Internal Adjustment:
-
Strategic Sectoral Investment
Priorities
Posted in March 2008
1. Politically
A democratic Nigeria with free and
functi
oning democratic institutions must be allowed
to flow. Democracy
is more than the creed of our country, it is the
inborn hope of our humanity, an ideal we must carry,
a trust we must bear, a touch we must pass along.
Democracy should be allowed to take root in the
political culture of Nigeria no matter how
inexperience would be politicians may be thought to
be. A democratic Nigeria with a private sector
oriented market economy where equal opportunity,
social justice and the rule of law exists.
2. Economically
a) The provision of basic economic
need is an essential tool for any long term economic
progress for Nigeria. The reform of the energy
sector, the availability of water and improved
security and enabling environment for economic
investment and opportunities must be top-most
priority in this regard. Another major shortcoming
of the Nigerian economic system is the lack of
policies implementation and the unwillingness of the
Nigerian people to react to changes for a better
Nigeria. The failure to impose financial discipline
on enterprises and to utilize bankruptcy
possibilities has a similar effect. The result is
innovatively inefficient and reduces the interest of
the enterprise in maximizing profit. If it is judged
that special exceptions need to be made during the
process of adjustment and special subsidies given to
a particular activity, it is important both that the
process be as transparent as possible and that the
temporary nature of the special treatment be made
clear. Subsidies generally increase the fiscal
burden; they should be greatly reduced and strictly
targeted to those groups who need them most.
b) An economic environment that
inspires confidence in investors. Controlled
inflation, few but meaningful regulations on the
setting up and running of businesses i.e. setting up
of a computer network system where registration of a
business does not take one to Abuja and spend days
and months in the process. But registration at state
levels and on district levels where a State has many
applicants in places like Lagos. Kano etc. Just like
the issuance of passports and driving licenses
today. Elimination of multiple taxation through
decentralization. This procedure should include all
other forms of tax collection. A simplified,
decentralized and corruption free procedures in the
issuance of licenses, permits etc. Tax incentives to
attract foreign investment and a national system of
tax control and check of businesses.
c) We should continue to implement
a guarded economic deregulation, a tight monetary
stance and a policy of no extra-budgetary
expenditures without extra-budgetary revenue. Any
further project needs more careful analysis of its
effect on operating costs and its economic value and
once given careful consideration must not be
abandoned. Laws that inhibited foreign investments
into the country must continue to be abrogated and
replaced with the ones that assist and facilitate
foreign investments into the country. Distresses in
the banking system must constantly be checked,
identified and eliminated, also oil dedicated
accounts must be entirely eliminated so that oil
proceeds would be properly accounted for. Nigeria
must restructure its capital spending.
d) We must diversify the economy,
less dependent on export of crude oil, and the
continuation of setting up of companies that produce
intermediate chemical raw materials for industries
using crude oil and the abundant natural gas as raw
material base. In time this will reduce our
dependence on some imported raw materials. Provide
the environment for the setting up and running of
small scale industries in the textile,
agro-processing, and engineering sectors through
training and low interest loans for individuals or
group of individuals with proven abilities.
e) Privatization and restructuring
of the remaining sectors of the economy like the
motor vehicle production and assembly industries,
electric power supply, mineral mining sectors, and
others by encouraging the participation of strategic
foreign investors. Strategic foreign investors
should be such that have the best technology (at
least such technology that matches the international
standard), should be part of the criteria in
selecting such a strategic investor. Self-managed
companies should be encouraged to compete and remain
financially viable and expose to international
standard (prices, quality). This should have a major
long-run impact on economic efficiency.
f) As in market economies,
direct foreign trade operations should be encouraged
to be preferred by most producers, and are
presumably in the long run the more efficient
pattern, provided that producers have sufficient
profit incentive to seek foreign markets
aggressively. Closer direct market contact should
influence the quality of product made and offered
for sale. World Bank research on the causes and
consequences of Korea’s success in increasing its
share of exports of manufactured goods strongly
indicates that direct contact between the producer
and purchaser can also have beneficial effects on
technological transfer. The more that can be done to
increase the interest of companies in exporting, the
better. An active wholesale trading market system
along the former Eastern Europe model can also be
effective in promoting trade.
g) Still more autonomous to the
States and flexibility. Consideration should be
given to splitting some multi-plant enterprises when
there are no technical advantages from
concentration. There should be in place an
anti-monopoly legislation so that entry of new firms
into the economy would be encouraged. Presently the
birth of new firms is still largely an
administrative act rather than an expression of
entrepreneurship. Credit-granting to enterprises and
even individuals must be based on the fulfillment of
planned tasks, with discretionary contractual
relations based on a bank’s assessment of
enterprises’ creditworthiness. Government bonds
could be issued to finance future budget deficits,
and be sold to the public directly, instead of the
central bank’s making interest-free loans to the
government and collecting savings through
interest-yielding bonds and deposits; in this way
the cost of public debt would be properly reckoned
and included in the state budget. These bonds and
those of public utilities would be fully guaranteed
by the state but there seems no reason why other
bonds should be similarly guaranteed.
h) Investment decision-making does
not appear to give enough attention to increasing
returns at the margin. This requires effective
project evaluation of Federal investment, using
international techniques of project analysis that
have been accepted in principle in Nigeria for many
years, but are too infrequently applied. For
decentralized activities, it should be a capital
market which will give profit-making enterprises
alternatives to reinvestment in their own activities
and be self-managed, a healthy fear of bankruptcy to
alleviate the tendency of investment whatever the
cost, and a system that rewards individuals for
making successful but risky investment decisions.
Self-reliance instead of budgetary support (unless
where really justified), commercialization of
credit, and penalization of loss-making activities
with the possibility of ultimate bankruptcy.
Combining reform and stabilization requires
macroeconomic policies which are consistent with the
reform principles, and markets must clear i.e.
equilibrium prize level (be better organized and
eliminate ‘black market’ where business is not
legally registered and therefore pay no tax). A
period of uninterrupted economic equilibrium is
necessary to reverse expectations and to reduce
speculative purchases of commodities; after that the
maintenance of equilibrium is easier to reduce
inflationary ‘overhang’ and ‘gaps’.
Priorities
Energy
The Nigerian economy is currently
severely handicapped by the dire shortage of
electrical energy. This shortage was predicted as
far back as 25 years ago. What steps were taken by
the government to forestall this shortage? Today,
people and companies rely on electricity. Keeping
the business activities going requires having two
kings of power. Constant electricity production and
supply, and personnel to control the consistent
quality and knowledgeable management of the power.
In comparison, Ontario
Canada: (Population 8.5 million)-- The most populous
of Canada's ten provinces and three territories and
the nation's industrial heartbeat: Total Electrical
Power Generating Capacity: 30,481
Megawatts
Nigeria: (Population 140 million
est.) --sub-Saharan Africa's most populous and with
(the exception of South Africa), the continents
most industrialized nation: Total electrical Power
generating Capacity: 5902 Megawatts - operating
most of the time at less than 50% efficiency - until
recently managed exclusively since 1972 by the
defunct NEPA with a workforce of: 33,000
Some more comparative statistics to
ponder (even after discounting for the disparity in
the state of economic development and activity
between Nigeria and Canada):
Where
Nigeria's electrical Energy comes from:
Three hydro power stations with
combined installed capacity of --1,930 megawatts
and six thermal power stations with
combined capacity of-- 3,972 megawatts.
--mainly coal fired units
Where Ontario's Electricity Comes
From
Ontario has one of the largest
electrical power generation systems in the world.
More than 90 plants produce over 30,000 megawatts of
electricity. However, not all this capacity is
available at any one time because of scheduled
maintenance and other factors.
The Ontario grid also has the
capacity to import and export up to 4,000 megawatts
of electricity.
Currently, Ontario's electricity is
generated as follows.
|
Source |
Amount Produced |
|
|
|
|
Nuclear |
10,836 Megawatts |
|
Coal |
7,546 |
|
Oil/Gas |
4,364 |
|
Hydroelectric |
7,669 |
|
Miscellaneous
(Biomass, Landfill Gas, Waste, Wind, Solar) |
66 |
|
|
|
|
Total resources |
30,481 Megawatts* |
|
*Source: IMO 18 month
forecast June 24/03 (does not include Bruce
A nuclear units) |
We proposed creating 2 Coal powered
plants to generate 7 000 Megawatts each, building
the Mambila hydroelectric to generate 2000
megawatts, and 6 gas stations to generate each 2000
each as well as rehabilitating our current sources
to operate at full capacity. And invest extensively
on future solar power generation. Then NEPA of PHCN
should be divided into three sub-sectors. The
production sector, the distribution sector and the
marketing sector. The strategic power management
control must ensure the availability of
uninterrupted Power Supply. The present program runs
the risks of shortfalls in supply and is vulnerable
to slippages and cost over-runs.
Health
Nigeria should provide basic
healthcare to every citizen irrespective of
ethnicity, religious conviction, tribe or political
affiliation. Our hospitals should be made to match
the international standard, with adequate facility
and services. Also, government should embark on
campaign to promote cleanliness, good sanitation and
proper sewage and waste management to improve
peoples’ health. Continual and systematic
improvement of primary health care system i.e.
provision of clean drinking water, proper collection
and effective disposal of refuge. Every district
should have council house management to organize
proper collection and effective disposal of refuge
and of course charge every household for the
services. In the long run, the move should be
towards refuse separation, source of recyclable
materials like plastic, metals etc., and rich source
of natural fertilizer. Clean water supply to each
and every corner of the country must be structured
through the states and local levels with a control
management that will guarantee that. Provision of
secondary and tertiary health institutions at
accessible sites and at affordable prizes. Provision
of accurate data on drugs production and
availability and the encouragement of the production
and importation of drugs on the essential drug list
all year round. Revitalization of the immunization
of infants, children of school age and girls before
they get to child bearing age. Systematic
introduction of health insurance at all levels. The
health insurance can be made a part of the income
tax system and each insurance holder should carry an
insurance card as an individual or as a family. We
highly commend the Identity Card for each and every
Nigerian, its advantage is profound. Planned
increases in the rations of hospital beds will
impose substantial capital costs and incremental
recurrent cost burdens. But plans to continue
increasing the number of physicians beyond the
present level is justified. However, despite the
pressing need for new hospital beds, it would
probably be more efficient to postpone a few of the
planned new hospital starts, and reallocate the
resources for rehabilitation of existing hospital
facilities where feasible. Massive public campaign
to improve health-related behaviour (importance of
balanced diet, vegetables, fruits etc., physical
education) and on the part of industry to pollution
reduction. Government investment in clinical
facilities will be ineffective in reversing present
rising mortality trends.
Agriculture
The basic requirement for sustainable
economy is the ability to provide food for the
Nation. Investment
in agriculture should concentrate on mechanization
and equipment, farm buildings like massive silo
storage facilities, water irrigation systems for
farming, water amelioration and drainage, water
supply and rural electrification. It should also
favour food processing which is essential to export
prospects for agricultural products. There should
also be emphasis on cash crops, meats, fishes, oils,
dairy products, grains, fruits, vegetables etc., and
cold and silos storage facilities. These
agro-processing projects should be intended to earn
foreign exchange through exports, so there is need
to examine the market potential for the products
concerned. Comprehensive, effective regulations to
introduce basic modern technology and equipment,
supply goods and services for export, and improve
the supply of goods and services of high quality to
the domestic market. There should be irrigation
program and even allocation of fertilizers and to
keep it in check constantly.
We should support farmers and
encourage mechanized farming by providing
agricultural equipment and financial support in the
form of loans backed up by landed collateral
security. The question is how to make these
resources available to the actual farmers. There
should be a community based programs called credit
union groups in villages among interested farmers.
The product will be bought over by independent
private group with the farmers having 40% of the
share of profit. The profit will be used to pay the
loan gradually. They can get further loan for
expansion if they are successful. This will lead to
full mechanized farming. Any group that fails will
be bought over by the government, private agency,
bank or any member of the group. The success of the
program will be monitored by the financial
institutions involved, government regulatory body,
and the private agency that will eventually make
profit. In effect, there will be checks and balances
between the farmers, the private agency, the bank
and the government body regulating the program. The
success of this program will create many
large scale farmers. These will generate large
increase in our agricultural products. There should
be a substantial policy on agriculture. The main
policy here is sufficiency in food production and
surplus for use as industrial raw materials for
export. The priority areas include:
-
i) all aspects of direct agricultural production,
but in particular, rehabilitation of groundnut,
cotton, cocoa and oil palm production, fish
production and forestry;
-
ii) investment in processing of
agricultural produce and storage facilities;
-
iii) investment in processing of
agricultural input supply and distribution;
-
iv) agricultural mechanization e.g.
adoption and use of farm equipment (such as
bulldozers, tractors, etc) including the provision
of land clearing and land preparation services;
-
(v) agricultural support activities
including research and funding of research
activities;
-
vi) water resources development,
especially for irrigation and flood control
infrastructures along river basins;
-
vii) development of earth dams and
construction of wash bores and tube wells;
-
viii) development and fabrication of
appropriate small-scale and mechanised technologies
for both on-farm processing (e.g. threshing) and
secondary processing of agricultural produce for
consumption or storage.
Agricultural products include groundnuts, palm oil,
cocoa, coconut, citrus fruits, maize, millet,
cassava, yams and sugar cane. Nigeria also
has a booming leather and textile industry, with
industries located in Kano, Abeokuta, Kaduna,
Onitsha, and Lagos.
Industry
The industrial sector has been beset
with problems in recent years. Though, the rate of
industrial capacity utilization rose to 32.5% as
against 29.3% in the nineties, it has been badly
effected by lack of diversification and
modernization. Indirect mechanisms such as credit
and fiscal incentives must be encouraged to
financial resource allocation to priority
sub-sectors. Special emphasis should be given to
investment projects for:
-
a) Modernizing industry and
increasing productivity, especially through more
efficient use of energy and other materials,
-
b) Expanding exports; and
-
c) Expanding industrial linkages and
using locally-produced inputs and domestic raw
materials more intensively.
To improve project implementation,
substantial fines should be imposed for delays of
constructions. We must restructure our industries
especially those sectors that are expected to lead
future industrial growth because of their export
potential and substantial spillover effects. Local
production of construction materials,
electrochemical products, electronics parts and
other spare parts should be highly encouraged and
there should be mass media promotion of such
products. Resource allocation should be towards
industry modernization, generation of industrial
linkages, completion of existing investment
projects, saving materials and energy, increasing
the supply of particularly scarce intermediate
products, and expansion of exports. The output of
the construction industry in most countries is about
one-half of gross capital and 3-8% of the gross
domestic product (GDP). Productivity improvement in
the construction industry e.g. Ajaokuta rolling mill
may therefore have a significant impact on the
economic well-being of a nation. Considering the
scarcity of skilled managers and the unsophisticated
equipment and technology, it can be said that there
is much room for improving productivity in the
Nigerian construction industry, especially in
today’s complex and competitive market. We must
analyze the Nigerian construction industry at the
sectoral level, administer surveys to top Nigerian
constructors and design professionals in order to
identify potential areas of productivity improvement
in the Nigerian construction industry, and to
determine the type of actions Nigerian constructors
and design professionals are willing to take in the
interest of improving productivity. Computer
utilization in construction management, especially
in planning and scheduling should be a high priority
to the industry. It is a fundamental law of
economics that one should employ the resources that
are scarce and maximize the use of resources that
are plentiful. For Nigeria, that is labor-intensive,
capital-saving ventures and methods, because cheap
labor is available in abundance, the resources are
there so we just have to go ahead and use it.
Transport
The reduction of oil subsidies,
privileges and protectionism is highly commended but
more needs to be done, especially in the area of
transportation in Nigeria. Major roads linking Abuja
to all state capitals should be dual carriage.
Transport investment, like the transport system as a
whole, should plainly be dominated by railways. We
should construct the national railway network to
cover all state capitals as well as industrial
areas. Signaling systems on main lines should be
upgraded, particularly by introducing more automatic
line block signals on main lines. The rail lines
should be dual (or provision for future
construction). There should be modern track and
wagon maintenance equipment and a program to build,
modernize and rationalize existing marshalling yards
with a proper management structure. Railway
electrification would reduce diesel oil consumption
only marginally, and should only be undertaking if
reduced operating costs are large enough to justify
the substantial installation costs for now. For
exports purposes and even transport of goods within
the country should be encouraged to use rail
container so reducing the burden on our roads.
Number of rail terminal should continue to be
increased likewise the use of containers and
handling facilities. This is a long term plan but it
can be done, then penalty should be imposed on truck
drivers carrying over load on the road. Other
within-town or city alternative patterns of public
transport must be thoroughly explored. While between
cities, the Government should take a special
interest on River
Transportation. To
this end I suggest the setting up of a National
Dredging Construction and Maintenance Authority (NDCMA).
This should be an autonomous body charged with the
surveying and dredging of the river Niger and Benue,
construction of river paths along the route and
maintenance like in Poland and Holland. This should
be a national policy with the headquarters in Abuja
and branches in all the states watered by River
Niger and Benue. The Polish branch of the body (Przedsiębiorstwo
Budowy Wodnej PBW) are willing to train and the IHC
of Holland which built more than 50% of world
dredges have also signaled their willingness to
survey and build corresponding dredges if asked to
do so.
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