Monday, October 09, 2017 10.44AM / Op-Ed by EBOMAH Franklin Obinna
The great Singaporean Prime Minister Lee Kwan Yew, had this to say when asked about the state of mind and approach used, in turning his nation’s status from third world to first world in the space of just a generation, “We are ideology-free, when doing something, we ask does it work? If it works, let’s try it. If it’s fine, let’s continue it. If it doesn’t work toss it out, and try another”. These words are no where needed than in Nigeria, and in how its economy is being run. These words speak to the need for a rethink into the past and present economic system of Nigeria, which is one based on a false promise.
On paper the Nigeria economic system is mixed economic system, which in theory is a system based on a combination of private and public economic players, each with their specific roles in matters of the economy. But in reality the Nigerian economic system is a government run system, which is heavily dependent on one commodity called oil. This present system allows for a huge involvement of government and its public enterprises, as key productive players in the matters of the economy rather than a regulatory one. This system is perfectly flawed and unsustainable, as government as an institution is not embedded with features of flexibility, dynamism and innovation like private enterprises are, to meet the targets of job creation, inclusive growth and development.
The simple aim of this publication is to make a case for a philosophically pragmatic system called Nigerian Capitalism. It is a system that explains and gives a defining role to private players (market participants) and the government in a mixed economic system, and it’s a system based not on idealism but on realism. This system is operational in Nigeria today, but in other for it to gain a wide and deep application, it needs to be discussed and elaborated constantly within Nigeria.
During this period of economic downturn in Nigeria, it is imperative that a change in the system of operation be initiated, as it is evident that the past and present system of operation can’t withstand the dynamic economic machinery, that guides the affairs of the global economy. In digesting this publication, a request for reading patience is asked of the reader, so the full concept of Nigerian Capitalism, can make it’s way to mental consciousness.
CAPITALISM AS A CONCEPT AND IN PRACTICE
Capitalism is an economic system based on individual rights and private ownership of the means of production and their need for profit generation. A capitalist system, is one in which decisions regarding investment, production and distribution are based on demand and supply.
In stark contrast to capitalism is socialism where decisions on investment, production, and distribution are majorly planned by a centralized or decentralized body, more precisely the government. In reality most top economies of the world are mixed economic systems, which combines a market participant, being regulated by the government, in order to correct market failures, promote social welfare, conserve natural resources, fund the defense and public safety among other things.
The top economies of the world are economies based on a dominant productive role, being played by private enterprise and a regulatory role being played by the government.
These economies include those of America, Canada, China, the European Union, Japan etc. Countries that haven’t fully integrated this system are those that face constant instabilities when market forces are in action. These countries allow the government to perform a more dominant role in the productive aspect of the economy.
Up until the 1970’s, China was run this way, thus having a stagnant and poor overall economy. But with reforms in the 1970s under the leadership of its paramount leader Deng Xiaoping, China underwent a gradual reform, that allowed private participants to play a more dominant role in the productive areas of the economy, with the government playing a hugely regulatory one. This reform has cumulated in China becoming a fast and stable growing economy, with a minimum 6% growth rate per year for over 30 years, and its eventual rise to becoming the second largest economy in the world in 2008, with a trillion dollars in gross domestic product in barely 40 plus years.
THE NIGERIAN ECONOMIC SYSTEM
The Nigerian economy is a powerhouse on the African continent, with the potential to be an even greater influential player on the world economy. The Nigerian economy based solely on its tangibles is an envy of the world, it has a large and fertile landmass, wide and naturally interconnected waterways, large deposits of gaseous, liquid and solid material resources, but most important of all its tangibles, is its large and vibrant population size, which provides well needed human capital and marketplace for potential investors, and interested parties alike. Where Nigeria has a problem, and this has been litigated on every print, television and internet media platform, is in its intangibles. These intangibles are a practically workable economic system combined with the necessary legal and political dynamic, which would enable the effective and proper use of tangible resource capacity of which its blessed with.
In practice at the moment Nigeria operates on mixed economic system, which policy wise favors socialist and government dependency, rather than capitalist and market dependency. The constitution of Nigeria hugely supporting a strong involvement in the economy has in itself stood as a blockade to business and private capital integration, and this mode of operation is consistent along all tiers of government from federal to state, local to community, and is worse as one moves down the government ladder.
In the last 35 years under both military and democratic rule, important sectors such as the banking, broadcasting, telecommunication, entertainment and cement, have undergone an economic liberalization from the clutches of the powerfully and constitutionally backed government and its enterprises, but further and deeper liberalization is needed for Nigeria to fulfill its promise. The present economic system in Nigeria, allows government and its enterprises to have a strong involvement, rather than the market and private enterprises. In the last 10 economic quarters on record Nigeria has run on a budget deficit, and the budget of 2016 was the first of its kind to have a spending ratio of 70% recurrent expenditure to 30% capital expenditure, but while that change is commendable it is also dismally poor as a huge chunk of the budget is used to bailout unproductive state owned enterprises which are supposed to fund the budget in the first place.
The strategy of this present system of operation in Nigeria is simple and it is to, fund wasteful public enterprises when oil revenue is high, and borrow from both domestic and foreign investors, to fund wasteful public enterprises when oil revenue is low, or a combination of both simultaneously. In the 2017 budget there seems to be a choosing of the borrowing option, as 22.7% of the budget is used to service payment of debt, and a huge chuck of the budget expenditure is spent on non-debt recurrent expenditure (41% of a total expenditure), which pays for and sustains wasteful public enterprises, that offer little revenue for their continuous funding.
In today’s world, this system of operation is not only appalling but also anti progressive for all its good intentions. Creating a budget that finances sectors like power, rail or solid minerals etc., all controlled by inefficient government enterprises, is what leads to consistent underdevelopment and corruption, because funds in the hands of an inefficient enterprises, would only lead to inefficient results, or no results at all.
This present Nigerian system of operation has led to less budget funds for core government involving areas like education, security and healthcare, due to its huge investing in bottomless pits known as government enterprises. And so in the next section I would try to recommend a philosophically pragmatic system called Nigerian capitalism, which defines the role of the market and that of government in an economy, and a system which has shown itself to been functional and successful in Nigeria, despite the overall inefficient presently operated system.
NIGERIAN CAPITALISM- INTRODUCTION
As discussed in the earlier section, the Nigerian Economy binds a stressed corporate and individual enterprise sector and a comfortable government and pro civil service sector, into what is remarkably called a mixed economy. The problem with this mixed economy in practice, is that it has not, is not and will not be sustainable in a world economy, heavily based on a liberal order (market based model). What Nigeria lacks and needs is a philosophically pragmatic system, which allows the individual and corporate enterprise sector to drive the political economic vehicle, while government sticks to sustainable business regulation and enforcing rule of law, which in turn would lead to the country fulfilling its true promise of being the giant of the African continent. When you look at the map of the African continent, it looks very much like a loaded gun, which when triggered would fulfill its promise. That trigger is Nigeria, literally and figuratively, if its economic system is based on practical workable measures, and not intuitive ones, inevitably the African continent, would reach its growth potential. That practical and workable system is what I call Nigerian Capitalism, and in the next section I aim to make a case for this system.
WHAT IS NIGERIAN CAPITALISM AND WHY IS IT A SYSTEM MEANT FOR NIGERIA
In simple terms what I define as Nigerian Capitalism is a system where individuals and corporate enterprises meet the demands of their customers, and in the process of meeting that demand, create an environment of profit generation and constant job creation both directly and indirectly, thereby creating consistent and sustainable development. Nigerian capitalism is a system where government focuses on it strength which is mainly enterprise regulation, and enforcing the rule of law. In Nigeria there is a written consensus centered in its constitution, that vests the government and its state enterprises, which are naturally ineffective economic players, to be the drivers of the economy and driver of the economy is role the government can’t perform in practices.
Contrary to the public view, the concepts of growth, development and unemployment are problems that the market (i.e. individual and corporate enterprises) can solve better. Unemployment is indirectly proportional to the productivity of an economy, and that productivity is driven by the market, and not the government. The task of job creation is achieved in a wide and deep manner, when the market finds it easy to operate in a well-protected and regulated environment. A system that tasks the government to be the driver of the economy only ends up with more corruption, more unemployment and a lot of inefficiencies. I believe the constant lingering problem of corruption in Nigeria is heavily due to a what I call a civil service mentality, which allows government to raise revenue to fund a budget that pays for the sustenance of state enterprises and its civil servants, which yield little in returns. One has to understand that a policy of funding state enterprises and not a policy of proper economic liberalization and privatization, is just a policy of consistent corruption.
Take the telecommunication sector in Nigeria. Over a period of 50 years the driver of the sector was Nigerian Telecommunication Limited(NITEL), a government owned enterprise, which evidently but not surprisingly failed woefully in providing reasonable telecommunication service delivery to the Nigerian public. In 2001, under the administration of President Olusegun Obasanjo, a pragmatic decision was made to liberalize and open the telecommunication sector to private enterprises, which lead to the emergence of big players like MTN, Globacom Airtel, Etisalat, and smaller players like Smile and Spectranet among others. So far in the 16 years of this policy change, communication and service delivery are very easy and taken for granted, jobs direct and indirect are evident, and with the internet, other sectors such as media and entertainment have been put on the world radar, and the business of regulation is effectively handled by the Nigerian Communication Commission. This what I call Nigerian Capitalism, a system that binds the productive and competitive nature of the private sector, with the reasonably regulatory and oversight nature of the government. This is what should be the philosophically pragmatic system that should be the model of all affairs and at all levels of economics in Nigeria.
It’s a well-known fact, that at the top of a list enterprises in Nigeria are private banks, private telecommunication companies, private stores, private fast food companies, private cement companies, private oil companies, private manufacturing companies, private farms, private television stations, private newspaper companies etc., at bottom of that same list are government river basin development authorities, government run steel mills, government run railway corporations, government run broadcasting authorities, government run coal and mining enterprises, both at the federal, state and local levels of government. No one can make the case for private companies’ vs government enterprises, whether its Globacom vs NITEL, Channels TV Vs NTA or NNPC Vs Chevron, as the difference is clear both in delivery and quality of service. To be fair credit has to be given to Nigerian regulatory agencies such as the CBN, NAFDAC, NCC, NBC, among others who have performed the role of keeping the private sector in check, so that the Nigerian consumer is better served. The role of regulation is a government’s most effective means of participating in the economy, and so far these regulators have been effective.
Take a closer look at key sectors like power and rail in Nigeria, and you find out that the reason they are so inefficient is because of the inefficient productive role played by government instead of solely a regulator one. Power has three key areas generation, transmission and distribution, and at the moment generation and distribution are slowly being privatized, but with transmission being heavily government controlled, it’s hard to see how sustainable power can be achieved in Nigeria, and in simple terms government should step aside. The rail sector is another remarkably inefficient government run sector, the Nigerian Railway Company is funded year in and out, for practically doing nothing to justify it’s consistent funding, that generates consistent inefficiencies and corruption. The railway industry in the U.S.A was majorly built by the private sector in the 19tH century, and in the 21st century the government of Nigeria can’t accept its productive limitation and liberalize the sector.
The Nigeria people in my view are purely capitalist and market oriented by nature, and this is evident by the performance of Nigerians abroad, as well as the resilience of Nigerians to wait for no one. In a country where government can’t provide basic amenities like adequate water or power supply, education and healthcare services, the average Nigerian is pulling his individual weight to provide these services through the creation of private firms. In all this the government has abdicated its role of creating a policy and regulatory framework, to stimulate individual and corporate enterprise, for a role of blocking the productive and capitalist nature of the average Nigerian. Under the Nigerian Capitalist system, the role of government is explicitly stated, and I believe this role focus would limit the consistent problems of poor governance and corruption; that has constantly faces the Nigerian population and economy.
CBN-Central Bank of Nigeria, NAFDAC-National Agency for Food and Drug Administration and Control, NBC-Nigerian Broadcasting Commission, NCC-Nigerian Communications Commission, NITEL-Nigerian Telecommunications, NNPC- Nigerian National Petroleum Corporation NTA-Nigerian Television Authority, U.S.A- United States of America.
HOW NIGERIAN CAPITALISM CAN BE A PRACTICAL REMEDY TO THE PROBLEM OF CORRUPTION IN NIGERIA
Earlier I said that in Nigeria corruption is created easily, by the present system of economic operation, and I would like to elaborate in detail what I mean and how the concept of Nigerian capitalism solves that problem. Firstly, I would like to debunk the view that Nigerians are corrupt, and replace that view with the view of that economic system of operation in Nigeria easily creates corrupt individuals. The individual and corporate enterprises hardly have any corrupt or scandalous incidents, and they are hugely affiliated with all things Nigerian. This is because private enterprises are built on a profit based model, and that serves as an incentive for low tolerance for corruption and illicit behaviors. Audits and constant monitoring of all areas of operation are stitched into the fabric of private enterprises, not as a moral obligation necessarily, but as a means to meet the ends of profit generation. Corruption is easy and prevalent in government agencies, simply because those agencies are handling tasks, meant for the private enterprises. Production and proper services delivery are better provided by private enterprises because of their flexibility and inbuilt feature of profit making, Government agencies and the civil service aren’t modelled with profit making features, when government agencies are allowed to participate majorly in the productive aspect of the economy and are constantly being funded for tasks they simply cannot achieve, what is inevitable is corruption, unemployment, poor infrastructure, recession and inefficiencies.
A system with entrenched laws that support economic liberalization, would allow a for more private enterprises, who lead to more jobs, development and growth. A Nigerian capitalist system would mean our budget would be focused on funding social amenities, healthcare, education and civil security, and not state owned public enterprises, that don’t yield any return for their continuous bailouts. A Nigerian capitalist system would have little or no prevalent corruption because there would be no public enterprises to fund in the first place, and the loopholes for corrupt acts would be also nonexistent. A Nigerian capitalist system would leave Nigeria dynamic, competitive and efficient, with a low tolerance for corruption, a Nigerian capitalist system solves the root cause of the Nigerian economic dilemma, and not the proximate cause like focusing only on arresting and jailing easily created corrupt government officials.
THE ROLE OF GOVERNMENT IN THE NIGERIAN CAPITALIST SYSTEM
If it’s accepted that government has no business doing business, what then is and should be the role of government in Nigeria. Government’s role in any capitalist system is quite straight forward, and that is simply to handle areas of the economy, that cannot be handled perfectly by the market. Government should focus on collecting taxes and using its revenue to focus on the following areas:
· Law and Order.
· Social services (education, healthcare, etc.).
· Population census.
· Custom services.
· The military.
· The police.
· The intelligence and anti-crime agencies.
· Emergency services (i.e. fire and rescue services).
· Foreign affairs.
· The environment.
· Research and development.
· Infrastructure development (under a strictly public-private partnership agreement).
I am afraid that any government involvement in areas beyond the ones listed above would continuously leave Nigeria’s economy in a redundant state. A country needs the legal and regulatory structure to be well-funded, so the market can operate fairly. A country needs education and healthcare sectors to be well funded with as much as 50% of its budget, to make sure that it’s people can think, create, innovate and be healthy enough to tackle the challenges that come its way. A country needs to heavily fund its security, defense and intelligence agencies, to protect the interest, lives and properties of everyone and not just a selected few. A country needs a well-funded foreign affairs ministry; that would advertise to outside investors, that Nigeria is the place to invest their funds. A country needs a properly funded population census agency, so it can plan and manage what it has, based on the population it has documented.
What a country doesn’t need is to collect taxable revenue and borrowed funds, to bailout inefficient government owned enterprises, that can’t generate profits, meet consumer needs, and provide proper services delivery. What a country doesn’t need is a poorly secure, poorly educated, poorly healthy population, created due to the government‘s interference in the productive areas of the economy, which is the responsibility if the market. In the next section I would clearly explain what that market is and its impact on the Nigerian economy so far.
THE ROLE OF THE MARKET IN THE NIGERIAN CAPITALIST SYSTEM
The market is simply an individual or group of individuals, who go about their business of creating, producing or distributing, goods, content, capital or services, to other individuals or group of individuals who need them. A good picture of what the market looks like, is your typical food market, in which you have a collection of buyers and sellers. The sellers’ look for what the buyers lack and need, and then invests time, effort and capital to meeting that buyers need, which in turn leads to him being paid for the value created. In a more real life sense, you have Globacom, observing the need for cellular and internet services in Nigeria, providing that service to the consumer in a well and timely manner, and in the end getting paid for the value provided to the consumer.
In a typical market, there is a huge appetite for risk, by various sellers, who create for, produce for and adapt to the taste and needs of the buyer. The inability of a buyer to create, produce, and adapt to the taste and needs of the buyer, would lead to the eventual end of the business of the seller in a market place. Thus the market is a dynamic, flexible and efficient medium that serves man better than any other medium.
Government and public enterprises are not equipped to withstand the furnace of the market, there risk appetite is inert, and their profit generating mechanism is either inefficient in the short-term, or unsustainable in the long-term. They are neither dynamic, flexible or efficient in the creation, production and adaptation of the constant changing taste and needs of the consumer, these characteristics are seen in every sector of the Nigerian economy with heavy government influence, among all levels (i.e. Rail, Power, would minerals etc.). Government best serves the economy, when it cracks down on the excesses of the market, which makes their operations unfair to the consumer, and that is done through laws, regulation and oversight that enables a better working operation for the market.
To understand the full direct and indirect impact of the market in Nigeria, look no further than the telecommunication sector. This sector is one of the most heavily liberalized and market based sector in the country, and last year alone contributed 1.663 billion naira alone to the Gross domestic product of the economy, that figure is also an 8.9% growth rate from the previous year, and that growth rate is twice the growth rate of the whole economy combined. It is this sector and its performance so far in the last 15plus years, that epitomizes the Nigerian capitalist system, it combines the dynamic, flexible and efficient attributes of private capital players like MTN, Globacom, Airtel, Etisalat, Smile etc., with the effective regulatory player the NCC. With the private players providing internet and cellular networks, meeting consumer taste and service needs in a well and timely manner, while the regulatory player makes sure that the law and fairness is being maintained in the sector. This combination of private firms handling production and customer satisfaction, and government agencies focused in regulation, has led to an explosion of growth, accessibility and communication Nigerian, this similar combination is also evident in the banking and entertainment sectors which are also high growth sectors, heavily and maybe unknowingly operating based on what I call the system of Nigerian capitalism.
Compared to the previous system, heavily based on the government run enterprise called NITEL, the present system has provided huge improvement directly and indirectly to the lives and living standards of most of the Nigerian public. Left to NITEL, which operated as the only telecommunication provider in Nigeria for close to 50 years before the liberalization of the telecommunications sector which occurred 15 years ago, it’s hard to see how progress would have been made. These days it’s easy to underestimate the impact of the private enterprises in the telecommunication sector, it’s easy to underestimate that without them, cellular and internet services would be a luxury which only a few could enjoy, and without those services there would have been no incentive for smartphones, no websites like Nairaland, Linda ikeji, Konga or Jumia, would have been created, no social media platforms such as Facebook, Twitter and WhatsApp would be available to Nigerians, no internet banking, pos or online payments, no music or video streaming, or video conferencing, and certainly no access to a wide variety of research and scientific material. It’s easy to underestimate the intangible and indirect impact of the developments that have come to place, due to the combination of a private and government pro capitalist setup, which I define as Nigerian capitalism. This leaves to the imagination, what can become of Nigeria if other key sectors like power or rail, among other important sectors are operated in the Nigerian capitalist dynamic.
It is evidently clear that our present system of economics in Nigeria, can’t withstand the forces that define the global economy as a June 2014, slum in oil prices from over $100 per barrel oil to its present price of about $47 has seen the economy fall into a recession. But with a constant adoption of this present system of oil dependency and government economic involvement, the worst is yet to come. A combination of first the shale boom, and the not so distant clean energy boom, is sure to dispel any recovery of the present state of economics in Nigeria. But there is a practical and sustainable alternative to this dilemma, and its application would depend largely from the adoption not just by government policy makers but most especially from the intellectual players and population at large.
The American Economist Milton Friedman once said “Only a crisis actual or perceived; produces real change. When that crisis occurs the actions that are taken depend on the ideas that are lying around. That I believe is our basic function, which is to develop alternatives to existing polices, and to keep them alive and available, until the politically impossible becomes the politically inevitable”.
The crisis we face is an actual and possibly, long-term one; but one I believe a system based on “Nigerian Capitalism” is a practical approach to delivering on job creation, inclusive economic growth and sustainable prosperity. Now is the time we as Nigerians must discard what doesn’t work, and embrace what works.
About the Author
Franklin Ebomah is the Managing Partner at Franelta&Basbra Data Limited, a data and analytics startup, which focuses on enabling proper decision making in the areas of economics, finance, business and public policy in Nigeria. In this contribution, he aims to set out the guiding principle the sovereign needs to sustainably change the tide of economic thinking in the Nigeria. He can be reached vide firstname.lastname@example.org