Excerpts from the speech delivered by former Governor of Anambra State, Mr. Peter Obi, at the Covenant Christian Centre, Iganmu, Lagos, on May 1, 2017.
I do not pretend to be an academic professor of Economics, but I believe that I have had sufficient practical experience in running private businesses and in managing the affairs of a State as to know what works and what does not work in the Nigerian economy. By encouraging who works and doing away with what does not work, we shall build a new Nigeria.
The key to our growth as a country is to seek ways to build financial resources for economic and social development of our country in the midst of apparent scarcity. As a country, we seem to overlook what is besides us in search of what is far from us. We seem to have the penchant for seeking the exotic instead of the basics that are all around us. In managing our economy out of recession, we seem to have settled for the notion that we can only borrow ourselves out of recession. While it is true that borrowing may be necessary, if you don’t have saving, to spend out of recession, I am personally worried with what the borrowing is being spent on. There is nothing wrong with borrowing for investment in capital goods but there is everything wrong with borrowing for consumption.
Today, our debt service to revenue is almost 60%. Outstanding Debts account for about 50% of the total national budget (states and federal), this excludes debt owned contractors, and other matured contractual obligations. In more organised societies, even when you want to borrow for capital goods, you must carry out an economic feasibility and viability report as well as social impact assessment on the investment you want, and then you rank the competing investments in order of preference. We have borrowed to rebuild four Airport terminal at the same time. Are we sure that traffics in the four airports will generate enough revenue to pay back their share of the loans. It is common knowledge that Lagos airport accounts for close to 80% of our air traffic. So why didn’t we use the borrowed fund to first modernise and improve the Lagos airport into a regional hub instead of rebuilding 4 airport terminal at the same time, when none of them will even be built to world class standard and none will have the capacity to pay off the loan used to finance its reconstruction.
The need to borrow by the different levels of government has been largely driven by two factors: lack of savings and high cost of governance. We seem to have built our political structure on epicurean life style: “let’s take care of today and tomorrow will take care of itself”. Our constitution does not allow savings; Section 162. (1) & (3) of the 1999 constitution states that “The Federation shall maintain a special account to be called “the Federation Account” into which shall be paid all revenues collected by the Government of the Federation, (3) Any amount standing to the credit of the Federation Account shall be distributed among the three tiers of government.
Unfortunately for us as a people, the revenue we are distributing and consuming is coming largely from oil which is a diminishing asset. No modern society can survive and maintain its development without saving and investing for the future, particularly in its future generation. This is even more so for countries that depend largely on the extractive industry.
I want to use this opportunity to appeal to the present government to please amend the constitution for the sake of our children. We need to reverse our aversion to saving and make fresh commitment to saving for the economic and social development of our country today and particularly for tomorrow. We already have a law on saving of our excess crude oil receipts through the Nigerian Sovereign Investment Authority Act (NSIA). I must appreciate Mr Olusegun Aganga and Dr. Ngozi Okonjo-Iweala, our former Ministers of Finance, for their contribution in establishing this Act and the initial investment of $1bn. Unfortunately, the NSIA Act makes provision for saving of the residue or excess, meaning that if there is no surplus, we cannot save. Our own definition of excess depends on what price we set as the benchmark for crude oil and our projected production volume. All a profligate government needs to do to avoid saving anything with NSIA is to set a high benchmark for crude price and volume. No wonder why only $2.5bn has been transferred to the NSIA from the Federation Account since the inception of NSIA in 2012.
Even while we are waiting for the constitution to be amended, to make it compulsory for us to save part of revenue, we can start today by saving the refunds rather than distributing to the three tiers of government. We should bear in mind that previous distributions of such refunds including over $20bn excess crude have only gone to fuel the consumption of our governments without any tangible infrastructure investment to show for it. Today we are talking about distributing $6.9bn excess deduction from the Paris Club debt. Out of which $1.250bn being N380bn had already been distributed and the second tranche of about $1.650bn (about N500bn) for possible distribution leaving about $4bn yet to be distributed.
NNPC/NPDC have just agreed to an unremitted $21.8bn and N316.1bn respectively and have given a proposal on how to repay same to the government. The federal government has announced their intention to sell 10 NIPP power generation plants this year, this 10 power plants if I can remember when I was in office had a reserve price of about $6bn as at 2013. With the balance of $4bn of Paris club refund that is undistributed, NNPC $21.8bn and NIPP sale proceed of about $6bn we now have about $31.8bn. If we resolve to save this money as a nation today through our already established Nigerian Sovereign Investment Authority at an annual contribution of $2.5bn and an income of 7.5% (am sure they will achieve more) from January 2018 to 2030 which will be the year of conclusion of UN SDG which we are signatory to; by then this amount will be $51bn plus what we have today in the NSIA account will be about $55bn. Our current foreign reserve is $30bn, I see that the Federal government has increased the reserve by about 10%, if they continue with 5% increase annually, by 2030, it will be about $57bn. A combination of sovereign wealth fund investment and foreign exchange reserve, our total reserve will be over $100bn by 2030.
A major and critical part of the macroeconomic instability we are facing today is as a result of our weak foreign exchange reserve. Should Nigeria have a reserve of over $100bn, we would be able to maintain a stable exchange rate, rein in on inflation, meet the demands for legitimate imports as well as attract foreign portfolio and direct investors. We would be in a position to embark of massive infrastructure spending. In any case, I do not think that our economy would have gone into recession in the first place if we had over $100bn dollars in foreign reserve.
To further elucidate why we must commence savings immediately, Nigeria was not included in the BRICS economy even when it was the biggest economy in Africa because of its poor infrastructure. We have now been included in the MINT economy which are Mexico, Indonesia, Nigeria and Turkey. If you look at these nation, Mexico with a population of 130m has GDP of 1.1trn, forex reserve of over $150bn, Capital market capitalisation of over $400bn, positive GDP growth, unemployment and inflation under 10%; Indonesia population of over 200m , GDP $870bn, forex reserve of $100bn, capital market of over $300bn, positive GDP growth, inflation and unemployment under 10%; Turkey – over 80m population, 780bn GDP, over 100bn forex reserve, Market Capitalisation of about $200bn, positive GDP growth, inflation and unemployment under 10%. When compared with Nigeria, with over 170m pop, GDP $413bn, forex reserve of $30bn, Market Capitalisation of about $30bn, Negative GDP growth, Inflation and Unemployment of about 20%. One can see clearly the need for us to resolve today to start saving in order to turn around our economy tomorrow.
Once again, I appeal to our current government officials at the federal and state levels, in the interest of our country and our children not to share these impending refunds but to rather invest them.
Apart from saving for the future, we also need to begin a massive investment in education to equip our children with the skills to compete in today’s knowledge economy. Today, Nigeria is not only lacking in the number of enrolment of children in schools but has also progressively deteriorated in the standard or quality of education the few who are opportune to attend school are receiving. We currently occupy the unenviable position of the country with the highest number of out of school children in Africa and the number two in the entire world. The greatest issue militating against our global competitive index is the issue of education and health (138th in the world). Today, our school enrolment in basic education is about 60% .The reason why countries of the Asian tigers have leapfrogged Nigeria is the quality and spread of their educational system. While they were and are massively investing in education, ours is the reverse. Investment in education is synonymous to investing in the future of a country especially today that the world has moved from baggage economy to knowledge economy.
In fact, the focus on education has changed to what is now called STEM, which means Science, Technology, Engineering and Mathematics which will rule the World tomorrow. It is now acknowledged that by 2020 the global economy will have a shortfall of 85m STEM skill jobs and nations are equipping their children from infancy for that challenge and we are not doing anything. To give an example of today’s knowledge economy, Apple at April 28, 2017 has market cap of $750bn which is higher than the combined GDP of Nigeria and South Africa, the two biggest economy in Africa, Google has a market cap of $600bn which is about 150% of Nigerian GDP, Microsoft has market cap of $515bn is far bigger than Nigeria GDP, Amazon $430bn is bigger than our GDP, Facebook that was established in 2004 has a market cap of $416bn which is above our current GDP. Even the networth of the founder, Mark Zuckerberg of $65bn is about 3times our 2017 national budget. Apple’s first quarter revenue is $78bn is about twice the budget of Federal and states governments combined.
I can go on and on how the world has left us behind but there is no point crying over spilt milk. What matters is what we are doing to remedy the situation but regrettably we seem not to even be conscious of how bad our situation is or what we should do to reverse it. Today we have approximately 12 million pupils in our Universal Basic Education when we should have been above 20m. Assuming we target a minimum population of 20m under our Universal Basic Education by 2018, our minimum annual investment should be N200bn, that is, N10,000.00 per pupil. This is my recommendation on how we can fund this annual expenditure for basic education, which is the foundation upon which all subsequent training is built upon. The Federal Government should contribute annually 50% which is N100 billion, the 36 state governments, N50 billion and the balance of N50 billion should be funded by Special Education Tax.
Should we now decide to start giving education the required attention and funding, let me now recommend further how this money can be best utilised to make it transformative instead of transactional which is the case today. I recommend that funds meant for Basic education be domiciled in the office of UBEC and sent directly to the schools based on each individual school headcount, at the rate of N10,000.00 per pupil. The funds should be managed by each School’s management authority to be composed of school head teacher, teachers and parents. While the School Management Authorities administer the funds based on defined standards set by the government, the government’s role should focus on defining the standard as well as supervising and enforcing those standards.
The fourth issue I will like to touch on is the issue of proper job creation and employment particularly by SMEs, which is the engine and biggest employer in any economy. I am happy that the government seems to recognise this by stating in its Economic Recovery and Growth Plan that it will encourage Nigerians “to buy what we produce and produce what we buy” and patronise Nigerian companies. Serious countries create enduring employment by nurturing and supporting their local enterprises. What is however missing is the failure of the economic recovery and growth plan to put in policy of prompt payment for services rendered. Today government has killed more businesses that have supported their growth. About 75% of business that collapsed was as a result of government indebtedness. In other serious countries and I use UK as an example, government cannot owe for goods or services rendered for more than 30 days. In most other sub-Saharan economies including Ghana, it is 60 days.
In Nigeria the reverse is the case, businesses are owed for years. Examples of this abound. A few years ago, a state Governor ordered 50 Jeeps for his traditional rulers and other prominent office holders within his government at the cost of N9m from a company amounting to a total of N450m. The company estimated to make a gross profit of N1.5m. Following this order, the company borrowed from the bank, N300m (and added their own capital) to execute this order. For four years now they have not been paid. Not only have they lost their profit and their equity contribution but their indebtedness to the bank is now N732m. The bank has forwarded the company to AMCON and other financial authorities as a serial debtor for defaulting on their loan and the company has retrenched over 200 of his workers. While the governor has received all manner of titles from the traditional rulers and several awards from various organisations for his performance. The above is the same case of several enterprises, especially SMEs whom are still pursuing various government establishments for their due and matured payment for over 10 years
I know there is a lot we need to do, while we have lost yesterday, we must not lose tomorrow. Nigeria was a signatory in 2000 for the millennium development goals (MDGs) which elapsed in 2015 without Nigeria as a nation achieving any of the goals, though you can say one or two states were able to make reasonable impact. Today, Nigeria is a signatory to sustainable development goals (SDG) (which is inclusive of all that is required for a country to develop) signed by 193 countries in September 2015 which will be concluded in 2030. All that average Nigerian demands of the drivers of this Nigerian vehicle is having been a signatory to this global destination can we as other nations of the world journey our part to this destination as other signatories by ensuring that our planning, budgeting, execution and delivery are strictly based on the SDG destination because it is clear and measurable.
As I conclude, let me quote these two renowned personalities, first one is Professor Robert J. Shiller of Yale University in his recent interview about the economy “to talks about the economy is to talk about the psychology of people, what they think of their future wellbeing”. And Prof. Donald Jacobs, founder of Kellogg Business School, said “all economies are driven by hope of the citizens on the future of their nation”. These two quotes show that in effect, people’s perception of their present condition and the outlook for the future determine how they respond to government policies.