By Naphtali Iringe-Koko
To discuss this topic, I would first give a brief overview of the past experimental economic models that were applied in driving the Nigerian economy and the harm inflicted on Nigerians. Post Nigeria’s independence in 1960 inherited an agricultural economy which was dominated by export crops. Nigeria began exporting oil commercially in 1958. Between 1960 and 1975 an oil dominated economy emerged, and led to huge out flows of petrodollars. Oil export rose sharply and became the dominant export in the 1970s. Less attention was given to agriculture which unfortunately resulted in the fall of its contribution to the GDP from 65% to 50%. The indigenisation programme established by the Nigerian Enterprises Promotion decree in 1972 was the first experimental economic model which reserved a number of economic activities exclusively for 100% Nigerian ownership, but also allowed up to 40% foreign ownership for enterprises requiring huge amount of financial capital. The 1972 decree was later revised by the 1977 decree which prohibited 100% foreign ownership in any economic activity. The selling point of the indigenisation model was to relinquish certain enterprises back to Nigerian ownership.
Unfortunately, the planning and execution were faulty for the fact that it failed to mobilise the much needed human capital, financial capital and technology transfer. The indigenisation model led to massive divestment by their foreign owners. Unemployment rose sharply, signalling a warning of the beginning of the country’s unemployment woes. As a management staff of UAC of Nigeria from 1977 to mid 1981, sadly I witnessed all of it. Important conglomerates critical to the economy were massively divested by their foreign owners. Some of the companies included: UAC of Nigeria (UACN), Nigerian Breweries; Cadbury; John Holt; Leventis; GlaxoSmithKlein (GSK); CFAO Nigeria; SCOA Nigeria; Mandilas Enterprises; Chellarams. The divestment by their foreign owners did a lot of damage to the Nigerian economy. For example, UACN had over twenty-two wholly owned large subsidiaries and associated companies with their branches spread across the country. As a result of the indigenisation programme, the foreign owned enterprises disappeared or were reduced to a fragment of their original self.
After the indigenisation programme, the next experimental economic model that was sold to Nigerians was the dreaded Structural Adjustment Programme (SAP). Following the increased inflow of petrodollar revenues into the economy the level of government spending increased. Furthermore, the criminal neglect of the agricultural sector during the oil boom, coupled with a manufacturing sector that was solely dependent on imported raw materials led to the draining of the country’s foreign exchange reserves. Due to the collapse of oil revenues post 1981, the economy witnessed structural imbalances in all areas caused by a mono-product oil economy which was vulnerable to world oil price shocks. When finally, world oil prices collapsed, petrodollar revenues also tumbled which led to sharp increase in Nigeria’s external debt which rose from USD$8 billion in 1980 to USD$26.2 billion in 1987 (Paris Club 10.9; London Club USD$5.9; multi-lateral debt USD$2.4; Promissory notes USD$4.9; Short-term loans USD$0.2; others USD$1.9 – source IMF1987). Structural imbalances in the economy grew and led to the dreaded Structural Adjustment Programme (SAP) in 1986.
The selling point of SAP to Nigerians was that it was meant to reduce fiscal imbalances in the short and medium term and that would help adjust the economy to long-term growth. A means to redistribute resources from public ownership to private ownership (transfer of public enterprises to the rich), with the expectation of a higher GDP growth with a trickling down effect on the poor, making everyone’s condition of life better. The immediate effect of SAP was the massive devaluation of the naira to attract foreign investors which immediately resulted in unaffordable consumer prices. For example, a Nigerian – assembled 1985 Peugeot 505 GR car with an ex-factory price of N14,935, rose to N60,085 in 1987. A Nigerian assembled 1985 Volkswagen Beetle car with an ex-factory price of N6,345 rose to N26,000.00 in 1987. SAP ushered in the era of Tokunbo cars (second-hand cars imported from Belgium) as substitute to help the middle class which virtually disappeared during the SAP era. In 2004 a new experimental economic model known as National Economic Empowerment and Development Strategy (NEEDS) followed. The marketing point of NEEDS was that it would lead to sustainable economic growth and poverty reduction. The Bureau of Public Enterprises (BPE) was established and charged with the responsibility of implementing the Nigerian policy on privatisation and commercialisation.
The policy led to massive sales of public assets and divestments in both FG and State Governments’ owned enterprises. To sum up, Nigeria was turned into a laboratory for testing economic hypothesis that only channelled wealth from the public sector to the rich without any trickling down effect on the poor. After 35 years of this experiment, the disastrous consequences are still hunting Nigerians. The only successful divestment was in the telecom sector which can be attributed to low capital costs, short pay-back periods, and low breakeven points.
The sponsors of neoliberalism (market economy and privatisation) are still very much active and are calling for further divestments in the oil and gas sector, power sector, subsidy removal and further devaluation of the naira. Economic lies do not endure because they are verifiable. Nigerians have gone through indigenisation programme, SAP, privatisation and criminal devaluation of the naira to attract foreign investors, without any benefits compared to pre-independence period of the 1960s and early 1970s when the country witnessed a robust public sector with efficient port services, efficient electricity generation, efficient railway transport services, efficient agricultural marketing boards, strong and competitive currency (naira), quality education at all levels, good employment possibilities up to standard six level, good security across the country and so on.
I am not opposed to market economy or privatisation but they must be handled with lots of caution. However I am opposed to selling public enterprises and assets to private investors or buyers in the name of privatisation and market economy because they are not the tested route to economic success which benefits everyone. They are seen as a means of channelling public wealth to the rich. Using the US as an example, according to the London Guardian weekly of September 23 2022, in the 1960s and early1970s, the most beneficiaries of GDP growth were the poorest 20%. But from the1980s onwards, the proceeds of the GDP growth were transferred to the ultra-rich. Median income rose just by one-third of the GDP growth rate, while the income of the 1% richest rose at three-times the rate. Between 1990 and 2020 the wealth of US billionaires, adjusted for inflation, increased twelve-fold. While I expect the government to give the necessary support to business and provide the enabling environment to attract private investors, I also expect the rich to mobilise their private capital and invest in the economy. The government should have strong presence in the economy with a robust public sector as was the case in the good old days.
I will continue to press on the fact that there is still a valid reason to expect the government to remain an important force if not a dominant player in any economy even in the era of market economy and privatisation. Generally the share of government contribution to the GDP is never less than 10% and is over 50% in a number of industrialised economies. Developed economies reached a comfortable level of development and stability prior to the choice of a market economy (where the laws of supply and demand direct the production of goods and services) and privatisation.
Furthermore, markets determine the potential for good private sector investments (privatisation), whereas market failures determine the best opportunities for public sector (government) investments. This should be the guiding principle. The starting point of modern public finance theory is that if the market economy is working well (e.g satisfying consumer demand at the lowest cost) then there is no need for direct government intervention by way of direct investments. However, when markets fail to function well (eg demand is not being met or costs are high), government intervention becomes necessary by way of subsidy or direct involvement in production of goods and services. These points were not considered during the divestments of public enterprises and the country paid heavily for it. What was needed was a robust public sector. Studies have shown that since privatisation and market economy were introduced in the developed economies, they have witnessed less economic growth than before market economy and privatisation were introduced.
Despite the failures of privatisation and market economy in the country, the agents of neoliberalism are still calling for further transfer of public assets to the rich. Such calls include recent call for the unbundling of NNPC, call for removal of fuel subsidy, call for further privatisation in the power sector and call for further devaluation of the naira. I see this as a call to continue with our past mistakes. Unless we critically examine some of the mistakes we made in the past , we will not be able to fix the future in a sustainable manner. Nigerians are yearning for patriotic, real and inspiring alternatives and positive visions of a better Nigeria and a better world rather than competing modifications of the disastrous privatisation that got the country into this mess. NNPC LTD is a huge departure from the past experimental neoliberalism, and on the right path for delivering sustainable value to the Nigerian economy for the benefit of all Nigerians. The old NNPC’s assets were transferred to NNPC Ltd. and not to the few rich as was the case in the past. The new NNPC Ltd is currently a work-in-progress and operating under a transitional timeline. With the ongoing renovation of its oil assets, investment in new oil infrastructure, adoption of new strategy in delivering projects, improved security and surveillance of its oil assets, I have no doubt in my mind that Nigerians will soon enjoy competitive sustainable value delivery from NNPC Ltd. In the 1970s and mid1980s, NNPC was the foremost hope for creating and sustaining the wealth of the nation. This period witnessed massive investments in oil infrastructure and was known as the “Golden Era” of the Nigerian oil and gas industry. Unfortunately in the subsequent years that followed, NNPC became the “Father Christmas” of the Federal Government. General Abisoye’s panel report of the early 1990s said it all, “NNPC is plagued with massive and continuous interference within and without. Anyone, be he an idiot, a liar, a thief, etc with the right connections outside the corporation can always bring a project to derail NNPC’s carefully worked out budgeted plans with or without funds. In its 17 years of eixistence, the corporation had eight chief executives, each and everyone of the previous seven had been disgraced out of office. Any sectors in financial distress, irrespective of reasons were always bailed out by the NNPC on the directive of the government.” While these distractions were happening, government gave no attention to the servicing of the corporation’s critical oil assets which later seriously affected its operations and delivery of its mandate to Nigerians. Some of the finest brains in the Nigerian oil and gas industry are from NNPC, now NNPC Ltd which is commercialised and will operate under a new Act (PIA2021), which will reduce government interference and will be subjected to high quality financial reporting, independent and credible auditing and sound corporate governance. President Muhammadu Buhari has consistently resisted further sales of public enterprises in the name of privatisation, removal of fuel subsidy and further devaluation of the naira currency. This is patriotic and commendable. He is absolutely on the right track for abandoning further privatisation which from experience is not a tested route to economic success and has been disastrous for Nigerians. The NGF move to stop sales of integrated power plants is also a patrotic move considering the sad experience of our past. Finally there is hardship in the land and also all over the world made worse by the effects of Covid-19, rising inflation and the war in Ukraine. Subsidy is one aspect of safety net used in alleviating the sufferings of the poor all over the world. Nigeria cannot be different especially considering the point that I had earlier made. Regarding the devaluation of the naira, I have always made the point that devaluation is a short term conventional monetary instrument used in rebalancing an economy that is facing serious currency appreciation to enhance export competitiveness, boost local production and create jobs. Unfortunately the Nigerian economy is a mono-product export economy (crude oil), sold in dollars. Devaluation of the naira does not improve its competitiveness but only hurts Nigerians. Hence Nigerians have not benefited from the criminal devaluation of the naira by successive governments.
• Iringe-Koko, former GM, Finance of NNPC, writes from Abuja
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By Naphtali Iringe-Koko To discuss this topic, I would first give a brief overview of the past…
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