciary is one of three co-equal arms of government charged with the responsibility of interpreting and applying the laws to all cases, as well as, settling disputes in the court of law. To be sure, the judiciary is the last stand for all persons under the law to have their day in court following due process. Indeed, the role of the judiciary in the growth and diversification of the Nigerian economy cannot be overstated because of the role the judiciary plays in the dispensation of justice. To summarize, the Nigerian Judicature is made up of the regulatory institutions, courts/tribunals, judicial processes, judges and non-judge workers, the inter-phasing agency of law enforcement centers and prisons or other holding centers. Together they all uphold the idea of effective justice administration for the benefit of citizens and other stakeholders connected to the Nigerian sovereignty which is the primary justification for a judicial arm of government.
Although the ideals of the judiciary may be well intended, we have witnessed countless commercial/financial cases bordering on fraud, negligence/wrongdoing and so on in the judicial system that has gone without a final verdict for decades. For instance, during the global financial crisis of 2008, to save the Nigerian banking system from collapse, the apex bank assumed control over some financial institutions and further spent billions of Naira saving others (Akanmidu, 2018). Furthermore, criminal charges were laid against bank executives for offences in financial crimes with at least to the researchers’ knowledge, the judicial system was able to render a verdict on one individual with others stuck in unending cycles of dismissals, appeals, and retrials.
Therefore, it is of great importance to note that the bank failures during the financial crisis and the dispensation of justice afterwards perhaps gives credence to the role the justice system play
in enforcing the rule of law. After all, why would one observe good corporate governance if there are no consequences for poor conduct? More to the point, if the rule of law and the dispensation of justice is seen to be weak, unfair, or slow, then one could draw a dotted line to lack of growth in any economy. To shed more clarity on the assertion, consider a bank mandated to support infrastructure development but has unsuccessfully disbursed funds to commence projects in developing infrastructure in the last five years, should the management of the bank continue? According to (Akanmidu, 2018) the cases of the bank executives provide a useful case study through which to examine the weaknesses of the Nigerian judicial system. These include the capability of prosecutors and the ability of the court system, including judges, to bring cases to fruition. This is particularly true in corporate cases which are often difficult to prosecute under the criminal law.
Financial institutions as a catalyst for economic diversification
A well-functioning financial sector is imperative in achieving shared private sector led growth and diversification in any economy (Levine, 2005). However, in the Nigerian experience, its contribution in this regard remains relatively low. In contrast, peer countries like Kenya and South Africa have 40 -65 percent private sector credit to GDP. In the case of Nigeria, the data revealed a paltry 22 percent private sector credit to GDP. According to (Levine, 2004) well managed firms lack access to finance for expansion, and as a direct result prohibit sustained employment growth in the formal sector. Additionally, individuals in the rural areas with limited access to finance greatly increases income volatility thereby reducing their ability to extenuate exogenous shocks which as a direct consequence permits these individuals to remain in a vicious poverty trap. Given the forgoing, financial systems that are inclusive as well as effective in nature are an essential catalyst in promoting and ensuring equitable growth, poverty reduction in all sectors as well as diversification of the economy. Empirical analysis conducted by numerous scholars (Levine, 2005, Demigurc & Levine, 2004, Omotola, 2008) all revealed a strong positive relationship between a sound financial system and economic growth. Additionally, the researchers postulate that a sound financial system with available credit to on-lend to firms with viable projects in strategic sectors of the economy promotes inclusive growth and shared prosperity.
Although comprehensive in nature as it pertains to the financial sector, the current administration’s mandate to drive economic growth through the Economic Recovery Growth Plan (ERGP) is hinged on the following principles:
- Focus on tackling constraints to growth: Economic growth in Nigeria faces various supply constraints including fuel, power, foreign exchange, and business unfriendly regulations. In addition, there is a shortage of requisite skills and appropriate technology necessary to drive growth.
- Leverage the power of the private sector: Economic recovery and transformative growth cannot be achieved by the government alone. It is essential to harness the dynamism of business and the entrepreneurial nature of Nigerians, from the MSMEs to the large domestic and multinational corporations to achieve the objectives of the government’s plan. To be sure, the ERGP prioritizes the provision of a more business friendly economic environment which is evidenced by the recent passage of the companies and allied matters act (CAMA) which clears the way for ease of doing business.
Indeed, limited access to finance severely constrains opportunities for economic diversification. Typically, Nigerian banks observe a value chain business model that deals with already established firms with a track record of success. Consequently, these banks tend to ignore MSMEs because of poor or no credit history, insufficient collateral etc. To that effect, Nigerian banks resort back to what “they” understand to be a safe bet which is competing for larger firms and accepting lower margins only to exploit the higher yields earned from credit and perhaps other fees earned through product offerings as part of the loan agreements. To be sure, the most effective way to ensure inclusive growth and diversification is through the Micro, Small, and Medium Enterprises (MSME) in any economy (Nnanna, 2018).
Although MSMEs face insurmountable obstacles to access financing, female entrepreneurs in Nigeria face daunting challenges in accessing credit from formal institutions. A survey conducted in 2012 by Enhancing Financial Innovation and Access (EFInA) noted that only 2 percent of women gain access to financing, and 5 percent use bank accounts for conducting business. Furthermore, Nigeria trails peer countries in female participation in firm ownership. For instance, according to the SME Survey of 2014, in South Africa, 78 percent of women owned businesses are profitable compared to 70 percent of their male counterparts. Consequently, the government of South Africa continue to aid women entrepreneurship.
Decent work and the minimum wage
Presently, the Federal Government of Nigeria set up a technical committee to examine the efficacy of the proposed minimum wage of N30,000. Quite frankly, this is a step in the right direction that is needed towards ensuring every Nigerian earns above $1.90 set by the United Nations. If successfully passed by the National Assembly, it would perhaps mean that the country as a whole will need to ensure proper implementation of the new minimum wage. Simply put, this is a public finance question. Since there has been a major push back against an increase in the minimum wage from state governments arguing the affordability of such wages, the recommendation might perhaps hinge on a combination of measures ranging from lifting subsidies on fuel which will no doubt pose additional burden on the public at large on the one hand, but palliative measures could be taken in form of donated buses for public transportation to all states which would decongest the roads. Other measures include increasing value added tax (VAT) on all tax payers, look for cost cutting measures to reduce to size of government or perhaps a combination of the both. In the end, it is important to note that Nigeria has overtaken India as the country with the most extreme poor people in the world. For context, India has 5 times the population of Nigeria.
According to the Brookings Institute 90.8million Nigerians now live in extreme poverty, which represents nearly 50% of itsestimated 190 million population. Furthermore, unemployment has been on the rise with the rate morethan tripling from Q4 2014 figure of 6.4% to the current 23.1% reported in Q3 of 2018 (National Bureau of Statistics). Another important measurement is income inequality which is measured by Gini Coefficient stands at 43%, implying that inclusive growth remains elusive.In terms of SDG Index which ranks countries based on their performance across the 17 goals, Nigeria is ranked a lowly 141 out of 149 countries at 36.1% against the regional average of 42.5%. In a nutshell, we are still a nation far away from achieving the SDG’s nevertheless there are still areas to which Nigeria has made concerted efforts.
Conclusion and recommendation
The diversification of the Nigerian economy, economic growth and prosperity in this economist view is squarely hinged on the strength of institutions. Whether governmental agencies in the form of Ministries, Departments, and Agencies, or the financial sector, that is, commercial and micro finance banks and development finance institutions. To recapitulate, this paper examined the role of strong institutions in diversifying the Nigerian economy by first discussing the oil driven growth in Nigeria. Furthermore, we outlined the importance of a strong judiciary as the backbone in ensuring prudent dispensation of justice. In the end, it is envisaged that a strong judiciary will lead to order and civility in the area of commerce.
Nigeria as a whole observes a culture of impunity! In other words, some individuals whether intentionally or not appear to be above the law. As such, institutions that should be able to prevent such malfeasance regrettably enable such actions to thrive. The irony of what I am saying is the same people will travel outside of Nigeria to let’s take the U.S for instance and obey the laws of the land in that clime. Once they return, they revert back to what the culture permits them to do. We have enough rules, policies and regulations on the books to move forward as a country. The issue this economist finds is that we don’t have strong institutions and individuals that can ensure implementation of established rules.
Finally, to ensure a deliberate attempt is made to achieve SDG 8 &16 which is to ensure decent work and economic growth, as well as promote peace, justice and strong institutions the following recommendations are posited;
Nigerian economy the author posits the following would go a long way in strengthening institutions.
- For a stronger judiciary, we contend that setting up a specialized commercial court or perhaps for effective dispensation of justice, a tribunal that is held to strict timelines for adjudication is needed to create a sense of comfort for local as well as foreign investors but more importantly the citizenry.
- For a stronger financial system, creating an enabling environment by investments in infrastructure such as road and rail networks, steady power supply, water/waste management systems and irrigation.
- Lastly, a comprehensive evaluation of the performance of all public institutions in the service level agreements and delivery within and outside the institutions, standard operating procedures in achieving their respective mandates to capture effectiveness in overall operations. Indeed, strong personalities are in important in driving policies however, as a nation we require strong institutions to bring sanity back in the country.
Joseph Nnanna
Prof. Nnanna is the Chief Economist of the Development Bank of Nigeria. Contact: [email protected] in the subject line Office of the Chief Economist
